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<p align="center"><font size="3"><strong>UNITED STATES</br>
SECURITIES AND EXCHANGE COMMISSION</br>
Washington, D.C. 20549</strong></font></p>
<br>
<HR WIDTH="25%">
<p align="center"><font size="4"><strong>FORM 10-K</strong></font></p>
<HR WIDTH="25%">
<br>
<p align="center"><font size="3"><strong>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
</strong></font></p>
<p align="center"><font size="3" color="FF0000"><strong>
For the fiscal year ended December 31, 1999
</strong></font></p>
<p align="center"><font size="3"><strong> OR </strong></font></p>
<p align="center"><font size="3"><strong>
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
</strong></font></p>
<p align="center"><font size="3"><strong>
For the transition period from ________to _________
</strong></font></p>
<p align="center"><font size="3"><strong>
Commission File Number: 0-20725
</strong></font></p>
<p align="center"><font size="6" color="#0000FF"><strong>
<u> SIEBEL SYSTEMS, INC.</u>
</strong></font></br>
<font size="2">
(Exact name of registrant as specified in its charter)
</font></p>
<P>
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<TR>
<TD>
<font size="3"><strong>
<CENTER><u>Delaware</u></CENTER>
</font></strong>
</TD>
<TD>
<font size="3"><strong>
<CENTER><u>94-3187233</u></CENTER>
</font></strong>
</TD>
</TR>
<TR>
<TD>
<font size="2">
<CENTER> (State or Other Jurisdiction of Incorporation or Organization) </CENTER>
</font>
</TD>
<TD>
<font size="2">
<CENTER>(IRS Employer Identification Number)</CENTER>
</font>
</TD>
</TR>
</TABLE>
<BR>
<p align="center"><font size="3"><strong>
1855 South Grant Street<br>
<u>San Mateo, CA 94402
</strong></font></u><br>
<font size="2">
(Address of principal executive offices, including zip code)
</font></p>
<p align="center"><font size="3"><strong><u>
(650) 295-5000
</strong></font></u><br>
<font size="2">
(Registrant's telephone number, including area code)
</font></p>
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<p>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ] </p>
<p>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K. [ ] </p>
<p>
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the closing sale price of the Common Stock on
February 10, 2000 as reported on the Nasdaq National Market was
approximately $13,578,741,895. Shares of Common Stock held by each current
executive officer and director and by each person who is known by the
registrant to own 5% or more of the outstanding Common Stock have been
excluded from this computation in that such persons may be deemed to be
affiliates of the Company. Share ownership information of certain persons
known by the Company to own greater than 5% of the outstanding common
stock for purposes of the preceding calculation is based solely on
information on Schedule 13G filed with the Commission and is as of
December 31, 1999. This determination of affiliate status is not a
conclusive determination for other purposes.
<p>
The number of shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of February 10, 2000, was 195,969,654.
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<p align="center"></font><strong>
SIEBEL SYSTEMS, INC.
</strong><br>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999<br></p>
</strong></p>
<p align="center"><strong>
TABLE OF CONTENTS
</strong></p>
<p align="center"><strong>
PART I
</strong></p>
<p><A HREF="#item1">
Item 1. Business</A><br>
<p><A HREF="#item2">
Item 2. Properties</A><br>
<p><A HREF="#item3">
Item 3. Legal Proceedings</A><br>
<p><A HREF="#item4">
Item 4. Submission of Matters to a Vote of Security Holders</A><br>
<p align="center"><strong>
PART II
</strong></p>
<p><A HREF="#item5">
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters</A><br>
<p><A HREF="#item6">
Item 6. Selected Financial Data</A><br>
<p><A HREF="#item7">
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations</A><br>
<p><A HREF="#item7a">
Item 7A. Quantitative and Qualitative Disclosure About Market Risks</A><br>
<p><A HREF="#item8">
Item 8. Financial Statements and Supplementary Data</A><br>
<p><A HREF="#item9">
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure</A><br>
<p align="center"><strong>
PART III
</strong></p>
<p><A HREF="#item10">
Item 10. Directors and Executive Officers of the Registrant</A><br>
<p><A HREF="#item11">
Item 11. Executive Compensation</A><br>
<p><A HREF="#item12">
Item 12. Security Ownership of Certain Beneficial Owners and Management</A><br>
<p><A HREF="#item13">
Item 13. Certain Relationships and Related Transactions</A><br>
<p align="center"><strong>
PART IV
</strong></p>
<p><A HREF="#item14">
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K<br>
<p align="left"><strong>
<A HREF="#sign">
<p>SIGNATURE</A>
</strong></p>
<p align="center"><strong>
Documents Incorporated By Reference
</strong></p>
<p> Portions of the registrant's Proxy Statement for its 2000 Annual
Stockholders Meeting are incorporated by reference in Part III hereof.
<p align="center"><strong> PART I </strong></p>
<p> <I> The statements contained in this annual report on
Form 10-K that are not historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended, including statements
regarding our expectations, beliefs, intentions or strategies regarding the
future. Forward-looking statements include statements regarding the extent and
timing of future revenues and expenses and customer demand, statements regarding
the deployment of our products, and statements regarding reliance on third
parties. All forward-looking statements included in this document are based on
information available to us as of the date hereof, and we assume no obligation
to update any forward-looking statement. It is important to note that our actual
results could differ materially from those in forward-looking statements as a
result of many factors, including those discussed under the heading "Risk
Factors" and elsewhere in this report.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P></I>
<A NAME="item1"></A>
<B><U><P>Item 1. Business</P></U>
<P ALIGN="JUSTIFY">Overview</P></B>
<p> Siebel
Systems is the world's leading provider of eBusiness applications. Siebel
eBusiness Applications enable organizations to sell to, market to, and service
their customers across multiple channels, including the Web, call centers,
field, resellers, retail, and dealer networks. By employing comprehensive
eBusiness applications to better manage their customer relationships, our
customers continue to be leaders in their markets.</P>
<P ALIGN="JUSTIFY"></P>
<p> Siebel eBusiness Applications are available in industry-specific
versions designed for the pharmaceutical, healthcare, consumer goods,
telecommunications, insurance, energy, apparel and footwear, automotive,
technology, public sector, and finance markets. With best-of-class functionality
of eBusiness software, Siebel eBusiness Applications enable organizations to
create a single source of customer information that sales, service, and
marketing professionals can use to tailor product and service offerings to meet
each of their customer's unique needs. By using Siebel eBusiness Applications,
organizations can develop new customer relationships, profitably serve existing
customers, and integrate their systems with those of their partners, suppliers,
and customers, regardless of location.</P>
<P ALIGN="JUSTIFY"></P>
<p> Our customers are known for delivering the highest levels of
quality in their products and services and for their commitment to maintaining
the highest levels of customer satisfaction. Spanning diverse industries and
locations, Siebel eBusiness Applications customers represent organizations of
all sizes.</P>
<P ALIGN="JUSTIFY"></P>
<p> Through global strategic alliances with industry-leading
organizations, we continue to enhance Siebel eBusiness Applications, ensuring
that we continue to fully support our customers' rapidly evolving technology
requirements and industry best practices today and in the future.</P>
</FONT><FONT SIZE=3><P> </P>
<B><P>Products</P>
</B></FONT><FONT FACE="Times,Times New Roman" SIZE=3>
<p> Siebel eBusiness 99.6, released in September 1999, is the
industry's most comprehensive suite of Web-based eBusiness application
software. Siebel eBusiness provides organizations with one view of the customer
across multiple distribution channels including the Web, call center, field
sales and service, resellers, partners, and dealer channels. Our Web-based
architecture and diverse product offerings are designed to provide support for
sales, marketing and customer service organizations and seamlessly unites the
organization's partners, resellers and customers in one global information
system.</P>
<I><P>Siebel Sales </P>
</I>
<p> Siebel Sales is designed to allow teams of sales and
marketing professionals to manage sales information throughout the entire sales
cycle. This core application includes the Opportunity Management, Account
Management, Contact Management, Activity Tracking, Message Broadcasting, Siebel
Search, Quotas and Incentives modules. </P>
<p> Siebel Sales options, as of December 31, 1999, include Siebel
Quotes, Siebel Revenue Forecasting, Siebel Product Forecasting, Siebel Proposal,
Siebel Presentations, Siebel Campaigns, Siebel Sales Assistant, Siebel Target
Account Selling, Siebel Customer Service Integration, Siebel Configurator,
Siebel Product Configuration Integration Object and Siebel Sales
Handheld.<I> </P>
<P>Siebel Service </P>
</I>
<p> Siebel Service enables teams of customer service, sales and
marketing professionals to help ensure complete customer satisfaction by using
closed-loop, service request management capabilities. The base application
includes the Service Request Management, Account Management, Asset Tracking,
Contact Management, Activity Tracking, Message Broadcasting, Solution Management
and Siebel Search modules.</P>
<p> Siebel Service options, as of December 31, 1999, include
Siebel Service Assistant, Siebel Quality Management and Siebel eMail Response.
</P>
<I><P>Siebel Field Service</P>
</I>
<p> Siebel Field Service extends upon Siebel's customer service
solution and provides field engineers with service functionality for
entitlement/contracts management, integration with other customer facing
departments, dispatch and scheduling, parts management and repair center
operations. Siebel Field Service provides a complete solution for the mobile
technician as well as the connected service agent.</P>
<p> Siebel Field Service options, as of December 31, 1999,
include Siebel Service Inventory, Siebel Shipping/Receiving, Siebel Logistics
Manager, Siebel Repair, Siebel Service Assistant, Siebel Quality Management and
Siebel eMail Response. </P>
<I><P>Siebel Call Center</P></I>
<p> Siebel Call Center provides blended Sales and Service
functionality that enables call center agents to provide both sales and customer
service assistance to customers. It accesses the power of Siebel Sales and
Service Enterprise to integrate all available customer information. This allows
each service request to result in additional sales opportunities and provides
integrated sales and service histories for each opportunity. This base
application includes the Opportunity Management, Service Request Management,
Account Management, Asset Tracking, Contact Management, Activity Tracking,
Message Broadcasting, Solution Management and Siebel Search modules.</P>
<P ALIGN="JUSTIFY">Siebel Call Center options, as of December 31, 1999, include
all of the options available for both Siebel Sales and Siebel Service.</P>
<I><P>Siebel Marketing </P></I>
<p> The Siebel Marketing is designed to allow marketing
professionals, sales and service managers and business analysts to monitor
overall company performance and the effectiveness of company programs and
activities. Siebel Marketing is designed to extract information from Siebel
Sales Enterprise, Siebel Service Enterprise and Siebel Call Center into a
customer data mart, designed for fast data analysis. Siebel Marketing is
designed to include a broad range of pre-built analyses about customers, sales
pipeline, customer service, competitors, campaigns and products, allowing
managers and analysts to drill down into key operational details. Siebel
Marketing also includes powerful database marketing capabilities that allow
marketing professionals to immediately develop multi-level campaigns that are
tailored to target specific market segments. </P>
<I><P ALIGN="JUSTIFY">General Product</P></I>
<p> General product options are typically available on any of
the Siebel eBusiness base applications and as of December 31, 1999, include
Siebel Thin Client, Siebel Encyclopedia, Siebel Office, Siebel Calendar, Siebel
Reports, Siebel Expense Reporting, Siebel Executive Information System, Siebel
Incentive Compensation, Siebel Order Entry, Siebel Contracts, Siebel Campaigns,
Siebel SmartScript, Siebel CTI, Siebel CTI Connect, Siebel Remote, Siebel
Anywhere, Siebel Workflow Manager, Siebel Assignment Manager, Siebel Data
Quality, Siebel Professional Services, Siebel Resource Assignment, Siebel Time
Management and Reporting, Siebel Agreements, Siebel Distance Learning and Siebel
Advanced Search. </P>
<B><P ALIGN="JUSTIFY">Siebel .COM Applications</P></B>
<p> Siebel .COM Applications allows organizations to interact
directly with prospects, customers and partners over the Internet. Using Siebel
..COM Applications, organizations can rapidly deploy scalable, secure and Web-based
applications for acquiring, growing and retaining customers. Siebel .COM
Applications include Siebel eSales, Siebel eMarketing, Siebel eService, Siebel
eChannel, Siebel eBriefings, and Siebel eMail Response.</P>
<p> <I>Siebel eSales. </I>Siebel eSales is a Web-based
application which supports unassisted business-to-business and business-to-consumer
selling over the Web. Siebel eSales includes a visual product catalog,
Web-based quote generation, self-service solution configuration and on-line
ordering. Siebel eSales options, as of December 31, 1999, include Siebel
eShopping Basket, Siebel eCatalog, Siebel eConfigurator and Siebel eOrders.</P>
<I><P ALIGN="JUSTIFY">Siebel eMarketing. </I>Siebel eMarketing enables
enterprises to create, execute and assess Web-based marketing campaigns. With
Siebel eMarketing, enterprises segment their customers and prospects; target
them with a personalized, automatically generated Web- or email-based
promotions; and create graphical reports to assess the effectiveness and return-
on-investment of the campaign.</P>
<p> <I>Siebel eService and Siebel eMail Response. </I>Through
Web- and email-based service automation, Siebel eService and Siebel eMail
Response allow organizations to manage the entire service process and to provide
world-class customer service and support via the Internet.</P>
<I><P ALIGN="JUSTIFY">Siebel eChannel. </I>Siebel eChannel allows organizations
to turn their partners, distributors, resellers, and dealers into a virtual
sales and service network. By using Siebel eChannel, organizations can be
linked to their business partners over the Internet, allowing business partners
to better communicate with the parent organization, sell more, and increase
customer satisfaction.</P>
<p> <I>Siebel eBriefings. </I>Siebel eBriefings allows
organizations to provide customized Web-based personalized briefings to sales
professionals, partners and resellers over the Web. Briefings include key
customer information including opportunities, accounts and contacts and on-line
content such as news and company profiles.</P>
<B><P ALIGN="JUSTIFY">Siebel Industry Applications</P></B>
<p> Our products are available in industry-specific versions,
all with similar functionality, but each specifically designed for a particular
industry. Examples of our industry applications include:</P>
<UL>
<P ALIGN="JUSTIFY"><LI>Siebel eFinance</LI></P>
<P ALIGN="JUSTIFY"><LI>Siebel eInsurance</LI></P>
<P ALIGN="JUSTIFY"><LI>Siebel eCommunications</LI></P>
<P ALIGN="JUSTIFY"><LI>Siebel ePharma</LI></P>
<P ALIGN="JUSTIFY"><LI>Siebel eConsumer Goods</LI></P>
<P ALIGN="JUSTIFY"><LI>Siebel eEnergy</LI></P></UL>
<B><P ALIGN="JUSTIFY">Product Development Expense</P></B>
<p> During 1999, 1998 and 1997, the
Company had product development expenses of approximately $72.9 million, $44.0
million, and $26.7 million, respectively.</P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3>
</FONT><B><FONT SIZE=3><P>Professional Services</P></B>
<p> We
provide implementation consulting and other technical services to license
customers through our worldwide professional services organization. We provide
these services in connection with similar services provided by certain global
alliance partners to provide the customer with the full array of services
necessary to install, integrate, customize and deploy Siebel eBusiness
Applications.</P>
</FONT><B><FONT SIZE=3><P>Customer Support and Training</P></B>
<p> We offer
a comprehensive, multi-tiered, integrated family of global support programs
designed to ensure successful implementation and customer satisfaction. These
programs include maintenance, technical support, professional services and
customer communications, as well as extensive educational offerings. Our
educational offerings include technical training, end user training, and
advanced sales training.</P>
</FONT><B><FONT SIZE=3><P>Marketing and Sales</P></B>
<p> In the
United States, we market and sell our products and services through our direct
sales and services organization, and through channel partners including Great
Plains, J.D.Edwards and others. Our sales and service professionals are located
in 44 offices throughout the United States. In addition, we employ sales and
service professionals in 37</FONT><FONT FACE="Times,Times New Roman" SIZE=3
COLOR="#ff0000"> </FONT><FONT FACE="Times,Times New Roman" SIZE=3>offices
outside of the United States, selling our products primarily through direct
sales and services organization in the countries where we have an office. We
also market and sell our products through distributors, primarily in Japan,
Latin America, South Africa and Asia. </P>
<p> Our ability to achieve significant revenue growth in the
future will depend in large part on how successfully we recruit, train and
retain sufficient direct sales, technical and customer support personnel, and
how well we continue to establish and maintain relationships with our strategic
partners. We believe that the complexity of our products and the large scale
deployments anticipated by our customers will require a number of highly trained
customer support personnel.</P>
<p> The following key elements comprise our marketing and sales
strategy:</P>
<B><I><P ALIGN="JUSTIFY">Target Large Multinational Customers in a Broad Range
of Industries</P></B></I>
<p> Our customer base consists of
a significant number of large multinational companies. Siebel eBusiness
Applications' Web-based architecture supports the complex needs of even the
largest global organizations. We intend to leverage our experience and continue
to target sales and marketing activities through our direct sales force and
channel partners to expand worldwide market acceptance of Siebel eBusiness
Applications. </P>
<P ALIGN="JUSTIFY"></P>
</FONT><B><I><FONT FACE="Times,Times New Roman" SIZE=3>
<P ALIGN="JUSTIFY">Maintain and Extend Advanced Technology Position</P></B></I>
<p> We provide what we believe to
be the industry's most comprehensive family of multichannel eBusiness
applications, enabling organizations to sell to, market to, and service
customers across multiple channels, including the Web, call centers, field,
resellers, retail, and dealer networks. Siebel eBusiness Applications enable
organizations to manage, synchronize, and coordinate their customer touchpoints.
Utilizing advanced information technology, Siebel eBusiness Applications are
built on a component-based architecture that provides a broad range of
functionality for eBusiness applications deployments. </P>
<P ALIGN="JUSTIFY"></P>
<p> We intend to continue investing substantial resources in
technological research and developments, such as:</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Proven, Component-based Architecture:</B> The Siebel
eBusiness architecture includes Siebel Remote, one of the industry's most
scalable data synchronization technologies for mobile clients and server-to-server
replication; Siebel Workflow Manager, which allows organizations to
visually model business processes and apply workflow automation rules across all
channels of distribution; Siebel Tools, a visual development toolset that allows
organizations to customize their user interface, business rules, and data; and
Siebel EAI, which provides pre-built integration with leading middleware
products and industry-specific back office products.</P>
<B>
<P ALIGN="JUSTIFY">Support for Multiple Computing Platforms: </B>To enable
immediate access to key customer information, Siebel eBusiness Applications can
operate on multiple computing platforms used by organizations, including mobile
clients, connected clients, thin clients, and handheld clients.</P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3>
</FONT><B><FONT SIZE=3><P ALIGN="JUSTIFY">Web-based Architecture: </B>The
Siebel eBusiness Applications product architecture is entirely Web-based and
designed for fast performance. Siebel eBusiness Applications are capable of
operating within a standard Web browser as thin clients, with no Siebel Systems
software installed on the client computing device. This technology contributes
to a dramatic reduction of the costs of deploying Siebel eBusiness Applications
by nearly eliminating client software distribution costs. </P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3>
</FONT><B><FONT SIZE=3><P>Full Life Cycle Management: </B>Siebel eBusiness
Applications technology also makes it easier for organizations to manage the
full application deployment life cycle. Automatic Siebel application upgrades
and remote software distribution contribute to a dramatic reduction of the costs
associated with deploying software and help to ensure the success of the
deployment.</P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3>
</FONT><FONT SIZE=3><P ALIGN="JUSTIFY">The Siebel eBusiness Applications product
architecture enables organizations to configure their Siebel eBusiness
Applications once and then deploy that same configuration to all their users.
Once an organization makes customizations to the underlying objects, the
customizations can operate automatically across nearly all types of client
computing devices. This technology is designed to provide significant cost
savings in deployment and implementation costs, and assures consistency across
customer-facing channels.</P>
<P ALIGN="JUSTIFY"></P>
<B><P>Global Market Support: </B> We designed and built Siebel eBusiness
Applications to support global deployments, including most major European and
Asian languages. Siebel eBusiness Applications support both single and double
byte characters, multiple currencies, automatic currency conversions including
the ENU standards for supporting the euro and real-time interfaces to accept new
exchange rates from leading online services.</P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3>
</FONT><FONT SIZE=3><P ALIGN="JUSTIFY">Siebel eBusiness Applications provide
support for multiple organizations, allowing companies to define different
organizational structures to manage data visibility, security, and business
processes across both centralized and decentralized deployment topologies.</P>
<p> <B><I>Global
Strategic Alliances</P></B></I>
<p> Having long recognized the
power and value of strategic partnerships, one of our key strengths is
our ability to develop and maintain long-term global strategic partnerships with
the largest and most influential corporations in the technology marketplace,
including IBM, Microsoft and Sun.</P>
<P ALIGN="JUSTIFY"></P>
<p> We have partnered with best-of-class business and system
integrators, hardware, software, support, and training partners to help ensure
the successful deployment of Siebel eBusiness Applications. These strategic
global partnerships with industry leaders help ensure that we deliver solutions
that meet our global customers' sales, marketing, and customer service
requirements. We believe these partnerships enable us to deliver the
comprehensive suite of eBusiness solutions to our customers. </P>
<P ALIGN="JUSTIFY"></P>
<p> Siebel Systems' partners include the following industry
leaders:</P>
<P ALIGN="JUSTIFY"></P>
<P>
<TABLE COLS=3 WIDTH="90%" >
<TR vAlign=bottom>
<TD>
<font size="3"><strong>
System Integrator
</font></strong>
</TD>
<TD>
<font size="3"><strong>
Software
</font></strong>
</TD>
<TD>
<font size="3"><strong>
Platform
</font></strong>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
Andersen Consulting
</font>
</TD>
<TD>
<font size="3">
Ariba
</font>
</TD>
<TD>
<font size="3">
Compaq
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
Cap Gemini
</font>
</TD>
<TD>
<font size="3">
BroadVision
</font>
</TD>
<TD>
<font size="3">
IBM
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
Deloitte & Touche
</font>
</TD>
<TD>
<font size="3">
IBM
</font>
</TD>
<TD>
<font size="3">
Lucent
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
Ernst & Young
</font>
</TD>
<TD>
<font size="3">
Lucent
</font>
</TD>
<TD>
<font size="3">
Sun Microsystems
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
IBM
</font>
</TD>
<TD>
<font size="3">
Microsoft
</font>
</TD>
<TD>
<font size="3">
Unisys
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
ICL
</font>
</TD>
<TD>
<font size="3">
Sun Microsystems
</font>
</TD>
<TD>
<font size="3">
USi
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
PricewaterhouseCoopers
</font>
</TD>
<TD>
<font size="3">
</font>
</TD>
<TD>
<font size="3">
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
Siemens Business Services
</font>
</TD>
<TD>
<font size="3">
</font>
</TD>
<TD>
<font size="3">
</font>
</TD>
</TR>
</TABLE>
<p> <B><I>Successful Customer
Implementations</P>
</B></I></FONT><FONT FACE="Times,Times New Roman" SIZE=3>
<p> Our success depends on our customers'
successful implementations of Siebel eBusiness Applications. As a result, we
actively support the customer's deployment efforts by providing Internet and
telephone technical support, and comprehensive instructor-led training, and
assigning an account management team to each customer that consists of a sales
representative, a technical account manager, and an executive sponsor. </P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3><P ALIGN="JUSTIFY"> </P>
<p> <B><I>Expand Global Sales
Capabilities</P>
</B></I></FONT><FONT FACE="Times,Times New Roman" SIZE=3>
<p> We currently have operations in
Australia, Austria, Belgium, Brazil, Canada, Colombia, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Mexico, the Netherlands, Norway,
Portugal, Scotland, Singapore, Spain, Sweden, Switzerland, the United Kingdom,
and the United States, and have introduced localized versions of Siebel
eBusiness Applications for major European and Asian markets. We intend to
further expand our global sales and marketing capabilities by increasing the
size of our direct sales and marketing organizations in major markets, and by
continuing to develop our channel partner relationships. As market conditions
warrant, we intend to increase our direct sales and marketing activities
worldwide. </P>
<p> During each of 1999, 1998,
and 1997, no individual customer accounted for more than 10% of revenues. Export
sales for 1999, 1998, and 1997 were $157.3 million, $88.2 million and $41.8
million, respectively. This represented 31%, 30%, and 27% of total license
revenues in 1999, 1998 and 1997, respectively.</P>
<B><P>Acquisitions</P></B>
<p> </FONT><FONT FACE="Times,Times New Roman" SIZE=3>In
December 1999, we acquired OnTarget, Inc. ("OnTarget"), a professional
services firm that develops and implements advanced sales and marketing training
and consulting programs for sales organizations competing in complex, multilevel
sales campaigns. OnTarget's goal is to provide its clients with a pragmatic,
repeatable, and implementable process that will create lasting changes within
sales organizations, and which will enable our customers to effectively respond
to today's market challenges. Under the terms of the agreement, each
outstanding share of OnTarget common stock was exchanged for 0.3077516 newly
issued shares of our common stock. This resulted in the issuance of
approximately 3,700,000 additional shares of our common stock. In addition, all
outstanding stock options of OnTarget were converted into the right to acquire
our common stock at the same exchange ratio with a corresponding adjustment to
the exercise price. The transaction was accounted for as a
pooling of interests. </P>
<B><P>Competition</P></B>
<p> The
market for our products is intensely competitive, subject to rapid change and
significantly affected by new product introductions and other market activities
of industry participants. Our products are targeted at the emerging market for
sales, marketing and customer information systems. We face competition from
customers' internal development efforts, custom system integration products, as
well as other application software providers that offer a variety of products
and services designed to address this market. We believe that the market for
global eBusiness information systems has historically not been well served by
the application software industry. We believe that most customer deployments
have been the result of large internal development projects, custom solutions
from systems integrators or the application of personal and departmental
productivity tools to the global enterprise. Please see "Risk Factors - To
be successful, we must effectively compete in the eBusiness systems
market."</P>
<I><P ALIGN="JUSTIFY">Internal Development</P></I>
<p> Many of our customers and potential customers have in the
past attempted to develop sales, marketing and customer service information
systems in-house, either alone or with the help of systems integrators. Internal
information technology departments have staffed projects to build their own
systems utilizing a variety of tools. In some cases, such internal development
projects have been successful in satisfying the needs of an organization. The
competitive factors in this area require that we produce a product that conforms
to the customer's information technology standards, scales to meet the needs of
large enterprises, operates globally and costs less than the result of an
internal development effort. We cannot assure you that we will be able to
compete effectively against such internal development efforts.</P>
<I><P ALIGN="JUSTIFY">Custom System Integration Projects</P></I>
<p> A second source of competition results from system
integrators engaged to build a custom development application. The introduction
of a system integrator typically increases the likelihood of success for the
customer. The competitive factors in this area require that we demonstrate to
the customer the cost savings and advantages of a configurable, upgradeable and
commercially supported product developed by a dedicated professional software
organization.</P>
<p> We frequently rely on system consulting and system
integration firms for implementation and other customer support services, as
well as recommendations of our products during the evaluation stage of the
purchase process. Although we seek to maintain close relationships with these
service providers, many of these third parties have similar and often more
established relationships with our competitors. We cannot assure you that these
third parties, many of which have significantly greater resources than us, will
not market software products in competition with us in the future or will not
otherwise reduce or discontinue their relationships with or support of us and
our products. </P>
</FONT><I><FONT SIZE=3><P>Other Competitors</P></I>
<p> A large number of personal, departmental and other
products exist in the Siebel eBusiness applications market. Companies (products)
such as Allegis (Allegis Sales Partner), Annuncio (Annuncio Live), Ariba (Ariba
ORMS Application, Ariba Internet Business Exchange Service, Ariba Market Suite),
Baan Co. (BaanFrontOffice, Baan E-Enterprise), Blue Martini (Blue Martini
Customer Interaction), Brightware (Web Assistance, Email Assistance),
BroadVision (One-to-One Enterprise, One-to-One), Broadbase Info. (CRMPerform),
Calico Commerce (Calico eSales Configurator, Calico eSales Engine), Callidus
Software, Inc. (TrueComp), CAS GmbH (Mapware, Groupware, Referenzen), Chordiant
Software (Enterprise Business Center, Chordiant CCS), Clarify (ClearCallCenter,
Clear Quality, Clear Telebusiness), Dendrite International (Dendrite Series 6,
AIMS, Strategic Selling Guide), Epicor (Epicor eFrontOffice, Epicor
eCommerce Suite, Epicor eIntelligence), E.piphany (E.4 System), FirePond
(FirePond Application Suite), Firstwave Technologies (Firstwave eRM, eMarketing,
eSales, eSupport), GoldMine Software (GoldMine), I2 Technologies (RYTHM), Kana
Communications (Kana Connect, Kana Notify, Kana Realtime, Kana Response, Kana
Classify, Kana Assist, Kana Forms), MarketFirst (MarketFirst 2.0), MarketSoft
(eLeads), Niku (iNiku), Octane Software (Octane 2000), ONYX Software
(Customer Center), Oracle (Oracle iMarketing, Oracle iStore, OracleiPayment,
Oracle Telephony Manager, Oracle Customer Care. Oracle OpenTel), Pegasystems,
Inc. (Pegasystems), Pivotal Software, Inc. (eRelationship 2000), Prime Resposne
([email protected]), Quintus Corp. (eContact), Relavis Corp. (Remedy@work), RTS,
SalesLogix (CommerceLogix, SupportLogix, ACT!), SAP AG (mySAP.com<sup><font size=2>TM</sup></font size=2>),
Saratoga Systems, ServiceSoft (Web Advisor®, eCenter<sup><font size=2>TM</sup></font size=2>, Knowledge
Builder®, LiveContact<sup><font size=2>TM</sup></font size=2>, E-mailContact<sup><font size=2>TM</sup></font size=2>), Silknet Software Inc.
