10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended May 1, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from           to

Commission file number 000-21250

The Gymboree Corporation

(Exact name of registrant as specified in its charter)

Delaware	94-2615258
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
700 Airport Boulevard, Suite 200, Burlingame, California (Address of principal executive offices)	94010-1912 (Zip code)

(650) 579-0600

Registrant’s telephone number, including area code

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

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

          As of May 29, 2004, 30,587,466 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

Part I Financial Information
	Item 1.	Financial Statements	2
		Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Income	3
		Condensed Consolidated Statements of Cash Flows	4
		Notes to Condensed Consolidated Financial Statements	5
		Report of Independent Registered Accounting Firm	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
	Item 4.	Controls and Procedures	14
Part II Other Information
	Item 1.	Legal Proceedings	14
	Item 6.	Exhibits and Reports on Form 8-K	14
Signatures			15
Exhibit Index
EXHIBIT 10.57
EXHIBIT 15
EXHIBIT 18
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

			May 1,			January 31,			May 3,
			2004			2004			2003
			(Unaudited)
			(In thousands, except share data)
ASSETS
Current Assets
	Cash and cash equivalents		$	110,206		$	89,553		$	60,133
	Accounts receivable			8,716			11,456			7,610
	Merchandise inventories			67,927			73,017			50,504
	Prepaid expenses and deferred taxes			10,399			5,564			11,537
		Total current assets		197,248			179,590			129,784
Property and Equipment
	Land and buildings			10,376			10,375			10,371
	Leasehold improvements			116,683			108,743			93,796
	Furniture, fixtures and equipment			145,472			139,974			130,523
				272,531			259,092			234,690
	Less accumulated depreciation and amortization			(150,707	)		(146,349	)		(129,957	)
				121,824			112,743			104,733
Lease Rights, Deferred Taxes and Other Assets				7,712			6,378			6,767
	Total Assets		$	326,784		$	298,711		$	241,284
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Accounts payable		$	36,193		$	33,356		$	10,252
	Income tax payable			11,033			7,839			11,759
	Accrued liabilities			35,571			27,124			20,703
		Total current liabilities		82,797			68,319			42,714
Long-Term Liabilities
	Deferred rent and other liabilities			26,808			26,644			20,734
	Total Liabilities			109,605			94,963			63,448
Stockholders’ Equity
	Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized, 30,585,870, 30,203,149 and 29,399,728 shares outstanding at May 1, 2004, January 31, 2004 and May 3, 2003, respectively)			62,207			58,460			51,220
	Retained earnings			155,484			145,805			127,361
	Accumulated other comprehensive loss			(512	)		(517	)		(745	)
		Total stockholders’ equity		217,179			203,748			177,836
	Total Liabilities and Stockholders’ Equity		$	326,784		$	298,711		$	241,284

See notes to condensed consolidated financial statements.

2

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

			13 Weeks Ended
			May 1,			May 3,
			2004			2003
			(Unaudited)
			(In thousands, except per
			share data)
Net sales:
	Retail		$	151,381		$	136,082
	Play & Music			2,667			3,373
		Total net sales		154,048			139,455
Cost of goods sold, including buying and occupancy expenses				(88,268	)		(80,634	)
		Gross profit		65,780			58,821
Selling, general and administrative expenses				(52,700	)		(46,926	)
	Operating income			13,080			11,895
Other income (expense), net				230			(89	)
	Income before income taxes and cumulative effect of change in accounting principle			13,310			11,806
Income tax expense				(4,858	)		(4,545	)
	Income before cumulative effect of change in accounting principle			8,452			7,261
Cumulative effect of change in accounting principle, net of income tax				1,227			—
	Net income		$	9,679		$	7,261
Basic per share amounts:
Income before cumulative effect of change in accounting principle			$	0.28		$	0.25
Cumulative effect of change in accounting principle, net of income tax				0.04			—
Net income			$	0.32		$	0.25
Diluted per share amounts:
Income before cumulative effect of change in accounting principle			$	0.27		$	0.24
Cumulative effect of change in accounting principle, net of income tax				0.04			—
Net income			$	0.31		$	0.24
Weighted average shares outstanding:
	Basic			30,476			29,314
	Diluted			31,348			30,609

See notes to condensed consolidated financial statements.

3

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				13 Weeks Ended
				May 1,			May 3,
				2004			2003
				(Unaudited)
				(In thousands)
Cash Flows from Operating Activities:
Net income				$	9,679		$	7,261
Adjustments to reconcile net income to net cash provided by operating activities:
	Cumulative effect of change in accounting principle, net of income tax				(1,227	)		—
	Depreciation and amortization				7,001			6,697
	Deferred income tax provision				(68	)		(123	)
	(Gain) Loss on disposal of property and equipment				(228	)		35
	Asset write-off				133			—
	Tax benefit from exercise of stock options				1,935			385
	Change in assets and liabilities:
		Accounts receivable			3,027			(82	)
		Merchandise inventories			7,256			12,344
		Prepaid expenses and other assets			(6,178	)		(342	)
		Accounts payable			2,887			(16,944	)
		Income tax payable			2,484			(986	)
		Accrued liabilities			8,551			(4,056	)
		Deferred liabilities and other liabilities			187			(196	)
			Net cash provided by operating activities		35,439			3,993
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures					(16,607	)		(5,283	)
Proceeds from sale of assets					107			268
	Net cash used in investing activities				(16,500	)		(5,015	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock					1,812			749
	Net cash provided by financing activities				1,812			749
Effect of exchange rate fluctuations on cash					(98	)		(222	)
Net Increase (Decrease) in Cash and Cash Equivalents					20,653			(495	)
CASH AND CASH EQUIVALENTS:
Beginning of Period					89,553			60,628
End of Period				$	110,206		$	60,133

See notes to condensed consolidated financial statements.

4

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

      The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation and its subsidiaries, all of which are wholly owned (“the Company”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004.

      The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results of operations, the financial position and cash flows for the periods presented. All such adjustments are of a normal and recurring nature.

      The results of operations for the thirteen weeks ended May 1, 2004 are not necessarily indicative of the operating results that may be expected for the fiscal year ending January 29, 2005.

2. Change in Accounting Principle

      Effective February 1, 2004, the Company elected to change its accounting method for inventory valuation from the retail method to the lower of cost or market method, determined on a weighted average basis (the “cost method”). The Company believes the cost method is a preferable method for matching the cost of merchandise with the revenues generated. The cumulative effect of this accounting change in the quarter ended May 1, 2004 was income of $1.2 million, or $0.04 per diluted share, net of income taxes. It is not possible to determine the effect of this change on any previously reported fiscal periods or on fiscal 2004.

3. Stock Based Compensation

      The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Had the Company recorded compensation expense for its stock option plans and purchase plan based on the fair value method consistent with the method of Statement of Financial Accounting Standards

5

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

(“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, net income and net income per share would have been as follows:

		13 Weeks Ended
		May 1,			May 3,
		2004			2003
		(In thousands, except
		per share data)
Net income, as reported		$	9,679		$	7,261
Deduct: Total stock-based employee compensation expense determined under fair value based method, for awards granted or settled, net of related tax effects			(1,141	)		(761	)
	Pro forma net income	$	8,538		$	6,500
Basic income per share
	As reported	$	0.32		$	0.25
	Pro forma		0.28			0.22
Diluted income per share
	As reported	$	0.31		$	0.24
	Pro forma		0.27			0.21

      The fair value of option grants and shares issued under stock option plans and the purchase plan are estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Periods Ended
	May 1,			May 3,
	2004			2003
Expected dividend rate		0	%		0	%
Expected volatility		50.0	%		59.0	%
Risk-free interest rate		2.5	%		2.8	%
Expected lives (yrs.)		4.0			4.0

4. Net Income Per Share

      Basic net income per share is calculated by dividing net income for the period by the weighted average common shares outstanding for that period. Diluted net income per share includes the effects of dilutive instruments, such as stock options, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. The following summarizes the incremental shares from these potentially dilutive securities, calculated using the treasury stock method.

	13 Weeks Ended
	May 1,		May 3,
	2004		2003
	(In thousands)
Weighted average number of shares — basic		30,476		29,314
Add: effect of dilutive securities		872		1,295
Weighted average number of shares — diluted		31,348		30,609

6

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

      Anti-dilutive options to purchase 1,558,897 and 1,662,996 shares of common stock were excluded from the above computations of weighted average shares for the 13 weeks ended May 1, 2004 and May 3, 2003, respectively.

5. Comprehensive Income

      Comprehensive income, which includes net income, foreign currency translation adjustments and fluctuations in the fair market value of certain derivative financial instruments, is as follows:

		13 Weeks Ended
		May 1,		May 3,
		2004		2003
		(In thousands)
Net income		$	9,679	$	7,261
Other comprehensive income			5		23
	Total comprehensive income	$	9,684	$	7,284

6. Segments

      The Company operates two reportable segments, retail stores and Play & Music. Corporate overhead and income taxes are included in the retail stores segment. The following table provides the summary financial data of each reportable segment (in thousands).

	13 Weeks Ended May 1, 2004
	Retail
	Stores	Play & Music		Total
Net sales	$151,381	$	2,667	$154,048
Depreciation and amortization	6,877		124	7,001
Operating income	12,760		320	13,080
Total assets	321,215		5,569	326,784
Capital expenditures	16,563		44	16,607

	13 Weeks Ended May 3, 2003
	Retail
	Stores	Play & Music		Total
Net sales	$136,082	$	3,373	$139,455
Depreciation and amortization	6,526		171	6,697
Operating income	11,342		553	11,895
Total assets	233,650		7,634	241,284
Capital expenditures	5,241		42	5,283

      Net retail sales from international subsidiaries amounted to $12.6 million and $12.1 million in the first quarter of 2004 and 2003, respectively. Long-lived assets held by international subsidiaries amounted to $7.1 million and $6.8 million as of May 1, 2004 and May 3, 2003, respectively.

7. Co-Branded Credit Card

      In late 2003, the Company entered into co-branded credit card agreements (the “Agreements”) with a third-party bank (“the Bank”) and Visa U.S.A. Inc. for the issuance of a Visa credit card bearing the Gymboree brand and administration of an associated incentive program for cardholders. The program, which

7

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

was launched in April 2004, offers incentives to cardholders, including a 5% discount on in-store purchases using the Gymboree Visa card and annual rewards in the form of a Gymboree gift certificate or gift card equal to 1% of total non-Gymboree purchases. The Bank is the sole owner of the accounts issued under the program and will absorb all losses associated with non-payment by the cardholder and any fraudulent usage of the accounts by third parties. The Company is responsible for redeeming the incentives, including the issuance of any gift certificates or gift cards. The Bank will pay fees to the Company based on the number of credit card accounts opened and card usage and will make certain guaranteed minimum annual payments. Visa U.S.A. Inc. will also pay fees to the Company based on card usage. Cardholder incentives will be funded from the fees paid by the Bank to the Company. As of May 1, 2004 and as of January 31, 2004, the Company has received $6.0 million in advance payments under these Agreements, which are included in other long-term liabilities in the respective consolidated balance sheet. The Company will recognize revenues related to these agreements as follows:

•  New account fees will be recognized as other revenues on a straight-line basis over the estimated life of the customer relationship, currently estimated to be 3 years.

•  Credit card usage fees will be recognized as other revenues as actual usage occurs.

•  Minimum guaranteed annual payments which exceed amounts earned based on the number of accounts opened and card usage, will be recognized as other revenues on a straight-line basis over the estimated life of the customer relationship, currently estimated to be 3 years.

•  Annual rewards earned will be shown as gift certificate liabilities and recognized as retail revenues when the gift certificates are redeemed.

8. March 2004 Corporate Office Lease

      In March 2004, the Company signed a lease agreement for a new corporate office building in San Francisco, California. The lease, which expires on April 14, 2018, requires base rent payments of approximately $4.7 million annually, subject to market value adjustments after 11 years. The lease requires the Company to provide a $2.4 million standby letter of credit, which may be reduced on each anniversary of the lease commencement. As part of the agreement, the Company’s new landlord will assume the Company’s lease obligations for its Burlingame, California headquarters through the 2006 expiration of such lease. When the Company ceases to use the Burlingame headquarters, which is expected in the fourth quarter of 2004, it will record a non-cash charge that cannot yet be estimated. At the same time, the same amount will be recorded as a deferred lease incentive from the new landlord, which will be amortized over the life of the new lease as a reduction of rent expense.

8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of The Gymboree Corporation:

      We have reviewed the accompanying condensed consolidated balance sheets of The Gymboree Corporation and subsidiaries (the “Company”) as of May 1, 2004 and May 3, 2003, and the related condensed consolidated statements of income and cash flows for the three-month periods then ended. These condensed consolidated financial statements are the responsibility of the Company’s management.

      We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

      Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 2 to the condensed consolidated financial statements, effective February 1, 2004, the Company changed its accounting method for inventory valuation from the retail method to the lower of cost or market method, determined on a weighted average basis.

      We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation as of January 31, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated April 14, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

San Francisco, California

June 9, 2004

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

      The following discussion and analysis should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The discussion in this report contains forward-looking statements that involve risks and uncertainties, including statements regarding planned capital expenditures, planned store openings, expansions and renovations, systems infrastructure development, future cash generated from operations and future cash needs. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and our actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, customer reactions to new merchandise, concepts and marketing activity, gross margin achievement, our ability to manage inventory levels appropriately, general economic conditions, success in meeting delivery targets, competitive market conditions, trade restrictions, instability in countries where our merchandise is manufactured and the other factors described in this document. When used in this document, the words “believes,” “expects,” “estimates,” “anticipates” and similar expressions are intended to identify certain of these forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. We do not intend to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report, in our Annual Report on Form 10-K for fiscal year 2003 and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

General

      The Gymboree Corporation is an international specialty retailer operating stores selling high quality apparel and accessories, as well as play programs for women and children under the GYMBOREE®, JANIE AND JACK®, JANEVILLE^TM and GYMBOREE PLAY & MUSIC® brands. As of May 1, 2004, the Company conducted its business through four primary divisions: Gymboree, Janie and Jack, Janeville and Gymboree Play & Music. As of May 1, 2004, we had 633 stores, including 583 stores in the United States (including 40 Janie and Jack shops and 3 Janeville stores), 28 stores in Canada and 22 stores in Europe. The Company also operates two on-line stores at www.gymboree.com and www.janieandjack.com.

      Our plan for fiscal 2004 is to continue to grow our store base for both Gymboree and Janie and Jack, opening approximately 20 and 25 stores respectively. We will also continue to invest in Gymboree retail stores, upgrading our fixture and merchandise display systems to better and more consistently display our products. In the first quarter of 2004, we launched our newest retail concept, Janeville, with 3 stores and the goal of opening a total of 14 new stores by the end of the year. We also launched our co-branded Gymboree Visa card with a compelling rewards program for our customers.

Results of Operations

Thirteen Weeks Ended May 1, 2004 Compared to Thirteen Weeks Ended May 3, 2003

Net Sales

      Net retail sales in the first quarter of 2004 increased to $151.4 million from $136.1 million in the same period last year, an increase of $15.3 million or 11.2%. Comparable store sales increased 6% or $8.8 million over the same 13-week period last year. This increase was primarily due to an increase in the number of transactions resulting from higher traffic levels and a higher conversion rate. Product performance was strong in the first quarter of 2004 due to positive customer reaction to our baby girl and kid girl product lines, as well as the rebalance of fashion and basics in our baby boy and kid boy departments. Non-comparable store sales

10

increased $7.6 million due to net store and square footage growth of 44 stores and 97,000 square feet, respectively. This increase was offset by a decrease of $0.8 million in sales to off-price retailers, which vary based on the availability of merchandise. The number of stores open at the end of the quarter was 633 compared to 589 as of the end of the same period last year.

      Play & Music net sales in the first quarter of 2004 decreased to $2.7 million from $3.4 million in the same period last year, a decrease of $0.7 million or 20.6%. The decrease was primarily due to a decrease in new franchise sales and royalties from existing franchisees, as well as the closure of 9 corporate owned sites as part of our ongoing restructuring of the Play & Music business.

Gross Profit

      Gross profit for the first quarter of 2004 increased to $65.8 million from $58.8 million in the same period last year. As a percentage of net sales, gross profit increased 0.5 percentage points to 42.7% in the first quarter of 2004 from 42.2% in the same period last year. Our gross margins were positively impacted by markdown optimization, whereby markdowns are targeted to maximize SKU level sales and margins, as well as occupancy leverage related to our comparable store sales increase. This effect was offset by increased buying costs related to our new concepts, Janie and Jack and Janeville. Gross profit in 2004 was calculated using the cost method compared to the retail method in 2003. The impact of this change cannot be determined.

Selling, General and Administrative Expenses

      Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $52.7 million in the first quarter of 2004 from $46.9 million in the same period last year. As a percentage of net sales, SG&A expenses increased 0.6 percentage points to 34.2% in the first quarter of 2004 from 33.6% in the same period last year. The increase in SG&A was primarily due to higher corporate expenses related to marketing, incentive compensation and benefits. Marketing expenses increased as a result of more extensive in-store marketing campaigns, an increase in web marketing and the launch of Janeville. Incentive compensation and benefits increased primarily due to increased headcount and medical insurance premiums.

Other income (expense), net

      Other income increased to $230,000 in the first quarter of 2004 from a loss of $89,000 in the same period last year primarily due to foreign exchange gains. These gains resulted from foreign currency fluctuations on inter-company transactions between our United States operations and foreign subsidiaries. The amount of foreign exchange gains or losses is dependent on both monthly currency fluctuations and balances held in those associated currencies.

Income Taxes

      Our effective tax rate for the first quarter of 2004 and 2003 was 36.5% and 38.5%, respectively. Our estimated annual 2004 effective tax rate was reduced to 36.5%, as we expect to benefit from higher tax-free interest income and other permanent deductions.

Seasonality

      Our business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations have historically been highest during the fourth fiscal quarter, somewhat lower during the first and third fiscal quarters and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year.

11

Financial Condition

Liquidity and Capital Resources

      Net cash provided by operating activities for the thirteen weeks ended May 1, 2004 was $35.4 million compared to $4.0 million provided by operating activities in the same period last year. This increase was primarily due to changes in working capital items, including an increase in accounts payable and accrued liabilities of $24.3 million.

      Net cash used in investing activities for the thirteen weeks ended May 1, 2004 was $16.5 million and consisted primarily of capital expenditures for the opening of 16 new stores, relocation and/or expansion of 6 existing stores, expenditures related to store openings and relocations currently in progress, and information technology improvements. The Company estimates that capital expenditures, net of allowances, will be approximately $45 million during 2004, and will primarily be used to relocate 15 Gymboree stores, re-brand 200 Gymboree stores, open 20 new Gymboree stores, 25 new Janie and Jack shops and 14 new Janeville stores ($28 million for all stores), build-out our new corporate headquarters ($8 million) and continue the systems infrastructure replacement ($9 million).

      Cash provided by financing activities for the thirteen weeks ended May 1, 2004 totaled $1.8 million compared to $749,000 in the same period last year. This increase was due to an increase in proceeds from stock option exercises.

      Cash and cash equivalents were $110.2 million at May 1, 2004, an increase of $20.7 million from January 31, 2004. Working capital as of May 1, 2004 was $114.5 million compared to $111.3 million as of January 31, 2004.

      The Company has an unsecured revolving credit facility for borrowings of up to $60 million. This credit facility has a three-year term and may, at the option of the Company, be increased to $70 million at any time during the first two years of the term. This credit facility may be used for working capital and capital expenditure needs, as well as the issuance of documentary and standby letters of credit. As of May 1, 2004, $34.5 million of documentary and standby letters of credit were outstanding.

      In late 2003, the Company entered into co-branded credit card agreements (the “Agreements”) with a third-party bank (“the Bank”) and Visa U.S.A. Inc. for the issuance of a Visa credit card bearing the Gymboree brand and administration of an associated incentive program for cardholders. The program, which was launched in April 2004, offers incentives to cardholders, including a 5% discount on in-store purchases using the Gymboree Visa card and annual rewards in the form of a Gymboree gift certificate or gift card equal to 1% of total non-Gymboree purchases. The Bank is the sole owner of the accounts issued under the program and will absorb all losses associated with non-payment by the cardholder and any fraudulent usage of the accounts by third parties. The Company is responsible for redeeming the incentives, including the issuance of any gift certificates or gift cards. The Bank will pay fees to the Company based on the number of credit card accounts opened and card usage and will make certain guaranteed minimum annual payments. Visa U.S.A. Inc. will also pay fees to the Company based on card usage. Cardholder incentives will be funded from the fees paid by the Bank to the Company. As of May 1, 2004 and as of January 31, 2004, the Company has received $6.0 million in advance payments under these Agreements, which are included in other long-term liabilities in the respective consolidated balance sheet. The Company will recognize revenues related to these agreements as follows:

•  New account fees will be recognized as other revenues on a straight-line basis over the estimated life of the customer relationship, currently estimated to be 3 years.