(Silknet)(To be acquired by Kana Communications, Inc.), Trilogy
(MultiChannel Commerce 2.0), Update Marketing (Marketing Manager®), Vantive
Corp. (Vantive)(Acquired by PeopleSoft), Vignette (StoryServer, Syndication
Server, Multi-Channel Server, Tools, Professional Services) are among the many
firms in this market segment. Some of these competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than us. In addition, many competitors have well-established
relationships with current and potential customers of ours. As a result, these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than we can. We believe that
we compete favorably in this marketplace based on the following competitive
advantages: a breadth and depth of functionality, a modern and enduring Web-based product
architecture, an ability to manage all customer interactions
support across multiple channels, configurable business objects, support for the
global enterprise, scalability allowing support for large user communities and
strategic alignments with industry leaders. In general, we have priced our
products at or above those of our competitors, which pricing we believe is
justified by the scope of functionality delivered and the performance
characteristics afforded by our products. </P>
<p> It is also
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect that competition will
increase as a result of consolidation in the software industry. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially and adversely affect our business,
operating results and financial condition. We cannot assure you that we will be
able to compete successfully against current and future competitors or that
competitive pressures faced by us will not materially and adversely affect our
business, operating results and financial condition.</P>
<B><P>Employees</P></B>
<p> As of December 31, 1999, we had a total of 3,203
employees, of which 1,200 were engaged in sales and marketing, 473 were in
product development, 1,279 were in customer support and 251 were in finance,
administration and operations. Our future performance depends in significant
part upon the continued service of our key technical, sales and senior
management personnel, particularly Thomas M. Siebel, our Chairman and Chief
Executive Officer, none of whom is bound by an employment agreement. The loss of
the services of one or more of our key employees could have a material adverse
effect on our business, operating results and financial condition. Our future
success also depends on our continuing ability to attract, train and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that we can retain our key
technical, sales and managerial personnel in the future. None of our employees
are represented by a labor union. We have not experienced any work stoppages
and we consider our relations with our employees to be good.</P>
<A NAME="item2"></A>
<B><U><P>Item 2. Properties</P></B></U>
<p> Our principal administration, sales, marketing,
support and research and development facilities are located in San Mateo,
California, pursuant to a lease which expires in August 2008, and Emeryville,
California, pursuant to a lease which expires in March, 2001. We have entered
into three leases to relocate our principal facilities to another location in
San Mateo in the summer of 2000. These three leases expire on July 31, 2012.
We will continue to occupy the existing spaces at the current principal
facilities in San Mateo and Emeryville. We currently also occupy a number of
domestic and international sales and support offices. </P>
<A NAME="item3"></A>
<B><U><P>Item 3. Legal Proceedings</P>
</B></U></FONT><FONT FACE="Times,Times New Roman" SIZE=3><P
ALIGN="JUSTIFY"> </P>
<p> In October 1999, SAP America, Inc.
filed a complaint against the Company in the Court of Common Pleas of Delaware
County, Pennsylvania. The Complaint alleges tortious interference with
contractual relations, predatory hiring, misappropriation of trade secrets, and
unfair competition in connection with the Company's employment of 27 individuals
formerly employed by SAP America or its affiliated companies. In October 1999,
the Company filed a complaint against SAP America, Inc. and SAP Labs, Inc. in
the Superior Court of California for the County of Santa Clara, alleging unfair
competition, violations of Business and Professions Code section 17200, and
seeking declaratory relief. In March 2000, the Company and SAP agreed to settle
the litigation and dismissed both actions with prejudice. </P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3>
<p> We are engaged in other legal actions arising in the
ordinary course of business. We believe we have adequate legal defenses and
that the ultimate outcome of these actions will not have a material effect on
our financial position or results of operations.</P>
<A NAME="item4"></A>
<B><U><P>Item 4. Submission of Matters to a Vote of Security Holders</P>
</B></U></FONT><FONT FACE="Times,Times New Roman" SIZE=3>
<p> At a special stockholders' meeting on October 20, 1999, our
stockholders approved (i) an amendment to our certificate of incorporation to
increase our authorized number of shares of common stock from 300,000,000 to
800,000,000 shares and (ii) an amendment to our 1996 Equity Incentive Plan to
increase the number of shares of common stock authorized for issuance under such
plan by 15,000,000 shares, from 40,000,000 shares to 55,000,000 shares. The
vote regarding the amendment of our certificate of incorporation, as amended, to
increase the authorized number of shares of common stock from 300,000,000 shares
to 800,000,000 shares was 76,786,323 votes for, 4,939,828 votes against and
89,127 votes abstaining; on that, the proposal was approved. The vote regarding
the amendment of our Equity Incentive Plan to increase the number of shares of
common stock authorized for issuance under the plan by 15,000,000 shares, from
40,000,000 shares to 55,000,000, was 40,740,919 votes for, 24,744,860 votes
against and 183,839 votes abstaining; on that, the proposal was approved.</P>
<p> On November 12, 1999, we effected a two-for-one stock split
by way of a stock dividend of one share of common stock for each share of common
stock held by each stockholder. All share data contained in this report is
adjusted to reflect the stock split.</P>
</FONT><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<B><P ALIGN="CENTER">PART II</P>
<A NAME="item5"></A>
<U><P>Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters</P></B></U>
<p> (a) Our common stock is traded on the Nasdaq
National Market under the symbol "SEBL." The following high and low
sales prices were reported by Nasdaq in each quarter during the last two years.
All amounts give retroactive effect to the Company's stock split which was
effective November 12, 1999.</P>
<b>
High Low
--------- ---------</b>
Quarter Ended March 31, 1998.................... $15.88 $9.19
Quarter Ended June 30, 1998..................... 16.22 10.69
Quarter Ended September 30, 1998................ 18.50 9.00
Quarter Ended December 31, 1998................. 17.06 7.56
Quarter Ended March 31, 1999.................... 27.25 15.88
Quarter Ended June 30, 1999..................... 33.69 16.44
Quarter Ended September 30, 1999................ 38.88 24.19
Quarter Ended December 31, 1999................. 92.00 31.84
<p> As of December 31, 1999, we had
approximately 711 holders of record of our common stock. We have never paid any
cash dividends on our capital stock and do not expect to pay any such dividends
in the foreseeable future.</P>
<p> (b) The effective date of our first registration
statement, filed on Form S-1 under the Securities Act of 1933 (No. 333-12061)
relating to our initial public offering of our Common Stock, was June 27, 1996.
There has been no change to the disclosure contained in our report on Form 10-Q
for the quarter ended March 31, 1998, regarding the use of proceeds generated by
our initial public offering.</P>
<A NAME="item6"></A>
<B><U><P>Item 6. Selected Financial Data</P></B></U>
<p> The acquisitions of OnTarget, Inc.
("OnTarget") in 1999 and Scopus Technology, Inc. ("Scopus")
in 1998 have been accounted for as poolings of interests. Accordingly, the
financial statements of Siebel have been restated to include the financial
position and results of operations of OnTarget and Scopus for all periods
presented.</P>
<b>
Year Ended December 31,
---------------------------------------------------
1999 1998 1997 1996 1995
----------- --------- --------- --------- ---------
(in thousands, except per share data and employees)
Operating Data</b>
Net revenues............... $790,920 $409,886 $222,071 $111,980 $45,010
Operating income........... $182,954 $68,019 $8,518 $18,162 $3,797
Net income................. $122,092 $44,265 $643 $13,750 $3,122
Pro forma net income(1).... $121,727 $43,460 $55 $13,313 $2,764
Pro forma diluted net
income per share(1)....... $0.54 $0.21 $0.00 $0.08 $0.02
Pro forma basic net
income per share(1)....... $0.65 $0.24 $0.00 $0.09 $0.02
Total assets............... $1,226,962 $447,596 $271,535 $209,602 $60,003
Total equity............... $674,591 $291,120 $210,950 $173,157 $43,542
Employees.................. 3,203 1,483 955 506 246
<BLOCKQUOTE>
<p> (1) Includes pro
forma provision for income taxes to reflect income tax expense that would have
been reported if OnTarget Inc. (an S corporation for income tax reporting
purposes) had been a C corporation.
</BLOCKQUOTE>
<A NAME="item7"></A>
<P ALIGN="JUSTIFY"><B><U>Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations</P></U>
<P>Overview</P></B>
<p> Siebel
Systems, Inc. ("Siebel" or the "Company") is the world's
leading provider of eBusiness applications. Siebel eBusiness Applications enable
organizations to sell to, market to, and service their customers across multiple
channels, including the Web, call centers, field, resellers, retail, and dealer
networks. By employing comprehensive eBusiness applications to better manage
their customer relationships, the Company's customers continue to be leaders in
their markets.</P>
<p> Siebel eBusiness Applications are available in industry-specific
versions designed for the pharmaceutical, healthcare, consumer goods,
telecommunications, insurance, energy, apparel and footwear, automotive,
technology, public sector, and finance markets. With best-of-class functionality
of eBusiness software, Siebel eBusiness Applications enable organizations to
create a single source of customer information that sales, service, and
marketing professionals can use to tailor product and service offerings to meet
each of their customer's unique needs. By using Siebel eBusiness Applications,
organizations can develop new customer relationships, profitably serve existing
customers, and integrate their systems with those of their partners, suppliers,
and customers, regardless of location.</P>
<p> In December 1999, the Company acquired OnTarget, Inc.
("OnTarget"). OnTarget develops and implements advanced sales and
marketing training and consulting programs for sales organizations competing in
complex, multilevel sales campaigns. OnTarget's goal is to provide its clients
with a pragmatic, repeatable and implementable process that will create lasting
change within sales organizations, and which will enable Siebel's clients to
effectively respond to today's market challenges. Primary customers include
corporate clients and business owners who wish to provide for the development
and training of their sales and marketing personnel. </P>
<p> Under the terms of the agreement, each outstanding share
of OnTarget common stock was exchanged for 0.3077516 newly issued shares of
common stock of the Company. This resulted in the issuance of approximately
3.7 million additional shares of the Company's common stock. In addition, all
outstanding stock options of OnTarget were converted into the right to acquire
the Company's common stock at the same exchange ratio with a corresponding
adjustment to the exercise price.</P>
<p> The acquisition of OnTarget has been accounted for as a
pooling of interests. Accordingly, the financial statements of the Company have
been restated to include the financial position and results of operations of
OnTarget for all periods presented.</P>
<p> This Report contains forward looking
statements that involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Some of these factors are discussed in "Risk Factors"
below.</P>
<B><P ALIGN="JUSTIFY">Results of Operations</P></B>
<p> The following table sets forth statement of
operations data for the three years ended December 31, 1999 expressed as a
percentage of total revenues:</P>
<b>
Year Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------</b>
Revenues:
Software..................................... 63.1% 71.0% 70.7%
Professional services, maintenance and other. 36.9% 29.0% 29.3%
---------- ---------- ----------
Total revenues............................. 100.0% 100.0% 100.0%
---------- ---------- ----------
Cost of revenues:
Software..................................... 1.0% 1.4% 1.9%
Professional services, maintenance and other. 21.9% 15.9% 14.3%
---------- ---------- ----------
Total cost of revenues..................... 22.9% 17.3% 16.2%
---------- ---------- ----------
Gross margin............................... 77.1% 82.7% 83.8%
---------- ---------- ----------
Operating expenses:
Product development.......................... 9.2% 10.7% 12.0%
Sales and marketing.......................... 36.8% 43.7% 46.6%
General and administrative................... 8.0% 8.4% 9.6%
Merger-related expenses...................... -- 3.3% 11.7%
---------- ---------- ----------
Total operating expenses................... 54.0% 66.1% 79.9%
---------- ---------- ----------
Operating income........................... 23.1% 16.6% 3.9%
Other income, net.............................. 1.8% 1.5% 2.4%
---------- ---------- ----------
Income before income taxes................. 24.9% 18.1% 6.3%
Income taxes................................... 9.5% 7.3% 5.9%
---------- ---------- ----------
Net income................................. 15.4% 10.8% 0.4%
========== ========== ==========
<B><P>Revenues</P></B>
<p> <I>Software. </I>License revenues increased to
$499,398,000 for the year ended December 31, 1999 from $290,890,000 and
$156,971,000 for the years ended December 31, 1998 and 1997, respectively.
License revenues as a percentage of total revenues were 63% in the fiscal 1999
period as compared to 71% both in the fiscal 1998 and 1997 periods,
respectively. License revenues increased in absolute dollars during these
periods from the respective prior year periods due to an increase in the number
of licenses of Siebel applications sold to new and existing customers and also
due to licenses of new modules, released with the latest version of Siebel
applications, to existing users of Siebel base applications. This increase in
the number of licenses was primarily due to continued demand by new and existing
customers for products in the Siebel applications family both in the United
States and internationally. The Company expects that license revenues will
continue to increase in absolute dollars, but will remain the same or decrease
as a percentage of total revenues as the Company's maintenance and other
services revenues continue to grow as a result of increases in the installed
base of customers purchasing such services.</P>
<p> <I>Professional Services, Maintenance and Other.
</I>Professional services, maintenance and other revenues increased to
$291,522,000 for the year ended December 31, 1999 from $118,996,000 and
$65,100,000 for the years ended December 31, 1998 and 1997, respectively, and as
a percentage of total revenues were 37% in the fiscal 1999 period as compared to
29% both in the fiscal 1998 and 1997 periods, respectively. These increases in
absolute dollars were due to growth in the Company's sales and marketing
training businesses, consulting business and in the installed base of customers
on maintenance. First-year maintenance is typically sold with the related
software license. Revenue related to such maintenance is deferred based on
vendor-specific objective evidence of fair value and amortized over the term of
the maintenance contract, typically twelve months. The Company expects that
professional services, maintenance and other revenues will remain the same or
increase as a percentage of total revenues due to increased maintenance revenues
derived from the Company's growing installed base and due to the Company's
expansion of its consulting and training organization to meet anticipated
customer demands in connection with product implementation and sales
training.</P>
<p> A relatively small number of customers account for a
significant percentage of the Company's license revenues. For 1999, 1998 and
1997, sales to the Company's ten largest customers accounted for 10%, 19% and
24% of total revenues, respectively. The Company expects that licenses of its
products to a limited number of customers will continue to account for a large
percentage of revenue for the foreseeable future.</P>
<p> The Company markets its products in the United States
through its direct sales force and internationally through its sales force and
distributors, primarily in Japan, Latin America, South Africa and Asia.
International revenues accounted for 31%, 30% and 27% of license revenues in
1999, 1998 and 1997, respectively. The Company is increasing its international
sales force and is seeking to establish distribution relationships with
appropriate strategic partners and expects international revenues will continue
to account for a substantial portion of total revenues in the future.</P>
<B><P>Cost of Revenues</P></B>
<p> <I>Software. </I>Cost of software license revenues
includes third-party software royalties, product packaging, documentation and
production. Cost of license revenues through December 31, 1999 has averaged less
than 2% of software license revenues. All costs incurred in the research and
development of software products and enhancements to existing products have been
expensed as incurred, and, as a result, cost of license revenues includes no
amortization of capitalized software development costs. These costs are expected
to remain the same or increase as a percentage of total revenues.</P>
<p> <I>Professional Services, Maintenance and Other.
</I>Cost of professional services, maintenance and other revenues consist
primarily of personnel, facilities and systems costs incurred in providing
consulting, customer support, and training. Cost of professional services,
maintenance and other revenues increased to $173,278,000 for the year ended
December 31, 1999 from $65,387,000 and $31,646,000 for the years ended December
31, 1998 and 1997, respectively, and as a percentage of professional services,
maintenance and other revenues were 59% for the year ended December 31, 1999 as
compared to 55% in fiscal 1998 and 49% in fiscal 1997. The increases in the
absolute dollar amount reflect the effect of fixed costs resulting from the
Company's expansion of its maintenance and support organization and growth in
the Company's consulting and training businesses. The Company expects that
professional services, maintenance and other costs will continue to increase in
absolute dollar amount as the Company expands both its customer support
organization to support a growing installed base and its consulting organization
to meet anticipated customer demands in connection with product implementation
and the training organization to support the growing needs of its customers.
These costs are expected to remain the same or increase as a percentage of total
revenues.</P>
<B><P>Operating Expenses</P></B>
<p> <I>Product Development. </I>Product development
expenses include expenses associated with the development of new products,
enhancements of existing products and quality assurance activities, and consist
primarily of employee salaries, benefits, consulting costs and the cost of
software development tools. Product development expenses increased to
$72,853,000 for the year ended December 31, 1999 from $43,950,000 and
$26,650,000 for the years ended December 31, 1998 and 1997, respectively, and
decreased as a percentage of total revenues to 9% in the fiscal 1999 period from
11% and 12% in the fiscal 1998 and 1997 periods, respectively. The increases in
the dollar amount of product development expenses were primarily attributable to
costs of additional personnel in the Company's product development operations.
The Company anticipates that it will continue to devote substantial resources to
product development. The Company expects product development expenses to
increase in absolute dollar amount but remain at a similar percentage of total
revenues as in 1999. The Company considers technological feasibility of its
software products to have been reached upon completion of a working model that
has met certain performance criteria. The period between achievement of
technological feasibility and general release of a software product is typically
very short, and development costs incurred during that period have not been
material. Accordingly, the Company has not capitalized any software development
costs to date.</P>
<p> <I> Sales and Marketing. </I>Sales and marketing
expenses consist primarily of salaries, commissions and bonuses earned by sales
and marketing personnel, field office expenses, travel and entertainment and
promotional expenses. Sales and marketing expenses increased to $290,687,000 for
the year ended December 31, 1999 from $178,957,000 and $103,551,000 for the
years ended December 31, 1998 and 1997, respectively, and as a percentage of
total revenues, sales and marketing expenses decreased to 37% in 1999, from 44%
and 47% in the fiscal 1998 and 1997 periods, respectively. The increases in the
dollar amount of sales and marketing expenses reflect primarily the hiring of
additional sales and marketing personnel, costs associated with expanded
promotional activities, and indirect merger-related costs, such as corporate
sales training and marketing programs. The Company expects that sales and
marketing expenses will continue to increase in absolute dollar amount as the
Company continues to expand its sales and marketing efforts, establishes
additional sales offices in the United States and internationally and increases
promotional activities. These expenses are expected to remain at a similar
percentage of total revenues as in 1999.</P>
<p> <I>General and Administrative. </I>General and
administrative expenses consist primarily of salaries and occupancy costs for
administrative, executive and finance personnel. General and administrative
expenses increased to $63,508,000 for the year ended December 31, 1999 from
$34,473,000 and $21,275,000 for the years ended December 31, 1998 and 1997,
respectively, and as a percentage of total revenues were 8% in the fiscal 1999
period as compared to 8% and 10% in the fiscal 1998 and 1997 periods,
respectively. The increases in the absolute dollar amount of general and
administrative expenses were primarily due to increased staffing and associated
expenses necessary to manage and support the Company's increased scale of
operations. The Company believes that its general and administrative expenses
will continue to increase in absolute dollar amount as a result of the continued
expansion of the Company's administrative staff and facilities to support
growing operations. The Company anticipates that its general and administrative
expenses as a percentage of total revenues should remain at a similar percentage
as in 1999.</P>
<p> <I>Merger-Related Expenses. </I>The
Company did not incur any significant merger-related costs in connection with
the merger with OnTarget. </P>
<p> In connection with the merger with Scopus, the Company
incurred direct merger-related expenses of approximately $13,500,000, comprised
primarily of investment bankers, attorneys, accountants and other professional
fees of $9,100,000, duplicate facilities and equipment of $3,100,000 and other
miscellaneous expenses of $1,300,000. </P>
<p> The Company incurred costs of approximately $3,300,000 in
1997 in connection with Scopus' planned merger with Clear With Computers, Inc.
The merger plan was terminated early in the fourth quarter of 1997.</P>
<p> On October 1, 1997, the Company completed its
purchase of InterActive, a developer of intranet-based business intelligence
software technology that has been incorporated into the Siebel eBriefings
product. The acquisition was accounted for by the purchase method of accounting.
The Company recorded a charge to income of $14,017,000, or $0.09 per diluted
share, pursuant to an allocation of the purchase price by an independent
appraiser, as a write-off of acquired research and development. Purchased in-process
research and development is related to the completion of InterActive's
data integration, filtering and formatting technology and its integration into
the Company's products. At the time of acquisition, a prototype of InterActive's
product existed and was in limited trials, however, the prototype was not stable
or sufficiently developed to be scalable on an enterprise-wide basis.
InterActive's technology was completed, at a cost of approximately $400,000, and
incorporated as a separate module into the Siebel 98 product suite, which was
released in June 1998. The Company estimated that technology was approximately
75% complete as of the acquisition date. At that date, the only identifiable
asset acquired was the technology under development. Accordingly, essentially
all of the excess purchase price over net assets acquired, except for amounts
assigned to net current assets, fixed assets and workforce-in-place, was
assigned to in-process research and development.</P>
<p> The valuation of acquired research and development was
prepared using the income approach and contemplated that sales of products
incorporating InterActive's technology would be $11,500,000 in 1998, increasing
to $35,000,000 in 2000, and declining significantly thereafter. Revenue
increases were based upon the historical growth rate of software sales for the
customer relationship managment market and the Company. Operating costs as a
percentage of revenue ranged from 56% in 1998 to 47% in 2000 based upon the
Company's normal operating margin. Operating cash flows were reduced by an
expected effective tax rate of 38% consistent with the Company's effective tax
rate. Net cash flows were discounted to their present value at the acquisition
date using an after-tax risk-adjusted discount rate of 30%. The Company believes
this discount rate is consistent with that required by venture capitalists for
investments in unproven but partially developed software products. Through the
end of 1999, total revenues from Siebel eBriefings were approximately
$11,000,000; however, the Company is unable to quantify the effect of Siebel
eBriefings as a competitive differentiator. The Company does not track selling,
general and administrative costs by product but believes the incremental costs
associated with selling and distributing Siebel eBriefings were substantially
lower than those used in the valuation due to synergies associated with selling
the product as a separate component of the Siebel 98 product suite and subsequent
versions. If the Company is unable to continuously upgrade the Siebel
eBriefings product or existing and future customers do not elect to purchase
this module, the Company's ability to recover the value assigned to the acquired
research and development will be impaired and revenue and profitability will be
adversely affected.</P>
<p> On November 1, 1997, the Company completed its purchase
of Nomadic, a provider of innovative business solutions to pharmaceutical sales
forces. The acquisition was accounted for by the purchase method of accounting.
Technology acquired from Nomadic has been incorporated into the Siebel ePharma
product. The Company recorded a charge to income of $8,723,000 or $0.05 per
diluted share, pursuant to an allocation of the purchase price by an independent
appraiser, as a write-off of acquired research and development. The appraisal of
the acquired research and development was based upon the present value of
forecasted operating cash flows from the technology acquired, giving effect to
the stage of completion at the acquisition date. These forecasted cash flows
were then discounted at a rate commensurate with the risk involved in completing
the acquired technology. The forecasted cash flows assumed inclusion of the
product developed from acquired technology into the existing Siebel product
suite. The purchased in-process research and development expense related to
completion of Nomadic's second generation pharmaceutical sales force automation
product. This product was completed and enterprise-wide deployment to end-user
customers commenced in March 1998. Much of the functionality was incorporated
into the Company's ePharma product, which was released in June 1998. At the time
of the acquisition, Nomadic had a first-generation product at a limited number
of customers, with a very small user base. There were a considerable number of
uncertainties as to increasing the product's scalability for deployment on an
enterprise-wide basis, improving the stability of the application and
identifying and fixing bugs. The Company allocated limited excess purchase price
over net assets acquired to net current assets, fixed assets and workforce-in-place. The
majority of the excess purchase price was allocated to in-process
research and development and other intangible assets (goodwill) based upon the
expected cash flows from Nomadic's existing product and the product under
development, giving consideration to the stage of completion of the technology
under development at the acquisition date. This technology was completed, at a
cost of approximately $1,300,000, for enterprise-wide release in March 1998.</P>
<p> The valuation of acquired research and development was
prepared using the income approach and contemplated that sales of products
incorporating Nomadic's technology would be $11,500,000 in 1998, increasing to
$35,000,000 in 2000, and declining significantly thereafter. Revenue increases
were based upon the historical growth rate of software sales for the customer
relationship managment market and the Company. Operating costs as a percentage
of revenue were estimated at 70%, based upon the Company's normal operating
margin. Operating cash flows were reduced by an expected effective tax rate of
39% consistent with the Company's effective tax rate. Net cash flows were
discounted to their present value at the acquisition date using an after-tax
risk-adjusted discount rate of 25%. The Company believes this discount rate is
consistent with that required by venture capitalists for investments in unproven
but partially developed software products. Through the end of 1999, total
revenues from products incorporating the Nomadic technology under development at
the acquisition date were approximately $35,000,000. Although the Company does
not track selling, general and administrative costs by product, because these
products are sold as vertical eBusiness solutions for the
pharmaceutical industry, the Company believes the operating margin is similar to
the Company's consolidated operating margin. If the Company is unable to
continuously upgrade the Siebel ePharma product or superior products are released by
competitors, the Company's ability to recover the value assigned to the acquired
research and development will be impaired and revenue and profitability will be
adversely affected.</P>
<B><P>Operating Income and Operating Margin</P></B>
<p> Operating income increased to $182,954,000 for the
year ended December 31, 1999 from $68,019,000 for the year ended December 31,
1998 and $8,518,000 for the year ended December 31, 1997 and operating margin
was 23% in the fiscal 1999 period, as compared with 17% and 4% in the fiscal
1998 and 1997 periods, respectively. Excluding merger-related expenses,
operating income increased to $182,954,000 for the year ended December 31, 1999
from $83,303,000 and $34,556,000 for the years ended December 31, 1998 and 1997,
respectively, and operating margin was 23% in the fiscal 1999 period as compared
to 20% and 16% in the fiscal 1998 and 1997 periods, respectively. These
increases in operating income and margin, excluding merger-related expenses,
were due to increases in license revenues without a proportional increase in
cost, particularly costs associated with the hiring of new personnel. We
believe it is likely that operating margins in future periods will be less than
the 23% achieved in 1999.</P>
<B><P>Other Income, Net</P></B>
<p> Other income, net, is primarily comprised of interest
income earned on the Company's cash and cash equivalents and short-term
investments and reflects earnings on increasing cash and cash equivalents and
short-term investment balances.</P>
<B><P>Pro forma Provision for Income Taxes</P>
<P> </P></B>
<p>
Income taxes are comprised primarily of federal and state taxes. The pro
forma provision for income taxes reflects income tax expense that would have
been reported if OnTarget (an S Corporation for income tax reporting purposes)
had been a C Corporation for each of the periods presented. The pro forma
provision for income taxes was $75,195,000, $30,817,000, and $13,848,000 in
1999, 1998, and 1997, respectively. The pro forma provision for income taxes as
a percentage of pretax income was 38%, 41%, and 100%, respectively. The pro
forma tax rate in 1997 was higher than the rates in 1998 and 1999 primarily due
to non-deductible items related to acquisitions. The Company expects its
effective tax rate in 2000 to be approximately 38%, excluding the effect of non-deductible costs
such as merger-related expenses.</P>
<p> As a result of deductions relating to stock options, the
Company paid no federal income taxes during 1999.</P>
<B><P>Pro forma Net Income </P></B>
<p> The Company had pro forma net income of $121,727,000
for the year ended December 31, 1999 and pro forma net income of $43,460,000 and
$55,000 for the years ended December 31, 1998 and 1997, respectively. Pro forma
net income per diluted share was $0.54 in fiscal 1999, compared with $0.21 in
the fiscal 1998, and $0.00 in fiscal 1997, respectively.</P>
</FONT><B><FONT SIZE=3><P>Liquidity and Capital Resources</P></B>
<p> The Company's cash, cash equivalents,
short-term investments and marketable equity securities increased to
$805,314,000 as of December 31, 1999 from $232,629,000 as of December 31, 1998,
representing approximately 66% and 52% of total assets, respectively. This
increase was primarily attributable to issuance of convertible subordinated
debentures, net income, sale of certain property and equipment, increases in
accounts payable, accrued expenses, income taxes payable and deferred revenue,
issuance of common stock under the Company's stock option plans, and the initial
public offering and subsequent increase in market value of an equity investment,
partially offset by increases in accounts receivable, purchases of property and
equipment and charitable contribution of a portion of the Company's marketable
equity securities. The Company's days sales outstanding (DSO) in accounts
receivable was 98 as of December 31, 1999, as compared with 88 as of December
31, 1998. </P>
<p> The
Company completed a private placement of $300,000,000 of convertible
subordinated debentures in September 1999. The seven-year term notes bear
interest at a rate of 5.50% and are convertible into approximately 6,432,000
shares of the Company's common stock at any time prior to maturity, at a
conversion price of approximately $46.64 per share, subject to adjustment under
certain conditions. The Company may redeem the notes, in whole or in part, at
any time on or after September 15, 2002. The redemption price will range from
$309,420,000 to $302,370,000 if the notes are redeemed between September 15,
2002 through September 14, 2006. Any redemption made on or after September 15,
2006 will be redeemed at $300,000,000. In addition, accrued interest to the
redemption date will be paid by the Company in each redemption. </P>
<p> As of February 10, 2000, the fair market value of the
Company's marketable equity securities was $90,340,000.</P>
<p> The Company recently entered into a lease agreement for a
new headquarters facility in San Mateo, California. The Company expects
significant capital expenditures in connection with tenant improvements and
furniture and fixtures for this facility. These expenditures are expected to be
incurred through the end of 2000. In addition, the Company expects to continue
to incur capital expenditures associated with tenant improvements, furniture and
fixtures for newly-leased offices. </P>
<p> The Company has used full-serviced office suites on a
month-to-month rental basis to establish its presence in new locations. As
these locations expand, the Company expects to transition more of the office
suites to leased space. This transition will involve build-out of tenant
improvements, acquisition of furniture and fixtures, and other capital costs,
which were not incurred in connection with the use of fully serviced office
suites. The Company has already built out a number of leased facilities, both
domestically and internationally, and expects this trend to continue. </P>
<p> Capital expenditures of the nature described above are
expected to increase during 2000 and 2001.</P>
<P ALIGN="JUSTIFY"></P>
<p> The Company believes that the anticipated cash flows from
operations, cash, cash equivalents and short-term investments will be adequate
to meet its cash needs for working capital and capital expenditures for at least
the next twelve months.</P>
<B>
<P>Risk Factors</P>
</FONT><I><FONT FACE="Times,Times New Roman" SIZE=3><P ALIGN="JUSTIFY">Our net
revenue and operating results may fluctuate.</P></B></I>
<p> We may experience a shortfall in revenue or earnings
or otherwise fail to meet public market expectations, which could materially
adversely affect our business and the market price of our common stock. Our net
revenue and operating results may fluctuate significantly because of a number of
factors, many of which are outside of our control. These factors include:</P>
<UL>
<P ALIGN="JUSTIFY"><LI>Level of product and price competition;</LI></P>
<P ALIGN="JUSTIFY"><LI>Length of our sales cycle and customer purchasing
patterns;</LI></P>
<P ALIGN="JUSTIFY"><LI>The size and timing of individual license
transactions;</LI></P>
<P ALIGN="JUSTIFY"><LI>Delay or deferral of customer implementations of our
products;</LI></P>
<P ALIGN="JUSTIFY"><LI>Success in expanding our customer support organization,
direct sales force and indirect distribution channels;</LI></P>
<P ALIGN="JUSTIFY"><LI>Timing of new product introductions and product
enhancements;</LI></P>
<P ALIGN="JUSTIFY"><LI>Appropriate mix of products and services sold;</LI></P>
<P ALIGN="JUSTIFY"><LI>Levels of international sales;</LI></P>
<P ALIGN="JUSTIFY"><LI>Activities of and acquisitions by competitors;</LI></P>
<P ALIGN="JUSTIFY"><LI>Timing of new hires and the allocation of our
resources;</LI></P>
<P ALIGN="JUSTIFY"><LI>Changes in the economy and foreign currency exchange
rates; and</LI></P>
<P ALIGN="JUSTIFY"><LI>Our ability to develop and market new products and
control costs.</LI></P></UL>
<p> One or more of the foregoing factors may cause our operating
expenses to be disproportionately high during any given period or may cause our
net revenue and operating results to fluctuate significantly. Based upon the
preceding factors, we may experience a shortfall in revenue or earnings or
otherwise fail to meet public market expectations, which could materially
adversely affect our business, financial condition and the market price of our
common stock.</P>
<B><I><P ALIGN="JUSTIFY">Our quarterly operating results may fluctuate.</P></B></I>
<p> Our net revenue and operating results may vary
drastically from quarter to quarter. The main factors that may affect these
fluctuations are:</P>
<UL>
<P ALIGN="JUSTIFY"><LI>The discretionary nature of our customer's purchase and
budget cycles;</LI></P>
<P ALIGN="JUSTIFY"><LI>The size and complexity of our license
transactions;</LI></P>
<P ALIGN="JUSTIFY"><LI>The potential delays in recognizing revenue from license
transactions;</LI></P>
<P ALIGN="JUSTIFY"><LI>The timing of new product releases;</LI></P>
<P ALIGN="JUSTIFY"><LI>Seasonal variations in operating results; and</LI></P>
<P ALIGN="JUSTIFY"><LI>Variations in the fiscal or quarterly cycles of our
customers.</LI></P></UL>
<p> Each customer's decision to implement our products and
services is discretionary, involves a significant commitment of resources and is
subject to their budget cycles. In addition, the timing of license revenue is
difficult to predict because of the length of our sales cycle, which has ranged
to date from one to twenty four months. We base our operating expenses on
anticipated revenue trends. Because a high percentage of these expenses are
relatively fixed, a delay in recognizing revenue from license transactions could
cause significant variations in operating results from quarter to quarter and
could result in operating losses. If these expenses precede, or are not
subsequently followed by, increased revenues, our operating results could be
materially and adversely affected. Although we have not experienced significant
seasonal variations in operating results, such variations could develop in the
future.</P>
<p> As a result of these and other factors, revenues for any
quarter are subject to significant variation and we believe that period-to-period
comparisons of our results of operations are not necessarily useful. You
should not rely on these comparisons as indications of future performance. It is
likely that our future quarterly operating results from time to time will not
meet the expectations of market analysts or investors, which would likely have
an adverse effect on the price of our common stock.</P>
<B><I><P ALIGN="JUSTIFY">We need to successfully integrate acquisitions and
manage growth.</P></B></I>
<p> Our business strategy includes pursuing opportunities
to grow our business, both internally and through selective acquisitions,
investments, joint ventures and strategic alliances. Our ability to implement
this strategy depends, in part, on our success in making such acquisitions,
investments, joint ventures and strategic alliances on satisfactory terms and
successfully integrating them into our operations. Implementation of our growth
strategy may impose significant strains on our management, operating systems and
financial resources. Failure to manage this growth, or unexpected difficulties
encountered during expansion, could have an adverse effect on our business,
operating results and financial condition.</P>
<B><I><P ALIGN="JUSTIFY">We rely on strategic relationships with systems
integrators.</P></B></I>
<p> Failure to maintain existing strategic relationships
with systems integrators, or to establish new relationships in the future, could
have a material adverse effect on our business. We have established strategic
relationships with a number of organizations that we believe are important to
our sales, marketing and support activities, and the implementation of our
products. We believe that our relationships with these organizations provide
marketing and sales opportunities for our direct sales force and expand the
distribution of our products. These relationships allow us to keep pace with the
technological and marketing developments of major software vendors and provide
us with technical assistance for our product development efforts.</P>
<p> In particular, we have established a non-exclusive strategic
relationship with Andersen Consulting, one of our largest stockholders. We have
also entered into significant relationships with other third-party systems
integrators such as IBM Global Services, PricewaterhouseCoopers and Deloitte
Consulting. A significant portion of our revenues have historically been derived
from customers for whom Andersen Consulting, or another systems integrator with
which we have a significant relationship, have been engaged to provide system
integration services. Any deterioration of our relationship with these
significant third-party systems integrators could have a material adverse effect
on our business, financial condition and results of operations. We also have
relationships with IBM Corporation, Compaq Computer Corporation, Microsoft
Corporation and Sun Microsystems, among others. Failure to maintain existing
relationships, or to establish new relationships in the future, could have a
material adverse effect on our business, results of operations and financial
condition.</P>
<p> Our current and potential customers may also rely
on third-party systems integrators to develop, deploy or manage Siebel eBusiness
Applications. If we do not adequately train a sufficient number of system
integrators, or if these integrators do not have, or do not devote, the
resources necessary to implement our products, our business, operating results
and financial condition could be materially and adversely affected.</P>
<B><I><P ALIGN="JUSTIFY">The Internet presents unique risks.</P></B></I>
<p> We may not be able to compete effectively in the
Internet-related products and services market. Siebel eBusiness Applications
communicate through public and private networks over the Internet. The success
of our products may depend, in part, on our ability to continue developing
products that are compatible with the Internet. We cannot predict with any
assurance whether the Internet will be a viable commercial marketplace or
whether the demand for Internet-related products and services will increase or
decrease in the future. The increased commercial use of the Internet could
require substantial modification and customization of our products and the
introduction of new products.</P>
<p> Critical issues concerning the commercial use of the
Internet, including security, demand, reliability, cost, ease of use,
accessibility, quality of service and potential tax or other government
regulation, remain unresolved and may affect the use of the Internet as a medium
to support the functionality of our products and distribution of our software.
If these critical issues are not favorably resolved, our business, operating
results and financial condition could be materially and adversely affected.</P>
<B><I><P ALIGN="JUSTIFY">We operate in a competitive and rapidly changing
market.</P></B></I>
<p> If the Web-based applications market fails to grow or
grows more slowly than we currently anticipate, our business, operating results
and financial condition could be materially and adversely affected. The market
for Web-based application software is relatively new, highly competitive and
rapidly changing. We market our products only to customers who have migrated or
are in the process of migrating their enterprise computing systems to Web-based
computing environments. Our future financial performance will partly depend on
the continued growth of organizations successfully adopting Web-based computing
environments.</P>
<B><I><P ALIGN="JUSTIFY">Our customers may not successfully implement our
products.</P></B></I>
<p> If existing customers have difficulty further
deploying Siebel eBusiness Applications or for any other reason are not
satisfied with Siebel eBusiness Applications, our business, operating results
and financial condition could be materially and adversely affected. Many of our
customers purchase and implement our products in phases. Our customers
frequently deploy our products to large numbers of sales, marketing and customer
service personnel. These end-users may not accept our products. Our products are
also being deployed on a variety of computer hardware platforms and used with a
number of third-party software applications and programming tools. This use may
present significant technical challenges, particularly as large numbers of
personnel attempt to use our product concurrently.</P>
<B><I><P ALIGN="JUSTIFY">A limited number of products provides a substantial
part of our license revenues.</P></B></I>
<p> A substantial majority of our license revenues are
attributable to sales of Siebel Sales Enterprise, Siebel Service Enterprise,
Siebel Call Center and related products. We expect that such products and
related consulting, maintenance and training services will continue to account
for a majority of our future revenues. As a result, factors adversely affecting
the pricing of or demand for such products, such as competition or technological
change, could have a material adverse effect on our business, operating results
and financial condition.</P>
<B><I><P ALIGN="JUSTIFY">The length of time required to engage a client and to
implement our products may be lengthy and unpredictable.</P></B></I>
<p> The timing of the sales and implementation of our
products and services is lengthy and not predictable with any degree of
accuracy. You should not rely on prior sales and implementation cycles as any
indication of future cycles.</P>
<p> The license of our software products is often an
enterprise-wide decision by prospective customers and generally requires us to provide a
significant level of education to prospective customers regarding the use and
benefits of our products. In addition, the implementation of our products
involves a significant commitment of resources by prospective customers and is
commonly associated with substantial reengineering efforts that may be performed
by the customer or third-party systems integrators. The cost to the customer of
our product is typically only a portion of the related hardware, software,
development, training and integration costs of implementing a large-scale
eBusiness software system. For these and other reasons, the period between
initial contact and the implementation of our products is often lengthy and is
subject to a number of factors that may cause significant delays, over many of
which we have little or no control. These factors include (i) the size and
complexity of the overall project and (ii) delays in our customers'
implementation of Web-based computing environments. A delay in the sale or
implementation of even a limited number of license transactions could have a
material adverse effect on our business and operations and cause our operating
results to vary significantly from quarter to quarter.</P>
<B><I><P ALIGN="JUSTIFY">Our success will require us to continue to expand our
direct sales force and technical support staff.</P></B></I>
<p> Failure to expand our direct sales force or technical
and customer support staff or to expand our distribution channels could
materially and adversely affect our business, operating results and financial
condition. We have expanded the distribution of our products in recent years.
This expansion has placed new and increased demands on our direct sales force
and technical and sales support staff. Our ability to achieve revenue growth in
the future will depend, in part, on our success in recruiting and training
sufficient direct sales, technical and customer support personnel. Although we
invest significant resources to expand our direct sales force and our technical
and customer support staff, there is only a limited number of qualified
personnel in these areas. Therefore, we may not be able to expand our direct
sales force and technical support staff as necessary to support our growing
operations. In addition, such expansion may not result in increased
revenues.</P>
<B><I><P ALIGN="JUSTIFY">Our expanding distribution channels may create
additional risks.</P></B></I>
<p> Failure to minimize channel conflicts could
materially and adversely affect our business, operating results and financial
condition. We have recently entered into a number of relationships with
resellers in order to obtain broad market coverage. We have generally avoided
exclusive relationships with resellers of our products. Discount policies and
reseller licensing programs are intended to support each distribution channel
with a minimum level of channel conflicts.</P>
<B><I><P ALIGN="JUSTIFY">Our revenue is concentrated in a relatively small
number of customers.</P></B></I>
<p> Our success depends on maintaining relationships with
our existing customers. A relatively small number of customers have accounted
for a significant percentage of our revenues. For 1999, license revenues from
our ten largest customers accounted for 10% of total revenues. We expect that
licenses of our products to a limited number of customers will continue to
account for a significant percentage of revenue for the foreseeable future. The
loss of a small number of customers or any reduction or delay in orders by any
such customer, or failure to successfully market our products to new customers,
could have a material adverse effect on our business, financial condition and
results of operations.</P>
<B><I><P ALIGN="JUSTIFY">Our continued success will require us to keep pace with
technological developments, evolving industry standards and changing customer
needs.</P></B></I>
<p> The software market in which we compete is
characterized by (i) rapid technological change, (ii) frequent introductions of
new products, (iii) changing customer needs and (iv) evolving industry
standards. To keep pace with technological developments, evolving industry
standards and changing customer needs, we must support existing products and
develop new products. We may not be successful in developing, marketing and
releasing new products or new versions of the Siebel eBusiness Applications that
respond to technological developments, evolving industry standards or changing
customer requirements. We may also experience difficulties that could delay or
prevent the successful development, introduction and sale of these enhancements.
In addition, these enhancements may not adequately meet the requirements of the
marketplace and may not achieve any significant degree of market acceptance. If
release dates of any future products or enhancements to the Siebel eBusiness
Applications are delayed, or if these products or enhancements fail to achieve
market acceptance when released, our business, operating results and financial
condition could be materially and adversely affected. In addition, new products
or enhancements by our competitors may cause customers to defer or forego
purchases of our products, which could have a material adverse effect on our
business, financial condition and results of operations.</P>
<B><I><P ALIGN="JUSTIFY">To be successful, we must effectively compete in the
eBusiness systems market.</P></B></I>
<p> Our products target the eBusiness systems market.
This market is highly competitive, rapidly changing and significantly affected
by new product introductions. We face competition primarily from our customers'
internal information technology departments and systems integrators, as well as
from other application software providers that offer a variety of products and
services to address this market. Many of our customers and potential customers
have attempted to develop eBusiness systems in-house, either alone or with the
help of systems integrators. We may not be able to compete successfully against
such internal development efforts.</P>
<p> We rely on a number of systems consulting and systems
integration firms for a substantial portion of implementation and other customer
support services, as well as for recommendations of our products during the
evaluation stage of the purchase process. Although we seek to maintain close
relationships with these service providers, many of them have similar and often
more established, relationships with our competitors. If we are unable to
develop and retain effective, long-term relationships with these third parties,
our competitive position could be materially and adversely affected. Further,
many of these third parties have significantly greater resources than we do and
may market software products that compete with us.</P>
<p> A large number of personal,
departmental and other products exist in the Siebel eBusiness applications
market. Companies (products) such as Allegis (Allegis Sales Partner), Annuncio
(Annuncio Live), Ariba (Ariba ORMS Application, Ariba Internet Business Exchange
Service, Ariba Market Suite), Baan Co. (BaanFrontOffice, Baan E-Enterprise),
Blue Martini (Blue Martini Customer Interaction), Brightware (Web Assistance,
Email Assistance), BroadVision (One-to-One Enterprise, One-to-One), Broadbase
Info. (CRMPerform), Calico Commerce (Calico eSales Configurator, Calico eSales
Engine), Callidus Software, Inc. (TrueComp), CAS GmbH (Mapware, Groupware,
Referenzen), Chordiant Software (Enterprise Business Center, Chordiant CCS),
Clarify (ClearCallCenter, Clear Quality, Clear Telebusiness), Dendrite
International (Dendrite Series 6, AIMS, Strategic Selling Guide), Epicor
(Epicor eFrontOffice, Epicor eCommerce Suite, Epicor eIntelligence), E.piphany
(E.4 System), FirePond (FirePond Application Suite), Firstwave Technologies
(Firstwave eRM, eMarketing, eSales, eSupport), GoldMine Software (GoldMine), I2
Technologies (RYTHM), Kana Communications (Kana Connect, Kana Notify, Kana
Realtime, Kana Response, Kana Classify, Kana Assist, Kana Forms), MarketFirst
(MarketFirst 2.0), MarketSoft (eLeads), Niku (iNiku), Octane Software
(Octane 2000), ONYX Software (Customer Center), Oracle (Oracle iMarketing,
Oracle iStore, OracleiPayment, Oracle Telephony Manager, Oracle Customer Care.
Oracle OpenTel), Pegasystems, Inc. (Pegasystems), Pivotal Software, Inc.
(eRelationship 2000), Prime Resposne ([email protected]), Quintus Corp.
(eContact), Relavis Corp. (Remedy@work), RTS, SalesLogix (CommerceLogix,
SupportLogix, ACT!), SAP AG (mySAP.com<sup><font size=2>TM</sup></font size=2>), Saratoga Systems, ServiceSoft
(Web Advisor®, eCenter<sup><font size=2>TM</sup></font size=2>, Knowledge Builder®, LiveContact<sup><font size=2>TM</sup></font size=2>,
E-mailContact<sup><font size=2>TM</sup></font size=2>), Silknet Software Inc. (Silknet)(To be acquired by Kana
Communications, Inc.), Trilogy (MultiChannel Commerce 2.0), Update
Marketing (Marketing Manager®), Vantive Corp. (Vantive)(Acquired by
PeopleSoft), Vignette (StoryServer, Syndication Server, Multi-Channel Server,
Tools, Professional Services) are among the many firms in this market segment.
Some of these competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, significantly greater name
recognition and a larger installed base of customers than we do. In addition,
many competitors have well-established relationships with our current and
potential customers. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
products than we can.</P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=3>
<p> There are many factors that may increase competition in the
eBusiness systems market, including (i) entry of new competitors, (ii) alliances
among existing competitors, (iii) consolidation in the software industry and
(iv) technological changes or changes in the use of the Internet. Increased
competition may result in price reductions, reduced gross margins or loss of
market share, any of which could materially and adversely affect our business,
operating results and financial condition. If we cannot compete successfully
against current and future competitors or overcome competitive pressures, our
business, operating results and financial condition may be adversely affected.
</P>
<B><I><P ALIGN="JUSTIFY">If we do not maintain our relationships with third-party
vendors, interruptions in the supply of our products may result.</P></B></I>
<p> We may not be able to replace the functionality
provided by the third-party software currently offered with our products if that
software becomes obsolete or incompatible with future versions of our products
or is not adequately maintained or updated. Portions of our products incorporate
software that was developed and is maintained by third-party software
developers. Although we believe there are other sources for these products, any
significant interruption in the supply of these products could adversely impact
our sales unless and until we can secure another source. We depend in part on
these third parties' abilities to enhance their current products, to develop new
products on a timely and cost-effective basis and to respond to emerging
industry standards and other technological changes. The absence of or any
significant delay in the replacement of functionality provided by third-party
software in our products could materially and adversely affect our sales.</P>
<B><I><P ALIGN="JUSTIFY">Software errors or defects in our products could reduce
revenues.</P></B></I>
<p> Software products frequently contain errors or
failures, especially when first introduced or when new versions are released.
Although we conduct extensive product testing during product development, we
have, in the past, been forced to delay the commercial release of products until
the correction of software problems. We could lose revenues as a result of
software errors or defects. Our products are intended for use in sales
applications that may be critical to a customer's business. As a result, we
expect that our customers and potential customers will have a greater
sensitivity to product defects than the market for software products generally.
Testing errors may also be found in new products or releases after commencement
of commercial shipments, resulting in loss of revenue or delay in market
acceptance, damage to our reputation, or increased service and warranty costs,
any of which could have a material adverse effect upon our business, operating
results and financial condition. </P>
<B><I><P ALIGN="JUSTIFY">If we do not successfully manage our growth, our
business may be negatively impacted.</P></B></I>
<p> If we fail to manage our growth effectively, our
business, financial condition and results of operations could be materially and
adversely affected. Our business has grown rapidly in recent years. This growth
has placed a significant strain on our management systems and resources. To
manage future growth, we must continue to (i) improve our financial and
management controls, reporting systems and procedures on a timely basis and (ii)
expand, train and manage our employee work force.</P>
<B><I><P ALIGN="JUSTIFY">The loss of key personnel could negatively affect our
performance.</P></B></I>
<p> Our performance depends on the continued service of
our key technical, sales and senior management personnel, particularly Thomas M.
Siebel, our Chairman and Chief Executive Officer. None of our key employees has
entered into an employment agreement with us. The loss of the services of one or
more of our executive officers could have a material adverse effect on our
business, operating results and financial condition. </P>
<B><I><P ALIGN="JUSTIFY">Substantial leverage and debt service obligations may
adversely affect our cash flow.</P></B></I>
<p> We have substantial amounts of outstanding
indebtedness, primarily consisting of our 5-1/2% convertible subordinated notes
due September 15, 2006. As a result of this indebtedness, our principal and
interest payment obligations are substantial. We may be unable to generate cash
sufficient to pay the principal of, interest on and other amounts due in respect
of our indebtedness when due. We also expect to add additional equipment loans
and lease lines to finance capital expenditures and may obtain additional long-term
debt, working capital lines of credit and lease lines. There can be no
assurance that any financing arrangements will be available.</P>
<p> Our substantial leverage could have significant negative
consequences, including:</P>
<UL>
<P ALIGN="JUSTIFY"><LI>Increasing our vulnerability to general adverse economic
and industry conditions;</LI></P>
<P ALIGN="JUSTIFY"><LI>Limiting our ability to obtain additional
financing;</LI></P>
<P ALIGN="JUSTIFY"><LI>Requiring the dedication of a substantial portion of our
expected cash flow from operations to service our indebtedness, thereby reducing
the amount of our expected cash flow available for other purposes, including
capital expenditures;</LI></P>
<P ALIGN="JUSTIFY"><LI>Limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we compete; and</LI></P>
<P ALIGN="JUSTIFY"><LI>Placing us at a competitive disadvantage compared to less
leveraged competitors and competitors that have better access to capital
resources.</LI></P></UL>
<B><I><P ALIGN="JUSTIFY">The protection of our proprietary information is
limited.</P></B></I>
<p> We rely primarily on a combination of patent,
copyright, trade secret and trademark laws, confidentiality procedures and
contractual provisions to protect our proprietary rights. We also believe that
the technological and creative skills of our personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are essential to establishing and maintaining a technology
leadership position. We seek to protect our software, documentation and other
written materials under patent, trade secret and copyright laws, which afford
only limited protection. Any patents issued to us may be invalidated,
circumvented or challenged. Any of our pending or future patent applications,
whether or not being currently challenged, may not be issued with the scope of
the claims we seek, if at all. Furthermore, others may develop technologies that
are similar or superior to our technology or design around our patents. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information that we regard
as proprietary. Policing unauthorized use of our products is difficult. In
addition, the laws of some foreign countries do not protect our proprietary
rights as fully as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate. We have
entered into agreements with substantially all of our customers that require us
to place Siebel eBusiness Applications source code into escrow. Such agreements
generally provide that such parties will have a limited, non-exclusive right to
use such code if (i) there is a bankruptcy proceeding by or against us, (ii) we
cease to do business, or (iii) we fail to meet our support obligations.</P>
<p> Although we do not believe that we are infringing any
proprietary rights of others, third parties may claim that we have infringed
their intellectual property rights. Furthermore, former employers of our former,
current or future employees may assert claims that such employees have
improperly disclosed to us the confidential or proprietary information of such
former employers. Any such claims, with or without merit, could (i) be time
consuming to defend, (ii) result in costly litigation, (iii) divert management's
attention and resources, (iv) cause product shipment delays and (v) require us
to pay money damages or enter into royalty or licensing agreements. A successful
claim of product infringement against us and our failure or inability to license
or create a workaround for such infringed or similar technology may materially
and adversely affect our business, operating results and financial
condition.</P>
<p> We license certain software from third parties.
These third-party software licenses may not continue to be available to us on acceptable
terms. The loss of, or inability to maintain, any of these software licenses
could result in shipment delays or reductions. This could materially and
adversely affect our business, operating results and financial condition. </P>
<B><I><P ALIGN="JUSTIFY">International operations involve unique risks.</P></B></I>
<p> Our revenues are primarily derived from large
multi-national companies. To service the needs of these companies, we must provide
worldwide product support services. We have expanded and intend to continue
expanding, our international operations and enter additional international
markets. This will require significant management attention and financial
resources that could adversely affect our operating margins and earnings. We may
not be able to maintain or increase international market demand for Siebel
eBusiness Applications. If we do not, our international sales will be limited
and our business, operating results and financial condition could be materially
and adversely affected. </P>
<p> Our international operations are subject to a variety of
risks, including (i) foreign currency fluctuations, (ii) economic or political
instability, (iii) shipping delays and (iv) various trade restrictions. Any of
these risks could have a significant impact on our ability to deliver products
on a competitive and timely basis. Significant increases in the level of customs
duties, export quotas or other trade restrictions could also have an adverse
effect on our business, financial condition and results of operations. In
situations where direct sales are denominated in foreign currency, any
fluctuation in foreign currency or the exchange rate may adversely affect our
business, financial condition and results of operations. We manage our foreign
currency exchange rate risk by entering into contracts to sell foreign currency
at the time a foreign currency receivable is generated. When the foreign
currency receivable is collected, the contract is liquidated, thereby converting
the foreign currency to US dollars and mitigating the exchange rate risk. In
certain instances, we have not hedged foreign currency receivables when the
forward contracts in the relevant currency were not readily available or were
not cost effective.</P>
<B><I><P ALIGN="JUSTIFY">Certain stockholders may be able to exercise control
over matters requiring stockholder approval.</P></B></I>
<p> Our current officers, directors and entities
affiliated with us together beneficially owned a significant portion of the
outstanding shares of common stock as of December 31, 1999. While these
stockholders do not hold a majority of our outstanding common stock, they will
be able to exercise significant influence over matters requiring stockholder
approval, including the election of directors and the approval of mergers,
consolidations and sales of our assets. This may prevent or discourage tender
offers for our common stock.</P>
<B><I><P ALIGN="JUSTIFY">Our stock price may continue to be volatile.</P></B></I>
<p> Our stock price has fluctuated substantially since
our initial public offering in June 1996. The trading price of our common stock
is subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant orders, changes in earning
estimates by analysts, announcements of technological innovations or new
products by us or our competitors, general conditions in the software and
computer industries and other events or factors. In addition, the stock market
in general has experienced extreme price and volume fluctuations that have
affected the market price for many companies in industries similar or related to
ours and that have been unrelated to the operating performance of these
companies. These market fluctuations have adversely affected and may continue to
adversely affect the market price of our common stock.</P>
<B><I><P ALIGN="JUSTIFY">Certain provisions in our charter documents may prevent
certain corporate actions.</P></B></I>
<p> Our Board of Directors is authorized to issue up to
2,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further approval by our stockholders. The preferred stock
could be issued with voting, liquidation, dividend and other rights superior to
those of the common stock. The rights of the holders of common stock will be
subject to and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of our outstanding voting stock. We have a
classified Board of Directors. This and certain other provisions of our
certificate of incorporation and certain provisions of our Bylaws and of
Delaware law, could delay or make more difficult a merger, tender offer or proxy
contest.</P>
</FONT><B><FONT SIZE=3><P>Audit Committee</P></B>
<p> The Company has established an Audit Committee of the
Board of Directors, the charter of which is to oversee the activities of
management and the Company's external auditors as they relate to the financial
reporting process. In 1999, the Audit Committee was comprised of James C.
Gaither, Charles R. Schwab and George T. Shaheen. In particular, the Audit
Committee's role includes ensuring that management properly develops and adheres
to a sound system of internal controls, and that the Company's auditors, through
their own review, assess the effectiveness of those controls and management's
adherence to them.</P>
<P ALIGN="JUSTIFY"></P>
<p> In fulfilling their responsibilities, the Audit Committee
conducted regular, quarterly meetings with the Company's outside auditors. In
each of these meetings, the Audit Committee met with the Company's outside
auditors, independent of management, to assure the Audit Committee an
independent and confidential view of the Company's management and internal
controls as they relate to the quality and reliability of the Company's
financial statements.</P>
<P ALIGN="JUSTIFY"></P>
<p> The Company is committed to supporting this process and
the Audit Committee in fulfilling their role of ensuring the integrity of the
Company's internal controls and financial reporting.</P>
<P ALIGN="JUSTIFY"></P>
<A NAME="item7a"></A>
<B><U><P>Item 7a. Quantitative and Qualitative Disclosures About Market
Risk</P>
</U></B>
<p> The tables below provide information about the Company's
derivative financial instruments and financial instruments that are subject to
market risk. These include foreign currency forward contracts used to hedge
foreign currency receivables and intercompany balances, which are subject to
exchange rate risk, cash equivalents and available-for-sale short-term
investments, which are subject to interest rate risk. </P>
<P ALIGN="JUSTIFY"></P>
<p> The Company manages its foreign currency exchange rate
risk by entering into contracts to sell foreign currency at the time a foreign
currency receivable is generated. When the foreign currency receivable is
collected, the contract is liquidated, thereby converting the foreign currency
to US dollars and mitigating the exchange rate risk.</P>
<p> The Company manages its interest rate risk by maintaining
an investment portfolio with debt instruments of high credit quality and
relatively short average maturities. The Company also manages interest rate risk
by maintaining sufficient cash and cash equivalent balances such that it is
typically able to hold its investments to maturity.</P>
<p> The Company is exposed to equity price risks on
marketable equity securities. This investment is in a publicly-trade company in
the high-technology industry sector. The Company typically does not attempt to
reduce or eliminate its market exposure on these securities. A 10% adverse
change in the equity price would result in an approximate $14,200,000 decrease
in the fair value of the Company's marketable equity securities as of December
31, 1999. </P>
<p> The fair value of the Company's convertible subordinated
debenture fluctuates based upon changes in the price of the Company's common
stock, changes in
interest rates and changes in the creditworthiness of the Company. The fair
market value of the convertible subordinated debenture as of December 31, 1999
was $580,140,000. </P>
<p> The following summarizes the Company's foreign currency
forward contracts, all of which mature in 2000, by currency, as of December 31,
1999. Contract amounts are representative of the expected payments to be made
under these instruments (in thousands):</P>
<b>
Fair Value
Contract Contract at
Amount (Local Amount December 31,
Currency) (US$) 1999 (US$)
--------------- ----------- ------------</b>
German marks (contracts to pay
DM/receive US$)..................... DM 5,930 $3,081 $36
British pounds (contracts to pay
Pounds/receive US$)................. (Pounds)4,211 $6,779 ($42)
Japanese yen (contracts to pay
Yen/receive US$)....................(Yen)2,008,000 $19,663 $8
Euro (contracts to pay
EUR/receive US$).................... (EUR)7,664 $7,499 $133
British pounds (contracts to pay
Pounds/receive EUR)................. (Pounds)970 (EUR)1,402 ($164)
<P ALIGN="JUSTIFY"></P>
</FONT><FONT FACE="Colonna MT,Courier New" SIZE=3>
<p> </FONT><FONT FACE="Times,Times New Roman" SIZE=3>The
following summarizes the Company's short-term investments and the weighted
average yields, as of December 31, 1999 (in thousands):</P>
<b>
Expected maturity date
-----------------------------------------------------
There-
2000 2001 2002 2003 2004 after
-------- -------- -------- -------- -------- --------</b>
US treasury securities. $9,752 $10,974 $4,945 $1,953 $6,262 --
Wtd. Avg. Yld.......... 5.24% 6.27% 6.42% 6.36% 7.16%
Municipal securities... $52,116 $37,942 $36,395 $5,305 -- --
Wtd. Avg. Yld.......... 3.98% 3.86% 4.50% 4.73%
Corporate bonds........ $6,124 $5,430 $20,367 -- -- --
Wtd. Avg. Yld.......... 6.05% 6.97% 6.80%
<FONT FACE="Times,Times New Roman" SIZE=3><P ALIGN="JUSTIFY"></P>
<p> On December 31, 1999, the Company had an investment
portfolio of fixed income securities, excluding those classified as cash and
cash equivalents, of $197,565,000. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if market
interest rates increase. If market interest rates were to increase immediately
and uniformly by 100 basis points from levels as of December 31, 1999, the fair
value of the portfolio would decline by approximately $2,834,000.</P>
</FONT><FONT SIZE=3 COLOR="#0000ff"><P ALIGN="JUSTIFY"></P>
<A NAME="item8"></A>
</FONT><B><U><FONT SIZE=3><P>Item 8. Financial Statements and Supplementary
Data</P>
</U></B>
<p> The Company's consolidated financial statements,
together with related notes and the report of KPMG LLP, the Company's
independent auditors, are set forth on the pages indicated in Item 14.</P>
</FONT><FONT SIZE=3 COLOR="#0000ff"><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<A NAME="item9"></A>
</FONT><B><U><FONT SIZE=3><P>Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure</P>
</U></B>
<p> Not Applicable.</P>
<B><P ALIGN="CENTER">PART III</P>
<P ALIGN="CENTER"></P></B>
<p> Certain information required by Part III is omitted
from this Report on Form 10-K since the Company will file a definitive Proxy
Statement for its Annual Meeting of Stockholders to be held on May 9, 2000,
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended
(the "Proxy Statement"), not later than 120
days after the end of the fiscal year covered by this Report,
and certain information included in the Proxy Statement is incorporated herein
by reference.</P>
<A NAME="item10"></A>
<B><U><P>Item 10. Directors and Executive Officers of the Registrant</P>
</U>
<P>(a) Executive Officers</P></B>
<p> The executive officers of the Company as of February
1, 2000, and their ages as of such date, are as follows:</P>
<b>
Name Age Position
- ----------------------------- ------ ---------------------------------------------</b>
Thomas M. Siebel........... 47 Chairman, Chief Executive Officer and
President
Paul Wahl.................. 47 President & Chief Operating Officer
Pat House.................. 45 Executive Vice President and Co-Founder
Howard H. Graham........... 52 Senior Vice President, Finance and
Administration and Chief Financial Officer
Craig D. Ramsey............ 53 Senior Vice President, Worldwide Operations
R. David Schmaier.......... 36 Senior Vice President, Products
Mike Saranga............... 62 Senior Vice President, Engineering
Karen M. Riley............. 46 Vice President, Global Services
<P ALIGN="JUSTIFY"></P>
<p> <B>Thomas M. Siebel </B>has served as Chairman, Chief
Executive Officer of the Company since its inception in July 1993.</P>
<p> <B>Paul Wahl </B> has served as President and Chief
Operating Officer of the Company since April 1999. From November 1998 to April
1999, he served as Chief Executive Officer and President of TriStrata, an
internet security company. From June 1991 to September 1998, Mr. Wahl served as
Chief Executive Officer of SAP America, Inc., a software company, and was an
Executive Board Member of SAP AG. </P>
<p> <B>Pat House </B>has been with the Company since
its inception in July 1993. From February 1996 to the present, she has served as
the Company's Executive Vice President and Co-Founder, and from July 1993 to
February 1996, she served as Senior Vice President, Marketing.</P>
<p> <B>Howard H. Graham </B>has served as the Company's Senior
Vice President, Finance and Administration and Chief Financial Officer since
January 1997. From February 1990 to December 1996, Mr. Graham served as Senior
Vice President and Chief Financial Officer of Informix, Inc.</P>
<p> <B>Craig D. Ramsey </B>has served as the Company's Senior
Vice President, Worldwide Operations since March 1996. From March 1994 to March
1996, Mr. Ramsey served as Senior Vice President of Worldwide Sales, Marketing
and Support for nCUBE, a leader in distribution of digitized media.</P>
<p> <B>R. David Schmaier </B>has served as Senior Vice
President, Products since March 1994.</P>
<p> <B>Mike Saranga</B> has served as Senior Vice President,
Engineering since October 1998. From 1993 to 1998, Mr. Saranga served as Senior
Vice President of Research and Development for Informix, Inc.</P>
<p> <B>Karen M. Riley</B></FONT><FONT FACE="Arial" SIZE=3>
</FONT><FONT SIZE=3>has served as Vice President, Global Services since May
1999. From May 1979 to April 1999, Ms. Riley served in a variety of software
development, product management, and services executive positions and as General
Manger of Global CRM and business process outsourcing services practices at IBM.