•  Credit card usage fees will be recognized as other revenues as actual usage occurs.

•  Minimum guaranteed annual payments which exceed amounts earned based on the number of accounts opened and card usage, will be recognized as other revenues on a straight-line basis over the estimated life of the customer relationship, currently estimated to be 3 years.

12

•  Annual rewards earned will be shown as gift certificate liabilities and recognized as retail revenues when the gift certificates are redeemed.

      In March 2004, the Company signed a lease agreement for a new corporate office building in San Francisco, California. The lease, which expires on April 14, 2018, requires base rent payments of approximately $4.7 million annually, subject to market value adjustments after 11 years. The lease requires the Company to provide a $2.4 million standby letter of credit, which may be reduced on each anniversary of the lease commencement. As part of the agreement, the Company’s new landlord will assume the Company’s lease obligations for its Burlingame, California headquarters through the 2006 expiration of such lease. When the Company ceases to use the Burlingame headquarters, which is expected in the fourth quarter of 2004, it will record a non-cash charge that cannot yet be estimated. At the same time, the same amount will be recorded as a deferred lease incentive from the new landlord, which will be amortized over the life of the new lease as a reduction of rent expense.

      There have been no material changes to the Company’s contractual obligations since its Annual Report on Form 10-K for the year ended January 31, 2004, except for the lease obligations related to the Company’s new corporate offices described above.

      The Company no longer believes it has any potential liability in connection with the Company’s guarantees of lease agreements for Zutopia stores sold to Wet Seal in 2000. Wet Seal has announced that it has closed all Zutopia stores and that it will negotiate early lease buyouts of the Zutopia leases. The Company remains liable on lease agreements for 4 Play & Music sites sold to franchisees. However, the Company does not believe that payment by the Company of its maximum potential amount of future payments under the Play & Music lease agreements would have a material current or future effect on its liquidity or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      The Company enters into forward foreign exchange contracts to hedge certain inter-company loans and inventory purchases. The term of the forward exchange contracts is generally less than one year. The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar net cash inflow resulting from the repayment of certain inter-company loans from our foreign subsidiaries and dollar margins resulting from inventory purchases will be adversely affected by changes in exchange rates.

      The tables below summarize by major currency the notional amounts and fair values of our forward foreign exchange contracts in U.S. dollars as of May 1, 2004 and May 3, 2003.

	May 1, 2004
	Notional		Fair Value			Weighted
	Amount		Gain/(Loss)			Average Rate
	(In thousands, except weighted
	average rate data)
British pounds sterling	$	7,222	$	84		$	1.76
Canadian dollars		9,682		320			0.73
Euro		1,779		(5	)		1.20
Total	$	18,683	$	399

	May 3, 2003
	Notional		Fair Value			Weighted
	Amount		Loss			Average Rate
	(In thousands, except weighted
	average rate data)
British pounds sterling	$	15,297	$	(407	)	$	1.60
Canadian dollars		7,739		(629	)		0.70
Euro		6,015		(404	)		1.15
Total	$	29,051	$	(1,440	)

13

Item 4. Controls and Procedures

      We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, and has determined that such disclosure controls and procedures are effective.

      We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). No changes in our internal control over financial reporting occurred during the quarter ended May 1, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

      The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the results in any of these legal proceedings, either individually or in the aggregate, would have a material adverse effect on our financial position, results of operations or cash flow.

Item 6. Exhibits and Reports on Form 8-K

      (a) Exhibits

10	.57	Sublease Agreement for 500 Howard, San Francisco, CA.
15		Letter re: Unaudited Interim Financial Information
18		Letter re: Change in Accounting Principle
31	.1	Certification of Lisa Harper Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31	.2	Certification of Myles McCormick Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32	.1	Certification of Lisa Harper Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification of Myles McCormick Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

      (b) Reports on Form 8-K

      On February 5, 2004, we furnished a current report on Form 8-K pursuant to Items 7 and 12 in connection with a press release announcing fourth quarter and fiscal year 2003 sales.

      On March 2, 2004, we furnished a current report on Form 8-K pursuant to Items 7 and 12 in connection with a press release announcing fourth quarter and fiscal year 2003 earnings, as well as February sales.

      On April 8, 2004, we filed a current report on Form 8-K pursuant to Items 5 and 7 in connection with a press release announcing March sales and a change in accounting principle.

14

SIGNATURES

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

THE GYMBOREE CORPORATION

(Registrant)

By:  /s/ MYLES MCCORMICK

Myles McCormick

Chief Financial Officer and

Principal Financial and Accounting Officer

Date: June 9, 2004

15

EXHIBIT INDEX

Exhibit
Number			Description
	10	.57	Sublease Agreement for 500 Howard, San Francisco, CA.
	15		Letter re: Unaudited Interim Financial Information
	18		Letter re: Change in Accounting Principle
	31	.1	Certification of Lisa Harper Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Myles McCormick Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certification of Lisa Harper Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
	32	.2	Certification of Myles McCormick Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

EX-10.57

                                                                   EXHIBIT 10.57

        =================================================================

                                    SUBLEASE

                                     BETWEEN

                             SUN MICROSYSTEMS, INC.,
                             a Delaware corporation
                                  ("LANDLORD")

                                       AND

                            THE GYMBOREE CORPORATION,
                             a Delaware corporation
                                   ("TENANT")

                  500 HOWARD STREET, SAN FRANCISCO, CALIFORNIA

        =================================================================



                                TABLE OF CONTENTS



                                                                           Page
                                                                        
1.    Basic Sublease information .....................................       2
2.    Demise of Premises; Appurtenant Rights .........................       4
3.    Delivery; Possession ...........................................       4
4.    Rent ...........................................................       6
5.    Letter of Credit ...............................................      12
6.    Utilities and Services to be Furnished by Landlord .............      15
7.    Repairs and Alterations ........................................      18
8.    Access Controls ................................................      20
9.    Entry by Landlord ..............................................      20
10.   Assignment and Subletting ......................................      20
11.   Indemnity ......................................................      21
12.   Insurance ......................................................      22
13.   Casualty and Condemnation ......................................      23
14.   Events of Default ..............................................      23
15.   Rights of First Offer and Expansion Option .....................      24
16.   Holding Over ...................................................      29
17.   Notice .........................................................      30
18.   Dispute Resolution .............................................      30
19.   Parking ........................................................      32
20.   Signage ........................................................      33
21.   Lobby ..........................................................      33
22.   Building Name ..................................................      34
23.   Off Set Limit ..................................................      34
24.   Master Lease ...................................................      34
25.   Landlord Covenants and Warranties ..............................      36
26.   Master Landlord Consent and Non-Disturbance ....................      37
27.   Assignment and Assumption of Burlingame Leases .................      37
28.   Miscellaneous ..................................................      40
29.   Force Majeure ..................................................      42
30.   Entire Agreement ...............................................      42


                                        i



                                    SUBLEASE

     THIS SUBLEASE (hereinafter the "Sublease") is made and entered into as of
the 26th day of February, 2004 ("Effective Date"), by and between SUN
MICROSYSTEMS, INC., a Delaware corporation ("Landlord") and THE GYMBOREE
CORPORATION, a Delaware corporation ("Tenant").

                                    RECITALS

     This Sublease is made with reference to the following facts and objectives:

     A.   Landlord is the holder of the lessee's interest under a certain Lease
Agreement dated November 3, 2000, originally made by and between Landlord, as
lessee (therein referred to as "Tenant"), and K3 First Street Associates, LLC, a
California limited liability company, as lessor (therein referred to as
"Landlord"), as subsequently amended by Amendment No. 1 dated November 30, 2000
("First Amendment"), Second Amendment to Lease Agreement dated March 29, 2002
("Second Amendment"), Third Amendment to Lease Agreement dated July 1, 2002
("Third Amendment"), and Fourth Amendment to Lease Agreement dated February 26,
2004 ("Fourth Amendment") with respect to certain property commonly known as 500
Howard Street, San Francisco, California (the "Property"). The Lease Agreement,
First Amendment, Second Amendment, Third Amendment and Fourth Amendment are
attached hereto as EXHIBIT A and are hereinafter collectively referred to as the
"Master Lease."

     B.   K3 First Street Associates, LLC, has conveyed, transferred and
assigned all of its interest in the Master Lease to the Utah State Retirement
Investment Fund ("Master Landlord"), the current fee simple owner of the
Property.

     C.   The Master Premises under the Master Lease include office space deemed
to contain two hundred twenty-three thousand six hundred eighty-one (223,681)
square feet of Rentable Area, all as more particularly described in the Master
Lease.

     D.   Landlord, as sublessor, and Tenant, as sublessee, have entered into
this Sublease for a portion of the Master Premises consisting of Floor 2, and
Floors 5 through 10, inclusive, deemed to consist of one hundred sixty-two
thousand, three hundred seventy-one (162,371) square feet of Rentable Area,
together with rights to common areas and common facilities as more particularly
specified in this Sublease ("Sublease Premises").

     E.   The effectiveness of this Sublease is conditioned upon the
satisfaction (or where permitted, the waiver) of each of the following
conditions (individually, a "Sublease Condition" and collectively, the "Sublease
Conditions"): (1) Master Landlord's execution of the Master Landlord Consent as
defined in Section 26.1; (2) the full execution of the Lender's SNDA (if any)
specified in Section 26.2; (3) and the full execution of the Assignment and
Assumption Agreements specified in Article 27 and the satisfaction or waiver of
all conditions to the effectiveness of both of the Assignment and Assumption
Agreements.

     F.   Except as otherwise expressly defined in this Sublease, and except for
the terms "Landlord" and "Tenant," capitalized terms used herein shall have the
definitions given them in the Master Lease. Unless otherwise indicated,
references in this Sublease to "Articles" and "Sections" refer to the Articles
and Sections of this Sublease.

                                        1



     In consideration of the rents, covenants and agreements herein contained,
the parties hereto agree as follows:

1. BASIC SUBLEASE INFORMATION.

     A.   "Base Rent":




                         ANNUAL RATE               ANNUAL                 MONTHLY
     PERIOD            PER SQUARE FOOT            BASE RENT              BASE RENT
- ------------------------------------------------------------------------------------
                                                               
    Years 1-10              $29.17               $4,736,362             $394,696.83
Year 11 - 4/14/2018      Fair Market             Fair Market            Fair Market
                         Rental Rate*            Rental Rate*           Rental Rate*


               *"Fair Market Rental Rate" shall be determined as set forth in
               Section 4.2 below.

     B.   "Brokers": Jones Lang LaSalle Americas, Inc. and Cushman & Wakefield.

     C.   "Building" shall mean the building located at 500 Howard Street, San
Francisco, CA 94105, which includes both the Master Premises and the Retail
Element (as hereinafter defined).

     D.   "Business Day(s)" are Monday through Friday of each week, exclusive of
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day ("Holidays"). Landlord may designate additional Holidays, provided
that any additional Holidays are previously approved by Tenant, which approval
shall not be unreasonably withheld.

     E.   "Commencement Date": The Term shall commence on a date which is nine
(9) months after delivery to Tenant of possession of the Sublease Premises
pursuant to Section 3.1 below. On the date Tenant takes possession of the
Sublease Premises pursuant to Section 3.1, Landlord and Tenant shall execute a
Commencement Certificate in the form attached as EXHIBIT B.

     F.   "Law(s)" means all applicable statutes, codes, ordinances, orders,
rules and regulations of any municipal, state, federal or other governmental
entity.

     G.   "Letter of Credit": The Letter of Credit which Tenant is required to
deliver to Landlord, as provided in Section 5.1.

     H.   "Master Premises" means the Premises demised to Landlord under the
Master Lease.

     I.   "Normal Business Hours" for the Building are 7:00 A.M. to 6:00 P.M.,
Monday through Friday, and 9:00 A.M. to 1:00 P.M. on Saturday.

                                        2



     J.   "Notice Addresses"

          Tenant:

          On and after the Commencement Date, notices shall be sent to Tenant at
          the Sublease Premises, and to the address for copies specified below.
          Prior to the Commencement Date, notices shall be sent to Tenant at the
          following address:

                                                With a copy to:
          700 Airport Boulevard, Suite 200      Bartko, Zankel, Tarrant & Miller
          Burlingame, CA 94010                  900 Front Street, Suite 300
          Attn: Real Estate Legal               San Francisco, CA 94115
                                                Attn: Theani Louskos

          Landlord:                             With a copy to:
          Sun Microsystems, Inc.                Sun Microsystems, Inc.
          4150 Network Circle                   4150 Network Circle
          MS NWK15-103                          MS SCA-12
          Santa Clara, CA 95054                 Santa Clara, CA 95054
          Attn: Lease Administrator             Attn: Real Estate Counsel

     K.   "Payment Address": Rent (defined in Section 4.1) is payable to the
order of Landlord at the following address: SUN MICROSYSTEMS, INC., 4150 NETWORK
CIRCLE, MS NWK15-103, SANTA CLARA, CA 95054, ATTN: LEASE ADMINISTRATOR.

     L.   "Permitted Use": Any use permitted under the Master Lease and the
Master Landlord Consent.

     M.   "Property" means the Building, any and all common areas thereof,
including the Building garage and other improvements serving the Building, if
any, and the parcel(s) of land on which they are located.

     N.   "Rentable Area" of the Master Premises is deemed to be two hundred
twenty three thousand six hundred eighty-one (223,681) square feet.

     O.   "Retail Element" means that portion of the Building located on Floor 1
and devoted to retail use.

     P.   "Sublease Expense Base Year": calendar year 2005.

     Q.   "Sublease Premises" shall mean all of the Rentable Area of Floors 2,
and 5 through 10, as shown on EXHIBIT A-1 to this Sublease. The total Rentable
Area of the Sublease Premises is deemed to be one hundred sixty-two thousand
three hundred seventy-one (162,371) square feet.

     R.   "Sublease Tax Base Year": 2005-2006 fiscal tax year.

     S.   "Tenant Improvement Allowance": Seventy Dollars ($70) times the number
of square feet of Rentable Area of the Sublease Premises.

                                        3



     T.   "Tenant's Pro Rata Share": Seventy-two and fifty-nine one-hundredths
percent (72.59%), based on the proportion that the Rentable Area of the Sublease
Premises bears to the Rentable Area of the Master Premises.

     U.   "Term": The Term of this Sublease shall commence on the Commencement
Date, and, unless terminated earlier in accordance with the terms of this
Sublease, shall end on April 14, 2018 ("Expiration Date").

     V.   "Work Letter" means the Work Letter Agreement attached as EXHIBIT D to
this Sublease.

2. DEMISE OF PREMISES; APPURTENANT RIGHTS.

     2.1 Grant. Landlord leases the Sublease Premises to Tenant, and Tenant
leases the Sublease Premises from Landlord, on and subject to the terms,
covenants and conditions of this Sublease.

     2.2 Common Areas. Tenant shall have the right, during the Term of this
Sublease and as an appurtenance to the Sublease Premises, to non-exclusive use
of those portions of the Master Premises which are dedicated to the common use
of all tenants and other occupants of the Master Premises or the Property, such
as sidewalks, common corridors, elevator foyers, restrooms, vending areas and
lobby areas (the "Common Areas").

     2.3 Vertical/Horizontal Risers and Raceways. Pursuant to Section 9.4 of the
Master Lease, Master Landlord is required to provide Landlord with non-exclusive
access to the Building's vertical risers ("Risers") and horizontal raceways
("Raceways") for the installation of utility and/or telecommunications lines.
Section 9.4 of the Master Lease also calls for Master Landlord to provide
Landlord with reasonable access to the roof of the Building ("Roof") for the
purpose of installing, maintaining and replacing satellite dishes and/or other
telecommunication equipment which may be installed pursuant to Section 36 of the
Master Lease.

          (a) Landlord shall exercise its rights under Section 9.4 of the Master
Lease for the benefit of Landlord, Tenant and other subtenants of the Building,
with Tenant, as of the Commencement Date, subject to Section 2.3(b) below,
having the right to non-exclusive use of Tenant's Pro Rata Share of the space in
the Risers and Raceways and a reasonable proportion of such space as Master
Landlord makes available to Landlord on the Roof. If Tenant's Pro Rata Share is
increased or reduced during the Term, there shall be a proportionate increase or
reduction in Tenant's non-exclusive use of the Risers, Raceways and Roof area.

          (b) So long as Tenant's Pro Rata Share equals or exceeds seventy-two
percent (72%), Tenant shall be permitted to insert, use and maintain in four (4)
of the Risers a sleeve having an outside diameter of up to four inches (4"),
within which will be located only Tenant's wiring and cabling.

3. DELIVERY; POSSESSION.

     3.1 Delivery. Landlord shall deliver possession of the Sublease Premises to
Tenant on the next Business Day after all the Sublease Conditions have been
satisfied (or, where permitted, waived).

                                        4



     3.2 Condition of Sublease Premises.

          (a) Except as provided in Sections 3.2(b) and 3.2(c) below, Tenant
accepts, on an As-ls basis, the condition of the Sublease Premises as it existed
on December 1, 2003 ("Existing Condition"). Tenant acknowledges that Landlord
and Brokers have not made, and Tenant has not relied upon, any representations,
warranty or other assurances concerning the Existing Condition of the Sublease
Premises or the Building.

          (b) With respect to latent defects required to be repaired by Master
Landlord pursuant to Section 7.1 of the Master Lease, promptly following
Landlord's receipt of written notice from Tenant identifying such latent defects
("Latent Defect Correction Notice"), the following shall apply:

               (i)  Landlord shall reasonably investigate Tenant's Latent Defect
Correction Notice, and, if Landlord reasonably determines that Master Landlord
is responsible for correction of such latent defects under Section 7.1 of the
Master Lease, Landlord shall commence and diligently pursue commercially
reasonable efforts to cause Master Landlord to undertake appropriate corrective
action, including filing appropriate legal action if required.

               (ii) If Landlord and Tenant disagree as to whether Master
Landlord is responsible for correction of such latent defects, or as to whether
Landlord is diligently pursuing Master Landlord for correction of such latent
defects, the matter shall be submitted for an Interim Resolution as defined in
Section 18.1 below.

               (iii) If Landlord fails to commence commercially reasonable
efforts within twenty (20) days after receipt of Tenant's Latent Defect
Correction Notice (or, in case of a dispute under Section 3.2(b)(ii) above,
within thirty (30) days after an Interim Resolution requiring Landlord to
undertake such efforts), or if Landlord timely commences but thereafter fails to
diligently pursue commercially reasonable efforts to cause the correction of
latent defects by Master Landlord, and, provided in either such case Tenant
gives an additional twenty (20) days notice to Landlord of Tenant's intention to
invoke its rights under this Section 3.2(b)(iii), Tenant shall have the right to
exercise Landlord's right to self-help pursuant to Section 7.2 of the Master
Lease ("Master Lease Self Help Rights"). If Tenant exercises the Master Lease
Self Help Rights: (A) Tenant shall protect, defend and hold Landlord free and
harmless from and against any and all claims, demands, actions, causes of
action, liabilities, obligations, costs and expenses, of every kind and nature,
arising in connection therewith (collectively, "Claims"); and (B) Tenant shall
be entitled to receive such reimbursement from Landlord as Landlord receives
from Master Landlord pursuant to Section 7.2 of the Master Lease in respect of
the corrective action(s) taken by Tenant.

          (c) Notwithstanding the provisions of Section 3.2(a) above, but
subject to the limitations expressed below in this Section 3.2(c), Landlord
shall repair all defects in the Base Building Systems (as defined below) in or
serving the Sublease Premises of which Tenant notifies Landlord in writing
within three (3) months after the Commencement Date. As used in this Sublease,
the term "Base Building Systems" means only those electrical, plumbing, and
heating/ventilation/air conditioning ("HVAC") systems which are installed in the
Building on the date possession of the Sublease Premises is delivered to Tenant
pursuant to Section 3.1. Landlord shall not be responsible for repairing any
defects in the Base Building Systems: (i) caused by the negligence or
intentional acts of Tenant or Tenant's agents, employees, contractors or
invitees; (ii) of which Landlord has not received written notice within three
(3) months after the Commencement Date; (iii) due to any alterations or
additions to, or any

                                        5



extensions of, the Base Building Systems, which are not consistent with the
design or capacity of the Base Building Systems; or (iv) which result from
ordinary wear and tear. Landlord's obligation to correct defects in the Base
Building Systems shall not extend to any alterations or additions to, or
extensions of, the Base Building Systems, and Tenant shall remain solely
responsible therefor. If Landlord fails to commence correction of the Base
Building Systems defects within thirty (30) days after notice from Tenant and
diligently complete same within a reasonable period thereafter, Tenant shall,
after an additional ten (10) days' written notice to Landlord, have the right to
repair the defects in the Base Building Systems on Landlord's behalf and deduct
all reasonable, out-of-pocket expenses from installments of Base Rent until such
amounts have been fully recovered by Tenant, subject to the Offset Limit
specified in Section 23.1 of this Sublease. However, if Landlord initiates an
Interim Resolution proceeding to contest either Landlord's duty to correct any
defect in the Base Building Systems or Tenant's claim that Landlord is not
acting diligently to correct such defects, Tenant shall not exercise its right
to repair such defects and/or to offset the costs of such repairs against Base
Rent unless and until Tenant procures a favorable Interim Resolution affirming
Tenant's right to so act.