</P>
<p> The Company's current officers, directors and affiliated
entities together beneficially owned approximately 14.58% of the outstanding
shares of Common Stock as of December 31, 1999. In particular, Thomas M. Siebel,
the Company's Chairman and Chief Executive Officer, owned approximately 11.78%
of the outstanding shares of Common Stock as of December 31, 1999. As a result,
these stockholders will be able to exercise control over matters requiring
stockholder approval, including the election of directors, and the approval of
mergers, consolidations and sales of all or substantially all of the assets of
the Company. This may prevent or discourage tender offers for the Company's
Common Stock unless the terms are approved by such stockholders.</P>
<p> The Company's Board of Directors has the authority to
issue up to 2,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The
Preferred Stock could be issued with voting, liquidation, dividend and other
rights superior to those of the Common Stock. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Pursuant to the Company's Certificate
of Incorporation, the Company has instituted a classified Board of Directors.
This and certain other provisions of the Company's Certificate of Incorporation
and certain provisions of the Company's Bylaws and of Delaware law, could delay
or make more difficult a merger, tender offer or proxy contest involving the
Company.</P>
<p><B>(b) Directors</P></B>
<p> The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.</P>
<B><U><P ALIGN="JUSTIFY"></P>
<A NAME="item11"></A>
<P ALIGN="JUSTIFY">Item 11. Executive Compensation</P>
</U></B>
<p> The information required by this Item is incorporated
by reference to the section entitled "Executive Compensation" in the
Proxy Statement.</P>
<A NAME="item12"></A>
<B><U><P>Item 12. Security Ownership of Certain Beneficial Owners and
Management</P>
</U></B>
<p> The information required by this Item is incorporated
by reference to the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.</P>
<A NAME="item13"></A>
<B><U><P>Item 13. Certain Relationships and Related Transactions</P>
</U></B>
<p> The information required by this Item is incorporated
by reference to the section entitled "Certain Transactions" in the
Proxy Statement.</P>
<B><P ALIGN="CENTER">PART IV</P>
<P ALIGN="CENTER"></P></B>
<A NAME="item14"></A>
<p><strong><u>Item 14. Exhibits, Financial Statements and Reports on Form 8-K</strong></u></p>
<p> (a) The following documents are filed as part of this Report:
<BLOCKQUOTE>
<p> 1. Financial Statements
<BLOCKQUOTE>
<p><A HREF="#opinion">
Independent Auditors' Report</A>
<p> Consolidated Financial Statements:
<BLOCKQUOTE>
<p><A HREF="#bs">
Balance Sheets</A>
<p><A HREF="#ops">
Statements of Operations and Comprehensive Income</A>
<p><A HREF="#equity">
Statements of Stockholders' Equity</A>
<p><A HREF="#flows">
Statements of Cash Flows</A>
</BLOCKQUOTE>
<p><A HREF="#notes">
Notes to Consolidated Financial Statements</A>
</BLOCKQUOTE>
<p> 2. Financial Statement Schedule
<BLOCKQUOTE>
<p> Schedule II--Valuation and Qualifying Accounts
</BLOCKQUOTE>
<p> 3. Exhibits
</BLOCKQUOTE>
<b>
Exhibit
Number Description of Document
- -------- ---------------------------------------------------------------</b>
2.1 Agreement and Plan of Merger and Reorganization, dated March 1,
1998, among the Registrant, Syracuse Acquisition Sub, Inc. and
Scopus Technology, Inc.(4)
2.2 Agreement and Plan of Merger and Reorganization dated November
17, 1999, among the Registrant, SE Acquisition Corp. and
OnTarget, Inc. (8)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(3)
3.2 Certificate of Amendment of the Amended and Restated
Certificiate of Incorporation of the Registrant (9)
3.3 Bylaws of the Registrant.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Stock Certificate.(1)
4.3 Restated Investor Rights Agreement, dated December 1, 1995,
between the Registrant and certain investors, as amended April
30, 1996 and June 14, 1996.(1)
10.1 Registrant's 1996 Equity Incentive Plan, as amended.(3)
10.2 Registrant's Employee Stock Purchase Plan, as amended.(3)
10.3 Form of Indemnity Agreement entered into between the Registrant
and its officers and directors.(1)
10.4 Registrant's Deferred Compensation Plan, dated January 10,
1997.(5)
10.5 Master Alliance Agreement, dated March 17, 1995, between the
Registrant and Andersen Consulting LLP.(1)(2)
10.6 Assignment Agreement, dated September 20, 1995, by and between
the Registrant and Thomas M. Siebel.(1)
10.7 Lease Agreement, dated June 4, 1996, by and between the
Registrant and Crossroad Associates and Clocktower
Associates.(1)
10.8 Lease Agreement, dated March 11, 1999, by and between the
Registrant and Sobrato Interests III.(9)
10.9 Lease Agreement, dated March 11, 1999, by and between the
Registrant and Sobrato Interests III.(9)
10.10 Lease Agreement, dated June 11, 1999, by and between the
Registrant and Sobrato Interests III.(9)
10.11 Lease Agreement, dated August 24, 1994, by and between the
Registrant and Watergate Tower Associates.(9)
10.12 Lease Agreement, dated August 16, 1999, by and between the
Registrant and Spieker Properties, L.P..(9)
10.13 Lease Amendment 10, dated April 8, 1999, by and between the
Registrant and Spieker Properties, L.P..(9)
10.14 Lease Amendment 11, dated August 13, 1999, by and between the
Registrant and Spieker Properties, L.P..(9)
10.15 Lease Amendment 12, dated October 28, 1999, by and between
the Registrant and Spieker Properties, L.P..(9)
23.1 Consent of KPMG LLP, Independent Auditors.(9)
27.1 Financial Data Schedule.(9)
<p> ---------
<p>(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 333-03751), as amended.<br>
(2) Confidential treatment has been granted with respect to portions of this
exhibit.<br>
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (No. 333-07983), as amended.<br>
(4) Incorporated by reference to exhibit 99.1 of the Registrant's Current
Report on Form 8-K filed by the Registrant on March 16, 1998.<br>
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.<br>
(6) Incorporated by reference to exhibit 99.3 of the Registrant's Current
Report on Form 8-K filed by the Registrant on March 16, 1998.<br>
(7) Incorporated by reference to exhibit 99.5 of the Registrant's Current
Report on Form 8-K filed by the Registrant on March 16, 1998.<br>
(8) Incorporated by reference the Registrant's Current Report on Form 8-K
filed by the Registrant on January 7, 2000. <br>
(9) Filed herewith.
<p> <i>(b) Reports on Form 8-K</i>
<p> On January 7, 2000, the Registrant filed a report on Form 8-K relating to the Registrant's restated audited
consolidated financial statements, giving effect to the merger with OnTarget, Inc. for the three years ended
December 31, 1998, and the related consolidated financial statement schedule, selected financial data and
management's discussion and analysis of financial condition and results of operations.
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="opinion"></A>
<P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER">INDEPENDENT AUDITORS' REPORT</P>
<P ALIGN="CENTER"></P>
</B><P ALIGN="JUSTIFY">The Board of Directors and Stockholders<br>
Siebel Systems, Inc.:</P>
<P ALIGN="JUSTIFY"></P>
<p> We have audited the accompanying consolidated balance
sheets of Siebel Systems, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations and comprehensive
income, stockholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.</P>
<P ALIGN="JUSTIFY"></P>
<p> We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.</P>
<P ALIGN="JUSTIFY"></P>
<p> In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Siebel Systems, Inc. and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.</P>
<P ALIGN="JUSTIFY"></P>
<P>/s/ KPMG LLP<br>
<P ALIGN="JUSTIFY">Mountain View, California<br>
January 24, 2000</P>
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="bs"></A>
<p align="center"></font><strong>
SIEBEL SYSTEMS, INC.
<br>
</strong><br>
<strong>
Consolidated Balance Sheets<br>
</strong>
<br>
(in thousands, except per share data)
<b>
December 31,
----------------------
1999 1998
----------- ----------
Assets </b>
Current assets:
Cash and cash equivalents............................ $465,810 $80,741
Short-term investments............................... 197,565 151,888
Marketable equity securities.......................... 141,939 --
Accounts receivable, net............................. 293,010 126,081
Deferred income taxes................................ -- 13,270
Prepaids and other................................... 30,711 14,402
----------- ----------
Total current assets............................... 1,129,035 386,382
Property and equipment, net.......................... 56,875 46,384
Other assets......................................... 41,052 14,830
----------- ----------
Total assets....................................... $1,226,962 $447,596
=========== ==========
<b> Liabilities and Stockholders' Equity</b>
Current liabilities:
Accounts payable..................................... $11,845 $4,558
Accrued expenses..................................... 125,085 88,185
Income taxes payable................................. -- 10,917
Deferred revenue..................................... 86,170 52,033
Deferred income taxes................................ 27,832 --
----------- ----------
Total current liabilities.......................... 250,932 155,693
Convertible subordinated debentures..................... 300,000 --
Deferred income taxes.................................. 1,439 783
----------- ----------
Total liabilities.................................. 552,371 156,476
----------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock; $0.001 par value; 800,000 shares
authorized; 194,597 and 182,036 shares issued and
outstanding, respectively........................... 195 182
Additional paid-in capital........................... 415,408 235,400
Notes receivable from stockholders................... (406) (406)
Deferred stock compensation.......................... (1,203) (360)
Accumulated other comprehensive income (losses)...... 83,612 (669)
Retained earnings.................................... 176,985 56,973
----------- ----------
Total stockholders' equity......................... 674,591 291,120
----------- ----------
Total liabilities and stockholders' equity......... $1,226,962 $447,596
=========== ==========
<p align="center">
See accompanying notes to consolidated financial statements.
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="ops"></A>
<p align="center"></font><strong>
SIEBEL SYSTEMS, INC.
</strong><br>
<br>
<strong>
Consolidated Statements of Operations and Comprehensive Income<br>
</strong>
<br>
(in thousands, except per share data)
<b> Year Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------</b>
Revenues:
Software..................................... $499,398 $290,890 $156,971
Professional services, maintenance and other. 291,522 118,996 65,100
---------- ---------- ----------
Total revenues............................. 790,920 409,886 222,071
---------- ---------- ----------
Cost of revenues:
Software..................................... 7,640 5,600 4,393
Professional services, maintenance and other. 173,278 65,387 31,646
---------- ---------- ----------
Total cost of revenues..................... 180,918 70,987 36,039
---------- ---------- ----------
Gross margin............................... 610,002 338,899 186,032
---------- ---------- ----------
Operating expenses:
Product development.......................... 72,853 43,950 26,650
Sales and marketing.......................... 290,687 178,957 103,551
General and administrative................... 63,508 34,473 21,275
Merger-related expenses...................... -- 13,500 26,038
---------- ---------- ----------
Total operating expenses................... 427,048 270,880 177,514
---------- ---------- ----------
Operating income........................... 182,954 68,019 8,518
Other income, net.............................. 13,968 6,258 5,385
---------- ---------- ----------
Income before income taxes................. 196,922 74,277 13,903
Income taxes................................... 74,830 30,012 13,260
---------- ---------- ----------
Net income................................. $122,092 $44,265 $643
========== ========== ==========
Pro forma net income and per share data:
Income before taxes as reported............. $196,922 $74,277 $13,903
Pro forma income taxes...................... 75,195 30,817 13,848
---------- ---------- ----------
Pro forma net income........................ $121,727 $43,460 $55
========== ========== ==========
Pro forma diluted net income per share......... $0.54 $0.21 $0.00
========== ========== ==========
Pro forma basic net income per share........... $0.65 $0.24 $0.00
========== ========== ==========
Shares used in diluted pro forma net income
per share computation......................... 226,279 202,204 191,338
========== ========== ==========
Shares used in basic pro forma net income
per share computation......................... 188,088 177,446 169,904
========== ========== ==========
Comprehensive income:
Net income................................... $122,092 $44,265 $643
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments..... 615 (505) (365)
Unrealized gains on securities............... 83,666 201 --
---------- ---------- ----------
Other comprehensive income (loss).............. 84,281 (304) (365)
---------- ---------- ----------
Total comprehensive income................. $206,373 $43,961 $278
========== ========== ==========
<p align="center">
See accompanying notes to consolidated financial statements.
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="equity"></A>
<p align="center"></font><strong>
SIEBEL SYSTEMS, INC.
</strong><br>
<br>
<strong>
Consolidated Statements of Stockholders' Equity<br>
</strong>
<br>
(in thousands)
<font size="1">
<b>
Notes Accumu-
Receiv- lated
able Deferred Other Total
Common stock Additional from Stock Compre- Stock-
---------------- Paid-in Stock- Compen- hensive Retained holders'
Shares Amount Capital holders sation Losses Earnings Equity
-------- ------- --------- -------- -------- -------- --------- ---------</b>
Balances, December 31,
1996.................... 166,247 $166 $157,058 ($508) ($1,173) -- $17,613 $173,156
Issuance of common
stock under Employee
Stock Option Plans...... 4,134 5 4,785 -- -- -- -- 4,790
Issuance of common
stock under Employee
Stock Purchase Plans.... 1,252 1 4,299 -- -- -- -- 4,300
Issuance of common
stock related to
InterActive acquisition. 1,204 1 14,580 -- -- -- -- 14,581
Issuance of common
stock related to
Nomadic acquisition..... 1,200 1 10,392 -- -- -- -- 10,393
Repayment of note
receivable.............. -- -- -- 102 -- -- -- 102
Compensation related
to stock options........ -- -- (256) -- 256 -- -- --
Cancellation of stock
options issued below
fair value.............. -- -- (1) -- 1 -- -- --
Tax benefit from
stock options........... -- -- 4,046 -- -- -- -- 4,046
Amortization of
deferred compensation
related to stock
options................. -- -- -- -- 277 -- -- 277
Currency translation
adjustment (net of
taxes of $214).......... -- -- -- -- -- (365) -- (365)
Subchapter S
distributions by
On Target............... -- -- -- -- -- -- (973) (973)
Net income............... -- -- -- -- -- -- 643 643
-------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
1997.................... 174,037 174 194,903 (406) (639) (365) 17,283 210,950
Issuance of common stock
under Employee Stock
Option Plans............ 6,767 7 17,855 -- -- -- -- 17,862
Issuance of common stock
under Employee Stock
Purchase Plans.......... 1,232 1 8,534 -- -- -- -- 8,535
Adjustment to conform
acquired company's
year-end................ -- -- -- -- -- -- (1,464) (1,464)
Cancellation of stock
options issued below
fair value.............. -- -- (39) -- 39 -- -- --
Tax benefit from
stock options........... -- -- 13,516 -- -- -- -- 13,516
Amortization of deferred
compensation related
to stock options........ -- -- -- -- 240 -- -- 240
Unrealized gain on
short-term investments
(net of taxes of $118).. -- -- -- -- -- 201 -- 201
Currency translation
adjustment (net of
taxes of $297).......... -- -- -- -- -- (505) -- (505)
Transfer of common
stock to employees....... -- -- 631 -- -- -- -- 631
Subchapter S
distributions by
On Target............... -- -- -- -- -- -- (3,111) (3,111)
Net income...... -- -- -- -- -- -- 44,265 44,265
-------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
1998.................... 182,036 182 235,400 (406) (360) (669) 56,973 291,120
Issuance of common stock
under Employee Stock
Option Plans............ 10,354 10 58,818 -- -- -- -- 58,828
Issuance of common stock
under Employee Stock
Purchase Plans.......... 827 1 15,736 -- -- -- -- 15,737
Issuance of common stock
under stock award
plan.................... -- -- 198 -- -- -- -- 198
Tax benefit from
stock options........... -- -- 91,679 -- -- -- -- 91,679
Compensation related
to stock options........ -- -- 1,498 -- (1,498) -- -- --
Amortization of deferred
compensation related
to stock options........ -- -- -- -- 655 -- -- 655
Unrealized gain on
short-term investments
(net of taxes
of $51,279)............ -- -- -- -- -- 83,666 -- 83,666
Currency translation
adjustment (net of
taxes of $361).......... -- -- -- -- -- 615 -- 615
Subchapter S
distributions by
On Target............... -- -- -- -- -- -- (2,080) (2,080)
Conversion of
convertible notes to
common stock............. 645 1 6,918 -- -- -- -- 6,919
Issuance of common stock
related to Target
Marketing Systems
Worldwide and Target
Marketing Systems S.A.
acquisitions............. 735 1 5,161 -- -- -- -- 5,162
Net income............... -- -- -- -- -- -- 122,092 122,092
-------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
1999.................... 194,597 $195 $415,408 ($406) ($1,203) $83,612 $176,985 $674,591
======== ======= ========= ======== ======== ======== ========= =========
</font size="1">
<p align="center">
See accompanying notes to consolidated financial statements.
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="flows"></A>
<p align="center"></font><strong>
SIEBEL SYSTEMS, INC.
</strong><br>
<br>
<strong>
Consolidated Statements of Cash Flows<br>
</strong>
<br>
(in thousands)
<b>
Year Ended December 31,
-----------------------------
1999 1998 1997
--------- --------- --------- </b>
Cash flows from operating activities:
Net income .................................... $122,092 $44,265 $643
Adjustments to reconcile net income to net
cash provided by operating activities:
Compensation related to stock options........ 655 240 277
Depreciation and amortization................ 22,339 13,638 8,275
Deferred income taxes........................ (10,450) (9,543) (1,614)
Tax benefit from exercise of stock options... 91,679 13,516 4,046
Loss on disposal of property and equipment... 714 4,557 307
Provision for doubtful accounts and
returns, net................................ 7,478 6,613 2,348
Write-off of acquired research and
development................................. -- -- 22,740
Changes in operating assets and liabilities:
Accounts receivable........................ (170,766) (68,739) (41,344)
Prepaids and other......................... (15,721) (6,744) (1,946)
Accounts payable and accrued expenses...... 48,237 49,802 14,130
Income taxes payable....................... (10,803) 9,228 (1,896)
Deferred revenue........................... 34,118 30,286 15,744
--------- --------- ---------
Net cash provided by operating
activities.............................. 119,572 87,119 21,710
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............ (42,835) (39,581) (18,013)
Purchases, sales and maturities of short-term
investments, net.............................. (45,677) (56,751) (17,866)
Proceeds from disposal of property and
equipment..................................... 13,225 -- --
Cash acquired in acquisitions.................. 993 (31) 129
Other assets................................... (21,974) (2,641) (1,764)
--------- --------- ---------
Net cash used in investing activities.... (96,268) (99,004) (37,514)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of repurchases................................ 74,575 27,254 8,725
Proceeds from issuance of convertible
debt, net..................................... 291,316 -- --
Borrowings on line of credit................... 5,874 1,542 130
Repayments of line of credit................... (7,659) -- --
Subchapter S distributions..................... (2,080) (2,366) (974)
Repayment of stockholder notes................. -- -- (43)
--------- --------- ---------
Net cash provided by financing
activities.............................. 362,026 26,430 7,838
--------- --------- ---------
Effect of exchange rate changes in cash.......... (261) -- --
--------- --------- ---------
Change in cash and cash equivalents.............. 385,069 14,545 (7,966)
Adjustment to conform acquired company's year end -- (4,140) --
Cash and cash equivalents, beginning of year..... 80,741 70,336 78,302
--------- --------- ---------
Cash and cash equivalents, end of year........... $465,810 $80,741 $70,336
========= ========= =========
Cash paid for interest........................... $3 $ -- $22
========= ========= =========
Cash paid for income taxes....................... $14,537 $14,194 $14,579
========= ========= =========
Supplemental disclosures of noncash financing
and investing activities:
Purchase price payable 20*20 Group, Ltd........ $ -- $6,000 $ --
========= ========= =========
Common stock issued for acquisitions........... $4,934 $ -- $24,974
========= ========= =========
Subchapter S distributions payable............. $ -- $745 $22
========= ========= =========
Convertible notes issued for acquisitions...... $6,918 $ -- $ --
========= ========= =========
<p align="center">
See accompanying notes to consolidated financial statements.
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="notes"></A>
<p align="center"></font><strong>
SIEBEL SYSTEMS, INC.<br>
<br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</strong><br>
<B><P ALIGN="CENTER"></P>
<P>(1) Summary of Significant Accounting Policies</P>
<I><P>The Company</P></B></I>
<p> Siebel Systems, Inc. ("Siebel" or the
"Company") is the market leader in eBusiness application software
for organizations focused on increasing
sales, marketing and customer service effectiveness in field sales, customer
service, telesales, telemarketing, call centers, and third-party resellers. The
Company designs, develops, markets, and supports Siebel eBusiness Applications,
a leading Web-based application software product family designed to meet the
sales, marketing and customer service information system requirements of even
the largest multi-national organizations.</P>
<p> In December 1999, the Company acquired OnTarget, Inc.
("OnTarget") in a business combination accounted for as a pooling of
interests. Accordingly, all financial information has been restated to reflect
the combined operations of the two companies. See Note 9.</P>
<B><I><P>Principles of Consolidation</P></B></I>
<p> The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been
eliminated.</P>
<B><I><P>Revenue Recognition</P></B></I>
<p> Prior to January 1, 1998, the Company recognized
revenue in accordance with Statement of Position ("SOP") No. 91-1,
"Software Revenue Recognition". Software license revenue was
recognized when all of the following criteria had been met: there was an
executed license agreement; software had been shipped to the customer; no
significant vendor obligations remained; the license fee was fixed and payable
within twelve months and collection was deemed probable.</P>
<p> On January 1, 1998, the Company adopted the provisions of
Statement of Position No. 97-2 "Software Revenue Recognition". Revenue
is recognized under SOP 97-2 when persuasive evidence of an arrangement exists
and delivery has occurred, provided the fee is fixed and determinable,
collectibility is probable and the arrangement does not require significant
customization of the software. Under SOP 97-2, revenue on multiple element
arrangements is allocated to the various elements based on fair values specific
to the Company.</P>
<p> Professional services, maintenance and other revenues
relate primarily to consulting services, maintenance and training. Maintenance
revenues are recognized ratably over the term of the maintenance contract,
typically 12 months. Consulting and training revenues are recognized as the
services are performed and are usually on a time and materials basis. Such
services primarily consist of implementation services related to the
installation of the Company's products and do not include significant
customization to or development of the underlying software code.</P>
<p> The Company's customer base includes a number of its
suppliers (e.g., AT&T Corporation, BankBoston Robertson Stephens, Bank of America Corporation,
Cabletron Systems, Inc., The Charles Schwab Corporation, Cigna Corporation, Cisco
Systems, Inc., Compaq Computer Corporation, Dell Computer Corporation, Lucent
Technologies, Inc., MCI WorldCom, Inc., Microsoft Corporation,
NationsBanc Montgomery Securities, Inc., PeopleSoft, Inc.,
Siemens Corporation and Sun Microsystems, Inc.). On occasion, the
Company has purchased goods or services for company operations from these
vendors at or about the same time Siebel has licensed its software to these
organizations. These transactions are separately negotiated and recorded at
terms the Company considers to be arm's-length.</P>
<B><I><P>Cost of Revenues</P></B></I>
<p> </P>
Cost of software consists primarily of media, product
packaging, documentation and other production costs, and third-party royalties.
Cost of professional services, maintenance and other consists primarily of
salaries, benefits and allocated overhead costs related to consulting, training
and customer support personnel, including cost of services provided by third
party consultants engaged by the Company.</P>
<B><I><P>Use of Estimates</P></B></I>
<p> The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.</P>
<B><I><P>Cash, Cash Equivalents, Short-Term Investments and Marketable Equity
Securities</P></B></I>
<p> The Company considers all highly liquid
investments with a remaining maturity of 90 days or less to be cash equivalents.
Short-term investments generally consist of highly liquid securities with
original maturities in excess of 90 days. </FONT><FONT FACE="Times,Times New
Roman" SIZE=3>Marketable equity securities include an investment in a single
publicly traded company. </FONT><FONT SIZE=3>The Company has classified its
short-term investments and marketable equity securities as "available for
sale." Such investments are carried at fair value with unrealized gains and
losses, net of related tax effects, reported within accumulated other
comprehensive income (losses). Realized gains and losses on available for sale
securities are computed using the specific identification method.</P>
<B><I><P>Property and Equipment</P></B></I>
<p> Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the respective assets,
generally three to five years. Leasehold improvements are amortized over the
lesser of the lease term or the estimated useful lives of the improvements,
generally seven years.</P>
<p> Expenditures for maintenance and repairs are charged to
expense as incurred. Costs and accumulated depreciation of assets sold or
retired are removed from the respective property accounts, and gain or loss is
reflected in the statement of operations. </P>
</FONT><B><I><FONT SIZE=3>
<P>Software Development Costs</P></B></I>
<p> Software development costs associated with new
products and enhancements to existing software products are expensed as incurred
until technological feasibility in the form of a working model has been
established. To date, the time period between the establishment of technological
feasibility and completion of software development has been short, and no
significant development costs have been incurred during that period.
Accordingly, the Company has not capitalized any software development costs to
date. </P>
<B><I><P>Intangible Assets</P></B></I>
<p> Included in other assets are various intangible
assets, primarily goodwill related to acquisitions. These amounts are generally
being amortized over three to five years using the straight-line method. Gross
intangible assets were $14,135,000 and $9,627,000 and related accumulated amortization was
$3,656,000 and $2,503,000 at December 31, 1999 and 1998, respectively.</P>
<B><I><P ALIGN="JUSTIFY">Other Assets</P></B></I>
<p> Included in other assets is the Company's
investment in Sales.com. In December 1999, the Company sold a controlling
interest in Sales.com's voting equity to various outside investors. As a
result, Sales.com is no longer being consolidated in the Company's financial
statements, but is accounted for by the equity method. At December 31, 1999,
the carrying value of the Company's investment in Sales.com was approximately
$5,000,000.</P>
<p> The Company had non-cash reductions in accounts
receivable, prepaids and other, property equipment, other assets, accounts
payable, accrued expenses and deferred revenue of $116,000, $602,000, $35,000,
$505,000, $4,398,000, $5,275,000 and $149,000, respectively, attributable to the
deconsolidation of Sales.com.</P>
<B><I><P>Advertising</P></B></I>
<p> Advertising costs are expensed as incurred.
Advertising expense is included in sales and marketing expense and</FONT><FONT
SIZE=3 COLOR="#0000ff"> </FONT><FONT SIZE=3>amounted to $22,766,000, $12,126,000
and $7,245,000 in 1999, 1998 and 1997, respectively.</P>
<B><I><P>Income Taxes</P></B></I>
<p> The Company uses the asset and liability method
of accounting for income taxes. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the consolidated financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets are
recognized for deductible temporary differences, net operating loss
carryforwards and credit carryforwards if it is more likely than not that the
tax benefits will be realized. To the extent a deferred tax asset cannot be
recognized under the preceding criteria, allowances must be established.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled.</P>
<p> The pro forma provision for income taxes reflects income
tax expense that would have been reported if OnTarget, Inc. (an S corporation for
income-tax reporting purposes) had been a C corporation for each of the periods
presented.</P>
<B><I><P>Pro Forma Net Income Per Share</P></B></I>
<p> Basic pro forma net income per share is computed
using the weighted average number of shares of common stock outstanding. Diluted
pro forma earnings per share is computed using the weighted average number of
shares of common stock and, when dilutive, potential common shares from options
to purchase common stock and warrants outstanding using the treasury stock
method. Dilutive pro forma net income per share also gives effect, when
dilutive, to the conversion of the convertible notes and subordinated debentures
using the if-converted method.</P>
<B><I><P>Employee Stock Option and Purchase Plans</P></B></I>
<p> The Company accounts for its stock-based
compensation plans using the intrinsic value method. As such, compensation
expense is recorded on the date of grant if the current market price of the
underlying stock exceeds the exercise price. The Company records and measures
deferred compensation cost for options granted to non-employees at their fair
value. </P>
<B><I><P>Foreign Currency Translation</P></B></I>
<p> The Company considers the functional currency of
its foreign subsidiaries to be the local currency, and accordingly, they are
translated into U.S. dollars using exchange rates in effect at period end for
assets and liabilities and average exchange rates during each reporting period
for the results of operations. Adjustments resulting from translation of foreign
subsidiary financial statements are reported within accumulated other
comprehensive income (loss).</P>
<p> The Company generally utilizes foreign currency forward
contracts to hedge its exchange risk on foreign currency receivable and
intercompany balances. While these forward contracts are subject to fluctuations
in value, which are recorded in current results of operations, such fluctuations
are generally offset by the changes in value of the underlying exposures being
hedged. The Company does not hold or issue financial instruments for speculative
or trading purposes.</P>
<B><I><P>Concentrations of Credit Risk</P></B></I>
<p> Financial instruments that potentially subject
the Company to a concentration of credit risk principally consist of trade
accounts receivable. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral on accounts receivable, as
the majority of the Company's customers are large, well established companies.