          (d) Except as otherwise expressly stated in this Section 3.2, Landlord
shall have no responsibility with respect to latent or patent defects, but the
foregoing shall not be construed to limit Landlord's express obligations as set
forth elsewhere in this Sublease.

     3.3 Possession Prior to Commencement Date.

          (a) Tenant shall have the right to take possession of the Sublease
Premises on the next Business Day after satisfaction or waiver of the Sublease
Conditions.

          (b) Tenant's possession of the Sublease Premises prior to the
Commencement Date shall be subject to all the terms and conditions of this
Sublease; provided, however, except for the cost of utilities consumed by Tenant
and specific Services (as hereinafter defined in Article 6 of this Sublease)
requested by Tenant (e.g., freight elevator usage), Tenant shall not be required
to pay Rent (as hereinafter defined) in respect of Tenant's possession prior to
the Commencement Date.

4. RENT.

          4.1 Payments. As consideration for this Sublease, Tenant shall pay
Landlord, without any setoff or deduction except as expressly provided in this
Sublease, the total amount of Base Rent and Additional Rent due for the Term.
"Additional Rent" means all sums (exclusive of Base Rent) that Tenant is
required to pay Landlord under this Sublease. Additional Rent and Base Rent are
sometimes collectively referred to as "Rent". Base Rent and recurring monthly
charges of Additional Rent shall be due and payable in advance on the first day
of each calendar month without notice or demand. All other items of Rent shall
be due and payable by Tenant on or before thirty (30) days after billing by
Landlord. All payments of Rent shall be by good and sufficient check or by other
means (such as automatic debit or electronic transfer) acceptable to Landlord.
If Tenant fails to pay any item or installment of Rent when due, Tenant shall
pay Landlord an administration fee equal to two percent (2%) of the past due
Rent, in consideration of Landlord's damages for such late payment, which are
difficult to estimate in advance, in lieu of any late fee specified in Section
16.1 of the Master Lease, provided that Tenant shall be entitled to a grace
period of five (5) days after notice from Landlord for up to two (2) late
payments of Rent in a given calendar year, without being subject to such
administration fee. If such amount continues outstanding after the grace period
specified herein, such amount shall accrue interest at the Interest Rate
provided in Section 16.2 of the

                                        6



Master Lease. If the Term commences on a day other than the first day of a
calendar month or terminates on a day other than the last day of a calendar
month, the monthly Base Rent and Tenant's Pro Rata Share of any Tax Excess or
Expense Excess (defined in Section 4.3) for the month shall be prorated based on
the number of days in such calendar month and shall be paid on the first day of
the month following the month in which the Commencement Date occurs. No
endorsement or statement on a check or letter accompanying a check or payment
shall be considered an accord and satisfaction, and either party may accept the
check or payment without prejudice to that party's right to recover the balance
or pursue other available remedies.

     4.2 Base Rent Adjustment.

          (a) Commencing with the eleventh (11th) anniversary of the
Commencement Date ("FMV Anniversary") and continuing through the Expiration
Date, Tenant shall pay Base Rent equal to the "Fair Market Rental Rate" (as
hereinafter defined); provided, however, that in no event will the Base Rent be
less than Twenty Six and 50/100ths Dollars ($26.50) per square foot of Rentable
Area, or more than the Base Rent and Additional Rent then payable under Section
3.1 and Section 3.2 of the Master Lease, calculated on a per square foot of
Rentable Area basis. The "Fair Market Rental Rate" shall mean the rent at which
tenants, as of the FMV Anniversary, will be entering into new leases of
non-subleased, non-encumbered space on a full service basis comparable in size,
location and quality to the Sublease Premises, for a comparable term, which
comparable space is located in Class-A office buildings in the downtown area of
San Francisco, California, bounded by Market Street, the San Francisco Bay,
Folsom Street and Third Street ("Comparable Buildings"). The determination of
Fair Market Rental Rate shall take into account any material economic
differences between the terms of this Sublease and any comparison lease, such as
the presence or absence of the obligation to pay a leasing commission, base
years, the load factor for the applicable spaces, the length of the term for
such leases, rent abatements, tenant improvement obligations, free rent periods,
moving allowances, design allowances, the manner, if any, in which the landlord
under any such lease is reimbursed for operating expenses and taxes, signage
rights (excluding commercial billboard rights), building naming rights, and any
other concessions. However, Landlord shall not be obligated to make or pay for
any such monetary concessions or inducements (including, without limitation, any
allowance for improvement to or refurbishment of the Sublease Premises) in
connection with the adjustment of the Base Rent to the Fair Market Rental Rate.
In determining what consideration should be given to tenant improvement
allowances for space comparable to the Sublease Premises in Comparable
Buildings, the quality and quantity of the then existing Tenant Improvements (as
defined in the Work Letter) and Alterations (as defined in Section 6.1 of the
Master Lease) shall be taken into account. If the FMV Anniversary falls on a
date other than the first day of a calendar month, the Base Rent for the month
in which the FMV Anniversary occurs shall be determined by applying the existing
Base Rent rate to the number of days in such month prior to the FMV Anniversary
and applying the adjusted Base Rent under this Section 4.2 to the number of days
in such month from and after the FMV Anniversary.

          (b) Not more than three hundred sixty-five (365) days, and not less
than one hundred eighty (180) days, prior to the FMV Anniversary, Landlord shall
deliver to Tenant and to Master Landlord a written notice indicating its
determination of the Fair Market Rental Rate (the "Rental Adjustment Notice")
for purposes of the adjustment of the Base Rent pursuant to Section 4.2(a)
above. Tenant shall have thirty (30) days in which to object to such
determination of the Fair Market Rental Rate. If Tenant does not timely object,
then such failure to object shall conclusively be deemed to be Tenant's approval
of such determination by Landlord, and the Base Rent rate set forth in
Landlord's Rental Adjustment Notice shall be

                                        7



established as the Fair Market Rental Rate for purposes of Section 4.2(a) above.
In the event Tenant timely objects in writing to the Fair Market Rental Rate set
forth in Landlord's Rental Adjustment Notice, Landlord and Tenant shall attempt
in good faith to agree upon the applicable Fair Market Rental Rate. If Landlord
and Tenant fail to reach agreement within thirty (30) days following Tenant's
objection to the applicable Fair Market Rental Rate (the "Outside Agreement
Date"), then within thirty (30) days after the Outside Agreement Date Landlord
and Tenant shall meet and simultaneously exchange their separate written
determinations of the applicable Fair Market Rental Rate, and such
determinations shall be submitted to arbitration (the "Rent Arbitration") in
accordance with Sections 4.2(b)(i) - 4.2(b)(vi) below.

               (i)  Landlord and Tenant shall each appoint one (1) arbitrator
who shall by profession be a real estate appraiser holding the professional
designation as an MAI (or its equivalent) who has no financial interest in
Landlord or Tenant, or the Property, and who has been active over the ten (10)
year period ending on the date of such appointment in the appraisal for rental
purposes of office space in Comparable Buildings. Each such arbitrator shall be
appointed within thirty (30) days after the Outside Agreement Date.

               (ii) The two (2) arbitrators so appointed shall, within ten (10)
business days of the date of the appointment of the last appointed arbitrator,
agree upon and appoint a third arbitrator who shall be qualified under the same
criteria as set forth hereinabove for qualification of the initial two (2)
arbitrators, except that the third arbitrator shall be independent and shall not
have been previously engaged by Landlord or Tenant for any purpose. The
determination of the arbitrators shall be limited solely to the issue of whether
Landlord's or Tenant's submitted Fair Market Rental Rate is the closest to the
actual Fair Market Rental Rate as determined by the arbitrators, taking into
account the requirements of Section 4.2(a) above.

               (iii) If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator within the time period provided in Section 4.2(b)(ii) above,
then the parties shall mutually select the independent third arbitrator. If
Landlord and Tenant are unable to agree upon the independent third arbitrator
within ten (10) days, then either party may, upon at least five (5) days' prior
written notice to the other party, request the appointment of the third
arbitrator by either (A) the senior officer resident in the San Francisco office
of JAMS or Judicial Arbitration and Mediation Services, or any successor
("JAMS"), or (B) the senior officer resident in the San Francisco office of the
American Arbitration Association or any successor ("AAA"). In case of
conflicting appointments, the appointment made under clause (A) of the preceding
sentence shall control.

               (iv) The three (3) arbitrators shall conduct a hearing within
twenty (20) days after the appointment of the third arbitrator and within ten
(10) days thereafter reach a decision as to which of the Landlord's or Tenant's
submitted Fair Market Rental Rate is closest to the actual Fair Market Rental
Rate, and the arbitrators shall use whichever of Landlord's or Tenant's
submitted Fair Market Rental Rate is closest to the actual Fair Market Rental
Rate to be paid during the remainder of the Term and shall notify Landlord and
Tenant thereof. The decision of a majority of the three (3) arbitrators shall be
binding upon Landlord and Tenant.

               (v)  If either Landlord or Tenant fails to appoint an arbitrator
within thirty (30) days after the Outside Agreement Date, and if such failure
shall continue for an additional fifteen (15) days after written notice thereof
is received by the non-appointing party, the arbitrator appointed by one of them
shall reach a decision, notify Landlord and Tenant thereof, and such
arbitrator's decision shall be binding upon Landlord and Tenant.

                                        8



               (vi) The cost of the arbitrators and of the Rent Arbitration
proceeding, including, without limitation, reasonable attorneys' and expert
witness fees, shall be borne by the party whose submitted Fair Market Rental
Rate is not selected by the arbitrators.

     4.3 Expense Excess and Tax Excess.

          (a) Tenant shall pay Tenant's Pro Rata Share of the amount, if any, by
which Expenses (defined in Section 4.3(d)) for each calendar year during the
Term exceed Expenses for the Sublease Expense Base Year (the "Expense Excess")
and also the amount, if any, by which Taxes (defined in Section 4.3(e)) for each
calendar year during the Term exceed Taxes for the Sublease Tax Base Year (the
"Tax Excess"). If Expenses and/or Taxes in any calendar year are less than the
amount of Expenses and/or Taxes for the Sublease Expense Base Year or Sublease
Tax Base Year, Tenant's Pro Rata Share of Expenses and/or Taxes, as the case may
be, for that calendar year shall be Zero Dollars ($0).

          (b) Landlord shall provide Tenant with a good faith estimate of the
Expense Excess and of the Tax Excess for each calendar year during the Term. On
or before the first day of each month, Tenant shall pay to Landlord a monthly
installment equal to one-twelfth of Tenant's Pro Rata Share of Landlord's
estimate of the Expense Excess and one-twelfth of Tenant's Pro Rata Share of
Landlord's estimate of the Tax Excess. If Landlord determines that its good
faith estimate of the Expense Excess or of the Tax Excess was incorrect by a
material amount, Landlord may provide Tenant with a revised estimate. Beginning
with the first payment of Rent occurring thirty (30) days after the date of
Landlord's notice, Tenant's monthly payments shall be based upon the revised
estimate. If Landlord does not provide Tenant with an estimate of the Expense
Excess or of the Tax Excess by January 1 of a calendar year, Tenant shall
continue to pay monthly installments based on the previous year's estimate(s)
until Landlord provides Tenant with the new estimate. Upon delivery of the new
annual estimate, an adjustment shall be made for any month for which Tenant paid
monthly installments based on the previous year's estimate(s). Tenant shall pay
Landlord the amount of any underpayment within thirty (30) days after receipt of
the new estimate. Any overpayment in excess of Twenty-Five Thousand Dollars
($25,000) shall be refunded to Tenant within thirty (30) days of the delivery of
the new annual estimate. Any overpayment of less than Twenty-Five Thousand
Dollars ($25,000) shall be credited against the next installment(s) of
Additional Rent due from Tenant.

          (c) As soon as is practical following the end of each calendar year,
but in no event later than July 15, or, if Master Landlord's statement under
Section 3.2(b)(3) of the Master Lease is not delivered until after July 1,
fifteen (15) days after Landlord's receipt of such statement, Landlord shall
furnish Tenant with a statement of (i) the actual Expenses, which shall be
reasonably detailed as to the categories of Expenses included therein, and shall
also include a statement of Operating Costs in the form provided to Landlord by
Master Landlord under the Master Lease ("Expense Statement"), together with a
calculation of the Expense Excess, and (ii) the actual Taxes, which shall
contain the statement of actual Taxes in the form provided to Landlord by Master
Landlord under the Master Lease ("Tax Statement"), together with a calculation
of the Tax Excess. If the estimated Expense Excess and/or estimated Tax Excess
for the prior calendar year is more than the actual Expense Excess and/or actual
Tax Excess, as the case may be, for the prior calendar year, Landlord shall
refund any overpayment in excess of Twenty-Five Thousand Dollars ($25,000) to
Tenant. Any overpayment of less than Twenty-Five Thousand Dollars ($25,000)
shall be applied against Additional Rent due or next becoming due, provided if
the Term expires before the determination of the overpayment, Landlord shall
refund any overpayment to Tenant after first deducting the amount of Rent due.

                                        9



If the estimated Expense Excess and/or estimated Tax Excess for the prior
calendar year is less than the actual Expense Excess and/or actual Tax Excess,
as the case may be, for such prior year, Tenant shall pay Landlord, within
thirty (30) days after its receipt of the statement of Expenses and/or Taxes,
any underpayment for the prior calendar year. Landlord shall provide Tenant with
copies of any statements received by Landlord from Master Landlord in connection
with Operating Costs and Expenses.

          (d) As used in this Sublease, the term "Expenses" means:

               (i)  All Operating Costs specified in Section 3.2(a)(1) of the
Master Lease (including, without limitation, property management fees as
described in clause (K) of Section 3.2(a)(1) of the Master Lease) incurred in
each calendar year and paid to Master Landlord by Landlord; and

               (ii) All commercially reasonable, actual and necessary costs paid
or incurred by Landlord in each calendar year in connection with furnishing to
the Master Premises utilities and services (exclusive of Excess Services, as
defined in Section 6.2 below) Landlord furnishes or provides under this Sublease
which either (A) Master Landlord is not obligated to furnish or provide under
the Master Lease or (B) Master Landlord furnishes or provides under the Master
Lease and for which Landlord pays (other than through payment of Operating
Costs).

               (iii) By way of illustration and not limitation, Expenses of the
type described in clause (A) of Section 4.3(d)(ii) above includes the cost of
providing janitorial services to the Master Premises, and Expenses of the type
described in clause (B) of Section 4.3(d)(ii) above includes the cost of
supplying utilities to the Master Premises (inclusive of the cost of an energy
management program) which are separately metered to the Master Premises and for
which Landlord directly pays the utility provider and utilities which are
submetered to the Master Premises and for which Landlord pays Master Landlord
pursuant to Section 9.2(b) of the Master Lease.

               (iv) Notwithstanding anything to the contrary contained in this
Section 4.3(d), Expenses shall not include any property management fees for
reasonable and customary property management services payable to either or both
Landlord and Master Landlord in excess of the total that Landlord could be
required to pay to Master Landlord under the Master Lease. However, Landlord may
require Tenant to pay certain property management and administrative expenses as
provided in Section 6.2 below.

          (e) "Taxes" shall mean all real estate taxes and other assessments on
the Building and/or Property, that are payable by Landlord to Master Landlord
pursuant to Section 3.2(a)(2) of the Master Lease, plus any amount that may be
payable by Landlord or charged to Landlord by the Master Landlord as "Tenant's
Taxes" under Article 8 of the Master Lease, to the extent attributable to any
Alterations (as defined in the Master Lease) made by Landlord to the Building.
If a change in Taxes is obtained for any year of the Term during which Tenant
paid Tenant's Pro Rata Share of any Tax Excess, then Taxes for that year will be
retroactively adjusted to the full extent that Landlord receives a reduction or
credit from Master Landlord or directly from any taxing authority, and Landlord
shall provide Tenant with a credit, if any, based on the adjustment.
Notwithstanding the foregoing, if Taxes are reduced as a result of space in the
Building being leased to or otherwise occupied by an entity which is entitled to
an exemption from property taxes or other sums included within the definition of
Taxes, then for purposes of determining Additional Rent for each year in which
Taxes are reduced by any such

                                       10



exemption, Taxes for such year shall be calculated on the basis of the amount
the Taxes would have been in the absence of the exemption. Tenant shall pay
Landlord Tenant's Pro Rata Share of any such increase in the Tax Excess within
thirty (30) days after Tenant's receipt of a statement from Landlord. Landlord,
within five (5) business days of receipt, shall provide Tenant with copies of
any tax statements or other statements received by Landlord in connection with
any adjustment under this Section 4.2(e).

          (f) For purposes of determining the Sublease Tax Base Year Expenses
and the Expenses for each subsequent year during the Term, those items of
Expenses which vary based on the level of occupancy shall be calculated based
upon the Expenses that would have been incurred if the Building had an average
occupancy of one hundred percent (100%) during the entire calendar year.
Furthermore, if during the Sublease Expense Base Year the Operating Costs under
Section 3.2(a)(1) of the Master Lease do not include premium(s) for earthquake
insurance coverage and Master Landlord subsequently includes such premiums in
Operating Costs, the Expense Excess shall be calculated by including in the
Sublease Expense Base Year the cost, as reasonably estimated by Landlord, of
maintaining comparable earthquake insurance coverage during the Sublease Expense
Base Year.

          (g) For purposes of determining the Sublease Tax Base Year Taxes and
the Taxes for each subsequent year during the Term, Taxes shall be calculated
based upon the Taxes that would have been incurred if the Building were fully
assessed by the appropriate taxing authority to reflect a one hundred percent
(100%) occupied Building with all of the Master Premises improved for office
occupancy, no exemptions from Taxes of any kind. If Landlord receives a
reduction in Taxes during or after the Sublease Tax Base Year as a result of a
commonly called Proposition 8 application, the Taxes for the Sublease Tax Base
Year and each year of the Term thereafter shall be calculated as if no
Proposition 8 reduction in Taxes was applied for and/or received.

          (h) In the event that, within nine (9) months after Tenant's receipt
of an Expense Statement or a Tax Statement, Tenant reasonably believes that
costs charged to Tenant by Landlord include costs that are not properly included
within the terms "Expenses" or "Taxes," or that Landlord has erred in
calculating same, Tenant shall have the right to review and audit Landlord's
books and records pertaining to Expenses or Taxes in accordance with this
Section 4.2(h). Tenant shall exercise such audit right (if at all) by providing
Landlord with a written notice of Tenant's exercise of such audit right within
such nine (9) month period and a statement enumerating Tenant's objections to or
concerns regarding the statement issued by Landlord (the "Audit Notice"). Within
a reasonable time after receipt of the Audit Notice, but in no event later than
thirty (30) days thereafter unless agreed to by Tenant, Landlord shall make
available for inspection all pertinent records that are reasonably necessary for
Tenant to conduct its review and are in Landlord's possession or in the
possession of its property manager. If any records are maintained at a location
other than the office of the Building, Tenant may either inspect the records at
such other location or pay for the reasonable cost of copying and shipping the
records. If specifically requested in Tenant's Audit Notice, Landlord shall, at
Tenant's expense, inspect and/or audit Master Landlord's books and records
pertaining to Operating Costs to the extent permitted by Section 3.2(b)(5) of
the Master Lease ("Operating Costs Audit"). Landlord may delay the commencement
of any such Operating Costs Audit until Tenant deposits with Landlord a sum
sufficient to cover Landlord's estimated expenses in connection therewith. If
Tenant retains an agent to review Landlord's records, the agent must be with a
licensed certified public accounting firm which routinely audits the financial
records of companies traded on the New York Stock Exchange or NASDAQ and which
charges for its audit services in connection with this Sublease on an hourly
rate basis (and not on a contingent

                                       11



fee or other basis where the accounting firm's compensation is tied in any way
to the outcome of the review or audit). Tenant and/or such certified public
accounting firm must agree, as a condition of Tenant's access to Landlord's
records, to keep the results of the review (including, without limitation, any
data obtained in the course of an Operating Costs Audit) confidential (except in
the event of arbitration or litigation between the parties) and not to solicit
business from other tenants of the Building. Tenant shall be solely responsible
for all costs, expenses and fees incurred for the audit, unless such audit
reveals a discrepancy in Tenant's favor in excess of three percent (3%) of
Expenses or Taxes, as the case may be. Within ninety (90) days after the records
are made available to Tenant, Tenant shall have the right to give Landlord
written notice (an "Objection Notice") stating in reasonable detail any
objection to Landlord's statement of Expenses and/or Taxes for that year. If
Tenant fails to give Landlord an Objection Notice within the ninety (90) day
period or fails to give Landlord an Audit Notice within nine (9) months after
Tenant's receipt of Statement of Expenses and/or Taxes, Tenant shall be deemed
to have approved Landlord's Statement of Expenses and/or Taxes and shall be
barred from raising any claims regarding the Expenses or Taxes for that year. If
Tenant provides Landlord with a timely Objection Notice, Landlord and Tenant
shall work together in good faith to resolve any issues raised in Tenant's
Objection Notice. If Landlord and Tenant determine that Expenses and/or Taxes
for the calendar year are less than reported, Landlord shall refund any amount
to Tenant in excess of Twenty-Five Thousand Dollars ($25,000), or, to the extent
less than Twenty-Five Thousand Dollars ($25,000), shall provide Tenant with a
credit against the next installment of Rent in the amount of the overpayment by
Tenant. Likewise, if Landlord and Tenant determine that Expenses and/or Taxes
for the calendar year are greater than reported, Tenant shall pay Landlord the
amount of any underpayment within thirty (30) days of the determination. In no
event shall Tenant be permitted to examine Landlord's records or to dispute any
statement of Expenses and/or Taxes unless Tenant has paid and continues to pay
all Rent and Additional Rent when due, including without limitation the specific
items of Expenses or Taxes that Tenant questions or disputes. If the parties are
unable to agree on the proper amount of Taxes or Expenses, or the appropriate
Expense Excess or Tax Excess based thereon, then at either party's option, the
dispute shall be settled by Interim Resolution in accordance with Section 18.1
of this Sublease. Notwithstanding any contrary provision of this Section 4.3, if
Landlord obtains any reduction from Master Landlord pursuant to any audit of
Operating Costs or Taxes under the Master Lease for any year, it shall make an
appropriate adjustment to the Expense Excess or the Tax Excess, based on the
amount actually credited to it (less landlord's reasonable costs and expenses in
procuring such reduction in Expenses or Taxes) and the period covered by such
credit, considering the Sublease Expense Base Year and Sublease Tax Base Year,
within sixty (60) days after it receives any adjustment, which adjustment will
be accompanied by a statement showing the basis for the adjustment.

5. LETTER OF CREDIT.

     5.1 Obligations Secured. Upon full execution of this Sublease and
satisfaction (or, where permitted, the waiver) of all Sublease Conditions,
Tenant shall deliver to Landlord an unconditional, irrevocable, transferable
letter of credit (the "Letter of Credit"), in an amount equal to the Required
Amount (defined in Section 5.4 below) and satisfying the requirements set forth
in Section 5.2 below. The Letter of Credit shall secure Tenant's obligations
under this Sublease. Accordingly, upon the occurrence or existence of any Draw
Event (defined in Section 5.3(b) below), Landlord may draw upon the Letter of
Credit and use the proceeds of such draw (the "Draw Proceeds") for the payment
of Rent, for the repair of damage to the Sublease Premises, for the payment of
any other amount which Landlord may spend or become obliged to spend by reason
of Tenant's Default, and/or to compensate Landlord for any other loss or damage
(including, without limitation, damages under California Civil Code

                                       12



Section 1951.2 or any successor or similar statute) which Landlord may suffer by
reason of Tenant's Default, to the fullest extent permitted by law. Tenant
acknowledges and agrees that the Letter of Credit represents the contractual
commitment of the issuer of the Letter of Credit (the "Issuer") to answer for
Tenant's failure to timely and fully discharge or otherwise satisfy Tenant's
liabilities and obligations under this Sublease, and that the Draw Proceeds
represent funds of Issuer paid to Landlord in accordance with such contractual
commitment. Accordingly, Landlord and Tenant agree that neither the Letter of
Credit nor the Draw Proceeds shall be treated as a security deposit within the
meaning of California Civil Code Section 1950.7 (or any successor or similar
statute), and Tenant hereby waives all rights and benefits under California
Civil Code Section 1950.7 (or any successor or similar Laws), or under any
judicial or administration decision, which would limit Landlord's right to use,
retain and apply the Letter of Credit and the Draw Proceeds in accordance with
this Article 5.

     5.2 Requirements of Letter of Credit. The Issuer of the Letter of Credit
shall be a federally chartered banking institution reasonably acceptable to
Landlord, with an office in San Francisco, California allowing the Letter of
Credit to be presented to and paid by such office pursuant to procedures
reasonably acceptable to Landlord. The Letter of Credit shall (i) be a stand-by,
at-sight, irrevocable letter of credit; (ii) be payable to Landlord or
Landlord's permitted assignees (any of the foregoing, the "Beneficiary"); (iii)
require that any draw on the Letter of Credit shall be made upon receipt by the
Issuer of only a letter signed by an authorized representative of the
Beneficiary certifying that the Beneficiary is entitled to draw on the Letter of
Credit and specifying the Draw Event (and if the Draw Event involves Tenant's
Default, an estimate of Landlord's damages); (iv) allow partial draws; (v) be
issued for a term of no less than one (1) year with an automatic renewal for at
least an additional four (4) years unless the Issuer gives the Beneficiary
written notice of non-renewal at least forty-five (45) days prior to the expiry
date of the Letter of Credit; and (vi) provide that the Letter of Credit is
governed by the Uniform Customs and Practice for Documentary Credits (1993
revisions) or the International Standby Practices (ISP 98). Tenant shall, at its
expense, keep the Letter of Credit in full force and effect until the sixtieth
(60th) day after the Expiration Date or other termination date of this Sublease,
except that if this Sublease is terminated due to a Default by Tenant, then
Tenant shall keep the Letter of Credit in effect until sixty (60) days after a
final, non-appealable judgment is entered which establishes Tenant's liability
to Landlord for breach of this Sublease.

     5.3 Draws on Letter of Credit.

          (a) At any time after a Draw Event (defined in Section 5.3(b) below)
occurs, the Beneficiary may present its written demand to Issuer for payment of
a portion of the amount of the Letter of Credit as is required to compensate
Landlord for damages incurred, with subsequent demands at the Beneficiary's sole
election as Landlord incurs further damages) and the Draw Proceeds so obtained
may be applied to the extent reasonably required to compensate Landlord for
damages incurred, or to reimburse Landlord as provided herein, in connection
with any such Default or other Draw Event, and any remaining Draw Proceeds shall
be retained by the Beneficiary to secure the performance of Tenant's obligations
under this Sublease, but shall be returned by Landlord as provided in Section
5.3(c) below.

          (b) A "Draw Event" shall mean any of the following: (i) a Default
occurs under the Sublease; (ii) Tenant is the subject of an Insolvency
Proceeding (as defined in Section 14.1 below); (iii) this Sublease is terminated
by Landlord due to a Tenant Default; (iv) the Letter of Credit is not replaced
with another Letter of Credit meeting the requirements of this Article 5 from an
Issuer reasonably approved by Landlord at least thirty (30) days prior to the
expiry date of the Letter of Credit then held by Landlord.

                                       13


            (c) If Landlord or the Beneficiary uses any Draw Proceeds to cure
any Default by Tenant hereunder and/or for any other reason permitted or
contemplated by this Article 5. Tenant shall provide a replacement Letter of
Credit in the Required Amount, and otherwise meeting the requirements of this
Article 5, within ten (10) days of notice from Landlord or the Beneficiary, and
Tenant's failure to do so shall be a Default hereunder without requirement of
notice or benefit of any grace or cure period. Upon providing the replacement
Letter of Credit in the Required Amount and otherwise meeting the requirements
of this Article 5. Landlord shall concurrently surrender the original Letter of
Credit to Tenant, and, provided there is no other Default by Tenant, any unused
Draw Proceeds shall be returned to Tenant.

      5.4 Required Amount of Letter of Credit.

            (a) The term "Required Amount" shall mean Two Million Three Hundred
Sixty-Eight Thousand One Hundred Eighty-One and no/100ths Dollars
($2,368,181.00), subject to adjustment as provided in Section 5.4(b) below.

            (b) Tenant shall be permitted to reduce the Required Amount of the
Letter of Credit on each anniversary of the Commencement Date by the amount of
Three Hundred Ninety-Four Thousand Six Hundred Ninety-Six and 85/100ths Dollars
($394,696.85); provided, however, that the Required Amount shall not, at any
time, be less than (i) for the first one hundred twenty (120) months of the
Term, Seven Hundred Eighty-Nine Thousand Three Hundred Ninety-Three and
68/100ths Dollars ($789,393.68) plus the amount of any increase in the Required
Amount under Article 15 of this Sublease, and (ii) for the remainder of the
Term, an amount equal to two hundred percent (200%) of the monthly Base Rent for
the Premises exclusive of any First Offer Space (defined in Article 15 below),
if any, plus the amount of any increase in the Required Amount under Article 15
below. Such reductions in the Required Amount shall only be permitted so long as
(A) Tenant is not in material Default and no event has occurred which, with the
passage of time or giving of notice, or both, would constitute a material
Default under this Sublease on such anniversary date, and (B) Landlord has
neither delivered a notice of Tenant's failure to perform any of its obligations
under this Sublease nor assessed a late charge pursuant to Section 4.1 at any
time during the previous six (6) months, or more than two (2) times during the
previous eighteen (18) months, regardless in each case of whether such failure
was cured by Tenant within any applicable grace or cure period. If a reduction
in the Required Amount is disallowed under clause (A) or (B) of the preceding
sentence, and if all requirements for reduction in the Required Amount are
satisfied on the next succeeding anniversary of the Commencement Date, then
(subject to the limitations concerning the minimum Required Amount), the
Required Amount may be reduced on such succeeding anniversary of the
Commencement Date by Three Hundred Ninety-Four Thousand Six Hundred Ninety-Six
and 85/100ths Dollars ($394,696.85).

      5.5 Assignment of Letter of Credit. Landlord shall assign the Letter of
Credit to Master Landlord in accordance with the terms and conditions of Section
3.2 of the Master Landlord Consent. Tenant shall cooperate with Landlord in
connection with any modifications of or amendments to the Letter of Credit that
may be reasonably requested in connection with any such assignment. Any
reasonable and customary costs imposed by the Issuer in connection with an
assignment of the Letter of Credit shall be paid by Landlord; provided, however,
that Landlord may require the Issuer to fix such costs at the time Landlord
approves of the Issuer and Landlord may disapprove any proposed Issuer solely on
the basis that the costs such proposed Issuer would impose in connection with an
assignment of the Letter of Credit are not reasonable and customary at the time
in question.

                                       14


6. UTILITIES AND SERVICES TO BE FURNISHED BY LANDLORD.

      6.1 Standard Utilities and Services. Landlord agrees to furnish Tenant the
following services and utilities: (a) hot and cold water service for use in the
lavatories and for domestic water, automatic dishwasher and refrigerator use in
any kitchenette or lounge on each floor on which the Sublease Premises are
located; (b) HVAC in season during Normal Business Hours, at such temperatures
and in such amounts as are standard for normal office use in Comparable
Buildings, assuming a use of the Premises consistent with the limitations
described in Sections 9.2(a)(i) and (ii) of the Master Lease, or as required by
governmental authority; (c) routine maintenance and repair of the Common Areas
(but excluding any repairs required due to casualty); (d) janitorial service on
Business Days (provided, however, that Landlord shall not be required to provide
janitorial service to any general service cafeteria as distinguished from a
catered or "prepackaged" food service area); (d) passenger and freight elevator
service; (e) electricity to the Premises for general office use, including
lighting during Normal Business Hours; (f) during such time as Landlord is
responsible for the provision of security services pursuant to Section 5.1(b) of
the Master Lease, on-site security measures reasonably comparable to those
provided by owners of Comparable Buildings, and if Landlord ceases to be
responsible under Section 5.1(b) of the Master Lease for the provision of such
security services, Landlord shall reasonably enforce any obligation of Master
Landlord under the Master Lease to provide such services; and (g) such other
services as Landlord from time to time reasonably determines are necessary or
appropriate. All such utilities and services are included in Expenses and are
hereinafter collectively referred to as "Standard Services".

      6.2 Excess Services.

            (a) As used in this Sublease, "Excess Services" shall mean:

                  (i) Tenant's consumption of electricity in excess of four (4)
watts per square foot of the Sublease Premises per month, and/or Tenant's
consumption of other utilities in excess of what typically would be supplied for
normal office use;

                  (ii) Tenant's use of lighting in the Sublease Premises other
than during Normal Business Hours and in the Common Areas during times and hours
not customarily provided for all tenants of the Master Premises;

                  (iii) Tenant's use of HVAC other than during Normal Business
Hours;

                  (iv) Tenant's use of the Sublease Premises for other than
normal office use, and/or Tenant's installation of floor covering or other
improvements, which in either case requires special janitorial services in
excess of the standard services for the Master Premises;

                  (v) Tenant's use of heat generating machines or equipment
which imposes additional demands on the HVAC system(s) serving the Sublease
Premises; and

                  (vi) Tenant's acts or omissions (or the acts or omissions of
Tenant's agents, employees, contractors or invitees) which necessitate
maintenance of or repair(s) to the Common Areas or other elements of the
Building or the Property in excess of ordinary wear and tear.

            (b) Excess Services shall be made available as follows:

                                       15


                  (i) Tenant shall be permitted to consume electricity and other
utilities in excess of that provided as part of the Standard Services so long as
such excess consumption does not (A) exceed the rated capacity of any of the
Base Building Systems serving the Sublease Premises, or (B) interfere with the
provision of adequate utilities and services to other occupants of the Building
or the Property. Tenant shall pay Landlord, within ten (10) days after receipt
of an invoice therefor, the standard charge for such excess electricity or other
utilities as reasonably determined by Landlord from time to time, which shall be
reasonably related to Landlord's cost to provide any excess utilities and
reasonably competitive with the amounts charged by landlords of Comparable
Buildings for such excess utilities. Landlord may reasonably estimate Tenant's
consumption of utilities, or Landlord may elect to install one or more
sub-meters to measure Tenant's consumption of utilities, in which case the cost
of installing, maintaining and reading any such sub-meter(s) shall be included
in Landlord's reasonable cost of providing the excess utilities.

                  (ii) Tenant, upon such advance notice as is reasonably
required by Landlord, shall have the right to use lighting in the Sublease
Premises during hours other than Normal Business Hours, and/or to receive HVAC
service during hours other than Normal Business Hours. Tenant shall pay
Landlord, within ten (10) days after receipt of an invoice therefor, the
standard charge for the additional lighting and/or HVAC service as reasonably
determined by Landlord from time to time, which shall be reasonably related to
Landlord's cost to provide any such services and reasonably competitive with the
amounts charged by landlords of Comparable Buildings for such services.

                  (iii) Landlord shall have no obligation to make available to
Tenant any other Excess Services. However, if Landlord elects to do so, Tenant
shall reimburse Landlord for all costs reasonably incurred by Landlord in
providing such Excess Services within ten (10) days after receipt of an invoice
therefor.

                  (iv) The amount to be reimbursed to Landlord shall include
administrative fees or additional management charges to compensate Landlord for
costs associated with the provision of the Excess Services, but such fees and
charges shall not exceed those imposed by the owners of Comparable Buildings for
providing services comparable to the Excess Services.

            (c) In no event will Landlord be required to provide any Excess
Services hereunder to the extent that provision of such service would require
Landlord to make any material alteration to the Building or the Building's
mechanical, electrical, plumbing or fire/life safety systems.

            (d) Tenant shall have the right to object to Landlord's
determination or calculation of Excess Services by written notice to Landlord
within thirty (30) days after receipt of each individual invoice, or, within
ninety (90) days after receipt of any annual statement from Landlord reconciling
annual billings and payments (but then only as to the amount of the prior
invoices affected by the reconciliation). In the event of Tenant's objection,
Tenant shall have the right to review Landlord's records for up to one hundred
eighty (180) days after Landlord delivers to Tenant any such annual
reconciliation. If Tenant and Landlord are unable to resolve the dispute within
thirty (30) days after Tenant's objection, the matter may be submitted for
Interim Resolution pursuant to Section 18.1 of this Sublease. In the event of an
agreement or Interim Resolution determination of an underbilling or overbilling,
the obligor shall pay the required amount within ten (10) days of such agreement
or determination.

                                       16


      6.3 Service Failure.

            (a) Landlord's failure to furnish, or any interruption or
termination of, Standard Services or of only those Excess Services described in
Sections 6.2(b)(i) and 6.2(b)(ii) (collectively, "Services") due to the
application of Laws, the failure of any equipment, the performance of repairs,
improvements or alterations, or the occurrence of any event or cause beyond the
reasonable control of Landlord (a "Service Failure") including, without
limitation, any failure by Master Landlord to provide any such Services, shall
not (i) render Landlord liable to Tenant, (ii) constitute a constructive or
actual eviction of Tenant, (iii) give rise to an abatement of Rent, or (iv)
relieve Tenant from the obligation to fulfill any covenant or agreement under
this Sublease, except as expressly provided in Sections 6.3(b) through 6.3(e)
below.

            (b) Promptly following Landlord's receipt of written notice from
Tenant identifying with reasonable particularity the nature of any Service
Failure ("Service Failure Correction Notice"), Landlord shall reasonably
investigate to determine the cause of the Service Failure. Where the Service
Failure is caused or materially contributed to by the failure of Master Landlord
to perform under the Master Lease (a "Master Landlord Service Failure"),
Sections 6.3(c) and 6.3(d) hereafter shall apply thereto. Where the Service
Failure is not caused or materially contributed to by the failure of Master
Landlord to perform under the Master Lease (a "Landlord Service Failure"),
Section 6.3(e) hereafter shall apply thereto. If Landlord and Tenant disagree as
to whether a Service Failure is a Master Landlord Service Failure or a Landlord
Service Failure, the matter shall be submitted for an Interim Resolution
pursuant to Section 18.1 below.

            (c) In the case of a Master Landlord Service Failure, Landlord shall
commence using and diligently pursue to completion commercially reasonable
efforts to cause Master Landlord to undertake appropriate corrective action,
including filing appropriate legal action if required. If Landlord fails to
commence using commercially reasonable efforts within twenty (20) days after
receipt of Tenant's Service Failure Correction Notice [or, in case of a dispute
between Landlord and Tenant as to whether the Service Failure is a Master
Landlord Service Failure or a Landlord Service Failure, within twenty (20) days
after an Interim Resolution classifying it as a Master Landlord Service
Failure], or if Landlord timely commences using but thereafter fails to
diligently pursue commercially reasonable efforts to cause the correction of the
Master Landlord Service Failure, and, provided in either such case Tenant gives
an additional thirty (30) days notice to Landlord of Tenant's intention to
invoke its rights under this Section 6.3(c), Tenant shall have the right to
exercise the Master Lease Self Help Rights. If Tenant exercises the Master Lease
Self Help Rights: (A) Tenant shall protect, defend and hold Landlord free and
harmless from and against any and all Claims; and (B) Tenant shall be entitled
to receive from Landlord such reimbursement as Landlord receives from Master
Landlord pursuant to Section 7.2 of the Master Lease in respect of the
corrective action(s) taken by Tenant.

            (d) If any Master Landlord Service Failure shall give rise to a
right of abatement under Section 9.3 of the Master Lease with respect to any
portion of the Master Premises which includes the Sublease Premises, Landlord
shall abate Rent to the extent Landlord is entitled to Rent abatement from
Master Landlord (measured by the Rentable Area of the Master Premises as to
which Rent is abated, rather than by the dollar amount of Rent abatement under
the Master Lease), among all tenants occupying the portion of the Master
Premises affected by such Master Landlord Service Failure, provided (i) all
tenants eligible for the benefit of such Rent abatement meet all the conditions
specified in the Master Lease with respect to the impairment of use of and
failure to actually use their respective premises; and (ii) if only a

                                       17


portion of the Sublease Premises is affected and such portion is otherwise
eligible for the abatement of Rent under the Master Lease, such abatement shall
be based on the proportion the area affected by the abatement bears to the total
Sublease Premises hereunder. Where a material part of the Sublease Premises is
affected by a Master Landlord Service Failure, then, notwithstanding anything to
the contrary contained in this Sublease or the Master Lease, Landlord and Tenant
shall jointly cooperate and conduct any negotiation and/or arbitration with
Master Landlord with regard to abatement of Rent pursuant to Section 9.3(c) of
the Master Lease, and Landlord shall make no separate agreement with Master
Landlord with respect to such abatement without the prior written consent of
Tenant, which consent shall not be unreasonably withheld, conditioned or
delayed. If Landlord and Tenant cannot agree in good faith as to the handling of
the negotiations and/or arbitration with Master Landlord in regard to Rent
abatement pursuant to the Master Lease, the matter shall be submitted for
Interim Resolution in accordance with Section 18.1 below. Further, during the
entire Term of this Sublease, Landlord shall not terminate the Master Lease
pursuant to Section 9.3(d) of the Master Lease as to the Sublease Premises
without the prior written consent of Tenant, which consent shall not be
unreasonably withheld, conditioned or delayed.