The Company maintains reserves for potential credit losses, but historically has
not experienced any significant losses related to any particular industry or
geographic area since the Company's business is not concentrated on any one
particular customer or customer base. No single customer accounts for more than
10% of revenues, and the Company's largest customer base, high technology, which
accounted for approximately 24%</FONT><FONT SIZE=3 COLOR="#0000ff"> </FONT><FONT
SIZE=3>of revenues during the year ended December 31, 1999, is sufficiently
broad that the Company does not consider itself significantly exposed to
concentrations of credit risk.</P>
<B><I><P>Fair Value of Financial Instruments</P></B></I>
<p> The carrying amount of the Company's cash and
cash equivalents, short-term investments, accounts receivable, and accounts
payable approximate their respective fair values. Changes in the fair value of
the Company's derivative financial instruments (foreign currency forward
contracts) are generally offset by changes in the value of the underlying
exposures being hedged. The unrealized loss of the Company's derivative
financial instruments at December 31, 1999 was approximately $29,000.</P>
<p> The fair value of the Company's convertible subordinated
debentures was $580,140,000 at December 31, 1999, based on quoted market
price.</P>
<B><I><P>Impairment of Long-Lived Assets</P></B></I>
<p> The Company evaluates long-lived assets,
including goodwill, for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable based on
expected undiscounted cash
flows attributable to that asset. The amount of any
impairment is measured as the difference between the carrying value and the fair
value of the impaired asset. The Company does not have any long-lived assets it
considers to be impaired.</P>
<B><I><P>Recent Accounting Pronouncements</P></B></I>
<p> In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated and accounted for as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. This statement will be effective for all
annual and interim periods beginning after June 15, 2000. Management does not
believe the adoption of SFAS No. 133 will have a material effect on the
Company's consolidated financial position or results of operations.</P>
<p> In
December 1998, the Accounting Standards Executive Committee (AcSEC) of the AICPA
issued SOP 98-9, "Software Revenue Recognition with Respect to Certain
Arrangements", which requires recognition of revenue using the
"residual method" in a multiple element arrangement when fair value
does not exist for one or more of the undelivered elements in the arrangement.
Under the "residual method", the total fair value of the undelivered
elements is deferred and subsequently recognized in accordance with SOP 97-2.
Management does not believe the adoption of SOP 98-9 will have a material effect
on the Company's consolidated financial position or results of operations. SOP
98-9 will be effective for all annual and interim periods beginning on or after
January 1, 2000.</P>
<B><P>(2) Financial Statement Details</P>
<I><P>Cash, Cash Equivalents, Short-Term Investments and Marketable Equity
Securities</P></B></I>
<p>
Cash equivalents consist of securities with remaining
maturities of 90 days or less at the date of purchase. Short-term investments as
of December 31, 1999 consisted of $58,481,000 of securities which mature in less
than one year, $139,084,000 of securities which mature in one to five years and
no securities which mature in over five years. Cash, cash equivalents and short-
term investments and marketable securities consisted of the following as of
December 31, 1999 (in thousands):</P>
<b>
Unrealized
-------------------
Cost Loss Gain Market
--------- --------- --------- ---------</b>
Cash and cash equivalents:
Cash............................ $35,039 $-- $-- $35,039
Certificates of deposit......... 1,685 -- -- 1,685
Money market funds.............. 401,162 -- -- 401,162
US treasury & agency securities. 6,628 -- -- 6,628
Corporate notes................. 21,292 (1) 5 21,296
--------- --------- --------- ---------
$465,806 ($1) $5 $465,810
========= ========= ========= =========
Short-term investments:
US treasury securities.......... $34,436 ($551) $1 $33,886
Corporate notes.................. 32,182 (261) -- 31,921
Municipal securities............ 133,071 (1,315) 2 131,758
--------- --------- --------- ---------
$199,689 ($2,127) $3 $197,565
========= ========= ========= =========
Marketable equity securities....... $4,550 $-- $137,389 $141,939
--------- --------- --------- ---------
$4,550 $-- $137,389 $141,939
========= ========= ========= =========
<p>
<FONT SIZE=3>Short-term investments as of December 31, 1998 consisted of $46,187,000
of municipal securities which mature in less then one year, and $94,980,000 of
municipal securities which mature in one to five years and $10,721,000 of
securities which mature in over five years. As of December 31, 1998, cost
approximated market for short-term investments; realized and unrealized gains
and losses were not significant.</P>
<B><I><P>Accounts Receivable, Net</P></B></I>
<p> Accounts receivable, net, consisted of the following (in
thousands):</P>
<b>
December 31,
-------------------
1999 1998
--------- --------- </b>
Trade accounts receivable......... $305,710 $136,411
Less: allowances for doubtful
accounts and returns............ 12,700 10,330
--------- ---------
$293,010 $126,081
========= =========
<B><I><P>Property and Equipment, Net</P></B></I>
<p>
Property and equipment, net, consisted of the
following (in thousands):</P>
<b>
December 31,
-------------------
1999 1998
--------- --------- </b>
Computer equipment................ $33,150 $38,965
Furniture and fixtures............ 18,526 10,513
Computer software................. 12,310 8,735
Corporate aircraft................ 6,963 --
Leasehold improvements............ 19,531 9,058
--------- ---------
90,480 67,271
Less: accumulated depreciation.... 33,605 20,887
--------- ---------
$56,875 $46,384
========= =========
<B><I><FONT SIZE=3><P>Accrued Expenses</P></B></I>
<p>
Accrued expenses consisted of the following (in
thousands):</P>
<b>
December 31,
-------------------
1999 1998
--------- --------- </b>
Bonuses........................... $24,253 $23,091
Commissions....................... 20,552 17,810
Sales tax......................... 5,984 9,345
Vacation.......................... 8,306 3,967
Acquisition-related............... 2,486 7,450
Other............................. 63,504 26,522
--------- ---------
$125,085 $88,185
========= =========
<B><I><P>Accumulated Other Comprehensive Income (Loss)</P></B></I>
<p>
Accumulated other comprehensive income (loss)
consisted of the following (in thousands):</P>
<b>
December 31,
-------------------
1999 1998
--------- ---------</b>
Foreign currency translation adjustments.. ($255) ($870)
Unrealized gains on securities............ 83,867 201
--------- ---------
$83,612 ($669)
========= =========
<B><I><FONT SIZE=3><P>Other Income, Net</P></B></I>
<p>
Other income, net, consisted of the following (in
thousands):</P>
<b>
December 31,
-----------------------------
1999 1998 1997
--------- --------- ---------</b>
Realized gains on disposition of
marketable equity securities...... $12,343 $ -- $ --
Charitable contributions........... (6,000) -- --
Interest income.................... 16,941 7,605 6,055
Interest expense................... (6,059) (68) (29)
Other, net......................... (3,257) (1,279) (641)
--------- --------- ---------
$13,968 $6,258 $5,385
========= ========= =========
</FONT><B><FONT SIZE=3><P ALIGN="JUSTIFY"> (3) Convertible Subordinated
Debentures</P>
<p> </B>The Company completed a private placement of
$300,000,000 of convertible subordinated debentures in September 1999. The
seven-year term notes bear interest at a rate of 5.50% and are convertible into
approximately 6,432,000 shares of the Company's common stock at any time prior
to maturity, at a conversion price of approximately $46.64 per share, subject to
adjustment under certain conditions. The notes may be redeemed, in whole or in
part, by the Company at any time on or after September 15, 2002. The redemption
price will range from $309,420,000 to $302,370,000 if the notes are redeemed
between September 15, 2002 through September 14, 2006. Any redemption made on
or after September 15, 2006 will be redeemed at $300,000,000. Accrued interest
to the redemption date will be paid by the Company in each redemption. </P>
<P ALIGN="JUSTIFY"></P>
<B><P>(4) Commitments and Contingencies</P>
</FONT><I><FONT SIZE=3><P>Letters of Credit</P>
</B></I></FONT><FONT FACE="Times,Times New Roman" SIZE=3><P ALIGN="JUSTIFY"></P>
<p> In August 1996, the Company entered into a $1,325,000
secured letter of credit with a bank. This letter of credit, which expires July
2006, collaterizes the Company's obligations to a third party for lease
payments.</P>
<p> In March 1999, the Company entered into an $8,400,000
secured letter of credit with a bank. This letter of credit, which expires
November 2000, collateralizes the Company's obligations to a third party for
tenant improvement costs.</P>
<p> In October 1999, the Company entered
into two $8,400,000 secured letters of credit with a bank. These letters of
credit, which expire October 2000 and January 2001, collateralize the Company's
obligations to a third party for tenant improvement costs. The Company also
entered into a $3,000,000 secured letter of credit with a bank. This letter of
credit, which expires August 2000, collateralizes the Company's obligation to a
third party for lease payments.</P>
<p>
The letters of credit are secured by cash, cash equivalents and short-
term investments.</P>
<B><I>
<P> </P>
<P>Lease Obligations</P></B></I>
<p>
As of December 31, 1999, the Company leased
facilities under noncancelable operating leases expiring between 2000 and 2009.
Future minimum lease payments are as follows (in thousands):</P>
<b>
Year Ending December 31,
------------------------ </b>
2000...................................... $33,501
2001...................................... 43,029
2002...................................... 41,306
2003...................................... 41,542
2004 and thereafter....................... 281,443
---------
$440,821
=========
<p> Rent expense for the years ended December 31, 1999, 1998
and 1997, was $15,644,000, $11,904,000 and $6,469,000, respectively.</P>
</FONT><B><I><FONT SIZE=3><P>Employee Benefit Plan</P></B></I>
<p>
The Company has a 401(k) plan that allows
eligible employees to contribute up to 20% of their compensation, limited to
$10,000 in 1999. Employee contributions and earnings thereon vest immediately.
Although the Company may make discretionary contributions to the 401(k) plan,
none have been made to date. A subsidiary made discretionary contributions of
$244,000 and $154,000 to its 401(k) and profit-sharing plans in 1998 and 1997,
respectively.</P>
</FONT><B><I><FONT SIZE=3><P>Legal Actions</P>
</B></I></FONT><FONT FACE="Times,Times New Roman" SIZE=3>
<p> In October 1999, SAP America, Inc. filed a complaint
against the Company in the Court of Common Pleas of Delaware County,
Pennsylvania. The complaint alleges tortious interference with contractual
relations, predatory hiring, misappropriation of trade secrets, and unfair
competition in connection with its employment of individuals formerly employed
by SAP America or its affiliated companies. The Company believes the claims are
without merit, and intends to defend them vigorously. The Company believes that
the ultimate outcome of the action will not have a material effect on the
Company's financial position or results of operations, although there can be no
assurance as to the outcome of such litigation.</P>
<p> The Company is engaged in other legal actions
arising in the ordinary course of business. The Company believes it has adequate
legal defenses and believes that the ultimate outcome of these actions will not
have a material effect on the Company's consolidated financial position or
results of operations, although there can be no assurance as to the outcome of
such litigation.</P>
</FONT><B><FONT SIZE=3><P>(5) Stockholders' Equity</P>
<I><P>Stock Split</P></B></I>
<p>
On August 24,
1999 and October 20, 1999, respectively, the Company's Board of Directors and
stockholders approved a two-for-one stock split (to be effected in the form of a
stock dividend) which was paid on November 12, 1999. The accompanying
consolidated financial statements have been restated to give effect to the stock
split.</P>
<B><I><P>Pro Forma Net Income per Share</P></B></I>
<p>
The following is a reconciliation of the number
of shares used in the pro forma basic and proforma diluted earnings per share
computations for the periods presented (in thousands):</P>
<b>
Year Ended December 31,
-----------------------------
1999 1998 1997
--------- --------- ---------</b>
Shares used in basic pro forma net
income per share computation......... 188,088 177,446 169,904
Effect of dilutive potential common
shares............................... 37,724 24,758 21,434
Shares used in diluted pro forma net
income............................... 467 -- --
--------- --------- ---------
Shares used in diluted pro forma net
income per share computation......... 226,279 202,204 191,338
========= ========= =========
<p> The Company excludes potentially dilutive securities from
its diluted net income (loss) per share computation when either the exercise
price of the securities exceeds the average fair value of the Company's common
stock or the Company reported net losses, because their effect would be anti-dilutive.
For the year ended December 31, 1999, the Company excluded 2,108,370
employee stock options with a weighted average exercise price of $60.09 per
share from the earnings per share computation as their exercise prices exceeded
the average fair value of the Company's common stock during the year and,
accordingly, their inclusion would have been anti-dilutive. The Company also
excluded 6,432,000 shares relating to the convertible subordinated debentures
(see note 3) from the earnings per share computation as the effect would be
antidilutive. During 1998, the Company excluded a total of 6,619,882 employee
stock options with a weighted average exercise price of $14.36 per share from
the earnings per share computation as their inclusion would have been anti-dilutive.</P>
<B><I><P>Employee Stock Option and Purchase Plans</P></B></I>
<p>
The 1996 Equity Incentive Plan, which amended and
restated the Company's 1994 Stock Option Plan and 1996 Supplemental Stock Option
Plan and the 1998 Non-Officer Equity Incentive Plan (collectively, the
"Plan"), provides for the issuance of up to an aggregate of
100,000,000 shares of common stock to employees, directors and consultants. The
Plan provides for the issuance of incentive and nonstatutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation
rights.</P>
<p> Under the Plan, the exercise price for incentive stock
options is at least 100% of the fair market value on the date of the grant.
Options generally expire in 10 years; however, incentive stock options may
expire in 5 years if the optionee owns stock representing more than 10% of the
voting power of all classes of stock. Vesting periods are determined by the
Board of Directors and generally provide for shares to vest ratably over 5
years.</P>
<p> The Plan also allows for the exercise of certain unvested
options. Shares of common stock issued to employees upon exercise of unvested
options are subject to repurchase by the Company at the original exercise price.
The Company's ability to repurchase these shares expires at a rate equivalent to
the current vesting schedule of each option. As of December 31, 1999, 7,177,200
shares of common stock had been issued to employees upon the exercise of
unvested options, which are subject to repurchase, at a weighted average
repurchase price of $0.12 per share. No compensation expense has resulted from
repurchases of restricted shares since the amount of cash paid by the Company
did not differ from the proceeds received from the employee from the sale of the
restricted shares. The Company has not issued any other restricted stock
purchase awards, stock bonuses or stock appreciation rights.</P>
<p> During the period from October 1995 through April 1996,
the Company granted options to purchase an aggregate of 32,610,000 shares of
common stock at exercise prices ranging from $0.07 to $0.82 per share. Based in
part on an independent appraisal obtained by the Company's Board of Directors,
and other factors, the Company recorded $748,000 of deferred compensation
expense in 1995 and an additional $893,000 of deferred compensation expense in
1996 relating to these options. These amounts are being amortized over the
vesting period of the individual options, generally five years.</P>
<p> During 1999, the Company granted options to a non-employee.
As of December 31, 1999, there were 20,000 options outstanding
pursuant to these grants which are included in the combined plan activity
summary below. The Company records and measures deferred compensation cost for
options granted to non-employees at their fair value. </P>
<p> The Company has assumed certain options granted to former
employees of acquired companies (the "Acquired Options"). The Acquired
Options were assumed by the Company outside of the Plan, but all are
administered as if issued under the Plan. All of the Acquired Options have been
adjusted to give effect to the conversion under the terms of the Agreements and
Plans of Reorganization between the Company and the companies acquired. The
Acquired Options generally become exercisable over a four year period and
generally expire either five or ten years from the date of grant. No additional
options will be granted under any of the acquired companies' plans.</P>
<p> Combined plan activity is summarized as follows:</P>
<b>
Weighted
average
Shares exercise
Available Number of price
for grant shares per share
------------ ------------ ---------- </b>
Balances, December 31, 1996.......... 2,496,034 42,352,594 $1.81
Additional shares authorized....... 32,000,000 --
Options granted.................... (26,660,548) 26,660,548 $8.28
Options exercised.................. -- (4,134,606) $1.13
Options canceled................... 10,763,214 (10,763,214) $8.35
------------ ------------ -------
Balances, December 31, 1997.......... 18,598,700 54,115,322 $3.74
Additional shares authorized....... 20,000,000 --
Options granted.................... (37,472,444) 37,472,444 $11.25
Options exercised.................. -- (6,767,242) $2.93
Options canceled................... 7,845,368 (7,845,368) $7.92
------------ ------------ -------
Balances, December 31, 1998.......... 8,971,624 76,975,156 $7.04
Additional shares authorized....... 22,500,000 --
Options granted.................... (26,511,903) 26,511,903 $39.37
Options exercised.................. -- (10,353,928) $5.76
Options canceled................... 5,428,205 (5,428,205) $13.54
------------ ------------ -------
Balances, December 31, 1999.......... 10,387,926 87,704,926 $16.58
============ ============ =======
<p> The following table summarizes information about fixed
stock options outstanding as of December 31, 1999:</P>
<b>
Options outstanding Options exercisable
---------------------------------- ----------------------
Weighted
average
remaining Weighted Weighted
contractual average average
Range of Number life exercise Number exercise
exercise prices of shares (in years) price of shares price
- ------------------ ----------- ----------- ---------- ----------- ----------</b>
$0.01 194,100 5.0 $0.01 194,100 $0.01
$0.03 100,728 5.3 $0.03 100,728 $0.03
$0.06 250,050 5.8 $0.06 250,050 $0.06
$0.22 1,448,350 6.1 $0.22 1,448,350 $0.22
$0.33 - 0.37 4,173,802 6.2 $0.36 2,000,455 $0.36
$0.69 - 0.92 8,471,854 6.3 $0.71 4,307,367 $0.70
$1.44 - 2.13 2,693,643 6.3 $1.52 1,188,390 $1.51
$2.91 - 4.22 1,828,822 5.8 $4.08 695,420 $4.06
$5.49 - 8.11 10,996,446 6.9 $6.07 3,994,269 $6.08
$8.28 - 12.39 26,639,978 8.4 $10.34 6,779,622 $10.35
$12.44 - 18.51 9,602,056 8.7 $14.92 1,220,346 $13.79
$18.88 - 26.81 8,285,777 9.2 $21.43 268,192 $19.65
$29.22 - 42.30 5,079,400 9.6 $31.73 1,424 $29.56
$50.04 - 62.81 1,839,070 9.9 $62.70 262 $62.81
$81.06 6,100,850 10.0 $81.06 0 $81.06
- ------------------ ----------- ----------- ---------- ----------- ----------
$0.01 - 81.06 87,704,926 8.00 $16.58 22,448,975 $5.58
=========== ===========
<p> In May 1996, the Company adopted the 1996 Employee Stock
Purchase Plan (the "Purchase Plan") and reserved 2,800,000 shares for
issuance thereunder. The Purchase Plan became effective upon the completion of
the Company's initial public offering. In January 1997, the Board of Directors
of the Company adopted an amendment to the Purchase Plan to increase the number
of shares authorized for issuance under the Purchase Plan to 6,800,000 shares.
The Purchase Plan permits eligible employees to purchase common stock, through
payroll deductions of up
to 15% of the employee's compensation, at a price equal to 85% of the fair
market value of the common stock at either the beginning or the end of each
offering period, whichever is lower. As of December 31, 1999, 3,901,000 shares
had been purchased under the Purchase Plan.</P>
<B><I><P>Common Stock</P></B></I>
<p>
The Company has elected to continue to use the
intrinsic value-based method to account for all of its employee stock-based
compensation plans. The Company records deferred compensation costs related to
employee stock options when the exercise price of each option equals or is less
than the fair value of the underlying common stock as of the grant date for each
stock option. The Company also recorded compensation expense for the estimated
fair value of common stock transferred from the majority shareholders of
OnTarget to two key employees in January 1998 and for options granted to one
consultant in 1999.</P>
<p> Pursuant to SFAS No. 123, the Company is required to
disclose the pro forma effects on net income (loss) and net income (loss) per
share data as if the Company had elected to use the fair value approach to
account for all its employee stock-based compensation plans. Had compensation
cost for the Company's plans been determined consistent with the fair value
approach enumerated in SFAS No. 123, the Company's net income (loss) and net
income (loss) per share for the years ended December 31, 1999, 1998 and 1997
would have been as indicated below (in thousands, except per share data):</P>
<b>
1999 1998 1997
--------- --------- ---------</b>
Pro forma net income (loss):
As reported............................ $121,727 $43,460 $55
Pro forma giving effect to SFAS No 123. $94,998 $23,203 ($12,697)
Diluted pro forma net income (loss)
per share:
As reported............................ $0.54 $0.21 $0.00
Pro forma giving effect to SFAS No 123. $0.42 $0.11 ($0.07)
Basic pro forma net income (loss)
per share:
As reported............................ $0.65 $0.24 $0.00
Pro forma giving effect to SFAS No 123. $0.51 $0.13 ($0.07)
<p> The fair value of options was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for option grants:</P>
<b>
1999 1998 1997
--------- --------- ---------</b>
Risk-free interest rate................... 5.44% 4.85% 6.1%
Expected life (in years).................. 3.4 3.4 3.5
Expected volatility....................... 69.0% 70.5% 83.9%
<p> The fair value of employees' stock purchase rights
under the Purchase Plan was estimated using the Black-Scholes model with the
following weighted average assumptions used for purchases:</P>
<b>
1999 1998 1997
--------- --------- ---------</b>
Risk-free interest rate................... 4.66% 5.3% 5.3%
Expected life (in years).................. 0.5 0.6 0.7
Expected volatility....................... 69.0% 70.5% 83.9%
<p> Under
SFAS No. 123, the weighted average estimated fair value of employee stock
options granted at exercise prices equal to market price at grant date during
1999, 1998 and 1997 was $20.86, $5.94 and $4.30 per share, respectively.</P>
<p> The Company determined the assumptions to be used in
computing the fair value of stock options or stock purchase rights as follows.
The risk-free rate is the U.S. treasury bill rate for the relevant expected
life. The expected useful lives were estimated giving consideration to vesting
and purchase periods, contractual lives, expected employee turnover and
underlying stock volatility.</P>
<B>(6) Income Taxes</P></B>
<p> Income before taxes includes income from foreign
operations of approximately $5,413,000, $3,600,000 and $680,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.</P>
<B><I><P ALIGN="JUSTIFY">Historical Information </P></B></I>
<p>
The components of income tax expense (benefit) for the
years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):</P>
<b>
1999 1998 1997
--------- --------- ---------</b>
Current:
Federal................................. ($8,796) $18,488 $7,694
State................................... -- 4,559 2,684
Foreign................................. 1,586 1,289 400
--------- --------- ---------
Total current......................... (7,210) 24,336 10,778
Deferred:
Federal................................. (5,359) (6,432) (1,345)
State................................... (4,280) (1,409) (219)
--------- --------- ---------
Total deferred........................ (9,639) (7,841) (1,564)
Charge in lieu of taxes attributable
to employer's stock option plans........ 91,679 13,517 4,046
--------- --------- ---------
Total income taxes.................... $74,830 $30,012 $13,260
========= ========= =========
<p> The differences between the income tax expense
computed at the federal statutory rate of 35% and the Company's actual income
tax expense for the years ended December 31, 1999, 1998 and 1997 are as
follows:</P>
<b>
1999 1998 1997
--------- --------- ---------</b>
Expected income tax expense.............. 35.0% 35.0% 35.0%
State income taxes, net of federal
tax benefit............................ 4.7% 4.4% 13.4%
In-process research and development...... -- -- 57.2%
Non-deductible merger costs.............. -- 4.5% --
Research and experimentation credit...... (0.7%) (1.1%) (3.9%)
Tax exempt interest...................... (1.0%) (2.4) (7.0%)
Foreign sales corporation benefit........ -- (0.8%) --
S corporation benefit.................... -- (1.1%) (4.2%)
Other, net............................... -- 1.9% 4.9%
--------- --------- ---------
Total income taxes..................... 38.0% 40.4% 95.4%
========= ========= =========
<p> The tax effects of temporary differences that give rise
to significant portions of deferred tax assets and liabilities as of December
31, 1999 and 1998 are as follows in thousands:</P>
<b>
1999 1998
--------- ---------</b>
Deferred tax assets:
Deferred state taxes.............................. $ -- $549
Accruals and reserves, not currently taken
for tax purposes................................. 4,679 8,048
Allowance for doubtful accounts and returns....... 4,901 4,438
Charitable contribution carryforward.............. 2,451 --
Research and development credit carryforward...... 2,800 --
Net operating loss carryforward................... 1,326 235
Gain on investment................................ 5,183 --
Other............................................. 2,225 --
--------- ---------
Deferred assets.................................. 23,565 13,270
Deferred tax liabilities:
Unrealized gain on marketable securities.......... (51,397) --
Depreciation...................................... (1,439) (783)
--------- ---------
Deferred liabilities............................. (52,836) (783)
--------- ---------
Net deferred assets (liabilities)................ ($29,271) $12,487
========= =========
<p> As of December 31, 1999, the Company had state net
operating loss carryforwards of approximately $23,000,000 available to offset
future state taxable income. In addition, the Company had federal and state
research and devlopment credit carryforwards of $1,600,000 and $1,200,000,
respectively available to offset future tax liabilities. The Company's state
net operating loss carryforwards expire in 2004 if not utilized. The Company's
federal research and development credit carryforward expires in 2019, if not
utilized. The state research and development credit can be carried forward
indefinitely.</P>
<p> Management believes it is more likely than not that
future operations will generate sufficient taxable income to realize any
deferred tax assets.</P>
</FONT><B><I><FONT FACE="Times,Times New Roman" SIZE=3><P ALIGN="JUSTIFY">Pro
Forma Income Taxes</P></B></I>
<p>
The pro forma provision for income
taxes reflects the income tax expense that would have been reported if OnTarget
Inc. (an S corporation for income tax reporting purposes) had been a C
corporation for each of the years in the three-year period ended December 31,
1999. The components of pro forma income tax expense are as follows (in
thousands): </P>
<b>
1999 1998 1997
--------- --------- ---------</b>
Current:
Federal................................. ($8,548) $19,192 $8,211
State................................... -- 4,660 2,755
Foreign................................. 1,586 1,289 400
--------- --------- ---------
Total current......................... (6,962) 25,141 11,366
Deferred:
Federal................................. (5,288) (6,432) (1,345)
State................................... (4,234) (1,409) (219)
--------- --------- ---------
Total deferred........................ (9,522) (7,841) (1,564)
Charge in lieu of taxes attributable
to employer's stock option plans........ 91,679 13,517 4,046
--------- --------- ---------
Total income taxes.................... $75,195 $30,817 $13,848
========= ========= =========
<p> The differences between the pro forma income tax
expense computed at the federal statutory rate of 35% and the Company's actual
pro forma income tax expense for the years ended December 31, 1997, 1998 and
1999 are as follows:</P>
<b>
1999 1998 1997
--------- --------- ---------</b>
Expected income tax expense.............. 35.0% 35.0% 35.0%
State income taxes, net of federal
tax benefit............................ 4.7% 4.4% 13.4%
In-process research and development...... -- -- 57.2%
Non-deductible merger costs.............. -- 4.5% --
Research and experimentation credit...... (0.7%) (1.1%) (3.9%)
Tax exempt interest...................... (1.0%) (2.4%) (7.0%)
Foreign sales corporation benefit........ -- (0.8%) --
Other, net............................... -- 1.9% 4.9%
--------- --------- ---------
Total income taxes..................... 38.0% 41.5% 99.6%
========= ========= =========
<p>
Deferred tax assets and liabilities on a pro forma basis do not differ
materially from the historical information presented above.</P>
</FONT><B><FONT SIZE=3><P>(7) Related Party Transactions</P></B>
<p> Certain members of the Company's Board of Directors
serve as officers for customers of the Company. In 1999, aggregate license
revenues associated with shipments to these customers were $1,382,000 and
accounts receivable from these customers was $2,460,000. In 1998, aggregate
revenues associated with shipments to these customers were $1,763,000 and
accounts receivable from these customers was $1,335,000.</P>
<B><P>(8) Segment and Geographic Information</P></B>
<p> The Company and its subsidiaries are principally
engaged in the design, development, marketing and support of Siebel eBusiness
Applications, its family of proprietary software applications. Substantially all
revenues result from the
licensing of the Company's software products and related
consulting and customer support (maintenance) services. The Company's chief
operating decision maker reviews financial information presented on a
consolidated basis, accompanied by disaggregated information about revenues by
geographic region for purposes of making operating decisions and assessing
financial performance. Accordingly, the Company considers itself to be in a
single industry segment, specifically the license, implementation and support of
its software applications.</P>
<p> The Company evaluates the performance of its geographic
regions based on revenues and gross margin only. The Company does not assess the
performance of its geographic regions on other measures of income or expense,
such as depreciation and amortization, operating income or net income. In
addition, as the Company's assets are primarily located in its corporate office
in the United States and not allocated to any specific region, the Company does
not produce reports for, or measure the performance of, its geographic regions
based on any asset-based metrics. Therefore, geographic information is presented
only for revenues and gross margin.</P>
<p> While a majority of the Company's revenues are derived
from the United States, the Company's export sales have been growing. Export
sales for the years ended December 31, 1999, 1998 and 1997 were $157,300,000,
$88,200,000 and $41,800,000, respectively. This represented 31%, 30% and 27% of
total license revenues, respectively. The Company's export sales are principally
in Europe and Asia/Pacific.</P>
<p> The following geographic information is presented for the
years ended December 31, 1999, 1998 and 1997 (in thousands):</P>
<P ALIGN="JUSTIFY"></P>
<b>
North Asia
Year America Europe Pacific Other Totals
------- --------- --------- --------- --------- ---------</b>
Revenues:
1999 $597,034 $158,948 $11,331 $23,607 $790,920
1998 293,872 75,364 24,424 16,226 409,886
1997 171,491 35,052 10,115 5,413 222,071
Gross margin:
1999 $428,768 $148,109 $28,077 $5,048 $610,002
1998 241,529 62,699 20,824 13,847 338,899
1997 141,976 30,535 9,161 4,360 186,032
<p> No single customer has accounted for 10% or more of total
revenues in 1999, 1998 or 1997.</P>
<B><P>(9) Acquisitions</P>
</FONT><I><FONT FACE="Times,Times New Roman" SIZE=3><P>OnTarget, Inc.</P></B></I>
<p>
In January and February 1999, OnTarget acquired
Target Marketing Systems Worldwide Limited, Target Marketing Systems S.A., and
The Sales Consultancy Inc. in exchange for convertible notes and OnTarget stock.