            (e) Where a Landlord Service Failure does not materially interfere
with Tenant's business operations in the Sublease Premises, Tenant's remedies
therefor shall be limited to specific performance, injunctive relief and/or
direct damages in the case of a Landlord Default. However, where a Landlord
Service Failure materially interferes with Tenant's business operations in the
Sublease Premises, Tenant shall have the following self-help rights (the
"Sublease Self-Help Rights"):

                  (i) If the Landlord Service Failure continues for more than
ten (10) days after Tenant's Service Failure Correction Notice, Tenant may give
Landlord a written notice of Tenant's intention to exercise the Sublease
Self-Help Rights under this Section 6.3(e). Tenant's notice shall state with
reasonable particularity those Services affected by the Landlord Service Failure
which must be restored to correct the material interference with Tenant's
business operations in the Sublease Premises (the "Required Services").

                  (ii) If the Landlord Service Failure continues for an
additional period equal to the greater of (A) ten (10) days after receipt of
Tenant's notice under Section 6.3(e)(i) above, or (B) such number of days after
receipt of Tenant's notice under Section 6.3(e)(i) above within which Landlord,
acting diligently, reasonably can be expected to cure such Landlord Service
Failure, then Tenant shall be entitled to: (A) directly contract for the
Required Services using qualified and reputable providers, and deduct the
reasonable cost thereof from subsequent installments of Base Rent until such
amounts have been fully recovered, but subject to the Offset Limit specified in
Article 23 below; and (B) where Tenant is unable to procure the Required
Services, despite using commercially reasonable efforts to do so, and because of
the absence of such Required Services Tenant is unable to use (and does not in
fact use) more than fifty percent (50%) of the Sublease Premises for more than
four (4) months, Tenant shall have the right to terminate this Sublease by
written notice to Landlord at any time before the Required Services are
restored.

7. REPAIRS AND ALTERATIONS.

      7.1 Tenant's Repair Obligations. Tenant shall, at its sole cost and
expense, promptly perform all maintenance and repairs to the Sublease Premises
necessary to keep the Sublease Premises in good condition and repair reasonably
consistent with the quality of other similar tenancies in the Building,
reasonable wear and tear over the Term and damage by casualty

                                       18


excepted, and otherwise in compliance with the provisions of the second sentence
of Section 7.1 of the Master Lease,[except to the extent that Landlord has
expressly assumed any such repair obligation under this Sublease]. Tenant's
repair obligations include, without limitation, repairs to: (1) floor covering;
(2) interior partitions; (3) interior doors; (4) the interior side of demising
walls; (5) electronic, phone and data cabling and related equipment
(collectively, "Cable") that is installed by or for the exclusive benefit of
Tenant and located in the Sublease Premises or other portions of the Building;
(6) any facilities exclusively serving Tenant which are not Base Building
Systems; and (7) Alterations performed by contractors retained by Tenant,
including related HVAC balancing. All repairs shall be performed in accordance
with the requirements of the Master Lease.

      7.2 Landlord's Repair Obligations. Landlord shall maintain the Common
Areas of the Building that are not the responsibility of Master Landlord to
maintain under the Master Lease to the standard specified in Section 7.1 of the
Master Lease and shall effect repairs required by Section 3.2(c) of this
Sublease. In no event will Landlord have any obligation to maintain or repair
any portion of the Sublease Premises or the Building that Master Landlord is
obligated to maintain or repair.

            (a) With respect to repairs required to be effected by Master
Landlord pursuant to the Master Lease, promptly following Landlord's receipt and
written notice from Tenant identifying such repairs ("Repair Notice"), the
following shall apply:

                  (i) Landlord shall reasonably investigate Tenant's Repair
Notice, and, if Landlord reasonably determines that Master Landlord is
responsible for such repairs under Section 7.1 of the Master Lease, Landlord
shall commence and diligently pursue to completion commercially reasonably
efforts to cause Master Landlord to undertake appropriate corrective action,
including filing appropriate legal action if required.

                  (ii) If Landlord and Tenant disagree as to whether Master
Landlord is responsible for such repairs, or as to whether Landlord is
vigorously pursuing Master Landlord for the purpose of causing Master Landlord
to effect such repairs, the matter shall be submitted for Interim Resolution
pursuant to Section 18.1 below.

                  (iii) If Landlord fails to commence using commercially
reasonable efforts within ten (10) business days after receipt of Tenant's
Repair Notice (or, in case of a dispute under Section 7.2(a)(ii) above, within
ten (10) business days after an Interim Resolution requiring Landlord to
undertake such efforts), or if Landlord timely commences using, but thereafter
fails to diligently pursue commercially reasonable efforts to cause the
correction of latent defects by Master Landlord, and, provided in either such
case Tenant gives an additional thirty (30) days' notice to Landlord of Tenant's
intention to invoke its rights under this Section 7.2(a)(iii), Tenant shall have
the right to exercise the Master Lease Self Help Rights.

            (b) If Tenant exercises the Master Lease Self Help Rights specified
in Section 7.2(a)(iii) above: (A) Tenant shall protect, defend and hold Landlord
free and harmless from and against any and all Claims; and (B) Tenant shall be
entitled to receive such reimbursement as Landlord receives from Master Landlord
pursuant to Section 7.2 of the Master Lease in respect of the corrective
action(s) taken by Tenant.

      7.3 Alterations. Tenant may make Alterations (as distinguished from
Tenant's initial Tenant Improvements and as defined in Section 6.1 of the Master
Lease) to the Sublease Premises only with Landlord's prior written consent
(which shall not be unreasonably withheld)

                                       19


and then only on the terms and conditions specified in Article 6 of the Master
Lease. In those circumstances where Master Landlord's consent is required under
Article 6 of the Master Lease, it shall be reasonable for Landlord to withhold
its consent if Master Landlord withholds its consent to such Alterations. In the
event Master Landlord unreasonably withholds its consent to Tenant's proposed
Alterations, Landlord shall exercise all commercially reasonable efforts to
secure Master Landlord's consent, including legal proceedings, all at Tenant's
sole cost and expense. Landlord and Tenant shall cooperate in good faith in
obtaining Master Landlord's approval for Alterations and Tenant shall protect,
defend and hold Landlord free and harmless from and against any and all Claims
arising from any proceedings to obtain such approval.

8. ACCESS CONTROLS.

      Tenant shall have the right to install a security card reader system for
access to the Building as provided in Section 5.1 (a) of the Master Lease,
including, subject to the approval of Master Landlord and compliance with all
applicable life safety statutes, codes, ordinances, orders, rules and
regulations of any municipal, state, federal or other governmental entity and
all other life safety requirements, the right to install a security card reader
system in the stairwells between floors of the Sublease Premises. Tenant shall
reasonably cooperate with Landlord as necessary to allow Landlord to coordinate
use of the Building's security card reader system with any compatible security
card reader system Landlord installs to control access to the Sublease Premises.
Tenant's security card reader system shall accommodate entry by Landlord and
Master Landlord.

9. ENTRY BY LANDLORD.

      Landlord, its agents, contractors and employees may enter the Sublease
Premises to inspect or show the Sublease Premises, to clean and make repairs,
alterations or additions to the Sublease Premises, and to conduct or facilitate
repairs, alterations or additions to any portion of the Building, including
other tenants' premises. Except in emergencies or to provide janitorial and
other Services after Normal Business Hours, Landlord shall provide Tenant with
reasonable prior notice of entry into the Sublease Premises, which may be given
orally. Tenant acknowledges and understands that, in addition, the Sublease
Premises shall be subject to the entry rights of Master Landlord under Article
18 of the Master Lease. Entry by Landlord in accordance with this Sublease or by
Master Landlord in accordance with the Master Lease shall not constitute a
constructive eviction or entitle Tenant to any abatement or reduction of Rent.
Except as otherwise expressly provided in this Article 9, Landlord's entry into
the Sublease Premises shall be on the same terms and conditions as applicable to
the Master Landlord.

10. ASSIGNMENT AND SUBLETTING.

      10.1 Prohibitions. Except as provided in Section 10.2 below, Tenant shall
not assign, sublease, transfer or encumber any interest in this Sublease or
allow any third party to use any portion of the Sublease Premises (collectively
or individually, a "Transfer") without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Without limitation, it is
agreed that Landlord's consent shall not be considered unreasonably withheld if
(a) the proposed Transferee would not meet any condition specified in Section
14.2(b) of the Master Lease, or (b) Landlord is unable to obtain the consent of
Master Landlord to the proposed Transfer after diligent, good faith efforts, if
the proposed Transfer is not otherwise permitted under the Master Lease without
the Master Landlord's consent. As part of its request for Landlord's consent to
a Transfer, Tenant shall provide Landlord with the information required under
Section 14.2(a) of the Master Lease. In addition to the costs of Master Landlord
reimbursable by Landlord to Master Landlord under the Master Lease, Tenant shall
pay

                                       20


Landlord's reasonable, actual out-of-pocket costs incurred in connection with
the review of any request for consent to a Transfer. Tenant hereby waives the
provisions of Section 1995.310 of the California Civil Code, or any similar or
successor Laws now or hereinafter in effect, and all other remedies, including,
without limitation, any right at law or equity to terminate this Sublease, on
its own behalf and, to the extent permitted under all applicable Laws, on behalf
of every proposed transferee. Any attempted Transfer in violation of this
Article 10 shall constitute a Default by Tenant without necessity of notice or
any grace or cure period and, at Landlord's option, the attempted Transfer shall
be void. Consent by Landlord to one or more Transfer(s) shall not operate as a
waiver of Landlord's rights to approve any subsequent Transfer. In no event
shall any Transfer release or relieve Tenant from any obligation under this
Sublease.

      10.2 Permitted Transfers. Notwithstanding anything to the contrary
contained in this Sublease, Tenant may assign this Sublease or may sublet the
Sublease Premises without Landlord's consent for any use permitted under this
Sublease, to any corporation or other entity which controls, is controlled by,
or is under common control with Tenant, or to any corporation or other entity
resulting from a merger, reorganization or consolidation with Tenant, or to any
person or entity which acquires controlling interest in Tenant's stock or
substantially all of the assets of Tenant as a going concern (collectively, an
"Affiliate"), provided that (a) Tenant gives Landlord at least thirty (30) days
prior notice of such assignment or sublease, (b) the Affiliate assumes in
writing all of Tenant's obligations under this Sublease, and (c) Tenant gives
Landlord such information as Landlord shall reasonably request regarding the
Affiliate, including evidence that the assignee or subtenant qualifies as an
Affiliate.

      10.3 Prohibited Transfers. Notwithstanding any provision in this Sublease
to the contrary, Tenant shall not mortgage, pledge, hypothecate or otherwise
encumber all or any portion of Tenant's interest under this Sublease.

11. INDEMNITY.

      11.1 Master Lease Indemnity by Tenant. Tenant, for itself and for its
agents, representatives, contractors, employees, or invitees, and not on behalf
of or because of the acts or omissions of Landlord or Landlord's Representatives
or Visitors (which shall have the same meaning as "Tenant's Representative or
Visitors" under the Master Lease), assumes the indemnity obligations of Landlord
under Section 10.2 of the Master Lease as they specifically relate to the
Sublease Premises ("Master Lease Indemnity") and agrees to perform the Master
Lease Indemnity for the benefit of Master Landlord. If pursuant to the Master
Landlord Consent, Master Landlord agrees to extend its waiver of subrogation in
Section 11.3 of the Master Lease to also benefit Tenant, Tenant's assumption of
the Master Lease Indemnity, as applied to Master Landlord, shall be subject to
such waiver of subrogation.

      11.2 Tenant Indemnity of Landlord. Subject to the waiver of subrogation
provided in Section 12.4 below, Tenant shall indemnify, protect, defend and hold
harmless Landlord from and against Claims to the extent arising from (a) the
acts or omissions of Tenant or Tenant's Representatives or Visitors in or about
the Property, or (b) any construction or other work undertaken by Tenant in the
Sublease Premises (including any design defects), or (c) any breach or default
under this Sublease by Tenant, except that Tenant's duty to indemnify, protect,
defend and hold harmless Landlord shall not apply to the extent such Claims are
caused by the negligent or willful acts or omissions of Landlord or its
authorized representatives. Notwithstanding any other provision of this Sublease
to the contrary, in no event shall Tenant be liable to Landlord for any punitive
or consequential damages, and Tenant and Landlord agree and understand that
Landlord's express remedies under this Sublease

                                       21


(including those arising by virtue of the incorporation in this Sublease of
Section 15.2 of the Master Lease) permit the recovery of actual, but not
consequential or punitive, damages.

      11.3 Landlord Indemnity of Tenant. Subject to the waiver of subrogation
provided in Section 12.4 below, Landlord shall indemnify, protect, defend and
hold harmless Tenant from and against Claims to the extent arising from (a) the
active negligence of Landlord or Landlord's authorized representatives in or
about the Property, or (b) any breach or default under this Sublease by
Landlord, except that Landlord's duty to indemnify, protect, defend and hold
harmless Tenant shall not apply to the extent such Claims are caused by the
negligent or willful acts or omissions of Tenant or its Representatives or
Visitors. Notwithstanding any other provision of this Sublease to the contrary,
in no event shall Tenant be liable to Landlord for any punitive or consequential
damages, and Tenant and Landlord agree and understand that Tenant's express
remedies under this Sublease permit the recovery of actual, but not
consequential or punitive, damages.

12. INSURANCE.

      12.1 All-Risk/Special Form. Landlord shall not be required to maintain the
all-risk/special form insurance ("All Risk Insurance") required by Section 11.2
of the Master Lease; provided, however, if Master Landlord fails to maintain
such All Risk Insurance, upon receipt of Tenant's written request, Landlord
shall exercise commercially reasonable efforts to cause Master Landlord to
maintain the All Risk Insurance required by Section 11.2 of the Master Lease
during the entire Term hereof.

      12.2 General Commercial Liability. Landlord and Tenant shall maintain the
following coverages otherwise meeting the requirements of the Master Lease,
subject to the terms of the Master Landlord Consent regarding insurance:



           TYPE OF COVERAGE                                 AMOUNT
                                            
Commercial General Liability                   Two Million Dollars ($2,000,000)
                                               combined single limit, with
                                               completed operations and products
                                               coverage

"Excess" Liability or "Umbrella" Coverage      Five Million Dollars ($5,000,000)
Required "Best" Rating                         A-/ VIII


      12.3 Certificates of Insurance. Landlord and Tenant agree to deliver to
the other certificates of insurance evidencing the existence in force of the
policies of insurance required by this Article 12, together with endorsements
showing that the parties have been named as additional insureds. Each of the
certificates shall provide that such insurance shall not be canceled or
materially amended unless at least thirty (30) days' prior written notice of
such cancellation or amendment is given to the party designated on such
certificate as the holder thereof. Landlord's sole obligation contained in this
Section 12.3 shall be to exercise commercially reasonable efforts to cause
delivery by Master Landlord to Tenant of a copy of Master Landlord's certificate
of insurance for the All Risk Insurance (or to deliver a copy if in Landlord's
possession). To the extent available on commercially reasonable terms and
conditions, all insurance to be maintained by Landlord and Tenant shall be
written on an "occurrence" rather than a "claims made" basis.

      12.4 Waiver of Subrogation. The provisions of Section 11.3 of the Master
Lease shall be applicable to this Sublease.

                                       22


13. CASUALTY AND CONDEMNATION.

      13.1 Termination Rights.

            (a) If the Master Premises are totally taken by Condemnation and the
Master Lease terminates in accordance with Section 13.2 thereof, this Sublease
shall automatically terminate as of the Date of Condemnation as referenced in
Section 13.1(c) of the Master Lease. If any event occurs which gives Master
Landlord the right to terminate the Master Lease under Articles 12 or 13 of the
Master Lease, and if Master Landlord exercises such right, this Sublease shall
automatically terminate on the same date as the Master Lease terminates. If any
event occurs which gives Landlord the right to terminate the Master Lease under
Articles 12 or 13 of the Master Lease, Landlord shall not exercise its right to
terminate the Master Lease with respect to any portion of the Sublease Premises
without the prior written consent of Tenant, which consent may be granted or
withheld in Tenant's sole discretion.

            (b) If any event occurs which gives Landlord the right to terminate
the Master Lease under Articles 12 or 13 of the Master Lease, and if Tenant
desires to terminate this Sublease, or any portion thereof, as a consequence of
such event, Landlord shall, upon Tenant's request, exercise Landlord's right to
terminate the Master Lease, or any portion thereof, if applicable. If the Master
Lease, is so terminated, this Sublease shall also terminate concurrently with
the termination of the Master Lease.

      13.2 Restoration. Landlord shall have no obligation to restore any portion
of the Building or Master Premises which Master Landlord is obligated to restore
under Article 12 or 13 of the Master Lease. However, if this Sublease is not
terminated under Article 12 or 13 of the Master Lease, Landlord shall use
commercially reasonable efforts to enforce Master Landlord's repair or
restoration obligations thereunder.

14. EVENTS OF DEFAULT.

      14.1 Tenant Defaults

            (a) Tenant shall be considered to be in default of this Sublease
upon the occurrence of any of the following events of default (each, a
"Default"), notwithstanding any contrary provision of the Master Lease:

                  (i) Tenant's failure to pay when due all or any portion of the
Rent if such failure continues for more than three (3) days after Landlord's
notice to Tenant of such delinquency.

                  (ii) The occurrence or existence of any act or omission by
Tenant which is described as a Default by Tenant under Section 5.3(c) or Section
10.1 of this Sublease.

                  (iii) Tenant's failure (other than a Default under Sections
14.1(a)(i) and 14.1(a)(ii) above) to comply with any term, provision or covenant
of this Sublease, if the failure is not cured within the earlier of: (A) twenty
(20) days after written notice to Tenant, provided, however, if Tenant's failure
to comply cannot reasonably be cured within twenty (20) days, Tenant shall be
allowed additional time as is reasonably necessary to cure the failure so long
as: (1) Tenant commences to cure the failure within twenty (20) days, and (2)
Tenant diligently pursues a course of action that will cure the failure and
bring Tenant back into

                                       23


compliance with this Sublease; or (B) twenty (20) days prior to the date that
such failure to comply would cause an Event of Default by Landlord under the
Master Lease.

                  (iv) Tenant (a) makes an assignment for the benefit of
creditors; (b) is adjudicated as insolvent; (c) files a petition (or files an
answer admitting the material allegations of a petition) under any state or
federal bankruptcy or other Laws affecting creditors' rights; (d) fails, within
ninety (90) days after the commencement of proceedings for relief under any
state or federal bankruptcy or other Laws affecting creditors' rights, to have
such proceedings dismissed; (e) has all or substantially all of its assets
subject to judicial seizure or attachment and such seizure or attachment is not
released within ninety (90) days; (f) consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of all or any substantial part
of its assets; or (g) fails within ninety (90) days after the appointment of
such a trustee, receiver or liquidator to have such appointment vacated (each,
an "Insolvency Proceeding").

                  (v) Tenant's leasehold estate under this Sublease is taken by
process or operation of Law.

                  (vi) Tenant abandons the Sublease Premises. For this purpose,
"abandonment" shall have the meaning provided in California Civil Code Section
1951.3.

            (b) Upon the occurrence of a Default by Tenant, Landlord shall have
all the remedies specified in Section 15.2 of the Master Lease, including,
without limitation, the remedies prescribed in Section 1951.2 and Section 1951.4
of the Civil Code of California, as set forth in the Master Lease, and such
additional remedies as are expressly provided in this Sublease.

      14.2 Landlord Default.

            (a) Except if a shorter or longer time period is specified in this
Sublease, Landlord's failure to pay any amount due to Tenant under this Sublease
or to perform any other obligation under this Sublease for more than thirty (30)
days after notice from Tenant to Landlord demanding such payment or performance
(which notice must detail with reasonable particularity the amount owed or the
obligation which is unperformed), such failure shall constitute a "Landlord
Default"; provided, however, that if a nonmonetary obligation of Landlord under
this Sublease cannot by its nature be cured in the exercise of reasonable
diligence within thirty (30) days after Tenant's notice, there shall be no
Landlord Default if Landlord commences performance within that period and
diligently proceeds to cure the failure of performance within a reasonable
period of time.

            (b) Upon the occurrence of a Landlord Default, Tenant may commence
an action for direct damages, and/or where appropriate, for specific performance
or injunctive relief, or exercise any other remedy expressly provided granted to
Tenant under this Sublease. However, notwithstanding any contrary provision of
this Sublease, Landlord will not be liable to Tenant for indirect, consequential
or punitive damages, including, without limitation, lost profits.

15. RIGHTS OF FIRST OFFER AND EXPANSION OPTION.

      15.1 Rights of First Offer. Tenant shall have rights of first offer
(individually and collectively, the "ROFO") to lease (a) the entire Rentable
Area on the fourth (4th) floor of the Building (the "Fourth Floor Space"), and
(b) the entire Rentable Area on the third (3rd) floor of the Building (the
"Third Floor Space"), on and subject to the terms and conditions set forth in

                                       24

this Article 15. The term "First Offer Space" refers to the Fourth Floor Space
and the Third Floor Space, both individually and collectively.

      15.2  Fourth Floor Space/ROFO.

            (a) Upon Landlord's receipt of a Proposal to Sublease (as defined
below) for all or a portion of the Fourth Floor Space which Landlord desires to
accept, Landlord shall notify Tenant of the Proposal to Sublease and Tenant
shall have five (5) business days after receipt of such notice to notify
Landlord in writing of Tenant's exercise of the ROFO with respect to the Fourth
Floor Space. During such five (5) business day period, Tenant and Tenant's
agents shall have the right to enter into the Fourth Floor Space for purposes of
due diligence inspection. If Tenant fails to exercise the ROFO as to the Fourth
Floor Space affected by such Proposal to Sublease (or as to the entire Fourth
Floor Space if the Proposal to Sublease affects fifty percent (50%) or more of
the Rentable Area of the Fourth Floor Space) within such five (5) Business Day
period, Tenant's ROFO as to the Fourth Floor Space affected by the Proposal to
Sublease (or as to the entire Fourth Floor Space if the Proposal to Sublease
affects fifty percent (50%) or more of the Rentable Area of the Fourth Floor
Space) shall lapse and be of no further force or effect.

            (b) If the Proposal to Sublease is for less than fifty percent (50%)
of the Rentable Area of the Fourth Floor Space, Tenant shall be required to
exercise the ROFO only as to the Rentable Area included in the Proposal to
Sublease, but may, at its option, exercise the ROFO for the entire Fourth Floor
Space (exclusive of any portion thereof as to which Tenant has previously chosen
not to exercise its ROFO or as to which the ROFO was unavailable to Tenant). If
the Proposal to Sublease is for fifty percent (50%) or more of the Rentable Area
of the Fourth Floor Space, Tenant must exercise the ROFO as to the entire Fourth
Floor Space (again exclusive of any portion thereof as to which Tenant has
previously chosen not to exercise its ROFO or as to which the ROFO was
unavailable to Tenant). Tenant's ROFO for the Fourth Floor Space shall continue
until Landlord has entered into leases with tenants occupying at least fifty
percent (50%) of the Rentable Area of the Fourth Floor Space, or Tenant has not
exercised the ROFO for a Proposal to Sublease for fifty percent (50%) or more of
the Rentable Area of the Fourth Floor Space.

            (c) If Tenant timely exercises the ROFO as to a portion of or all of
the Fourth Floor Space, the Fourth Floor Space shall be added to the Sublease
Premises on the first day of the calendar month immediately following Tenant's
delivery to Landlord of the notice exercising the ROFO (the "Fourth Floor
Commencement Date"), and all terms, covenants and conditions of this Sublease,
including the amount of Base Rent and Additional Rent, shall apply to the Fourth
Floor Space, except that: (i) the date for delivery of possession of the Fourth
Floor Space and the date Tenant's obligation to pay Rent with respect thereto
shall be the Fourth Floor Commencement Date; (ii) the Fourth Floor Space shall
be delivered in its "As Is" condition existing on the Fourth Floor Commencement
Date; (iii) the Required Amount of the Letter of Credit shall be increased by an
amount equal to fifty percent (50%) of the annual Base Rent payable for the
Fourth Floor Space ratably reduced by the then percentage reduction of the
original Letter of Credit specified in Section 5.4(b); (iv) Tenant's Pro Rata
Share shall be increased to reflect the ratio (expressed as a percentage) that
the Rentable Area of the Sublease Premises (taking into consideration the
addition of the Fourth Floor Space) bears to the total Rentable Area of the
Master Premises; (v) if the Fourth Floor Commencement Date occurs on or before
the second (2nd) anniversary of the Commencement Date, the Tenant Improvement
Allowance to be paid by Landlord to Tenant shall equal the product of Seventy
Dollars ($70) times the number of square feet of Rentable Area in the Fourth
Floor Space then

                                       25


being added to the Sublease Premises; and (vi) if the Fourth Floor Commencement
Date occurs after the second (2nd) anniversary of the Commencement Date, then
(A) the Base Rent for the Fourth Floor Space shall be the Fair Market Rental
Rate, (B) the Sublease Tax Base Year for the Fourth Floor Space shall be the
fiscal tax year ending in the calendar year in which the Fourth Floor
Commencement Date occurs (but not earlier than Tax Year 2005-2006), (C) the
Sublease Expense Base Year for the Fourth Floor Space shall be the calendar year
in which the Fourth Floor Commencement Date occurs, and (D) the Tenant
Improvement Allowance for the Fourth Floor Space shall be determined on the
basis of the Fair Market Rental Rate for the Fourth Floor Space. The items in
clauses (A) and (D) of Subsection 15.2(c)(vi), being the Fair Market Rental Rate
and the Tenant Improvement Allowance, are collectively referred to the "First
Offer Market Terms". The procedure for establishing the First Offer Market Terms
is set forth in Section 15.4 below. As used in this Section 15.2, a "Proposal to
Sublease" means a bona fide offer to sublease or non-binding letter of intent
for sublease submitted by or to a person not owned or controlled by Landlord
under which it is proposed that such person will sublease the Fourth Floor Space
on terms and conditions acceptable to Landlord (in Landlord's sole and absolute
discretion) and which Landlord agrees to in writing, subject to the ROFO.

      15.3  Third Floor Space/ROFO. Up to thirteen (13) months before Landlord
intends to cease occupying any portion of the Third Floor Space (or if Landlord
elects not to initially occupy any portion of the Third Floor Space, at any time
after Landlord makes such election), Landlord shall notify Tenant of Tenant's
right to exercise the ROFO with respect to the Third Floor Space. Tenant shall
have thirty (30) days after receipt of such notice within which to notify
Landlord in writing of Tenant's exercise of the ROFO with respect to the Third
Floor Space. During such thirty (30) day period, Tenant and Tenant's agents
shall have the right to enter into the Third Floor Space for purposes of due
diligence inspection. If Tenant fails to exercise the ROFO as to the Third Floor
Space within such thirty (30) day period, Tenant's ROFO as to the Third Floor
Space shall lapse and be of no further force or effect. Tenant may exercise the
ROFO only as to the entire Third Floor Space and not just a portion thereof. If
Tenant timely exercises the ROFO as to the Third Floor Space, the Third Floor
Space shall be added to the Sublease Premises demised by this Sublease on the
date specified in Landlord's notice to Tenant of its right to exercise the ROFO
as to the Third Floor Space (the "Third Floor Commencement Date"), and all
terms, covenants and conditions of this Sublease shall apply to the Third Floor
Space, except that: (a) the date for delivery of possession of the Third Floor
Space and the date Tenant's obligation to pay Rent with respect thereto shall be
the Third Floor Commencement Date; (b) the Third Floor Space shall be delivered
in its "As Is" condition existing on the Third Floor Commencement Date; (c) the
Base Rent for the Third Floor Space shall be the Fair Market Rental Rate; (d)
the Sublease Tax Base Year for the Third Floor Space shall be the fiscal tax
year ending in the calendar year in which the Third Floor Commencement Date
occurs; (e) the Sublease Expense Base Year for the Third Floor Space shall be
the calendar year in which the Third Floor Commencement Date occurs; (f)
Tenant's Pro Rata Share shall be increased to reflect the ratio (expressed as a
percentage) that the Rentable Area of the Sublease Premises (taking into
consideration the addition of the Third Floor Space) bears to the total Rentable
Area of the Master Premises; (g)the Tenant Improvement Allowance for the Third
Floor Space shall be determined on the basis of the First Offer Market Terms for
the Third Floor Space; and (h) the Required Amount of the Letter of Credit shall
be increased by an amount equal to fifty percent (50%) of the annual Base Rent
payable for the Third Floor Space ratably reduced by the then percentage
reduction of the original Letter of Credit specified in Section 5.4(b). The
procedure for establishing the First Offer Market Terms for the Third Floor
Space is set forth in Section 15.4 below.

                                       26


      15.4  Determining First Market Rental Rate/First Offer Market Terms. If
Tenant exercises its ROFO as to any First Offer Space under circumstances where
the Fair Market Rental Rate and other First Offer Market Terms therefor need to
be established, Landlord and Tenant shall promptly meet and in good faith
attempt to agree on: (a) the Fair Market Rental Rate for such First Offer Space;
and (b) with respect to Sections 15.2(c)(vi)(D) and 15.3(g), the Tenant
Improvement Allowance for such First Offer Space. As applied to the First Offer
Space, the "Fair Market Rental Rate" shall mean the rent at which tenants, as of
the Fourth Floor Commencement Date or the Third Floor Commencement Date,
whichever, is applicable, will be entering into new leases of non-sublease,
non-encumbered space on a full service basis comparable in size, location and
quality to the applicable First Offer Space, for a term equal to the remainder
of the Term, which comparable space is located in Comparable Buildings. The
determination of Fair Market Rental Rate shall take into account any material
economic differences between the terms of this Sublease and any comparison
lease, such as the presence or absence of the obligation to pay a leasing
commission, base years, the load factor for the applicable spaces, the length of
the term for such leases, rent abatements, tenant improvement obligations, free
rent periods, moving allowances, design allowances, the manner, if any, in which
a landlord under any such leases is reimbursed for operating expenses and taxes,
signage rights (excluding commercial billboard rights), building naming rights,
and any other concessions. However, except for payment of a Tenant Improvement
Allowance for the First Offer Space, Landlord shall not be obligated to make or
pay for any such monetary concessions or inducements. In determining the Tenant
Improvement Allowance for any First Offer Space, the quality and quantity of any
existing tenant improvements in the applicable First Offer Space shall be taken
into account. If the parties are unable to reach agreement on the First Offer
Market Terms within thirty (30) days after Tenant's exercise of the applicable
ROFO, then Landlord and Tenant shall meet and simultaneously exchange their
separate written determinations of the applicable First Offer Market Terms and
such determinations shall be submitted to arbitration in accordance with
Sections 15.4(a) through 15.4(f) below. Where the First Offer Market Terms are
to be determined by arbitration, the following procedures shall apply:

            (a) Landlord and Tenant shall each appoint one (1) arbitrator who
shall meet the qualifications set forth in Section 4.2(b) above. Each such
arbitrator shall be appointed within thirty (30) days after Tenant's exercise of
the applicable ROFO.

            (b) The two (2) arbitrators so appointed shall within ten (10)
business days of the date of the appointment of the last appointed arbitrator
agree upon and appoint a third arbitrator who shall be qualified under the same
criteria for qualification of the initial two (2) arbitrators, except that the
third arbitrator shall be independent and shall not have been previously engaged
by Landlord or Tenant for any purpose. The determination of the arbitrators
shall be limited solely to the issue of whether Landlord's or Tenant's submitted
First Offer Market Terms are the closest to the actual First Offer Market Terms
as determined by the arbitrators, taking into account the requirements of this
Section 15.4.

            (c) If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator within the time period provided in Section 15.4(b) above, then
the parties shall mutually select the independent third arbitrator. If Landlord
and Tenant are unable to agree upon the independent third arbitrator within ten
(10) days, then either party may, upon at least five (5) days' prior written
notice to the other party, request the Presiding Judge of the San Francisco
County Superior Court, acting in his private and nonjudicial capacity, to
appoint the third arbitrator.

                                       27


            (d) The three (3) arbitrators shall conduct a hearing within thirty
(30) days after the appointment of the third arbitrator and within ten (10) days
thereafter reach a decision as to which of the Landlord's or Tenant's submitted
First Offer Market Terms is closest to the actual First Offer Market Terms, and
the arbitrators shall use whichever of Landlord's or Tenant's submitted First
Offer Market Terms are closest to the actual First Offer Market Terms and shall
notify Landlord and Tenant thereof. The decision of a majority of the three (3)
arbitrators shall be binding upon Landlord and Tenant.

            (e) If either Landlord or Tenant fails to appoint an arbitrator
within thirty (30) days after Tenant's exercise of the applicable ROFO, and if
such failure shall continue for an additional fifteen (15) days after written
notice thereof is received by the non-appointing party, the arbitrator appointed
by one of them shall reach a decision, notify Landlord and Tenant thereof, and
such arbitrator's decision shall be binding upon Landlord and Tenant.

            (f) The cost of the arbitrators and the arbitration proceeding,
including without limitation reasonable attorneys' and expert witness fees,
shall be borne by the party whose submitted First Offer Market Terms are not
selected by the arbitrators.

      15.5  Option to Lease Fourth Floor Space. In addition to Tenant's ROFO
rights with respect to the Fourth Floor Space, Tenant shall have the exclusive
option ("Expansion Option") to lease all (but not less than all) of the Fourth
Floor Space on, and subject to, the following terms and conditions:

            (a) Tenant shall notify Landlord in writing of its irrevocable
exercise of the Expansion Option on or before 5:00 p.m. P.D.T. on June 1, 2005.
Tenant's notice exercising the Expansion Option shall specify the date Tenant
requires possession of the Fourth Floor Space. However, if such date is less
than ten (10) business days after Landlord's receipt of Tenant's notice
exercising the Expansion Option, Landlord shall have up to ten (10) business
days after receipt of such notice within which to deliver the Fourth Floor
Space.

            (b) If Tenant timely exercises the Expansion Option, the Fourth
Floor Space shall be added to the Sublease Premises demised by this Sublease on
the date for delivery of possession as specified in Tenant's notice exercising
the Expansion Option (in which case, for purposes of this Section 15.5 and the
Expansion Option, the Fourth Floor Commencement Date shall mean such delivery
date), and all terms, covenants and conditions of this Sublease, including the
amount of Base Rent and Additional Rent, shall apply to the Fourth Floor Space,
except that: (i) Tenant's obligation to pay Rent with respect to the Fourth
Floor Space shall commence one hundred fifty (150) days after Tenant delivers to
Landlord its notice exercising the Expansion Option; (ii)the Fourth Floor Space
shall be delivered in the same "As Is" condition as the Fourth Floor Space
exists on the Effective Date; (iii) the Required Amount of the Letter of Credit
shall be increased by an amount equal to fifty percent (50%) of the annual Base
Rent payable for the Fourth Floor Space ratably reduced by the then percentage
reduction of the original Letter of Credit specified in Section 5.4(b); (iv)
Tenant's Pro Rata Share shall be increased to reflect the ratio (expressed as a
percentage) that the Rentable Area of the Sublease Premises (taking into
consideration the addition of the Fourth Floor Space) bears to the total
Rentable Area of the Master Premises.

            (c) In the event Tenant does not exercise the Expansion Option on or
before 5:00 p.m. P.D.T., June 1, 2005, the Expansion Option shall be void and of
no further force or effect.

                                       28


            (d) Tenant's Expansion Option is granted in addition to, and
cumulative with, Tenant's Fourth Floor Space ROFO rights specified in this
Article 15, so that Tenant's ROFO for the Fourth Floor Space shall not be
affected by Tenant's failure to exercise the Expansion Option. However, if
Tenant exercises the Expansion Option, the ROFO shall be void and of no further
force or effect as to the Fourth Floor Space.

      15.6  Amendment to Sublease.

            (a) If Tenant exercises the ROFO as to any First Offer Space, or
exercises the Expansion Option, Landlord and Tenant shall promptly thereafter
execute an amendment to this Sublease memorializing in accordance with this
Sublease the terms and conditions applicable to the Third Floor Space or the
Fourth Floor Space thereby added to the Sublease Premises. The failure or
refusal of either party to execute any such amendment shall not alter or impair
either party's right to enforce this Sublease as to the Third Floor Space or the
Fourth Floor Space to which such ROFO or Expansion Option pertains.

            (b) If Tenant exercises its ROFO rights and the First Offer Market
Terms have not been established by agreement of the parties or by arbitration as
of the Fourth Floor Commencement Date or the Third Floor Commencement Date, as
applicable, the First Offer Market Terms specified in Landlord's written
determination under Section 15.4 above shall be applicable until a contrary
result is accomplished by agreement or arbitration, at which point the parties
shall make appropriate adjustments to the First Offer Market Terms, retroactive
to the Fourth Floor Commencement Date or the Third Floor Commencement Date, as
applicable.

      15.7  Suspension and Personal Nature of ROFO and Expansion Option.
Notwithstanding anything in this Article 15 to the contrary, at Landlord's
option, and in addition to all of Landlord's remedies under this Sublease, at
law or in equity (a) neither the ROFO nor the Expansion Option may be exercised
at any time Tenant is in material Default beyond any applicable cure period (and
Landlord shall not be obligated to give Tenant notice of any Proposal to
Sublease during the pendency of such material Default); and (b) the ROFO and
Expansion Option shall be deemed to have lapsed without being exercised by
Tenant if Tenant is in material Default beyond any applicable cure period, as of
either the date Tenant gives Landlord notice purporting to exercise the ROFO or
the Expansion Option or the scheduled Fourth Floor Commencement Date or the
Third Floor Commencement Date, as applicable. In addition, the ROFO and
Expansion Option are personal to The Gymboree Corporation and any Affiliate of
The Gymboree Corporation (as defined in Section 10.2) and may not be assigned,
voluntarily or involuntarily, or exercised for initial occupancy of the Third
Floor Space or Fourth Floor Space by any occupant other than The Gymboree
Corporation or its Affiliates.

      15.8  Existing Tenant Improvements. If Tenant exercises the ROFO as to the
Third Floor Space or Fourth Floor Space, or the Expansion Option as to the
Fourth Floor Space, Landlord shall not subsequently remove or make any material
modifications to the existing improvements in the Third Floor Space or Fourth
Floor Space to which such ROFO or Expansion Option pertains except with Tenant's
prior written consent, which consent shall not be unreasonably withheld,
conditioned or delayed.

16. HOLDING OVER.

      If Tenant or any person claiming occupancy rights by, through or under
Tenant ("Tenant Occupant") fails to surrender the Sublease Premises on the
Expiration Date or upon the earlier termination of this Sublease, the occupancy
by Tenant or Tenant Occupant of the Sublease

                                       29


Premises after the Expiration Date or earlier termination of this Sublease shall
be that of a tenancy at sufferance. The occupancy by Tenant or Tenant Occupant
of the Sublease Premises during tenancy at sufferance shall be subject to all
the terms and provisions of this Sublease and Tenant shall pay an amount (on a
per month basis without reduction for partial months during the holdover) equal
to the greater of: (a) the amount specified in the Master Lease based on Base
Rent and Additional Rent attributable to the Sublease Premises or (b) any and
all amounts assessed against Landlord by Master Landlord or paid by Landlord to
Master Landlord on account of Landlord's failure to surrender possession of the
Master Premises, at the expiration or earlier termination of the Master Lease,
provided, however, that if more than one subtenant is holding over as a tenant
at sufferance at the expiration or termination of the term of the Master Lease,
the amount paid or incurred to Master Landlord during periods there is more than
one such subtenant shall, for purposes of this clause 16(b), be apportioned
among all such subtenants which are holding over.

17. NOTICE.

      If a demand, request, approval, consent or notice (collectively referred
to as a "notice") shall or may be given to either party by the other, the notice
shall be in writing and delivered by hand or sent by registered or certified
mail with return receipt requested, or sent by overnight or same day courier
service at the party's respective Notice Address(es) set forth in Article 1,
except that if Tenant has vacated the Sublease Premises (or if the Notice
Address for Tenant is other than the Sublease Premises, and Tenant has vacated
such address) without providing Landlord a new Notice Address, Landlord may
serve notice in any manner described in this Article 17 or in any other manner
permitted by Law. Each notice shall be deemed to have been received or given on
the earlier to occur of actual delivery or the date on which delivery is
refused, or, if Tenant has vacated the Sublease Premises or the other Notice
Address of Tenant without providing a new Notice Address, three (3) days after
notice is deposited in the U.S. mail or with a courier service in the manner
described above. Either party may, at any time, change its Notice Address by
giving the other party written notice of the new address in the manner described
in this Article 17.

18. DISPUTE RESOLUTION.

      18.1  Interim Resolution.

            (a) As used in this Sublease, the term "Interim Resolution" refers
to the expedited dispute resolution procedure set forth in this Section 18.1.
The Interim Resolution procedure is applicable only in those instances
specifically identified in this Sublease.

            (b) Landlord or Tenant may initiate an Interim Resolution by making
written demand therefor upon the other party and delivering a copy of such
demand to the San Francisco office of JAMS. The written demand shall describe
with reasonable particularity the matter(s) in dispute and the relief sought by
the party initiating the Interim Resolution.

            (c) JAMS shall select a single neutral arbitrator ("Arbitrator")
meeting the qualifications stated below, and shall administer the Interim
Resolution in accordance with the AAA's Commercial Arbitration Rules (as then in
effect), except insofar as such Commercial Arbitration Rules conflict with the
express provisions of this Section 18.1. The Arbitrator shall be a retired
Superior Court judge with a minimum of ten (10) years experience on the bench or
a licensed California attorney with a minimum of fifteen (15) years experience
handling the negotiation and/or enforcement of commercial real estate matters.