OnTarget recorded goodwill of $9,745,000 in connection with these acquisitions.
The goodwill is being amortized over a five-year period using the straight-line
method. Pro forma information giving effect to these mergers has not been
presented since it would not differ materially from the historical results of
the Company. </P>
<p> On December 1, 1999, the Company acquired OnTarget,
Inc. OnTarget develops and implements advanced sales and marketing training and
consulting programs for sales organizations competing in complex, multilevel
sales campaigns. Primary customers include corporate clients and business
owners who wish to provide for the development and training of their sales and
marketing personnel. </P>
<p> Under the terms of the agreement, each outstanding share
of OnTarget common stock was exchanged for 0.3077516 newly issued shares of
common stock of the Company. This resulted in the issuance of approximately
3,700,000 additional shares of the Company's common stock. In addition, all
outstanding stock options of OnTarget were converted into the right to acquire
the Company's common stock at the same exchange ratio with a corresponding
adjustment to the exercise price. </P>
<p> The acquisition of OnTarget has been
accounted for as a pooling of interests. Accordingly, the financial position,
results of operations and cashflows of OnTarget have been combined with those of
the Company for the same dates and periods as if the entities had been combined
from the earliest date presented. There were no adjustments to conform
accounting methods. The Company did not incur any significant merger-related
costs in connection with the acquisition of OnTarget. </P>
<p> As a result of OnTarget's conversion from a Subchapter S
Corporation to a Subchapter C subsidiary of the Company on December 1, 1999, all
of OnTarget's retained earnings at that date were reclassified to additional
paid-in-capital. In addition, the Company recorded an income tax benefit in the
amount of OnTarget's net deferred tax assets at that date.</P>
<B><I><P>Scopus Technology, Inc.</P></B></I>
<p>
On May 18, 1998, the Company completed the
acquisition of Scopus of Emeryville, California, a leading provider of customer
service, field service, and call center software solutions. Under the terms of
the agreement, each outstanding share of Scopus common stock was exchanged for
newly issued shares of common stock of the Company. This resulted in the
issuance of approximately 30,200,000 additional shares of the Company's common
stock. In addition, all outstanding stock options of Scopus were converted into
the right to acquire the Company's common stock at the same exchange ratio, with
a corresponding adjustment to the exercise price. In connection with the merger,
the Company incurred direct merger-related expenses of approximately
$13,500,000, including fees for investment bankers, attorneys, accountants and
other professional fees of $9,100,000, integration charges related to duplicate
facilities and equipment of $3,100,000 and other miscellaneous expenses of
$1,300,000. </P>
<p> The transaction has been accounted for as a pooling
of interests. Accordingly, the financial statements of Siebel have been restated
to include the financial position and results of operations of Scopus for all
periods presented. Prior to the merger with Siebel, Scopus ended its fiscal year
on March 31. The restated financial statements as of December 31, 1997 and for
prior periods include Siebel's results of operations for the calendar periods
noted and Scopus' results of operations for the fiscal periods ending three
months later. Beginning January 1, 1998, the restated financial statements
combine the operating results of Siebel and Scopus for the calendar periods
noted. As a result of conforming the reporting periods of Siebel and Scopus, the
operating results of Scopus for the three month period ended March 31, 1998 are
included in the restated financial statements for both 1997 and 1998. Scopus
revenues and net income for the three-month period ended March 31, 1998 were
$27,100,000 and $1,500,000, respectively. Net income for this period of
approximately $1,500,000 is reflected as a reduction of opening retained
earnings in the restated 1998 consolidated financial statements.</P>
<p> The results of operations for the separate companies and
the combined amounts presented in the consolidated financial statements follow
(in thousands).</P>
<b>
Nine
Months Year Year
Ended Ended Ended
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------ </b>
(unaudited)
Total revenues:
Siebel.......................... $493,783 $364,467 $118,775
Scopus.......................... -- 27,072 88,853
On Target....................... 29,152 18,347 14,443
------------- ------------ ------------
$522,935 $409,886 $222,071
============= ============ ============
Net income (loss):
Siebel.......................... $77,195 $41,411 ($2,427)
Scopus.......................... -- 1,464 1,240
On Target....................... (80) 1,390 1,830
------------- ------------ ------------
$77,115 $44,265 $643
============= ============ ============
<p> In combining the financial statements of Siebel and
Scopus, certain reclassifications, conforming changes and adjustments relating
to revenue recognition were made to the historical financial statements of
Scopus. These conforming changes and adjustments resulted in a reduction of
previously reported net income of approximately $2,930,000 in fiscal 1997 and
$580,000 in fiscal 1996. These adjustments will not reverse in future
periods.</P>
<B><I><P>20*20 Group, Ltd.</P></B></I>
<p>
On December 17, 1998, the Company acquired all of
the outstanding securities of the privately-held 20*20 Group, Ltd.
("20*20"), a provider of end-user training for the enterprise
relationship management software market. The transaction was valued at
approximately $6,000,000 and was accounted for by the purchase method of
accounting. Accordingly, the operating results of 20*20 have been included in
the accompanying consolidated financial statements of the Company from the date
of acquisition. The purchase price was allocated to tangible net assets,
including current assets, current liabilities and property, plant and equipment.
The excess of the purchase price over the fair value of the tangible net assets
acquired, $5,500,000, was allocated to goodwill. This amount is being amortized
over three years.</P>
<p> The results of operations of 20*20 prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial statement
information has not been presented.</P>
<B><I><P>InterActive WorkPlace, Inc</P></B></I>
<p>
On October 1, 1997, the Company issued shares of
common stock in exchange for all outstanding securities of privately-held
InterActive WorkPlace, Inc. ("InterActive"), a developer of intranet-
based business intelligence software technology. The transaction was valued at
approximately $15,000,000 and was accounted for by the purchase method of
accounting. Accordingly, the operating results of InterActive
have been included in the accompanying consolidated financial statements of the
Company from the date of acquisition. Under the terms of the agreement,
InterActive's security holders received or will receive up to approximately
1,708,000 shares of the Company's common stock in exchange for all outstanding
shares in InterActive. Additionally, InterActive optionees received options to
purchase an
aggregate of approximately 128,000 shares of the Company's
common stock in exchange for their options to purchase InterActive common stock.
The excess of the purchase price over the fair value of the net assets acquired
was allocated
to purchased in-process research and development and
intangible assets of $14,017,000 and $104,000, respectively. The purchased in-process
research and development was charged to operations in the fourth quarter
of 1997. The amounts allocated to intangible assets are being amortized over
three years.</P>
<p> Purchased in-process research and development is related
to the completion of InterActive's data integration, filtering and formatting
technology and its integration into the Company's products. At the time of
acquisition, a prototype of InterActive's product existed and was in limited
trials, however, the prototype was not stable or sufficiently developed to be
scalable on an enterprise-wide basis. InterActive's technology was completed, at
a cost of approximately $400,000, and incorporated as a separate component of the
Siebel 98 product suite which was released in June 1998. The Company estimated
that the technology was approximately 75% complete as of the acquisition date.
At that date, the only identifiable asset acquired was the technology under
development. Accordingly, essentially all of the excess purchase price over net
assets acquired, except for amounts assigned to net current assets, fixed assets
and workforce-in-place, was assigned to in-process research and development.</P>
<p> The results of operations of InterActive prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial information has
not been presented.</P>
<B><I><P>Nomadic Systems, Inc</P></B></I>
<p>
On November 1, 1997, the Company issued shares of
common stock in exchange for all outstanding securities of privately-held
Nomadic Systems, Inc. ("Nomadic"), a provider of innovative business
solutions to pharmaceutical sales forces. The transaction was valued at
approximately $11,000,000 and was accounted for by the purchase method of
accounting. Accordingly, the operating results of Nomadic have been included in
the accompanying consolidated financial statements of the Company from the date
of acquisition. Under the terms of the agreement, Nomadic's securityholders
received approximately 1,200,000 shares of the Company's common stock in
exchange for all outstanding shares of Nomadic. The purchase price was allocated
to net current assets, fixed assets, purchased in-process research and
development and intangible assets of $557,000, $186,000, $8,723,000 and
$1,553,000, respectively. The purchased in-process research and development was
charged to operations in the fourth quarter of 1997. The amounts allocated to
intangible assets are being amortized over three years.</P>
<p> The appraisal of the acquired research and development
was based upon the present value of forecasted operating cash flows from the
technology acquired, giving effect to the stage of completion at the acquisition
date. These forecasted cash flows were then discounted at a rate which gave
consideration to the risk involved in completing the acquired technology. The
forecasted cash flows assumed inclusion of the product developed from acquired
technology into the existing Siebel product suite.</P>
<p> The purchased in-process research and development
expense related to completion of Nomadic's second generation pharmaceutical
sales force automation product. At the time of the acquisition, Nomadic had a
first-generation product at a limited number of customers, with a very small
user base. There were a considerable number of uncertainties as to increasing
the product's scalability for deployment on an enterprise-wide basis, improving
the stability of the application and identifying and fixing bugs. The Company
allocated limited excess purchase price over net assets acquired to net current
assets, fixed assets and workforce-in-place. The majority of the excess purchase
price was allocated to in-process research and development and other intangible
assets (goodwill) based upon the expected cash flows from Nomadic's existing
product and the product under development, giving consideration to the stage of
completion of the technology under development at the acquisition date. This
technology was completed, at a cost of approximately $1,300,000, for enterprise-wide
release in March 1998.</P>
<p> The results of operations of Nomadic prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial statement
information has not been presented.</P>
<B><I><P>Clear With Computers, Inc.</P></B></I>
<p>
The Company incurred merger costs of
approximately $3,300,000 in the third quarter of 1997 in connection with Scopus'
planned merger with Clear With Computers, Inc. The merger plan was terminated
early in the fourth quarter of 1997.</P>
<B><P>(10) Subsequent Events</P></B>
<p>
On January 6, 2000, the Company acquired all of the outstanding
securitites of Paragren Technologies, Inc. ("Paragren") , a leading
provider of high-performance marketing automation software based in Reston,
Virginia. Paragren was a previously wholly owned subsidiary of APAC Customer
Services, Inc. The transaction was valued at approximately $18,000,000 and was
accounted for by the purchase method of accounting. The purchase price was
allocated to tangible net assets, including current assets, current liabilities
and property, plant and equipment. The excess of the purchase price over the
fair value of the tangible net assets acquired, $17,500,000, was allocated to
intangible assets and will be amortized over five years.</P>
<B><P>(11) Selected Quarterly Financial Data (unaudited)</P></B>
<p> The following table presents selected quarterly
information for 1999 and 1998 (in thousands, except share data):</P>
<b>
First Second Third Fourth
quarter quarter quarter quarter
--------- --------- --------- --------- </b>
1999:
Net revenues......................... $141,708 $174,882 $206,345 $267,985
Gross margin......................... 114,573 135,937 155,091 204,401
Net income........................... 22,000 25,853 29,262 44,977
Pro forma net income................. 21,756 25,816 29,572 44,583
Pro forma net income per
diluted share...................... 0.10 0.12 0.13 0.19
Pro forma net income per
basic share........................ 0.12 0.14 0.16 0.23
1998:
Net revenues......................... $78,597 $93,868 $109,322 $128,099
Gross margin......................... 65,978 75,422 90,449 107,050
Net income (loss).................... 10,057 (511) 14,859 19,860
Pro forma net income (loss).......... 9,881 (729) 14,539 19,769
Pro forma net income (loss) per
diluted share...................... 0.05 (0.00) 0.07 0.10
Pro forma net income (loss) per
basic share........................ 0.06 (0.00) 0.08 0.11
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<p align="right"><strong>
Schedule II
</strong>
<p align="center"><strong> Valuation and Qualifying Accounts</strong></p>
<b>
Balance Charged Balance
at to at
Beginning Costs and End of
of Year Expenses Deductions Year
--------- --------- ---------- ---------
(in thousands) </b>
Allowance For Doubtful Accounts:
Year ended December 31, 1999..... $10,330 $7,478 $5,108 $12,700
Year ended December 31, 1998..... $4,288 $6,230 $188 $10,330
Year ended December 31, 1997..... $1,940 $4,920 $2,572 $4,288
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="sign"></A>
<p align="center"></font><strong>
SIEBEL SYSTEMS, INC.
</strong>
<p align="center"><strong>
SIGNATURE
</strong></p>
<p> Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
<TR>
<TD width="38%"></TD>
<TD width="62%"></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left>
SIEBEL SYSTEMS, INC.
</TD></TR></TABLE>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
<TR>
<TD width="38%"></TD>
<TD width="62%"></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left>
<I>(Registrant)</I>
</TD></TR></TABLE>
<p>Dated: March 28, 2000
<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
<TR>
<TD width="38%"></TD>
<TD width="2%"></TD>
<TD width="60%"></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD>By: </TD>
<TD align=left>
/s/ Howard H. Graham
</TD></TR></TABLE>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
<TR>
<TD width="38%"></TD>
<TD width="62%"></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left>
<HR align=left SIZE=1>
</TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left>
Howard H. Graham
</TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left><I>
Senior Vice President Finance and<br>
Administration and<br>
Chief Financial Officer
</I></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left><I>
(Principal Financial Officer)
</I></TD></TR></TABLE></P>
<p align="center"><strong> POWER OF ATTORNEY</strong></p>
<p> KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature
appears below hereby constitutes and appoints Thomas M. Siebel and Howard H.
Graham, each of them acting individually, as his or her attorney-in-fact, each
with the full power of substitution, for him or her in any and all capacities,
to sign any and all amendments to this Annual Report on Form 10-K, and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming our signatures as they may
be signed by ours said attorney-in-fact and any and all amendments to this
Annual Report on Form 10-K.
<p> Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------------------------- ---------------------------------- ---------------
/s/ Thomas M. Siebel Chairman, Chief Executive March 28, 2000
__________________________ Officer and Director
Thomas M. Siebel (Principal Executive Officer)
/s/ Howard H. Graham Senior Vice President Finance March 28, 2000
__________________________ and Administration and Chief
Howard H. Graham Financial Officer (Principal
Financial and Accounting
Officer)
/s/ James C. Gaither Director March 28, 2000
__________________________
James C. Gaither
/s/ Eric E. Schmidt, Ph.D. Director March 28, 2000
__________________________
Eric E. Schmidt, Ph.D.
/s/ Charles R. Schwab Director March 28, 2000
__________________________
Charles R. Schwab
/s/ George T. Shaheen Director March 28, 2000
__________________________
George T. Shaheen
/s/ A. Michael Spence, Ph.D. Director March 28, 2000
__________________________
A. Michael Spence, Ph.D.
<br>
<br>
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</HTML>
<HTML>
<head>
<TITLE>Certificate</TITLE>
</head>
<body bgcolor=white>
<font FACE="Courier New" SIZE="2">
<p align="center"></font><strong>
CERTIFICATE OF AMENDMENT<br>
OF THE<br>
AMENDED AND RESTATED<br>
CERTIFICATE OF INCORPORATION<br>
OF<br>
SIEBEL SYSTEMS, INC.<br>
</strong></p>
<p> SIEBEL SYSTEMS, INC., a corporation organized and existing
under and by virtue of the
General Corporation Law of the state of Delaware, does hereby certify:
<p> FIRST: The name of the corporation is Siebel Systems, Inc.
The corporation was originally
Incorporated under the name Siebel Acquisition Corporation.
<p> SECOND: The date on which the Certificate
of Incorporation was filed with the Secretary of State of the State of
Delaware was May 9, 1996. An Amended and Restated Certificate of
Incorporation of the corporation was filed with the Secretary of State of the
state of Delaware on July 9, 1996. A Certificate of Amendment to the Amended
and Restated Certificate of Incorporation was filed with the Secretary of
State of the State of Delaware on December 2, 1996. A Certificate of
Amendment to the Amended and Restated Certificate of Incorporation as Amended
was filed with the Secretary of State of the State of Delaware on February 27,
1998.
<p> THIRD: The Board of Directors of the
corporation, acting in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware, adopted resolutions to amend
the Amended and Restated Certificate of Incorporation of the corporation by
deleting the first paragraph of Article IV and substituting therefor a new
first paragraph of Article IV in the following form:
<p> "This corporation is authorized to issue two classes of
stock to be designated, respectively,
'Common Stock' and 'Preferred Stock'. The total number of
shares which the corporation is
authorized to issue is eight hundred two million (802,000,00)
shares. Eight hundred million
(800,000,000) shares shall be Common Stock, each having a par
value of one- tenth of one cent
($.001). Two million (2,000,000) shares shall be Preferred
Stock each having a par value of
one-tenth of one cent ($.001)."
<p> FOURTH: Thereafter, pursuant to a
resolution of the Board of Directors, this Certificate of Amendment was
submitted to the stockholders of the corporation for their approval and was
duly adopted in accordance with the provision of Section 242 of the general
Corporation Law of the State of Delaware.
<p> IN WITNESS WHEREOF, Siebel Systems, Inc.
has caused this Certificate of Amendment to be signed by its Senior Vice
President, Finance and Administration Chief Financial Officer and attested
to by its Secretary this 23rd day of November 1999.
<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
<TR>
<TD width="38%"></TD>
<TD width="62%"></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left>
SIEBEL SYSTEMS, INC.
</TD></TR></TABLE>
<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
<TR>
<TD width="38%"></TD>
<TD width="2%"></TD>
<TD width="60%"></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD>By: </TD>
<TD align=left>
/s/ Howard H. Graham
</TD></TR></TABLE>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
<TR>
<TD width="38%"></TD>
<TD width="62%"></TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left>
<HR align=left SIZE=1>
</TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left>
Howard H. Graham
</TD></TR>
<TR vAlign=top>
<TD> </TD>
<TD align=left><I>
Senior Vice President Finance and<br>
Administration and<br>
Chief Financial Officer
</I></TD></TR></TABLE></P>
<p><strong>ATTEST:</strong></p>
/s/ Jeffery T. Amann
<p>Jeffery T. Amann<br>
<i>Secretary</i>
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
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Exhibit 10.08
<HTML>
<head>
<TITLE>Sobrato 2211</TITLE>
</head>
<body bgcolor=white>
<font FACE="Courier New" SIZE="2">
</font>
<B><FONT FACE="Helvetica,Arial" SIZE=1><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
</FONT><FONT FACE="Palatino,Book Antiqua" SIZE=2><P ALIGN="CENTER">Lease
between</P>
<P ALIGN="CENTER">Sobrato Interests III and Siebel Systems, Inc.</P>
<P ALIGN="CENTER">Building 2 - 2211 Bridgepointe Parkway, San Mateo</P>
</B><P ALIGN="CENTER"></P>
<B><P> </P>
<P>Section Page #</P>
</B><P ALIGN="JUSTIFY">Parties </FONT><A HREF="#_Toc445553638">*</A>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Premises </FONT>
<A HREF="#_Toc445553639">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Definitions </FONT>
<A HREF="#_Toc445553640">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Description </FONT>
<A HREF="#_Toc445553641">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Use </FONT>
<A HREF="#_Toc445553642">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Permitted Uses </FONT>
<A HREF="#_Toc445553643">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Uses Prohibited </FONT>
<A HREF="#_Toc445553644">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Advertisements and
Signs </FONT><A HREF="#_Toc445553645">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Covenants, Conditions and
Restrictions </FONT><A HREF="#_Toc445553646">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Term and Rental </FONT>
<A HREF="#_Toc445553647">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Base Monthly Rent </FONT>
<A HREF="#_Toc445553648">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rental Adjustment </FONT>
<A HREF="#_Toc445553649">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Late Charges </FONT>
<A HREF="#_Toc445553650">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Security Deposit </FONT>
<A HREF="#_Toc445553651">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Construction </FONT>
<A HREF="#_Toc445553652">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Building Shell Plans </FONT>
<A HREF="#_Toc445553653">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Plans </FONT><A HREF="#_Toc445553654">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Pricing </FONT><A HREF="#_Toc445553655">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Change Orders </FONT>
<A HREF="#_Toc445553656">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Building Shell Costs </FONT>
<A HREF="#_Toc445553657">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Costs </FONT><A HREF="#_Toc445553658">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Construction </FONT>
<A HREF="#_Toc445553659">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>General Contractor Overhead &
Profit </FONT><A HREF="#_Toc445553660">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Delays </FONT>
<A HREF="#_Toc445553661">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Insurance </FONT>
<A HREF="#_Toc445553662">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Punch List &
Warranty </FONT><A HREF="#_Toc445553663">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Other Work by Tenant </FONT>
<A HREF="#_Toc445553664">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Acceptance of Possession and
Covenants to Surrender </FONT><A HREF="#_Toc445553665">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Delivery and
Acceptance </FONT><A HREF="#_Toc445553666">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Condition Upon
Surrender </FONT><A HREF="#_Toc445553667">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Failure to Surrender </FONT>
<A HREF="#_Toc445553668">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Alterations and
Additions </FONT><A HREF="#_Toc445553669">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Alterations </FONT>
<A HREF="#_Toc445553670">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Free From Liens </FONT>
<A HREF="#_Toc445553671">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Compliance With Governmental
Regulations </FONT><A HREF="#_Toc445553672">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Maintenance of
Premises </FONT><A HREF="#_Toc445553673">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Obligations </FONT>
<A HREF="#_Toc445553674">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Obligations </FONT>
<A HREF="#_Toc445553675">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord and Tenant's Obligations
Regarding Reimbursable Operating Costs </FONT>
<A HREF="#_Toc445553676">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Reimbursable Operating
Costs </FONT><A HREF="#_Toc445553677">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Allocable
Share </FONT><A HREF="#_Toc445553678">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exclusions to Reimbursable
Operating Costs </FONT><A HREF="#_Toc445553679">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Waiver of Liability </FONT>
<A HREF="#_Toc445553680">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Right to
Audit </FONT><A HREF="#_Toc445553681">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Hazard Insurance </FONT>
<A HREF="#_Toc445553682">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Use </FONT>
<A HREF="#_Toc445553683">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Insurance </FONT>
<A HREF="#_Toc445553684">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Insurance </FONT>
<A HREF="#_Toc445553685">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Waiver </FONT>
<A HREF="#_Toc445553686">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Taxes </FONT>
<A HREF="#_Toc445553687">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Utilities </FONT>
<A HREF="#_Toc445553688">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Toxic Waste and Environmental
Damage </FONT><A HREF="#_Toc445553689">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's
Responsibility </FONT><A HREF="#_Toc445553690">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Indemnity Regarding
Hazardous Materials </FONT><A HREF="#_Toc445553691">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Indemnity Regarding
Hazardous Materials </FONT><A HREF="#_Toc445553692">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Actual Release by
Tenant </FONT><A HREF="#_Toc445553693">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Environmental
Monitoring </FONT><A HREF="#_Toc445553694">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Default </FONT>
<A HREF="#_Toc445553695">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Remedies </FONT>
<A HREF="#_Toc445553696">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Right to Re-enter </FONT>
<A HREF="#_Toc445553697">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Abandonment </FONT>
<A HREF="#_Toc445553698">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Termination </FONT>
<A HREF="#_Toc445553699">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Non-Waiver </FONT>
<A HREF="#_Toc445553700">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Performance by
Landlord </FONT><A HREF="#_Toc445553701">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Liability </FONT>
<A HREF="#_Toc445553702">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitation on Landlord's
Liability </FONT><A HREF="#_Toc445553703">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitation on Tenant's
Recourse </FONT><A HREF="#_Toc445553704">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Indemnification of
Landlord </FONT><A HREF="#_Toc445553705">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Destruction of
Premises </FONT><A HREF="#_Toc445553706">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Obligation to
Restore </FONT><A HREF="#_Toc445553707">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitations on Landlord's
Restoration Obligation </FONT><A HREF="#_Toc445553708">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Rights with Respect to a
Destruction of the Premises </FONT><A HREF="#_Toc445553709">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Condemnation </FONT>
<A HREF="#_Toc445553710">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Assignment or Sublease </FONT>
<A HREF="#_Toc445553711">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Consent by Landlord </FONT>
<A HREF="#_Toc445553712">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Assignment or Subletting
Consideration </FONT><A HREF="#_Toc445553713">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Release </FONT>
<A HREF="#_Toc445553714">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Reorganization of
Tenant </FONT><A HREF="#_Toc445553715">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Permitted Transfers </FONT>
<A HREF="#_Toc445553716">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Effect of Default </FONT>
<A HREF="#_Toc445553717">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Effects of Conveyance </FONT>
<A HREF="#_Toc445553718">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Successors and Assigns </FONT>
<A HREF="#_Toc445553719">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Option to Extend the Lease
Term </FONT><A HREF="#_Toc445553720">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc445553721">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Determination of Fair Market
Rental </FONT><A HREF="#_Toc445553722">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Resolution of a Disagreement over
the Fair Market Rental </FONT><A HREF="#_Toc445553723">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Personal to Tenant </FONT>
<A HREF="#_Toc445553724">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Extension Right in the Event the
Building 3 Option is Not Exercised </FONT>
<A HREF="#_Toc445553725">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Option to Extend the Lease
Term </FONT><A HREF="#_Toc445553726">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc445553727">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Lease Commencement and Base Monthly
Rent </FONT><A HREF="#_Toc445553728">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Right of First Offering to
Lease </FONT><A HREF="#_Toc445553729">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exclusions </FONT>
<A HREF="#_Toc445553730">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Right of First Offering to
Purchase </FONT><A HREF="#_Toc445553731">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc445553732">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exclusions </FONT>
<A HREF="#_Toc445553733">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>General Provisions </FONT>
<A HREF="#_Toc445553734">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Attorney's Fees </FONT>
<A HREF="#_Toc445553735">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Authority of Parties </FONT>
<A HREF="#_Toc445553736">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Brokers </FONT>
<A HREF="#_Toc445553737">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Choice of Law </FONT>
<A HREF="#_Toc445553738">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Dispute Resolution </FONT>
<A HREF="#_Toc445553739">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Entire Agreement </FONT>
<A HREF="#_Toc445553740">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Entry by Landlord </FONT>
<A HREF="#_Toc445553741">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Estoppel Certificates </FONT>
<A HREF="#_Toc445553742">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exhibits </FONT>
<A HREF="#_Toc445553743">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Interest </FONT>
<A HREF="#_Toc445553744">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Modifications Required by
Lender </FONT><A HREF="#_Toc445553745">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Presumption Against
Drafter </FONT><A HREF="#_Toc445553746">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Notices </FONT>
<A HREF="#_Toc445553747">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Property Management </FONT>
<A HREF="#_Toc445553748">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rent </FONT>
<A HREF="#_Toc445553749">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Representations </FONT>
<A HREF="#_Toc445553750">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rights and Remedies </FONT>
<A HREF="#_Toc445553751">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Severability </FONT>
<A HREF="#_Toc445553752">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Submission of Lease </FONT>
<A HREF="#_Toc445553753">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Subordination </FONT>
<A HREF="#_Toc445553754">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Survival of
Indemnities </FONT><A HREF="#_Toc445553755">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Time </FONT>
<A HREF="#_Toc445553756">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Transportation Demand Management
Programs </FONT><A HREF="#_Toc445553757">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT A - Premises and Project -
Initial Buildout </FONT><A HREF="#_Toc445553758">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT B - Premises and Project -
Full Buildout </FONT><A HREF="#_Toc445553759">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT C - Declaration of
Covenants and Grant of Easements </FONT><A HREF="#_Toc445553760">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT D - Shell Plans and
Specifications </FONT><A HREF="#_Toc445553761">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT E - Building Shell
Definition </FONT><A HREF="#_Toc445553762">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT F - Tenant Improvement
Plans and Specifications </FONT><A HREF="#_Toc445553763">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT G - Subordination,
Nondisturbance and Attornment Agreement </FONT><A
HREF="#_Toc445553764">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P ALIGN="JUSTIFY"></P></P>
<B><P ALIGN="JUSTIFY">1. Parties: </B> <B><I>THIS LEASE,</B></I> is entered
into on this 11th day of March, 1999, ("Effective Date") between
SOBRATO INTERESTS III, a California Limited Partnership, whose address is 10600
North De Anza Boulevard, Suite 200, Cupertino, CA 95014-2075 and SIEBEL
SYSTEMS, INC., a Delaware Corporation, whose address is 1855 South Grant Street,
San Mateo, California, CA 94402-2667, hereinafter called respectively Landlord
and Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">2. Premises: </P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Definitions</B>. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>i. Building</B>. The term
"Building" shall mean that five (5) story steel frame building
containing approximately 141,496 rentable square feet and all Tenant
Improvements installed therein to be constructed by Landlord and leased by
Tenant pursuant to the terms of this Lease in the location labeled as Building 2
on <U>Exhibit "A"</U> attached hereto and commonly known as 2211
Bridgepointe Parkway. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>ii. Building 1</B>. The term
"Building 1" shall mean that five (5) story steel frame building
containing approximately 141,496 rentable square feet to be constructed by
Landlord and leased by Tenant pursuant to a separate lease between the Parties
of even date herewith ("Building 1 Lease") in the location labeled as
Building 1 on <U>Exhibit "A"</U> and commonly known as 2215
Bridgepointe Parkway.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> iii. Building 3</B>. The term
"Building 3" shall mean that five (5) story steel frame building
containing approximately 167,505 rentable square feet to be constructed by
Landlord and leased by Tenant or by a third party pursuant to the terms of
Section 19 of this Lease in the location labeled as Building 3 on <U>Exhibit
"B" </U>and commonly known as 2207 Bridgepointe Parkway. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>iv. Common Area</B>. The term
"Common Area" shall mean that certain real property beneath and
surrounding the Building, Building 1 and Building 3 consisting initially of an
underground parking garage of approximately 455 parking spaces, on-grade parking
lots consisting of approximately 255 parking spaces, the first two levels of the
above grade parking structure consisting of approximately 280 cars, recreation
areas and the adjacent landscaped site areas as shown on <U>Exhibit
"A"</U>. At the time of construction of Building 3 the Common Area
will be modified by the completion of the above grade parking structure to total
approximately 850 parking spaces and changes to portions of the landscaped sites
areas resulting in total parking at full buildout of 1,560 spaces as shown in
<U>Exhibit "B"</U> attached hereto.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Landlord shall have the power to allocate to each tenant in
the Project, the number of parking spaces in the podium garage, above-grade
parking structure or other portions of the Project as to which Tenant may have
the use in connection with its Building; provided that (i) such allocation is
requested by at least one (1) tenant in the Project, (ii) Landlord shall not
allocate to Tenant materially less than the Tenant's prorata share of parking
calculated on the basis of the square footage of the buildings in the Project,
and (iii) Landlord shall allocate parking in a manner so as to maximize the
adjacency of parking to each building. Landlord shall further retain the right
to restrict an appropriate amount of the parking for visitors of the Project or
for car pooling (as may be required by a TDM program). At the request of Tenant
or any other tenant in the Project, Landlord further agrees to restrict up to
ten (10) spaces per building for key employees of Tenant (or of other tenants in
the Project) or for other reasonable uses. Tenant shall be responsible for
seeing that the total number of vehicles parked in the Project by employees and
invitees of Tenant does not exceed the number of total spaces allocated to the
Building.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>v. Project</B>. The term
"Project" shall be that certain real property consisting of
approximately 10.8 acres at the corner of Bridgepointe Circle and Bridgepointe
Parkway in San Mateo, California and all improvements constructed thereon
consisting at full buildout of the Building, Building 1, Building 3 and the
Common Area as shown in <U>Exhibit "B"</U>. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>vi. Premises</B>. The term
"Premises" shall mean the Building and a non-exclusive right to use
the Common Area. Unless expressly provided otherwise, the term Premises as used
herein shall include the Tenant Improvements (defined in Section 5.B)
constructed by Tenant pursuant to Section 5.B.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Grant: </B>Landlord hereby leases the
Premises to Tenant, and Tenant hires the Premises from Landlord. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Recordation of Parcel Map and Declaration:
</B> Tenant consents to recordation by Landlord of a Parcel Map (Parcel
Map") and a Declaration of Covenants, Conditions and Restrictions
("Declaration"). The Parcel Map and the Declaration shall be
substantially in the form attached hereto as <U>Exhibit "C"</U> with
such changes as may be may be desired by Landlord or Landlord's lenders to
facilitate the operation, construction, financing, sale and/or leasing of the
Project, provided such changes do not materially and adversely affect Tenant's
use of the Premises, and with such changes as may be required by the city or
other governmental authority having jurisdiction over the Project. Landlord is
seeking approval of the Parcel Map and Declaration to subdivide the existing
parcel into the four lots to facilitate Landlord's operation, construction,
financing, lease and/or sale of the Project as individual buildings. Landlord's
failure to obtain approval of the Parcel Map or Declaration shall in no way
invalidate this Lease. In the event the Parcel Map and Declaration are recorded
by Landlord, the Section 2.A.vi shall be replaced by following: The term
"Premises" shall mean (i) the land area within Lot 1; (ii) the
Building; and (iii) the nonexclusive right to use the Common Area in accordance
with the terms and conditions of the Declaration and this Lease. This Lease
shall be subject and subordinate in all respects to the Declaration, as the same
may be amended from time to time. Tenant covenants and agrees to refrain from
doing or causing to be done, or permitting any thing or act to be done, which
would constitute a default under the Declaration or which would or might make
Landlord liable for any damages, claims or penalty. All assessments charged to
the Premises pursuant to the Declaration, (other than those assessments which
represent: the costs required to be paid and borne by Landlord under the express
terms of this Lease (such as Landlord's maintenance costs pursuant to Section
8.A; fines, penalties and costs of suit charged by the Association, to the
extent not caused by Tenant's breach of this Lease or violation of the
Declaration; reimbursements to the Association for diminution of the
Association's insurance proceeds, to the extent not caused by Tenant's violation
of the insurance provisions of the Declaration; and assessments levied against
the Premises because of the nonpayment of assessments levied on other lots
within the Project other than the Premises) shall constitute a part of Tenant's
Allocable Share of Reimbursable Operating Costs pursuant to Article 8 of this
Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Following recordation of the Declaration, if owners and
occupants of Building 1 or Building 3 are violating the terms and conditions of
the Declaration and such violation materially and adversely affects Tenant's
rights under this Lease, then within a reasonable time following Tenant's
request, Landlord shall take reasonable steps to enforce the provisions of the
Declaration relating to such violation, in accordance with the procedures
established in the Declaration, the cost of which shall be a Reimbursable
Operating Cost pursuant to Article 8 of this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">3. Use: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Permitted Uses: </B>Tenant shall use the
Premises only for the following purposes and shall not change the use of the
Premises without the prior written consent of Landlord: General office uses
including research and development and other incidental uses (such incidental
uses shall include without limitation, a gymnasium and/or a cafeteria for use of
Tenant's employees). Tenant shall use only the number of parking spaces
allocated to Tenant under this Lease. Following recordation of the Declaration,
if occupants of Building 1 or Building 3 are using parking spaces in excess of
the number of spaces to which they are entitled under the Declaration, then
within a reasonable time following Tenant's request, Landlord shall seek to
enforce the provisions of the Declaration relating to such excessive use, in
accordance with the procedures established in the Declaration, the cost of which
shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease.