                                       30


            (d) The Arbitrator shall conduct an initial hearing within fifteen
(15) days after his or her selection and shall endeavor to conclude all further
hearings needed to reach his or her decision within forty-five (45) days after
such appointment. All hearings shall be held in San Francisco, California,
unless the parties mutually agree on another venue. The hearings shall be
reported by a certified shorthand court reporter, and written transcripts shall
be made available to the parties on either party's request.

            (e) Within sixty (60) days after his or her appointment, the
Arbitrator shall prepare and provide to the parties a written decision on all
matters which are the subject of the Interim Resolution (the "Interim Resolution
Decision"). The Interim Resolution Decision shall include the factual findings
and legal conclusions which form the basis therefor. The Interim Resolution
Decision shall be binding on Landlord and Tenant only as provided in Section
18.1(g) below.

            (f) Subject to Section 18.1(g) below, the Arbitrator shall have the
power to grant such legal and equitable remedies and award such damages as may
be granted or awarded by a judge of the Superior Court of the State of
California; provided, however, that the Arbitrator shall not be empowered to
terminate the Sublease or release Tenant from all further obligations hereunder.
If the Interim Resolution Decision includes a grant of injunctive relief, the
Arbitrator shall require the party seeking such relief to post a surety bond to
secure payment of damages sustained by the party against which such relief is
granted should the Interim Resolution Decision be overturned as provided in
Section 18.1(g) below.

            (g) The Interim Resolution Decision shall be effective immediately
and bind the parties unless and until it is overturned. Not later than sixty
(60) days after issuance of the Interim Resolution Decision, either party may
commence an action in the Superior Court of California, or where required by the
Master Landlord Consent may initiate Master Lease Arbitration (as defined in
Section 18.2), to fully litigate all questions of fact and matters of law which
pertain to the dispute(s) which are subject to such Interim Resolution Decision.
The findings of fact and conclusion of law as set forth in the Interim
Resolution Decision shall have no precedential or binding effect, although sworn
testimony given in the Interim Resolution hearings may be admitted in evidence
for impeachment purposes. The issuance of a final judgment in such action, or
the confirmation of an award in a Master Lease Arbitration where required by the
Master Landlord Consent, shall automatically vacate and overturn the Interim
Resolution Decision. In the event a party suffers harm due to any variation
between relief granted in the Interim Resolution Decision and the final judgment
in the court action (or the award in any required Master Lease Arbitration), the
judgment in the court action shall include appropriate damages and such other
relief as may be needed to compensate for such harm. If no action is filed or
Master Lease Arbitration initiated within sixty (60) days after issuance of the
Interim Resolution Decision seeking to litigate factual or legal matters covered
by such Interim Resolution Decision, the particular Interim Resolution Decision
shall become final and binding on Landlord and Tenant.

            (h) The parties each shall have the right to file with a court of
competent jurisdiction an application for temporary or preliminary injunctive
relief, writ of attachment, writ of possession, temporary protective order
and/or appointment of a receiver, if the Interim Resolution Decision to which
the applicant may be entitled could be rendered ineffectual in the absence of
such relief, or if there is no other adequate remedy. Any such application shall
not act as a waiver of the applicant's rights to seek an Interim Resolution
Decision.

                                       31


            (i) In no event shall any demand for Interim Resolution be made
under Section 18.1(b) above, or any court action to be filed under Section
18.1(g) above, after the date that the institution of legal proceedings based on
the underlying claim, dispute or other matter would be barred by the applicable
statute of limitations.

      18.2  Arbitration of Certain Disputes. Under Section 6.11 of the Master
Landlord Consent, Master Landlord, Landlord and Tenant are obligated to
arbitrate certain disputes in proceedings administered by the AAA and
coordinated under the AAA's Commercial Arbitration Rules ("Master Lease
Arbitration"). The involvement of Landlord and Tenant in Master Lease
Arbitration proceedings shall preclude Landlord and Tenant from seeking an
Interim Resolution of matters disputed therein.

      18.3  Litigation. Except as otherwise expressly provided in this Sublease
and except as provided in Sections 18.1 and 18.2 of this Sublease, and in
Article 8 of the Work Letter, all disputes between Landlord and Tenant arising
out of this Sublease shall be resolved through litigation.

19. PARKING.

      19.1  Parking Spaces. Throughout the Term of this Sublease, Tenant shall
be permitted to lease parking spaces in the parking facility serving the
Building (the "Parking Facility") at the rate of up to one (1) parking space per
three thousand (3,000) square feet of Rentable Area of the Sublease Premises
(rounded down, in the case of a fraction, to the nearest whole number) on the
terms and conditions specified in Exhibit E to the Master Lease as applicable to
such spaces, including any rules and regulations of Master Landlord governing
the use of such parking spaces or the Parking Facility, and otherwise subject to
the provisions of the Master Lease. The number of initial parking spaces
allocated to Tenant at the Commencement Date is fifty-four (54) parking spaces.
Tenant's right to use such parking spaces is conditioned upon there being no
material Default by Tenant, beyond applicable cure periods, and Tenant paying to
Landlord, together with each monthly payment of Base Rent (or at such other time
as Landlord may designate), all Monthly Parking Rental (as defined in the Master
Lease) and other amounts (including late charges) Landlord is obligated to pay
to Master Landlord in respect of Tenant's use of such parking spaces, and
otherwise complying with the requirements for use thereof imposed by Master
Landlord or any operator of the Parking Facility. Tenant shall supply such
information regarding use of the parking spaces or other parking facilities as
Landlord or Master Landlord shall reasonably require in connection with the TMA
(as defined in Exhibit E to the Master Lease) and also shall refrain from any
act or omission which violates the TMA. Notwithstanding anything contained in
this Section 19.1, the number of parking spaces allocated to Tenant shall be
subject to the restrictions and requirements set forth in the TMA.

      19.2  Parking Allowance. Notwithstanding anything in Section 19.1 above to
the contrary, Landlord shall pay Tenant in cash an allowance for the reasonable
cost of providing Tenant employee parking up to a maximum amount of Five Hundred
Thousand and no/100 Dollars ($500,000.00) (the "Parking Allowance") for amounts
incurred by Tenant during a one year period (the "Parking Allowance Year")
commencing on the earlier of (a) six (6) months after the Commencement Date or
(b) the date Tenant has physically occupied at least fifty percent (50%) of the
Rentable Area of the Sublease Premises. Landlord shall pay Tenant twelve (12)
monthly installments of Forty-One Thousand Six Hundred Sixty-Six and no/100
Dollars ($41,666.00) each, commencing not later than thirty (30) days after
Tenant notifies Landlord that the Parking Allowance Year has commenced under
clause (a) or (b) above.

                                       32


Within sixty (60) days after the end of the Parking Allowance Year, Tenant shall
submit to Landlord a statement showing the actual parking charges paid or
incurred by Tenant during the Parking Allowance Year pursuant to Section 19.1,
and, if the parking spaces allocated under Section 19.1 above are insufficient
to accommodate Tenant's employees assigned to work in the Sublease Premises
during the Parking Allowance Year, to acquire parking rights during such Parking
Allowance Year at surrounding parking lots and parking garages for its employees
assigned to work in the Sublease Premises. Together with such statement, Tenant
shall provide Landlord with copies of all receipts and/or invoices evidencing
Tenant's payment of such parking costs. If the total costs set forth in Tenant's
statement are less than the amount of the Parking Allowance Landlord has
previously paid to Tenant, the statement shall be accompanied by Tenant's refund
of the excess Parking Allowance amount. If Landlord fails to pay Tenant any
monthly installment of the Parking Allowance when due, and if such failure
continues for more than thirty (30) days after Tenant gives Landlord written
notice of such delinquency, Tenant may deduct such unpaid amount from Rent
without limit.

20. SIGNAGE.

      20.1  Exterior Signs. Subject to the provisions of the Master Landlord
Consent, Landlord assigns to Tenant (together with any Affiliate transferee
specified in Section 10.2 above) all exterior signage rights granted to Landlord
pursuant to Section 35.1 of the Master Lease. Except as provided in Section 20.2
hereafter, Landlord shall have no rights to building signage. In the event of an
approved transfer pursuant to Article 10 of this Sublease, Tenant may assign its
signage rights to the approved transferee provided the transferee occupies at
least seventy-two percent (72%) of the Rentable Area of the Building.

      20.2  Lobby Signs. Landlord and Tenant shall share lobby directory signage
in proportion to the ratable share of Rentable Area in the Master Lease Premises
occupied by each party.

21. LOBBY.

      21.1  Tenant Refurbishment Right. Subject to the provisions of the Master
Lease and Master Landlord Consent, and with Landlord's and Master Landlord's
prior written approval (not to be unreasonably withheld, conditioned or
delayed), Tenant shall have the right, at its own cost and expense, to refurbish
the first floor common area and lobby areas ("Lobby") in a manner consistent
with first class standards observed by institutional owners of Comparable
Buildings in downtown San Francisco ("Tenant's Lobby Refurbishment Right").
Tenant's Lobby Refurbishment Right may be exercised more than one (1) time
during the Term to assure that the appearance of the Lobby remains aesthetically
"fresh" and consistent with first class standards ("Lobby Upgrade").

      21.2  Required Lobby Upgrade. In the event Tenant exercises Tenant's Lobby
Refurbishment Right, Tenant shall have a continuing obligation, at its sole cost
and expense, to perform the Lobby Upgrade utilizing commercially reasonable
repairs and refurbishments. In the event that Master Landlord, exercising its
commercially reasonable judgment, determines that Tenant has failed to perform
the Lobby Upgrade in a commercially reasonable manner and, after providing
Tenant with at least ninety (90) days' notice to cure same, Master Landlord
shall have the right to perform the Lobby Upgrade in a commercially reasonable
manner at Tenant's sole cost and expense.

                                       33


22. BUILDING NAME.

      Subject to the provisions of the Master Landlord Consent, provided Tenant
occupies at least one hundred sixty-two thousand, three hundred seventy-one
(162,371) square feet of the Rentable Area of the Master Lease Premises, at
Tenant's option, during the Term the Building shall be referred to as the
"Gymboree Building" or such other comparable name affiliated with The Gymboree
Corporation.

23. OFF SET LIMIT.

      23.1  Notwithstanding anything to the contrary contained in this Sublease,
except with respect to Tenant's right to offset Rent pursuant to Sections 19.2
and 27.3 of this Sublease, and Section 7, of the Work Letter Agreement, whenever
a provision in this Sublease gives Tenant a right to deduct or offset from Rent,
notwithstanding that multiple offset rights may be concurrently triggered, such
aggregate deduction(s) or offset(s) shall be limited to fifty percent (50%) of
each successive installment of Base Rent (the "Offset Limit") payable by Tenant.

      23.2  Exceptions. The Offset Limit shall not apply to Tenant's right of
offset pursuant to Sections 19.2 and 27.3 of this Sublease and Section 7 of the
Work Letter.

24. MASTER LEASE.

      24.1 Incorporation. The following provisions of the Master Lease are
incorporated by reference into this Sublease so that all obligations of
Landlord, as "Tenant" thereunder, shall be obligations of Tenant herein except
as expressly otherwise provided by this Sublease, and then only as provided by
this Sublease and only as applicable to the Sublease Premises.

            (a) Articles and Sections 5.1, 5.2, 5.3, 8, 10.1, 10.2, 10.3, 11.1,
11.3, 14.2, 14.3, 14.4, 14.6, 14.7, 14.8, 15.2, 16.1, 16.2, 17, 18, 19.1, 20.1,
20.2, 21.1, 23.1, 23.2, 26, 29.2, 33, 35 and 36 of the Master Lease.

            (b) Articles and Sections 1(d), 1(e), 6, and 10 of the Addition
Provisions Rider attached as Exhibit E to the Master Lease.

            (c) Exhibits B and D to the Master Lease.

      24.2  Limitations. The following limitations shall apply to the
interpretation and enforcement of provisions of the Master Lease which are
incorporated in this Sublease under Section 24.1 above:

            (a) Any non-liability, release, indemnity or hold harmless
provisions, and any provisions pertaining to waiver of subrogation rights and or
the naming of a party under an insurance policy, in the Master Lease for the
benefit of Master Landlord which are expressly incorporated herein by reference,
shall be deemed to inure to the benefit of Master Landlord and Landlord for the
purpose of this Sublease.

            (b) Any right of the Master Landlord for access or inspection under
the Master Lease and any right of the Master Landlord to do work in the Sublease
Premises or in the Building or in, on, or under the Common Areas under the
Master Lease, and any right of the Master Landlord in respect of rules and
regulations under the Master Lease, shall be deemed to inure to the benefit of
both the Master Landlord and Landlord.

                                       34


            (c) If any of the express provisions of this Sublease shall conflict
with any of the provisions of the Master Lease incorporated by reference, such
conflict shall be resolved in every instance in favor of the express provisions
of this Sublease. If any incorporated provision of the Master Lease
cross-references a provision of the Master Lease which is not incorporated in
this Sublease, such cross-referenced Master Lease provision shall be disregarded
except to the extent required for a fair and equitable interpretation of the
incorporated Master Lease provision.

            (d) Any obligation of Landlord which is contained in this Sublease
by the incorporation by reference of the provisions of the Master Lease shall be
observed or performed by Landlord using commercially reasonable efforts to cause
Master Landlord under the Master Lease to observe and/or perform the same, and,
except for the specific time periods specified in Sections 3.2(b), 6.2(c), and
7.2(a) of this Sublease, Landlord shall have a reasonable time to do so after
written notice from Tenant specifying with reasonable particularity the
deficiency in Landlord's performance under this Sublease.

            (e) With respect to any approval or consent required to be obtained
from Landlord under the Master Lease, such approval or consent must be obtained
from both Master Landlord and Landlord. Any approval or consent required of
Landlord conclusively shall be deemed reasonably withheld if approval or consent
also is required of the Master Landlord, and Master Landlord withholds Master
Landlord's approval or consent after commercially reasonable efforts by Landlord
to obtain same from Master Landlord.

      24.3  Assumption. Tenant shall assume and perform for the benefit of
Landlord and Master Landlord each and all of the conditions, covenants and
obligations to be performed by Landlord as Tenant under the Master Lease to the
extent said terms, covenants, conditions and obligations are incorporated in
this Sublease, are not modified or limited hereby and are applicable to the
Sublease Premises demised hereby. Tenant shall not commit or permit to be
committed on the Sublease Premises any act or omission which would constitute a
breach of any of the terms, covenants, conditions and obligations of Landlord
under the Master Lease.

      24.4  Tenant's Indemnity for Breach of Master Lease. Tenant shall
indemnify and save Landlord harmless against any loss, damage or injury,
including, without limitation, reasonable attorneys' fees, and/or any amounts
assessed against Landlord by Master Landlord under the Master Lease on account
of any Default by Tenant that shall give rise to an actual or potential Event of
Default under the Master Lease, which Landlord may suffer or incur under the
Master Lease as the result of Tenant's failure to observe, perform or otherwise
discharge its obligations under this Sublease, including, without limitation,
any provisions of the Master Lease that are incorporated herein. Tenant's
obligations in this Section 24.4 shall survive the Expiration Date or earlier
termination of this Sublease. Notwithstanding any other provision of this
Sublease to the contrary, in the event of any failure of Tenant to observe,
perform or otherwise discharge its obligations under this Sublease (and after
any notice and opportunity to cure as may be required under this Sublease) that
may cause an Event of Default to occur under the Master Lease, Landlord may, in
addition to all other remedies granted to Landlord under this Sublease, take
such action as may reasonably be required to prevent such matter from maturing
into an Event of Default under the Master Lease. Tenant shall pay all expenses
reasonably incurred by Landlord in connection therewith (together with interest
thereon at the Interest Rate from the date of expenditure) within thirty (30)
days after demand by Landlord; provided, however, in the event Tenant disputes
whether Tenant in fact breached the Sublease and/or that such breach would cause
an Event of Default to occur under the Master Lease,

                                       35


Tenant may require that the dispute be submitted to Interim Resolution pursuant
to Section 18.1 prior to payment of Landlord's demand.

      24.5  Performance of Master Lease by Landlord. Landlord shall perform all
obligations imposed on Landlord as "Tenant" under the Master Lease in accordance
with the terms thereof, except to the extent such obligations have been assumed
by Tenant under this Sublease. In the event Landlord defaults under the Master
Lease and such default is not caused or materially contributed to by Tenant's
failure to perform its obligations under this Sublease, Landlord shall indemnify
and hold Tenant harmless from and against any claims ("Claims") resulting from
such default (subject to the limitations expressed in Section 14.2(b) above), as
well as reimbursing Tenant for all expenses reasonably incurred by Tenant in
remedying any Event of Default by Landlord under the Master Lease. Landlord
shall pay all such Claims and expenses within thirty (30) days after demand by
Tenant. In the event Landlord disputes whether Tenant is entitled to indemnity
or in fact Landlord breached the Master Lease, Landlord may require that the
dispute be submitted for Interim Resolution pursuant to Section 18.1 prior to
the payment of Tenant's demand. In the event Landlord fails to pay Tenant's
demand in a timely manner and Landlord does not require that such Claims be
submitted for Interim Resolution, Tenant may offset the amount of its Claims and
expenses subject to the Offset Limit specified in Section 23.1.

      24.6  Confidentiality. A true and correct copy of the Master Lease is
attached as EXHIBIT A. Tenant covenants, represents and warrants that it shall
keep the terms of the Master Lease confidential and will not disclose any such
terms or distribute copies of the Master Lease to any person or entity without
obtaining the prior written consent of Landlord, except in the event of
litigation, arbitration or other proceedings between the parties.

      24.7  Master Lease Notices to Tenant. Within five (5) business days of
Landlord's receipt from Master Landlord of any notice pertaining to a default by
Landlord under the Master Lease or of any insurance certificate, document or
information provided by Master Landlord directly relevant to Tenant's use and
occupancy of the Sublease Premises, Landlord shall forward to Tenant a copy of
such notice.

25. LANDLORD COVENANTS AND WARRANTIES.

      25.1  Authority. Landlord represents and warrants that it has full
authority to execute and perform this Sublease and to grant the subject
leasehold estate to Tenant. Landlord further represents and warrants that, as of
the Effective Date: (a) Landlord has lawful leasehold title to the Sublease
Premises as provided in the Master Lease; (b) Landlord has not assigned or
encumbered its interest in the Master Lease; and (c) neither the Sublease
Premises nor the First Offer Space is subject to any sublease to any other
party. Notwithstanding the foregoing, Landlord represents and warrants only such
title as was conveyed to Landlord by the Master Lease, and Landlord shall not be
liable to Tenant for any defect in such title.

      25.2  Quiet Enjoyment. Subject to the provisions of the Master Landlord
Consent, Landlord covenants that, so long as Tenant fully and faithfully
performs its obligations under this Sublease, Tenant shall peaceably and quietly
have, hold and enjoy the Sublease Premises during the entire Term, without any
interference with its quiet enjoyment by any persons claiming by, through or
under Landlord.

      25.3  Violations. In the event of a material breach of Landlord's
representations and warranties under Section 25.1 above, or a material breach of
Landlord's covenant under

                                       36


Section 25.2 above, Tenant may give Landlord notice of the violation. If
Landlord fails to cure or cause to be cured the violation within ninety (90)
days of such notice, and if such violation has a material and adverse effect
upon Tenant's business operations in the Sublease Premises or Tenant's interest
in this Sublease, Tenant may exercise its remedies available at law and in
equity (subject to the limitation on Tenant's right to terminate this Sublease
expressed below); provided, however, if the nature of Landlord's violation is
such that Tenant's occupancy and use of the Sublease Premises is not disturbed
during Landlord's efforts to cure and Landlord is diligently attempting to cure
the violation, the aforesaid ninety (90) day period shall be extended for such
period (as long as Tenant's occupancy and use of the Sublease Premises is not
materially disturbed) that Landlord is diligently attempting to cure the
violation, and provided, further, that Tenant shall have no right to terminate
this Sublease for breach of Landlord's covenant in Section 25.2 above except
where Landlord concurrently has the right to terminate the Master Lease.

26. MASTER LANDLORD CONSENT AND NON-DISTURBANCE.

      26.1  Consent by Master Landlord. The Master Landlord's prior written
consent to and approval of this Sublease substantially in the form attached as
hereto as EXHIBIT F (the "Master Landlord Consent"), is a condition precedent to
the rights and obligations of Landlord and Tenant under this Sublease. Tenant
agrees to comply with any specific terms of the Master Landlord Consent
applicable to Tenant. If the Master Landlord Consent is not obtained within
thirty (30) days after the Effective Date, then this Sublease may be, at the
option of either Landlord or Tenant to be exercised by written notice to the
other, terminated and rendered null and void.