Prior to recording the Declaration, Landlord shall cause the Declarants of the
Declaration to confirm in writing for the benefit of Tenant that the signs and
window coverings to be installed pursuant to Section 3.C of this Lease are
approved by the Declarants. Landlord shall promptly send to Tenant all notices
received from the Association pertaining to the Association's entry onto the
Premises and Common Area, insurance coverage affecting the Premises, and
assessments levied against the Premises. All commercial trucks and delivery
vehicles shall be (i) loaded and unloaded in a manner which does not interfere
with the businesses of other occupants of the Project, and (ii) permitted to
remain on the Project only so long as is reasonably necessary to complete the
loading and unloading. Landlord makes no representation or warranty that any
specific use of the Premises desired by Tenant is permitted pursuant to any
Laws.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Uses Prohibited: </B>Tenant shall not commit
or suffer to be committed on the Premises any waste, nuisance, or other act or
thing which may disturb the quiet enjoyment of any other tenant in or around the
Premises, nor allow any sale by auction or any other use of the Premises for an
unlawful purpose. Tenant shall not (i) damage or overload the electrical,
mechanical or plumbing systems of the Premises, (ii) attach, hang or suspend
anything from the ceiling, walls or columns of the building or set any load on
the floor in excess of the load limits for which such items are designed, or
(iii) generate dust, fumes or waste products which create a fire or health
hazard or damage the Premises or in the soils surrounding the Building. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature, or any waste materials, refuse, scrap or
debris, shall be stored upon or permitted to remain on any portion of the
Premises outside of the Building without Landlord's prior approval, which
approval may be withheld in its sole discretion. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Advertisements and Signs: </B> Tenant shall be
permitted to place two (2) signs mounted on the building, one monument sign
within the Common Area, and any directional signs necessary within the Common
Area, provided such signs are approved by the city or other governing authority.
Tenant shall be entitled to additional signage on Building 1 and Building 3 (if
leased) pursuant to the leases for these buildings. Any sign placed on the
Premises shall be removed by Tenant, at its sole cost, prior to the Expiration
Date or promptly following the earlier termination of the lease, and Tenant
shall repair, at its sole cost, any damage or injury to the Premises caused
thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Covenants, Conditions and Restrictions: </B>
This Lease is subject to the effect of (i) easements, mortgages or deeds of
trust, ground leases, rights of way of record and any other matters or documents
of record; and (ii) any zoning laws of the city, county and state where the
Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the
terms of any such Restrictions. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Tenant acknowledges that as to certain matters set forth
in this Lease, the Association (defined in the Declaration) has or will have
rights of approval or disapproval. If any matter requiring the Association's
approval is submitted to Landlord by Tenant for Landlord's approval, Landlord
shall respond to Tenant in a timely fashion. If Landlord approves such matter
and such matter further requires the Association's approval, Landlord shall
promptly submit the same to the Association, as applicable. In no event,
however, shall Landlord's disapproval be deemed unreasonable if the Association
has disapproved of such matter nor shall Landlord have any liability to Tenant
by reason thereof.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">4. Term and Rental: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Base Monthly Rent: </B>The term ("Lease
Term") shall be for one hundred forty four (144) months, commencing on
substantial completion of construction as finally determined pursuant to Section
5.G (the "Commencement Date") estimated to occur on August 1, 2000,
and ending one hundred forty four (144) months thereafter, ("Expiration
Date"). Notwithstanding the fact that the Lease Term begins on the
Commencement Date, this Lease and all of the obligations of Landlord and Tenant
shall be binding and in full force and effect from and after the Effective Date
except for those obligations which begin on the Commencement Date. In addition
to all other sums payable by Tenant under this Lease, Tenant shall pay as base
monthly rent ("Base Monthly Rent") for the Premises the amount of
Three Hundred Twenty Thousand Sixty Four Dollars ($320,064.00). Base Monthly
Rent and Tenant's payment of operating expenses and taxes pursuant to Section 8
shall be payable beginning on the Commencement Date in advance on or before the
first day of each calendar month during the Lease Term. All sums payable by
Tenant under this Lease shall be paid to Landlord in lawful money of the United
States of America, without offset or deduction and without prior notice or
demand, at the address specified in Section 1 of this Lease or at such place or
places as may be designated in writing by Landlord during the Lease Term. Base
Monthly Rent for any period less than a calendar month shall be a pro rata
portion of the monthly installment.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Rental Adjustment: </P>
</B><P ALIGN="JUSTIFY"> <B>(i) For Variation in Rentable Square Feet:
</B>Upon Substantial Completion of construction, the Building shall be measured
(from outside wall to outside wall including all areas covered by a structural
roof), and if the actual square footage differs from 141,496 square feet, the
initial Base Monthly Rent hereunder shall be adjusted to the product of Two and
262/1000 Dollars ($2.262) and the actual rentable square feet of the Building.
</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(ii) Periodic Adjustment: </B> Beginning
thirty (30) months after the Commencement Date, and every thirty (30) months
thereafter, the then-payable Base Monthly Rent shall be increased by seven and
50/100 percent (7.50%).</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Late Charges: </B>Tenant hereby acknowledges
that late payment by Tenant to Landlord of Base Monthly Rent and other sums due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which is extremely difficult to ascertain. Such costs include
but are not limited to: administrative, processing, accounting, and late
charges which may be imposed on Landlord by the terms of any contract, revolving
credit, mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee within ten (10) days after the rent is due,
Tenant shall pay to Landlord a late charge equal to five (5%) percent of such
overdue amount, which late charge shall be due and payable on the same date that
the overdue amount was due. The parties agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant, excluding interest and attorneys fees and costs. If any rent
or other sum due from Tenant remains delinquent for a period in excess of thirty
(30) days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 21.J<B> </B>following the date such amount became due until
paid. Acceptance by Landlord of such late charge shall not constitute a waiver
of Tenant's default with respect to such overdue amount nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of Base Monthly Rent, then the Base Monthly
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding any provision of this Lease to the contrary.
After four (4) quarterly installments have been paid on time, rent shall again
be payable monthly. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Security Deposit: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(i) Amount: </B>Within ten (10) days
following the Effective Date, Tenant shall deposit with Landlord a letter of
credit ("Letter of Credit") in a form reasonably acceptable to
Landlord in the amount of Eight Million Four Hundred Thousand Dollars
($8,400,000.00) to secure Tenant's obligation to complete Tenant Improvements in
the Building and in Building 1 pursuant to this Lease and the Building 1 Lease.
Upon Landlord's receipt of evidence reasonably satisfactory to Landlord of lien
free completion of the Tenant Improvements and that Tenant has fully paid for
the cost of all of Tenant Improvements for the Building and for Building 1, the
Letter of Credit shall be cancelled and returned to Tenant by Landlord.
Notwithstanding the foregoing, in the event Tenant elects to defer construction
on a portion of the non-core Tenant Improvements in Building 1 (as provided
further and restricted in Section 5.B), Landlord shall not require Tenant to
continue to post the Letter of Credit after payment in full for all other Tenant
Improvements associated with the Building and Building 1. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(ii) Use by Landlord: </B>Landlord shall
be entitled to draw against the full amount of the Letter of Credit at any time
provided only that Landlord certifies to the issuer of the Letter of Credit that
Tenant has failed to make a payment for Tenant Improvement costs as provided in
5.F, that Tenant has failed to timely renew or extend the Letter of Credit as
required by this subsection (ii), or that Tenant has failed to amend the Letter
of Credit or obtain a new Letter of Credit as required by this subsection (ii)
and such failure has not been cured within ten (10) days following Landlord's
notice to Tenant. Tenant shall keep the Letter of Credit in effect at all times
prior to payment in full for the Tenant Improvements for the Building and for
Building 1. At least sixty (60) days prior to expiration of any Letter of
Credit, the term thereof shall be renewed or extended for a period until Tenant
has paid in full for the Tenant Improvements for Building 1. Subject to the
notice requirement and cure period provided herein, Tenant's failure to so renew
or extend the Letter of Credit shall be a material default of this Lease by
Tenant entitling Landlord to draw down on the entire amount of the Letter of
Credit. Any amounts drawn on the Letter of Credit shall be used to pay for the
cost of the Tenant Improvements. In the event the Letter of Credit is drawn by
Landlord, and the proceeds used to pay for the completion of the Tenant
Improvements in the Building and Building 1, after Landlord's completion of the
Tenant Improvements in the Building 1, Landlord shall refund to Tenant any
excess proceeds from the Letter of Credit. In the event of termination of
Landlord's interest in this Lease, Landlord may deliver the Letter of Credit to
Landlord's successor in interest in the Premises and thereupon be relieved of
further responsibility with respect to the Letter of Credit. Except as provided
herein, no other security deposit shall be required by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(iii) Letter of Credit Fee: </B>Landlord and
Tenant agree to share equally in the fee charged to provide the Letter of
Credit. In no event, however, shall Landlord's share of the fee exceed the sum
of Forty Two Thousand Dollars ($42,000.00) per annum. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">5. Construction</B> <B>:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Building Shell Plans: </B>The Building Shell shall
be constructed in accordance with the Building Shell plans and guideline
specifications prepared by Korth Sunseri Hagey ("Shell Architect").
The design development drawings for the Building Shell are attached hereto as
<U>Exhibit "D"</U> ("Preliminary Shell Plans and
Specifications"). The Parties have generally approved the Preliminary Shell
Plans, however, Tenant reserves the right to work in a diligent manner with
Landlord and his design team to refine the Preliminary Plans and Specifications
to accommodate Tenant's requirements such that this activity does not delay the
issuance of the working drawings for the Building Shell ("Shell Permit
Drawings") on schedule. The current schedule anticipates completion of the
Shell Permit Drawings on May 5, 1999. Such refinements shall be limited to the
following areas: (i) structural issues relating to the support of the rooftop
HVAC system and other framing for its distribution inside the Building; (ii)
planning issues relating to the sizing and placement of the base building
electrical system; (iii) planning and specification issues relating to the
design of the Building security systems; (iv) utility services relating to
communications entrances from the street to the Building; (v) design of the main
electrical service and emergency power service to the Building; and (vi)
definition of the work that will be completed as a part of the construction of
the Building as it affects Tenant's ability to access the Building during the
construction of the other Buildings in the Project. The Shell Permit Drawings
(i) shall be consistent with the Preliminary Shell Plans in all material
respects, and (ii) shall provide for materials to be of a quality consistent
with a "Class A" office project the where materials are not currently
specified in the Preliminary Shell Plans. Landlord shall contract for the
installation of the pile foundation system and shall begin this work immediately
following the Effective Date. Upon completion of the Shell Permit Drawings,
Landlord shall select a general contractor ("General Contractor") on
the basis of a competitive bid of both the cost to construct the Building Shell
and the fee and general conditions bid to construct the Tenant Improvements.
Thereafter, Landlord shall cause the General Contractor to complete construction
of the Building Shell. The Building Shell shall include those items set forth in
the attached <U>Exhibit "E"</U> ("Building Shell
Definition") which scope includes the cost of the parking structures. In
the event of a conflict between <U>Exhibit "D"</U> and <U>Exhibit
"E"</U>, <U>Exhibit "E"</U> shall govern.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Tenant Improvement Plans: </B>Tenant, at
Tenant's sole cost and expense, will hire an interior architect ("Interior
Architect") to prepare plans and outline specifications to be attached as
<U>Exhibit "F"</U> ("Tenant Improvement Plans and
Specifications") with respect to the construction of improvements to the
interior premises ("Tenant Improvements"). The Tenant Improvement
Plans and Specifications plans shall be completed for all aspects of the work by
October 1, 1999 with all detail necessary for submittal to the city and for
construction and shall include any information required by the relevant agencies
regarding Tenant's use of Hazardous Materials if applicable. The Tenant
Improvements shall consist of all items not included within the scope of the
Building Shell Definition. All Tenant Improvements affecting or otherwise
related to the Building Core will be subject to Landlord's reasonable approval.
The "Building Core" shall include those items typically associated in
the industry with an office building core including elevators, restrooms, fire
sprinklers, HVAC and electrical systems distributed to each floor, exiting stair
finishes and a finished building lobby. As to the balance of the Tenant
Improvements, Landlord shall not have rights of approval, however, Tenant
Improvement Plans shall provide for the creation of finished office space ready
for occupancy with a minimum buildout in all areas of the Premises consisting
of: (i) fire sprinklers, (ii) floorcoverings, (iii) overhead ceiling system (iv)
distribution of the HVAC system, (v) overhead florescent lighting, and (vi) any
other work required by the City of San Mateo necessary to obtain a Certificate
of Occupancy. Tenant shall have the right to defer installation of the Tenant
Improvements not associated with the Building Core in up to twenty percent (20%)
of the rentable square footage of the Building. Except as provided in the
preceding sentence, Tenant shall have no rights or ability to delay installation
of any of the Tenant Improvements. The Tenant Improvement Plans and
Specifications shall be prepared in sufficient detail to allow General
Contractor to construct the Tenant Improvements. The General Contractor shall
construct the Tenant Improvements in accordance with all Tenant Improvement
Plans and Specifications. The Tenant Improvements shall not be removed or
altered by Tenant without the prior written consent of Landlord as provided in
Section 7. Tenant shall have the right to depreciate and claim and collect any
investment tax credits in the Tenant Improvements during the Lease Term. Tenant
shall further retain the right to encumber its leasehold interest with a first
priority security interest, provided such lienholder has no right to remove any
Tenant Improvements installed by Tenant pursuant to this Lease in the event of a
default by Tenant under such encumbrance. Upon expiration of the Lease Term or
any earlier termination of the Lease, the Tenant Improvements shall become the
property of Landlord and shall remain upon and be surrendered with the Premises,
and title thereto shall automatically vest in Landlord without any payment
therefore.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Tenant Improvement Pricing. </B>Within ten (10)
days after completion of the Tenant Improvements Plans and Specifications,
Landlord shall cause the General Contractor to submit to Tenant competitive bids
from at least three (3) subcontractors for each aspect of the work in excess of
Fifty Thousand and No/100 Dollars ($50,000.00) related to the Tenant
Improvements. Landlord shall cause the General Contractor to utilize the low
bid in each case unless Tenant approves General Contractor's use of another
subcontractor, and the cost of the Tenant Improvements shall be based upon
construction expenses equal to (i) the bid amounts as approved by Tenant, (ii) a
reasonable contingency approved by Tenant to protect the General Contractor
against cost overruns, and (iii) the general contractor fee specified in Section
5.H below ("Tenant Improvement Budget"). Upon Tenant's written
approval of the Tenant Improvement Budget, which approval shall not be
unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have
given their respective approvals of the final Tenant Improvement Plans and
Specifications on which the cost estimate was made, and General Contractor shall
proceed with the construction of the Tenant Improvements in accordance with the
terms of Section 5.G below. If Tenant does not specifically approve or
disapprove the bids within ten (10) business days, Tenant shall be deemed to
have approved the bids.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Change Orders: </B>Tenant shall have the right
to order changes in the manner and type of construction of the Tenant
Improvements. Upon request and prior to Tenant's submitting any binding change
order, Landlord shall cause the General Contractor to promptly provide Tenant
with written statements of the cost to implement and the time delay and
increased construction costs associated with any proposed change order, which
statements shall be binding on General Contractor. If no time delay or
increased construction cost amount is noted on the written statement, the
parties agree that there shall be no adjustment to the construction cost or the
Commencement Date associated with such change order. If ordered by Tenant,
Landlord shall cause the General Contractor to implement such change order and
the cost of constructing the Tenant Improvements shall be increased or decreased
in accordance with the cost statement previously delivered by General Contractor
to Tenant for any such change order. In no event, however, shall Tenant have
the right to eliminate the minimum buildout requirements specified in Section
5.B above.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Building Shell Costs: </B>Landlord shall pay
all costs associated with the Building Shell.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Tenant Improvement Costs: </B>Tenant shall
pay all costs associated with the Tenant Improvements. The cost of Tenant
Improvements shall consist of only the following to the extent actually incurred
by General Contractor in connection with the construction of Tenant
Improvements: construction costs, all permit fees, construction taxes or other
costs imposed by governmental authorities related to the Tenant Improvements,
and General Contractor overhead and profit as described in Section 5.H below.
During the course of construction of Tenant Improvements, Landlord may deliver
to Tenant not more than once each calendar month a written request for payment
prepared by the General Contractor ("Progress Invoice") which shall
include and be accompanied by General Contractor's certified statements setting
forth the amount requested, certifying the percentage of completion of each item
for which reimbursement is requested, and if requested by Tenant, a certificate
from Landlord's Architect certifying the percentage completion. Tenant shall
pay the amount due pursuant to the Progress Invoice less a ten percent (10%)
retention directly to the General Contractor, within thirty (30) days after
Tenant's receipt of the above items. All costs for Tenant Improvements shall be
fully documented to and verified by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>G. Construction: </B>The Building Shell and
Tenant Improvements shall be deemed substantially complete ("Substantially
Complete" or "Substantial Completion") when the Building Shell
and Tenant Improvements have been substantially completed in accordance with the
Shell Plans and Specifications and Tenant Improvement Plans and Specifications,
as evidenced by the completion of a final inspection or the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority for the Building Shell and Tenant Improvements, and the issuance of a
certificate by the Architect certifying that the Building Shell and Tenant
Improvements have been completed in accordance with the plans. Installation of
(i) Tenant's data and phone cabling, (ii) Tenant's furniture, or (iii) the
exterior landscaping shall not be required in order to deem the Premises
Substantially Complete. Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather unusual for the season it which it occurs, labor
disputes, inability to obtain labor, materials, fuel or reasonable substitutes
therefor, governmental restrictions, regulations, controls, civil commotion,
fire or other act of God, and another causes beyond the reasonable control of
Landlord (except financial inability) shall extend the dates contained in this
Section 5.G by a period equal to the period of any said prevention, delay or
stoppage. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> If Landlord cannot obtain building permits or
Substantially Complete construction by the dates set forth herein, this Lease
shall not be void or voidable nor shall Landlord be liable for any loss or
damage resulting therefrom. Notwithstanding anything to the contrary contained
herein, if Landlord has not delivered the Premises substantially completed to
Tenant on or before August, 1, 2001 ("Termination Date"), Tenant shall
have the right to cancel this Lease by providing Landlord written notice within
sixty (60) days following the Termination Date as Tenant's sole and exclusive
remedy for such failure. In such event, Landlord shall return the Letter of
Credit to Tenant and thereafter neither party shall have any further liability
to the other under this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>H. General Contractor Overhead & Profit:
</B>As compensation to General Contractor for its services related to
construction of the Building Shell and Tenant Improvements, General Contractor
shall receive a fee based upon the cost of construction determined and agreed
upon by Landlord and Tenant at the time of the competitive bid of the Building
Shell. Except as provided therein, Landlord or General Contractor shall not
receive any other fee or payment from Tenant in connection with General
Contractor's services.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> I. Tenant Delays: </B> A "Tenant Delay"
shall mean any delay in Substantial Completion of the Building as a result of
any of the following: (i) Tenant's failure to complete or approve the Tenant
Improvement Plans by the dates set forth in Section 5.B, (ii) Tenant's failure
to approve the bids for construction by the dates set forth in Section 5.C,
(iii) changes to the plans requested by Tenant which delay the progress of the
work, (iv) Tenant's request for materials components, or finishes which are not
available in a commercially reasonable time given the anticipated Commencement
Date, (v) Tenant's failure to make a progress payment for Tenant Improvements as
provided in Section 5.F after notice from Landlord and expiration of the
applicable cure period, (vi) Tenant's request for more than one (1) rebidding of
the cost of all or a portion of the work, and (vii) any errors or omissions in
the Tenant Improvement Plans provided by Tenant's architect unless caused by
misinformation provided by Landlord, Landlord's Architect or the General
Contractor. Notwithstanding anything to the contrary set forth in this Lease,
and regardless of the actual date the Premises are Substantially Complete, the
Commencement Date shall be deemed to be the date the Commencement Date would
have occurred if no Tenant Delay had occurred as reasonable determined by
Landlord. In addition, if a Tenant Delay results in an increase in the cost of
the labor or materials, Tenant shall pay the cost of such increases. </P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> J. Insurance: </B>General Contractor shall
procure (as a cost of the Building Shell) a "Broad Form" liability
insurance policy in the amount of Three Million Dollars ($3,000,000.00).
Landlord shall also procure (as a cost of the Building Shell) builder's risk
insurance for the full replacement cost of the Building Shell and Tenant
Improvements while the Building and Tenant Improvements are under construction,
up until the date that the fire insurance policy described in Section 9 is in
full force and effect.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>K. Punch List & Warranty: </B>After the
Building Shell and Tenant Improvements are Substantially Complete, Landlord
shall cause the General Contractor to immediately correct any construction
defect or other "punch list" item which Tenant brings to General
Contractor's attention. All such work shall be performed so as to reasonably
minimize the interruption to Tenant and its activities on the Premises. General
Contractor shall provide a standard contractor's warranty with respect to the
Building Shell and the Tenant Improvements for one (1) year from the
Commencement Date. Such warranty shall exclude routine maintenance, damage
caused by Tenant's negligence or misuse, and acts of God. Notwithstanding
anything to the contrary in this Lease, Landlord warrants that on the
commencement of the term hereof, (i) the Premises shall comply with all laws,
codes, ordinances and other governmental requirements then applicable to the
Building Shell and the Common Area, (ii) all components of the Building Shell
shall be in good working order, condition, and repair, and (iii) the Premises,
the Project, and the land and groundwater thereunder, shall be free of
contamination by any Hazardous Materials then regulated by any applicable local,
state, or federal law not caused by Tenant. In the event of any breach of any
of the foregoing warranties, Landlord shall promptly rectify the same at its
sole cost and expense and shall indemnify, defend, and hold Tenant harmless from
and against any damages, liability, suits, losses, claims, actions, costs or
expenses (including attorneys' and consultants' fees and costs) suffered by
Tenant in connection with any such breach.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>L. Other Work by Tenant: </B>All work not
described in the Shell Plans and Specifications or Tenant Improvement Plans and
Specifications, such as furniture, telephone equipment, telephone wiring and
office equipment work, shall be furnished and installed by Tenant at Tenant's
cost. Prior to Substantial Completion, Tenant shall be obligated to (i) provide
active phone lines to any elevators, and (ii) contract with a firm to monitor
the fire system. When the construction of the Tenant Improvements has proceeded
to the point where Tenant's work of installing its fixtures and equipment in the
Premises can be commenced, General Contractor shall notify Tenant and shall
permit Tenant and its authorized representatives and contractors access to the
Premises before the Commencement Date for the purpose of installing Tenant's
trade fixtures and equipment. </P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">6. Acceptance of Possession and Covenants to
Surrender:</B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Delivery and Acceptance: </B>On the
Commencement Date, Landlord shall deliver and Tenant shall accept possession of
the Premises and enter into occupancy of the Premises on the Commencement Date.
Except as otherwise specifically provided herein, Tenant agrees to accept
possession of the Premises in its then existing condition, subject to all
Restrictions and without representation or warranty by Landlord except as
provided in Section 5.K above. Tenant's taking possession of any part of the
Premises shall be deemed to be an acceptance of any work of improvement done by
Landlord in such part as complete and in accordance with the terms of this Lease
except for (i) "Punch List" type items of which Tenant has given
Landlord written notice prior to the time Tenant takes possession, and (ii)
Landlord's warranties provided in Section 5.K above. Within thirty (30) days
after the Commencement Date, Tenant agrees to occupy at least a one (1) floor of
the Premises.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Condition Upon Surrender:</B> Tenant further
agrees on the Expiration Date or on the sooner termination of this Lease, to
surrender the Premises to Landlord in good condition and repair, normal wear and
tear excepted. In this regard, "normal wear and tear" shall be
construed to mean wear and tear caused to the Premises by the natural aging
process which occurs in spite of prudent application of the commercially
reasonable standards for maintenance, repair replacement, and janitorial
practices, and does not include items of neglected or deferred maintenance. In
any event, Tenant shall cause the following to be done prior to the Expiration
Date or sooner termination of this Lease: (i) all interior walls shall be free
of holes and gouges, (ii) all tiled floors shall be cleaned and waxed, (iii) all
carpets shall be cleaned and shampooed, (iv) all broken, marred, stained or
nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling placed
above the ceiling by Tenant or Tenant's contractors shall be removed, (vi) all
windows shall be washed; (vii) the HVAC system shall be serviced by a reputable
and licensed service firm and left in "good operating condition and
repair" as so certified by such firm, (viii) the plumbing and electrical
systems and lighting shall be placed in good order and repair (including
replacement of any burned out, discolored or broken light bulbs, ballasts, or
lenses. On or before the Expiration Date or sooner termination of this Lease,
Tenant shall remove all its personal property and trade fixtures from the
Premises. All property and fixtures not so removed shall be deemed as abandoned
by Tenant. Tenant shall ascertain from Landlord within ninety (90) days before
the Expiration Date whether Landlord desires to have the Premises or any parts
thereof restored to their condition as of the Commencement Date, or to cause
Tenant to surrender all Alterations (as defined in Section 7) in place to
Landlord. If Landlord shall so desire, and provided that at the time Landlord
gave its consent to their installation, Landlord also notified Tenant that such
removal would be required, Tenant shall, at Tenant's sole cost and expense,
remove such Alterations as Landlord requires and shall repair and restore said
Premises or such parts thereof before the Expiration Date. Such repair and
restoration shall include causing the Premises to be brought into compliance
with all applicable building codes and laws in effect at the time of the removal
to the extent such compliance is necessitated by the repair and restoration
work. In no event, however, shall Tenant be required to remove any portion of
the initial Tenant Improvements installed in accordance with the terms of this
Lease. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Failure to Surrender: </B>If the Premises are
not surrendered at the Expiration Date or sooner termination of this Lease,
Tenant shall be deemed in a holdover tenancy pursuant to this Section 6.C and
Tenant shall indemnify, defend, and hold Landlord harmless against loss or
liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay and costs incurred by Landlord in returning the Premises to the
required condition, plus interest at the Agreed Interest Rate. <B> </B>Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession
of the Premises after expiration or earlier termination of this Lease without
Landlord's consent, Tenant's continued possession shall be on the basis of a
tenancy at sufferance and Tenant shall pay as rent during the holdover period an
amount equal to one hundred fifty percent (150%) of the Base Monthly Rent due in
the month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease. This provision shall survive the
termination or expiration of the Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">7. Alterations and Additions: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Tenant's Alterations: </B>Tenant shall not
make, or suffer to be made, any alteration or addition to the Premises
("Alterations"), or any part thereof, without obtaining Landlord's
prior written consent and delivering to Landlord the proposed architectural and
structural plans for all such Alterations at least fifteen (15) days prior to
the start of construction. If such Alterations affect the structure of the
Building, Tenant additionally agrees to reimburse Landlord its reasonable out-
of-pocket costs incurred in reviewing Tenant's plans. Notwithstanding anything
to the contrary contained in this lease, Tenant shall be entitled to construct
Alterations which cost Tenant less than One Hundred Thousand Dollars
($100,000.00) in the aggregate each year, without obtaining Landlord's consent,
provided such Alterations do not affect the exterior of the Premises or
adversely affect the structural integrity or life safety systems of the
Premises. Tenant shall not proceed to make such Alterations until Tenant has
obtained all required governmental approvals and permits, and provides Landlord
reasonable security, in form reasonably approved by Landlord, to protect
Landlord against mechanics' lien claims. Tenant agrees to provide Landlord (i)
written notice of the anticipated and actual start-date of the work, (ii) a
complete set of half-size (15" X 21") vellum as-built drawings, and
(iii) a certificate of occupancy for the work upon completion of the Alterations
if required by applicable law. All Alterations shall be constructed in
compliance with all applicable building codes and laws including, without
limitation, the Americans with Disabilities Act of 1990. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Free From Liens: </B> Tenant shall keep the
Premises free from all liens arising out of work performed, materials furnished,
or obligations incurred by Tenant or claimed to have been performed for Tenant.