      26.2  SNDA. If on the Effective Date the Building or this Sublease is
subject to any mortgage or deed of trust which has priority over this Sublease,
the rights and obligations of Landlord and Tenant under this Sublease are
further conditioned upon the execution and delivery by the holder of such
mortgage or deed of trust (the "Lender") of a Subordination, Nondisturbance and
Attornment Agreement (the "SNDA") in a commercially reasonable form reasonably
agreeable to Tenant. If the SNDA is not fully executed and delivered to Tenant
within twenty (20) days after the Master Landlord Consent is obtained, Tenant
may terminate this Sublease upon notice to Landlord. This condition, which is
for Tenant's sole benefit, shall be deemed waived if Tenant does not elect to
terminate this Sublease within twenty-five (25) days after the Master Landlord
Consent is obtained and a copy thereof is delivered to Tenant.

27. ASSIGNMENT AND ASSUMPTION OF BURLINGAME LEASES.

      27.1  Assignment and Assumption. Subject to the conditions stated in
Section 27.2 below, on the Commencement Date Tenant shall assign to Landlord all
of Tenant's right, title and interest in and to Tenant's leases for the
commercial premises located at 700 Airport Boulevard and 770 Airport Boulevard,
Burlingame, California (individually, a "Burlingame Lease" and collectively, the
"Burlingame Leases"), and Landlord shall assume all of the obligations of Tenant
under the Burlingame Leases to the extent such obligations first accrue and are
to be performed under the Burlingame Leases on or after the Commencement Date of
this Sublease. The assignment and assumption of the Burlingame Leases shall be
accomplished with respect to each of the Burlingame Leases pursuant to the
Assignment and Assumption Agreement substantially in the forms attached as
EXHIBIT E AND EXHIBIT E-1, respectively, to this Sublease.

      27.2  Conditions. Landlord's obligation to enter into an Assignment and
Assumption Agreement for each of the Burlingame Leases is subject to the
satisfaction or waiver by

                                       37


Landlord, in Landlord's sole discretion, of the following conditions with
respect to each such Burlingame Lease: (a) if required, the landlord thereunder
has given its consent thereto on the terms of the applicable Assignment and
Assumption Agreement; (b) Tenant is not in default thereunder and there exists
no event or condition which with the passage of time or the giving of notice, or
both, would constitute a default thereunder; (c) there must be no sublease
thereunder which was not in effect and disclosed to Landlord prior to the date
this Sublease was fully executed and delivered by Landlord and Tenant; (d) if
there is any sublease which was in effect and disclosed to Landlord, neither
Tenant nor the subtenant is in default and there exists no event or condition
which with the passage of time or the giving of notice, or both, would
constitute a default under such sublease; and (e) each applicable Burlingame
Lease is in full force and effect and has not been modified or amended beyond
such modifications or amendments as existed on the date this Sublease is fully
executed by Landlord and Tenant.

      27.3  Landlord Indemnity: Tenant Offset Right: Letter of Credit.

            (a) Pursuant to Section 4.2(b) of each of the Assignment and
Assumption Agreements, Landlord agrees to indemnify and hold Tenant harmless
from and against all claims, actions, losses, damages, liabilities, and expenses
(including reasonable attorneys' fees and costs) resulting from Landlord's
breach of the Assignment and Assumption Agreements ("Indemnity Claims").

            (b) In addition to Tenant's remedies at law or equity, Tenant shall
have the following rights with respect to such Indemnity Claims and Landlord's
default under the Assignment and Assumption Agreements: (i) Tenant shall have
the right to deduct and offset against any Rent payments (whether Base Rent or
Additional Rent) due under this Sublease the amount of any and all of such
Indemnity Claims under the Assignment and Assumption Agreements which have been
reduced to a final, unappealable judgment against Tenant or Landlord, without
regard to the Offset Limit specified in Section 23.2 of this Sublease; and (ii)
further, if Tenant makes written demand on Landlord to cure Landlord's alleged
breach of those obligations imposed by the Burlingame Leases which Landlord has
assumed under the Assignment and Assumption of Leases, and if Landlord fails to
cure such alleged breach within sixty (60) days after such demand, Tenant may
initiate an Interim Resolution under Section 18.1 above seeking authorization to
cure Landlord's alleged breach of the Burlingame Leases. In rendering his or her
Interim Resolution Decision, the Arbitrator shall determine whether Landlord has
a bona fide defense to the claim that it has breached its assumed obligations
under the Burlingame Leases. If the Arbitrator determines that Landlord has such
a bona fide defense, the Interim Resolution Decision shall not authorize Tenant
to cure Landlord's alleged breach of the assumed obligations under the
Burlingame Leases. On the other hand, if the Arbitrator determines that Landlord
does not have a bona fide defense to the claim that it has breached the assumed
obligations under the Burlingame Leases, the Interim Resolution Decision shall
authorize Tenant to cure Landlord's alleged breach and to offset the reasonable
costs incurred by Tenant in curing Landlord's breach and other Indemnity Claims
against any Rent payments due under this Sublease, also without regard to the
Offset Limit specified in Article 23 above (and despite the fact that the
Interim Resolution Decision is not a final, unappealable judgment against
Landlord).

            (c) Pursuant to Sections 3.4 and 3.5 of the Master Landlord Consent,
upon Tenant's attornment and Master Landlord's recognition of this Sublease,
Master Landlord is not bound to certain provisions of the Sublease, including
Tenant's offset rights specified in Section 27.3(b) above. Accordingly, in order
to secure Tenant's rights against Landlord pursuant to Sections 27.3(a) and
27.3(b) in the event of Tenant's attornment and Master

                                       38


Landlord's recognition of this Sublease, Landlord shall, upon full execution of
this Sublease and satisfaction (or where permitted, the waiver) of all Sublease
Conditions, deliver to Tenant an unconditional, irrevocable letter of credit
(the "Landlord Letter of Credit") in an amount equal to Five Million Dollars
($5,000,000) ("Initial Required Amount") and satisfying the requirements and
conditions specified in Section 27.3(d) below.

            (d) The Landlord Letter of Credit shall satisfy the following
requirements and conditions:

                  (i)   The issuer ("Issuer") of the Landlord Letter of Credit
shall be a federally chartered banking institution reasonably acceptable to
Tenant, with an office in San Francisco, California, allowing the Landlord
Letter of Credit to be presented to and paid by such office pursuant to
procedures reasonably acceptable to Landlord.

                  (ii)  The Landlord Letter of Credit shall (A) be a stand-by,
at-sight, irrevocable letter of credit; (B) be payable to Tenant (the
"Beneficiary/Tenant"); (C) require that any draw on the Landlord Letter of
Credit be made upon receipt by the Issuer of only a letter signed by an
authorized representative of the Beneficiary/Tenant certifying that the
Beneficiary/Tenant is entitled to draw on the Landlord Letter of Credit and
specifying the Tenant Draw Event (as hereinafter defined in Section 27.3(d)(iv))
together with an estimate of Tenant's damages; (D) allow partial draws; (E) be
issued for a term of no less than one (1) year; and (F) provide that the
Landlord Letter of Credit is governed by the Uniform Customs and Practice for
Documentary Credits (1993 revisions) or the International Standby Practices (ISP
98). Except as otherwise expressly provided in Section 27.3(d)(v) below,
Landlord shall, at its expense, keep the Landlord Letter of Credit in full force
and effect until November 30, 2006.

                  (iii) At any time after a Tenant Draw Event (defined in
Section 27.3(d)(iv) below) occurs, the Beneficiary/Tenant may present its
written demand to Issuer for payment of a portion of the amount of the Landlord
Letter of Credit as is required to compensate Tenant for damages incurred
pursuant to Section 27.3(b) above, (with subsequent demands at the
Beneficiary/Tenant's sole election as Tenant incurs further damages) and the
Tenant Draw Proceeds so obtained may be applied to the extent reasonably
required to satisfy Tenant's Indemnity Claims.

                  (iv)  A "Tenant Draw Event" shall mean either of the
following: (i) Tenant would be entitled to offset against Rent unsatisfied
Indemnity Claims pursuant to Section 27.3(b) above but for Tenant's attornment
to Master Landlord pursuant to the Consent, or (ii) the Landlord Letter of
Credit is not replaced with another Landlord Letter of Credit meeting the
requirements of this Section 27.3(d) from an issuer reasonably approved by
Tenant at least thirty (30) days prior to the expiry date of the Landlord Letter
of Credit then held by Tenant.

                  (v)   Provided there exists no material default by Landlord
under the Assignment and Assumption Agreements (beyond applicable notice and
cure periods, if any), and Tenant has not previously made any Indemnity Claims
against Landlord pursuant to Section 27.3(b) above which remain unpaid or the
subject of a pending Interim Resolution, Landlord shall be permitted to reduce
the Initial Required Amount of the Landlord Letter of Credit as follows:

                              (A)  Upon the termination of the 700 Airport
Boulevard, Burlingame Lease ("700 Airport Lease") prior to its natural
expiration date pursuant to written

                                       39


agreement with the 700 Airport Lease landlord, and release of Tenant (The
Gymboree Corporation) from any liability with respect to the 700 Airport Lease
except any of Gymboree's Retained Obligations specified in Section 2.2 of the
700 Airport Boulevard Assignment and Assumption Agreement, the Initial Required
Amount shall be reduced by sixty percent (60%).

                              (B)  Upon the termination of the 770 Airport
Boulevard, Burlingame Lease ("770 Airport Lease") prior to its natural
expiration date pursuant to written agreement with the 770 Airport Lease
landlord, and release of Tenant (The Gymboree Corporation) from any liability
with respect to the 770 Airport Lease except any of Gymboree's Retained
Obligations specified in Section 2.2 of the 770 Airport Boulevard Assignment and
Assumption Agreement, the Initial Required Amount shall be reduced by forty
percent (40%).

                              (C)  Upon the termination of both the 700 Airport
Lease and the 770 Airport Lease in accordance with Sections 27.3(d)(v)(A) and
(B) immediately preceding, the Initial Required Amount shall be reduced to zero
(0) and the Letter of Credit obligation shall cease.

                              (D)  On November 1, 2005, the Initial Required
Amount, as and if reduced pursuant to Sections 27.3(d)(v)(A) or 27.3(d)(v)(B)
above, shall be reduced by forty percent (40%).

      27.4  Condition. Full execution of both Assignment and Assumption
Agreements is a condition precedent to the effectiveness of this Sublease. If
both Assignment and Assumption Agreements are not fully executed and delivered
to Landlord and Tenant within thirty (30) days after the Effective Date, then
this Sublease may be, at the option of either Landlord or Tenant to be exercised
by written notice to the other, terminated and rendered null and void.

28. MISCELLANEOUS.

      28.1  Governing Law: Severability: Headings. This Sublease and the rights
and obligations of the parties shall be interpreted, construed and enforced in
accordance with the Laws of the State of California and Landlord and Tenant
hereby irrevocably consent to the jurisdiction and proper venue of such state.
If any term or provision of this Sublease shall to any extent be invalid or
unenforceable, the remainder of this Sublease shall not be affected, and each
provision of this Sublease shall be valid and enforced to the fullest extent
permitted by Law. The captions and headings to the Articles and Sections of this
Sublease are for convenience only and shall have no effect on the interpretation
of any part of this Sublease.

      28.2  Recording. Tenant shall not record this Sublease but Tenant and
Landlord shall execute a short form Memorandum of Sublease substantially in the
form of attached EXHIBIT G which may be recorded by Tenant. However, if Tenant
records such Memorandum of Sublease, Tenant shall not be deemed to have properly
surrendered possession of the Sublease Premises for purposes of Article 16 above
until Tenant has executed, acknowledged and delivered to Landlord a quitclaim
deed extinguishing the effect of such Memorandum.

      28.3  Waiver of Jury Trial. LANDLORD AND TENANT HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY PROCEEDING TO ENFORCE OR INTERPRET THIS SUBLEASE.

                                       40


      28.4  Brokers. Landlord and Tenant warrant and represent that they have
had no dealings with any real estate broker or agent in connection with the
negotiation of this Sublease except for Brokers (set forth in Section 1(C)
above) and that they know of no other real estate broker or agent who is or
might be entitled to a commission in connection with this Sublease. Landlord
agrees that it shall pay to Cushman & Wakefield a fee in the amount Nine Dollars
and Forty-Six Cents ($9.46) per square feet of Rentable Area of the Sublease
Premises upon execution of this Sublease and satisfaction or waiver of the
conditions stated in Recital E above. Landlord and Tenant each agree to
indemnify, defend and hold the other party harmless from and against any and all
liabilities or expenses, including attorneys' fees and costs, arising out of or
in connection with a breach of the representation contained in this Section
28.4.

      28.5  Tenant Authority. Tenant covenants, warrants and represents that:
(a) each individual executing, attesting and/or delivering this Sublease on
behalf of Tenant is authorized to do so on behalf of Tenant; (b) this Sublease
is binding upon Tenant; and (c) Tenant is duly organized and legally existing in
the state of its organization and is qualified to do business in the State of
California. Notices, payments and agreements given or made by, with or to any
one person or entity shall be deemed to have been given or made by, with and to
all of them.

      28.6  Landlord Authority. Landlord covenants, warrants and represents
that: (a) each individual executing, attesting and/or delivering this Sublease
on behalf of Landlord is authorized to do so on behalf of Landlord; (b) this
Sublease is binding upon Landlord; and (c) Landlord is duly organized and
legally existing in the state of its organization and is qualified to do
business in the State of California. Notices, payments and agreements given or
made by, with or to any one person or entity shall be deemed to have been given
or made by, with and to all of them.

      28.7  Survival. The expiration of the Term, whether by lapse of time or
otherwise, shall not relieve either party of any obligations which accrued prior
to or which may continue to accrue after the expiration or early termination of
this Sublease. Without limiting the scope of the prior sentence, it is agreed
that Tenant's or Landlord's obligations under any provision of this Sublease or
the Master Lease that is expressly provided by its terms to survive termination
of this Sublease shall survive the expiration or early termination of this
Sublease.

      28.8  Rules. Tenant shall comply with the Building Rules attached as
EXHIBIT C to the Master Lease and such other reasonable non-discriminatory rules
and regulations adopted by Landlord from time to time as are not inconsistent
with this Sublease (the "Supplemental Rules"). Landlord shall, promptly after it
receives any amendment to the Building Rules under the Master Lease, provide
Tenant with copies of same. Tenant shall also cause its agents, contractors,
subcontractors, employees, customers, and subtenants to comply with all Building
Rules and Supplemental Rules. Landlord shall not knowingly discriminate against
Tenant in Landlord's enforcement of the Building Rules and Supplemental Rules.

                                       41


      28.9  Further Documents/Good Faith. The parties shall exercise good faith
and due diligence to finalize the exact language and execute the following
Exhibits substantially in the form attached hereto:

               - Assignment and Assumption Agreement (700 Airport Blvd.,
                 Burlingame, CA) - EXHIBIT E

               - Assignment and Assumption Agreement (770 Airport Blvd.,
                 Burlingame, CA) - EXHIBIT E-1

               - Master Landlord Consent - EXHIBIT F

               - Memorandum of Sublease - Exhibit G

Further, the parties shall execute any and all commercially reasonable documents
necessary to effect the express intentions of this Sublease.

29. FORCE MAJEURE.

      Subject to the limitations expressed below, if Landlord or Tenant is
delayed, interrupted or prevented from performing any of its obligations under
this Sublease (including Tenant's obligations under the Work Letter), and such
delay, interruption or prevention is due to fire, act of God, governmental act
or failure to act, unavailability of materials or any cause outside the
reasonable control of the party which is to perform the obligation(s)
(excluding, however, inability to perform due to insolvency, illiquidity or
other financial constraints), then the time for performance of the affected
obligations shall be extended for a period equivalent to the period of such
delay, interruption or prevention. The provisions of this Article 29 shall not:
(a) extend the due date for the payment of any Rent or the performance of any
obligation of Tenant which requires the payment of money to others; (b) alter
the Commencement Date; (c) extend the period for Tenant's performance where, as
a consequence of such delay, there would exist an Event of Default under the
Master Lease; or (d) delay the deadline for Tenant's exercise of any right or
option under this Sublease.

30. ENTIRE AGREEMENT.

      This Sublease and the following exhibits constitute the entire agreement
between the parties and supersede all prior agreements and understandings
related to the Sublease Premises, including all lease proposals, letters of
intent and other documents: EXHIBIT A (Master Lease), EXHIBIT A-1 (Outline and
Location of Sublease Premises), EXHIBIT B (Commencement Certificate), EXHIBIT C
(Building Rules), EXHIBIT D (Work Letter Agreement), EXHIBITS E and E-1
(Assignment and Assumption Agreements), EXHIBIT F (Master Landlord

                                       42


Consent), and EXHIBIT G (Memorandum of Sublease). Except as otherwise provided
in this Sublease, all exhibits are hereby incorporated herein as an integral
part of this Sublease.

      Landlord and Tenant have executed this Sublease as of the day and year
first above written.

                                 LANDLORD:

                                 SUN MICROSYSTEMS, INC., A DELAWARE CORPORATION

                                 By:/s/ David M. Harris
                                    ----------------------------
                                 Name:  David M. Harris
                                 Title: Vice President

                                 TENANT:

                                 THE GYMBOREE CORPORATION, A DELAWARE
                                 CORPORATION

                                 By:/s/ Lisa Harper
                                     -----------------------------
                                 Name:  Lisa Harper
                                 Title: CEO and Chairman

                                       43

EX-15

                                                                      EXHIBIT 15

June 9, 2004

The Gymboree Corporation:

We have made reviews, in accordance with standards established by the Public
Company Oversight Board (United States), of the unaudited interim financial
information of The Gymboree Corporation and subsidiaries for the three month
period ended May 1, 2004 and May 3, 2003 as indicated in our report dated June
9, 2004 (which report includes an emphasis of a matter paragraph regarding a
change in accounting principle); because we did not perform an audit, we
expressed no opinion on that information.

We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended May 1, 2004, is incorporated
by reference in Registration Statement Nos. 33-90452, 33-94594, 333-10811,
333-74269, 333-89962 and 333-107564 of The Gymboree Corporation and subsidiaries
each on Form S-8.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.

Yours truly,

/s/Deloitte & Touche LLP
San Francisco, California

EX-18

                                                                      EXHIBIT 18

June 9, 2004

The Gymboree Corporation
700 Airport Boulevard, Suite 200
Burlingame, CA 94010

Dear Sirs/Madams:

At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended May
1, 2004, of the facts relating to the change in the accounting method for
inventory valuation from the retail method to the lower of cost or market
method, determined on a weighted average basis. We believe, on the basis of the
facts so set forth and other information furnished to us by appropriate
officials of the Company, that the accounting change described in your Form 10-Q
is to an alternative accounting principle that is preferable under the
circumstances.

We have not audited any consolidated financial statements of The Gymboree
Corporation and its consolidated subsidiaries as of any date or for any period
subsequent to January 31, 2004. Therefore, we are unable to express, and we do
not express, an opinion on the facts set forth in the above-mentioned Form 10-Q,
on the related information furnished to us by officials of the Company, or on
the financial position, results of operations, or cash flows of The Gymboree
Corporation and its consolidated subsidiaries as of any date or for any period
subsequent to January 31, 2004.

Yours truly,

/s/ Deloitte and Touche LLP
San Francisco, California

EX-31.1

                                                                    EXHIBIT 31.1

CERTIFICATION

I, Lisa Harper, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of The Gymboree
      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
      quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

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

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (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 (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

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

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and



            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

June 9, 2004                                         By: /s/ Lisa Harper
- --------------------------                           ---------------------------
Date                                                 Lisa Harper
                                                     Chief Executive Officer and
                                                     Chairman of the Board

EX-31.2

                                                                    EXHIBIT 31.2

CERTIFICATION

I, Myles McCormick, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of The Gymboree
      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
      quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

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

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (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 (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

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

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely



                  affect the registrant's ability to record, process, summarize
                  and report financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

June 9, 2004                          By: /s/ Myles McCormick
- --------------------------            ------------------------------------------
Date                                  Myles McCormick
                                      Chief Financial Officer and
                                      Principal Financial and Accounting Officer

EX-32.1

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of The Gymboree Corporation (the
"Company") on Form 10-Q for the period ended May 1, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, Lisa
Harper, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:

      (1)   The Form 10-Q fully complies with the requirements of Section 13(a)
            or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
            78o(d)); and

      (2)   The information contained in the Form 10-Q fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

   June 9, 2004                                  By: /s/ Lisa Harper
- ---------------------                -------------------------------------------
       Date                                          Lisa Harper
                                     Chief Executive Officer and Chairman of the
                                                        Board

EX-32.2

                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of The Gymboree Corporation (the
"Company") on Form 10-Q for the period ended May 1, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I,
Myles McCormick, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:

      (1)   The Form 10-Q fully complies with the requirements of Section 13(a)
            or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
            78o(d)); and

      (2)   The information contained in the Form 10-Q fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

    June 9, 2004                          By: /s/ Myles McCormick
- ---------------------             ----------------------------------------------
       Date                                    Myles McCormick
                                 Chief Financial Officer and Principal Financial
                                           and Accounting Officer