In the event Tenant fails to discharge any such lien within fifteen (15) days
after receiving notice of the filing, Landlord shall be entitled to discharge
the lien at Tenant's expense and all resulting reasonable costs incurred by
Landlord, including reasonable attorney's fees shall be due from Tenant as
additional rent.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Compliance With Governmental Regulations:
</B>The term Laws or Governmental Regulations shall include all federal, state,
county, city or governmental agency laws, statutes, ordinances, standards,
rules, requirements, or orders now in force or hereafter enacted, promulgated,
or issued. The term also includes government measures regulating or enforcing
public access, traffic mitigation, occupational, health, or safety standards for
employers, employees, landlords, or tenants. Tenant, at Tenant's sole expense
shall make all repairs, replacements, alterations, or improvements needed to
comply with all Governmental Regulations except as otherwise expressly provided
in this Lease. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action or proceeding against Tenant (whether Landlord
be a party thereto or not) that Tenant has violated any such law, regulation or
other requirement in its use of the Premises shall be conclusive of that fact as
between Landlord and Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<B><P ALIGN="JUSTIFY">8. Maintenance of Premises:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Landlord's Obligations: </B>Landlord at its
sole cost and expense, shall maintain in good condition, order, and repair, and
replace as and when necessary, the foundation, exterior load bearing walls glass
curtainwall, and roof structure of the Building Shell. Landlord further agrees
to perform repairs and replacements to the Common Area to maintain the Common
Area in good condition, order and repair (subject to Tenant's reimbursement
obligation). Tenant acknowledges and agrees that the Association formed pursuant
to the Declaration may perform the maintenance, repair and restoration
obligations of Landlord under this Section 8.A and other sections of this Lease
on behalf of Landlord and other owners of any portion of the Project, in
discharge of Landlord's maintenance, repair and restoration obligations under
this Lease. As to increases in annual assessments or the imposition of a
special assessment under the Declaration which would require the vote of the
Owners (as defined in the Declaration), Landlord agrees to vote in favor or such
assessments to the extent Landlord reasonably determines such sums are required
to maintain the Premises in the condition required by this Lease.
Notwithstanding the foregoing, in the event that Tenant leases from Landlord all
of the space then developed within the Project, Tenant shall have the right to
perform the repairs, replacements and maintenance of the Common Area and pay
such costs directly.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Tenant's Obligations: </B>Subject to Sections
15 and 16, Tenant shall clean, maintain, repair and replace when necessary the
Building and every part thereof through regular inspections and servicing,
including but not limited to: (i) all plumbing and sewage facilities, (ii) all
heating ventilating and air conditioning facilities and equipment, (iii) all
fixtures, interior walls floors, carpets and ceilings, (iv) all electrical
facilities and equipment, (v) all automatic fire extinguisher equipment, (vi)
all elevator equipment, and (vii) the roof membrane system. All wall surfaces
and floor tile are to be maintained in an as good a condition as when Tenant
took possession free of holes, gouges, or defacements. With respect to items
(ii), (vi) and (vii) above, Tenant shall provide Landlord a copy of a service
contract between Tenant and a licensed service contractor providing for periodic
maintenance of all such systems or equipment in conformance with the
manufacturer's recommendations. Tenant shall provide Landlord upon request, a
copy of such preventive maintenance contracts and paid invoices for the
recommended work if requested by Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Landlord and Tenant's Obligations Regarding
Reimbursable Operating Costs:</B> Notwithstanding the provisions of Sections
8, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for Tenant's
Allocable Share (as defined in Section 8.E below) of the expenses resulting from
Landlord's payment of Reimbursable Operating Costs (as defined in Section 8.D
below) in connection with the Premises or in connection with the Project which
are not otherwise Landlord's obligation hereunder. Tenant agrees to pay its
Allocable Share of the Reimbursable Operating Costs as additional rental within
ten (10) business days of written invoice from Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Reimbursable Operating Costs:</B> For
purposes of calculating Tenant's Allocable Share of Building and Project Costs,
the term "Reimbursable Operating Costs" is defined as all reasonable
costs and expenses of the nature hereinafter described which are incurred by
Landlord in connection with ownership and operation of the Building or the
Project in which the Premises are located. All costs and expenses shall be
determined in accordance with generally accepted accounting principles which
shall be consistently applied, including but not limited to the following: (i)
common area utilities, including water, power, telephone, heating, lighting, air
conditioning, ventilating, and Building utilities to the extent not separately
metered; (ii) common area maintenance and service agreements for the Building
and/or Project and the equipment therein, including without limitation, common
area janitorial services, alarm and security services, exterior window cleaning,
and maintenance of the sidewalks, landscaping, waterscape, roof membrane,
parking garages and parking areas, driveways, service areas, mechanical rooms,
elevators, and the building exterior; (iii) insurance premiums and costs,
including without limitation, the premiums and cost of fire, casualty and
liability coverage and rental abatement and earthquake (if available at
commercially reasonable rates) insurance applicable to the Building or Project;
(iv) repairs, replacements and general maintenance (excluding repairs and
general maintenance paid by proceeds of insurance or by Tenant or other third
parties, and repairs or alterations attributable solely to tenants of the
Building or Project other than Tenant); and (v) all real estate taxes and
assessment installments or other impositions or charges which may be levied on
the Building or Project, upon the occupancy of the Building or Project and
including any substitute or additional charges which may be imposed during, or
applicable to the Lease Term including real estate tax increases due to a sale,
transfer or other change of ownership of the Building or Project, as such taxes
are levied or appear on the City and County tax bills and assessment rolls.
Landlord shall have no obligation to provide guard services or other security
measures for the benefit of the Project. Tenant assumes all responsibility for
the protection of Tenant and Tenant's Agents from acts of third parties;
provided, however, that nothing contained herein shall prevent Landlord, at its
sole option, from providing security measures for the Project. This is a
"Net" Lease, meaning that Base Monthly Rent is paid to Landlord net of
all costs and expenses, except as provided otherwise in this Lease. The
provision for payment of Reimbursable Operating Costs by means of periodic
payment of Tenant's Allocable Share of Building and/or Project Costs is intended
to pass on to Tenant and reimburse Landlord for all costs of operating and
managing the Building and/or Project.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> E. Tenant's Allocable Share:</B> For purposes of
prorating Reimbursable Operating Costs which Tenant shall pay, Tenant's
Allocable Share of Reimbursable Operating Costs shall be computed by multiplying
the Reimbursable Operating Costs by a fraction, the numerator of which is the
rentable square footage of the Premises and the denominator of which is either
the total rentable square footage of the Building if the service or cost is
allocable only to the Building, or the total square footage of the buildings
completed within the Project if the service or cost is allocable to the entire
Project. Tenant's obligation to share in Reimbursable Operating Costs shall be
adjusted to reflect the Lease Commencement and Expiration dates and is subject
to recalculation in the event of expansion of the Building or Project.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> F. Exclusions to Reimbursable Operating Costs:
</B>Notwithstanding anything to the contrary contained in this Lease, the
following costs and expenses shall not be included within Reimbursable Operating
Costs: (i) Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating, or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Project; (ii) The cost of any service sold to any tenant (including Tenant) or
other occupant for which Landlord is entitled to be reimbursed as an additional
charge or rental over and above the basic rent and escalations payable under the
lease with that tenant; (iii) Any depreciation on the Project; (iv) Expenses in
connection with services or other benefits of a type that are not provided to
Tenant but which are provided another tenant or occupant of the Project; (v)
Costs incurred due to Landlord's violation of any terms or conditions of the
Declaration, this Lease or any other lease relating to the Project; (vi)
Overhead profit increments paid to Landlord's subsidiaries or affiliates for
services on or to the building or for supplies or other materials to the extent
that the cost of the services, supplies, or materials exceeds the cost that
would have been paid had the services, supplies, or materials been provided by
unaffiliated parties on a competitive basis; (vii) All interest, loan fees, and
other carrying costs related to any mortgage or deed of trust or related to any
capital item, and all rental and other payable due under any ground or
underlying lease, or any lease for any equipment ordinarily considered to be of
a capital nature (except janitorial equipment which is not affixed to the
Project.); (viii) Any compensation paid to clerks, attendants, or other persons
in commercial concessions operated by Landlord; (ix) Advertising and promotional
expenditures; (x) Costs of repairs and other work occasioned by fire, windstorm,
or other casualty of a nature required to be insured against under this Lease in
excess of the deductible; (xi) Any costs, fines, or penalties incurred due to
violations by Landlord of any governmental rule or authority, this Lease or any
other lease in the Project, or due to Landlord's negligence or willful
misconduct; (xii) Property management fees; (xiii) Costs for sculpture,
paintings, or other objects of art (and insurance thereon or extraordinary
security in connection therewith); (xiv) The cost of correcting any building
code or other violations which were violations prior to the Commencement Date of
this Lease; (xv) The cost of containing, removing, or otherwise remediating any
contamination of the Project (including the underlying land and ground water) by
any Hazardous Materials where such contamination was not caused by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Waiver of Liability: </B>Failure by Landlord
to perform any defined services, or any cessation thereof, when such failure is
caused by accident, breakage, repairs, strikes, lockout or other labor
disturbances or labor disputes of any character or by any other cause, similar
or dissimilar, shall not render Landlord liable to Tenant in any respect,
including damages to either person or property, nor be construed as an eviction
of Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment
of any covenant or agreement hereof. Should any equipment or machinery utilized
in supplying the services listed herein break down or for any cause cease to
function properly, upon receipt of written notice from Tenant of any deficiency
or failure of any services, Landlord shall use reasonable diligence to repair
the same promptly, but Tenant shall have no right to terminate this Lease and
shall have no claim for rebate of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom. Tenant
waives the provisions of California Civil Code Sections 1941 and 1942 concerning
the Landlord's obligation of tenantability and Tenant's right to make repairs
and deduct the cost of such repairs from the rent. Landlord shall not be liable
for a loss of or injury to person or property, however occurring, through or in
connection with or incidental to furnishing, or its failure to furnish, any of
the foregoing unless causes by its gross negligence or willful misconduct.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Tenant's Right to Audit: </B>Tenant shall have
the right to audit at Landlord's local offices, at Tenant's expense, Landlord's
accounts and records relating to Reimbursable Operating Costs. Such audit
shall be conducted by a certified public accountant approved by Landlord, which
approval shall not be unreasonably withheld. If such audit reveals that Landlord
has overcharged Tenant, the amount overcharged shall be paid to Tenant within 30
days after the audit is concluded, together with interest thereon at the rate of
ten percent (10.0%) per annum, from the date paid by Tenant until payment of the
overcharge is made to Tenant. In addition, if the amount paid by Tenant exceeds
the Reimbursable Operating Costs which should have been charged to Tenant by
more than five percent (5.0%), the cost of the audit shall be paid by
Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">9. Hazard Insurance:</B> </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Tenant's Use: </B>Tenant shall not use or
permit the Premises, or any part thereof, to be used for any purpose other than
that for which the Premises are hereby leased; and no use of the Premises shall
be made or permitted, nor acts done, which will cause an increase in premiums or
a cancellation of any insurance policy covering the Project or any part thereof,
nor shall Tenant sell or permit to be sold, kept, or used in or about the
Premises, any article prohibited by the standard form of fire insurance
policies. Tenant shall, at its sole cost, comply with all requirements of any
insurance company or organization necessary for the maintenance of reasonable
fire and public liability insurance covering the Premises and appurtenances.
</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Landlord's Insurance: </B>Landlord agrees to
purchase and keep in force fire, extended coverage insurance in an amount equal
to the replacement cost of the Building as determined by Landlord's insurance
company's appraisers. If required by the holder of the first deed of trust on
the property, such fire and property damage insurance may be endorsed to cover
loss caused by such additional perils against which Landlord may elect to
insure, including earthquake and/or flood, and shall contain reasonable
deductibles which, in the case of earthquake and flood insurance may be up to
15% of the replacement value of the property. Additionally Landlord may
maintain a policy of (i) commercial general liability insurance insuring
Landlord (and such others designated by Landlord) against liability for personal
injury, bodily injury, death and damage to property occurring or resulting from
an occurrence in, on or about the Premises or Project in an amount as Landlord
determines is reasonably necessary for its protection, and (ii) rental lost
insurance covering a twelve (12) month period. Tenant agrees to pay Landlord as
additional rent, on demand, the full cost of said insurance and any insurance
costs allocable to the Building pursuant to the Declaration as evidenced by
insurance billings to Landlord, and in the event of damage covered by said
insurance, the amount of any commercially reasonable deductible under such
policy. Payment shall be due to Landlord within thirty (30) days after written
invoice to Tenant. It is understood and agreed that Tenant's obligation under
this Section will be prorated to reflect the Lease Commencement and Expiration
Dates. Tenant acknowledges and agrees that the Association formed pursuant to
the Declaration may procure all or any portion of the insurance required to be
maintained by Landlord under this Lease on behalf of Landlord and in discharge
of Landlord's obligation to procure such insurance under this Lease, under one
or more policies procured by the Association from time to time for the benefit
of Landlord and other owners of any portion of the Project, the cost of which
shall be paid by Tenant pursuant to this section 9.B, provided that the cost to
Tenant shall not be greater than that which Tenant would have had to pay if
Landlord obtained such coverage directly.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Tenant's Insurance: </B>Tenant agrees, at its
sole cost, to insure its personal property, Tenant Improvements and Alterations
for their full replacement value (without depreciation) and to obtain worker's
compensation and public liability and property damage insurance for occurrences
within the Premises with a combined single limit of not less than Five Million
Dollars ($5,000,000.00). Tenant's liability insurance shall be primary
insurance containing a cross-liability endorsement, and shall provide coverage
on an "occurrence" rather than on a "claims made" basis.
Tenant shall name Master Landlord, Landlord and their respective lenders as an
additional insured and shall deliver evidence of insurance and renewal
certificates to Landlord. All such policies shall provide for thirty (30) days'
prior written notice to Landlord of any cancellation, termination, or reduction
in coverage. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Waiver: </B>Landlord and Tenant hereby waive
all rights each may have against the other on account of any loss or damage
sustained by Landlord or Tenant, as the case may be, or to the Premises or its
contents, which may arise from any risk covered by their respective insurance
policies (or which would have been covered had such insurance policies been
maintained in accordance with this Lease) as set forth above. The parties shall
use their reasonable efforts to obtain from their respective insurance companies
a waiver of any right of subrogation which said insurance company may have
against Landlord, Master Landlord or Tenant, as the case may be.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">10. Taxes: </B> Tenant shall be liable for and shall
pay as additional rental, prior to delinquency, the following: (i) all taxes
and assessments levied against Tenant's personal property and trade or business
fixtures; (ii) all real estate taxes and assessment installments or other
impositions or charges which may be levied on the Premises or upon the occupancy
of the Premises, including any substitute or additional charges which may be
imposed applicable to the Lease Term; and (iii) real estate tax increases due to
an increase in assessed value resulting from a sale, transfer or other change of
ownership of the Premises as it appears on the City and County tax bills during
the Lease Term. Tenant's obligation under this Section shall be prorated to
reflect the Lease Commencement and Expiration Dates. If, at any time during the
Lease Term a tax, excise on rents, business license tax or any other tax,
however described, is levied or assessed against Landlord as a substitute or
addition, in whole or in part, for taxes assessed or imposed on land or
Buildings, Tenant shall pay and discharge its pro rata share of such tax or
excise on rents or other tax before it becomes delinquent; except that this
provision is not intended to cover net income taxes, inheritance, gift or estate
tax imposed upon Landlord. In the event that a tax is placed, levied, or
assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact amount of such tax and Tenant shall pay such increase.
If by virtue of any application or proceeding brought by or on behalf of
Landlord, there results a reduction in the assessed value of the Premises during
the Lease Term, Tenant agrees to reimburse Landlord for all costs incurred by
Landlord in connection with such application or proceeding, not to exceed the
amount of any savings realized by Tenant. In the event the Project is not
subdivided as provided in Section 2.C and the tax bill covers the entire
Project, the real estate taxes and assessments shall be prorated as provided in
Section 8.E.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">11. Utilities:</B> Tenant shall pay directly to the
providing utility all water, gas, electric, telephone, and other utilities
supplied to the Premises. Landlord shall not be liable for loss of or injury to
person or property, however occurring, through or in connection with or
incidental to furnishing or the utility company's failure to furnish utilities
to the Premises unless caused by Landlord's gross negligence of willful
misconduct, and Tenant shall not be entitled to abatement or reduction of any
portion of Base Monthly Rent or any other amount payable under this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">12. Toxic Waste and Environmental Damage: </B> </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Tenant's Responsibility: </B>Without the
prior written consent of Landlord, Tenant shall not bring, use, or permit upon
the Premises, or generate, create, release, emit, or dispose (nor permit any of
the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or
solid materials or waste, including without limitation, material or substance
having characteristics of ignitability, corrosivity, reactivity, or toxicity or
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or which are identified in Division 22 Title
26 of the California Code of Regulations as the same may be amended from time to
time or any wastes, materials or substances which are or may become regulated by
or under the authority of any applicable local, state or federal laws,
judgments, ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials")
except for those substances customary in typical office uses for which no
consent shall be required. In order to obtain consent, Tenant shall deliver to
Landlord its written proposal describing the toxic material to be brought onto
the Premises, measures to be taken for storage and disposal thereof, safety
measures to be employed to prevent pollution of the air, ground, surface and
ground water. Landlord's approval may be withheld in its reasonable judgment.
In the event Landlord consents to Tenant's use of Hazardous Materials on the
Premises or such consent is not required, Tenant represents and warrants that it
shall comply with all Governmental Regulations applicable to Hazardous Materials
including doing the following: (i) adhere to all reporting and inspection
requirements imposed by Federal, State, County or Municipal laws, ordinances or
regulations and will provide Landlord a copy of any such reports or agency
inspections; (ii) obtain and provide Landlord copies of all necessary permits
required for the use and handling of Hazardous Materials on the Premises; (iii)
enforce Hazardous Materials handling and disposal practices consistent with
industry standards; (iv) surrender the Premises free from any Hazardous
Materials arising from Tenant's bringing, using, permitting, generating,
creating, releasing, emitting or disposing of Hazardous Materials; and (v)
properly close the facility with regard to Hazardous Materials including the
removal or decontamination of any process piping, mechanical ducting, storage
tanks, containers, or trenches which have come into contact with Hazardous
Materials and obtain a closure certificate from the local administering agency
prior to the Expiration Date.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Tenant's Indemnity Regarding Hazardous
Materials: </B>Tenant shall, at its sole cost and expense, comply with all
laws pertaining to, and shall with counsel reasonably acceptable to Landlord,
indemnify, defend and hold harmless Landlord, Master Landlord and their
trustees, shareholders, directors, officers, employees, partners, affiliates,
and agents from, any claims, liabilities, costs or expenses incurred or suffered
by Landlord arising from the bringing, using, permitting, generating, emitting
or disposing of Hazardous Materials by Tenant or a third party through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification and hold harmless obligations include, without
limitation, the following arising from the bringing, using, permitting,
generating, emitting or disposing of Hazardous Materials by Tenant or a third
party through the surface soils of the Premises during the Lease Term or the
violation of any Governmental Regulation or environmental law, by Tenant or
Tenant's Agents.: (i) claims, liability, costs or expenses resulting from or
based upon administrative, judicial (civil or criminal) or other action, legal
or equitable, brought by any private or public person under common law or under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980
("RCRA") or any other Federal, State, County or Municipal law,
ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining
to the identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; (iv) losses attributable to diminution in the value of the Premises or
the Building; (v) loss or restriction of use of rentable space in the Building;
(vi) Adverse effect on the marketing of any space in the Building; and (vi) all
other liabilities, obligations, penalties, fines, claims, actions (including
remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders or judgments), damages (including consequential and punitive
damages), and costs (including attorney, consultant, and expert fees and
expenses) resulting from the release or violation. This indemnification shall
survive the expiration or termination o this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Landlord's Indemnity Regarding Hazardous
Materials: </B>Landlord shall with counsel reasonably acceptable to Tenant,
indemnify, defend and hold harmless Tenant and Tenant's shareholders, directors,
officers, employees, partners, affiliates, and agents from, any claims,
liabilities, costs or expenses incurred or suffered by Tenant arising from the
bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Landlord or the violation of any Governmental Regulation or
environmental law, by Landlord or Landlord's Agents. Landlord's indemnification
and hold harmless obligations include, without limitation, the following: (i)
claims, liability, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal) or other action, legal or
equitable, brought by any private or public person under common law or under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980
("RCRA") or any other Federal, State, County or Municipal law,
ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining
to the identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; and (iv) all other liabilities, obligations, penalties, fines, claims,
actions (including remedial or enforcement actions of any kind and
administrative or judicial proceedings, orders or judgments), damages (including
consequential and punitive damages), and costs (including attorney, consultant,
and expert fees and expenses) resulting from the release or violation. This
indemnification shall survive the expiration or termination o this Lease. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Actual Release by Tenant: </B>Tenant agrees
to notify Landlord of any lawsuits or orders which relate to the remedying of or
actual release of Hazardous Materials on or into the soils or ground water at or
under the Premises. Tenant shall also provide Landlord all notices required by
Section 25359.7(b) of the Health and Safety Code and all other notices required
by law to be given to Landlord in connection with Hazardous Materials. Without
limiting the foregoing, each party shall also deliver to the other party, within
twenty (20) days after receipt thereof, any written notices from any
governmental agency alleging a material violation of, or material failure to
comply with, any federal, state or local laws, regulations, ordinances or
orders, the violation of which or failure to comply with poses a foreseeable and
material risk of contamination of the ground water or injury to humans (other
than injury solely to Tenant, Tenant's Agents and employees within the
Building).</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> In the event of any release on or into the Premises
or into the soil or ground water under the Premises, the Building or the Project
of any Hazardous Materials used, treated, stored or disposed of by Tenant or
Tenant's Agents, Tenant agrees to comply, at its sole cost, with all laws,
regulations, ordinances and orders of any federal, state or local agency
relating to the monitoring or remediation of such Hazardous Materials. In the
event of any such release of Hazardous Materials Tenant shall immediately give
verbal and follow-up written notice of the release to Landlord, and Tenant
agrees to meet and confer with Landlord and its Lender to attempt to eliminate
and mitigate any financial exposure to such Lender and resultant exposure to
Landlord under California Code of Civil Procedure Section 736(b) as a result of
such release, and promptly to take reasonable monitoring, cleanup and remedial
steps given, inter alia, the historical uses to which the Property has and
continues to be used, the risks to public health posed by the release, the then
available technology and the costs of remediation, cleanup and monitoring,
consistent with acceptable customary practices for the type and severity of such
contamination and all applicable laws. Nothing in the preceding sentence shall
eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to
indemnify and hold Landlord and Master Landlord harmless from any claims
liabilities, costs or expenses incurred or suffered by them rising from the
bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Tenant or a third party through the surface soils of the Premises
during the Lease Term or the violation of any Governmental Regulation or
environmental law, by Tenant or Tenant's Agents. Tenant shall provide Landlord
prompt written notice of Tenant's monitoring, cleanup and remedial steps.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> In the absence of an order of any federal, state or local
governmental or quasi-governmental agency relating to the cleanup, remediation
or other response action required by applicable law, any dispute arising between
Landlord and Tenant concerning Tenant's obligation to Landlord under this
Section 12.C concerning the level, method, and manner of cleanup, remediation or
response action required in connection with such a release of Hazardous
Materials shall be resolved by mediation and/or arbitration pursuant to the
provisions of Section 21.E of this Lease.</P>
<P ALIGN="CENTER"></P>
<P ALIGN="JUSTIFY"> <B>D. Environmental Monitoring: </B>Landlord and
its agents shall have the right to inspect, investigate, sample and monitor the
Premises including any air, soil, water, ground water or other sampling or any
other testing, digging, drilling or analysis to determine whether Tenant is
complying with the terms of this Section 12 provided reasonable grounds to
suspect a violation exist. If Landlord discovers that Tenant is not in
compliance with the terms of this Section 12, any such reasonable costs incurred
by Landlord, including attorneys' and consultants' fees, shall be due and
payable by Tenant to Landlord within thirty (30) days following Landlord's
written demand therefore.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">13. Tenant's Default: </B> The occurrence of any of
the following shall constitute a material default and breach of this Lease by
Tenant: (i) Tenant's failure to pay any rent including additional rent or any
other payment due under this Lease within ten (10) days following Landlord's
notice of nonpayment, (ii) the abandonment of the Premises by Tenant; (iii)
Tenant's failure to observe and perform any other required provision of this
Lease, where such failure continues for thirty (30) days after written notice
from Landlord, provided, however, that if the nature of the default is such that
it cannot reasonably be cured within the 30-day period, Tenant shall not be
deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion; (iv) Tenant's making of any
general assignment for the benefit of creditors; (v) the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed after the
filing); (vi) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within sixty
(60) days; (vii) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within sixty (60)
days; (viii) a default by Tenant under the Building 1 Lease (if then leased by
Tenant from Landlord), or (ix) a default by Tenant under the Building 3 Lease
(if leased by Tenant from Landlord).</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Remedies: </B> In the event of any such
default by Tenant, then in addition to other remedies available to Landlord at
law or in equity, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event Landlord elects to so terminate this
Lease, Landlord may recover from Tenant all the following: (i) the worth at
time of award of any unpaid rent which had been earned at the time of such
termination; (ii) the worth at time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss for the same period that Tenant proves
could have been reasonably avoided; (iii) the worth at time of award of the
amount by which the unpaid rent for the balance of the Lease Term after the time
of award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; (iv) any other amount necessary to compensate Landlord for
all detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom; including the following: (x) reasonable expenses for
repairing, altering or remodeling the Premises if such expenses are necessary to
relet the Premises, (y) reasonable broker's fees, advertising costs or other
expenses of reletting the Premises, and (z) costs of carrying the Premises such
as taxes, insurance premiums, utilities and security precautions and assessments
due under the Declaration, and (v) at Landlord's election, such other reasonable
amounts in addition to or in lieu of the foregoing as may be permitted by
applicable California law. The term "rent", as used herein, is
defined as the minimum monthly installments of Base Monthly Rent and all other
sums required to be paid by Tenant pursuant to this Lease, all such other sums
being deemed as additional rent due hereunder. As used in (i) and (ii) above,
"worth at the time of award" shall be computed by allowing interest at
a rate equal to the discount rate of the Federal Reserve Bank of San Francisco
plus five (5%) percent per annum. As used in (iii) above, "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
(1%) percent. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Right to Re-enter: </B> In the event of any
such default by Tenant, Landlord shall have the right, after terminating this
Lease, to re-enter the Premises and remove all persons and property. Such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant, and disposed of by Landlord in any manner
permitted by law.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Abandonment: </B> If Landlord does not elect
to terminate this Lease as provided in Section 13.A or 13.B above, then the
provisions of California Civil Code Section 1951.4, (Landlord may continue the
lease in effect after Tenant's breach and abandonment and recover rent as it
becomes due if Tenant has a right to sublet and assign, subject only to
reasonable limitations) as amended from time to time, shall apply and Landlord
may from time to time, without terminating this Lease, either recover all rental
as it becomes due or relet the Premises or any part thereof for such term or
terms and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable, with the right to make
alterations and repairs to the Premises. In the event that Landlord elects to
so relet, rentals received by Landlord from such reletting shall be applied in
the following order to: (i) the payment of any indebtedness other than Base
Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost
of such reletting; (iii) the payment of the cost of any alterations and repairs
to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid
hereunder. The residual rentals, if any, shall be held by Landlord and applied
in payment of future Base Monthly Rent as the same may become due and payable
hereunder. Landlord shall the obligation to market the space but shall have no
obligation to relet the Premises following a default if Landlord has other
comparable available space within the Building or Project. In the event the
portion of rentals received from such reletting which is applied to the payment
of rent hereunder during any month be less than the rent payable during that
month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord
immediately upon demand. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as ascertained, any reasonable costs
and expenses incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from such
reletting.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. No Termination: </B> Landlord's re-entry or
taking possession of the Premises pursuant to 13.B or 13.C shall not be
construed as an election to terminate this Lease unless written notice of such
intention is given to Tenant or unless the termination is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such default.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Non-Waiver: </B> Landlord may accept Tenant's
payments without waiving any rights under this Lease, including rights under a
previously served notice of default. No payment by Tenant or receipt by Landlord
of a lesser amount than any installment of rent due shall be deemed as other
than payment on account of the amount due. If Landlord accepts payments after
serving a notice of default, Landlord may nevertheless commence and pursue an
action to enforce rights and remedies under the previously served notice of
default without giving Tenant any further notice or demand. Furthermore, the
Landlord's acceptance of rent from the Tenant when the Tenant is holding over
without express written consent does not convert Tenant's Tenancy from a tenancy
at sufferance to a month to month tenancy. No waiver of any provision of this
Lease shall be implied by any failure of Landlord to enforce any remedy for the
violation of that provision, even if that violation continues or is repeated.
Any waiver by Landlord of any provision of this Lease must be in writing. Such
waiver shall affect only the provision specified and only for the time and in
the manner stated in the writing. No delay or omission in the exercise of any
right or remedy by Landlord shall impair such right or remedy or be construed as
a waiver thereof by Landlord. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute acceptance
of the surrender of the Premises by Tenant before the Expiration Date. Only
written notice from Landlord to Tenant of acceptance shall constitute such
acceptance of surrender of the Premises. Landlord's consent to or approval of
any act by Tenant which requires Landlord's consent or approvals shall not be
deemed to waive or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> F. Performance by Landlord: </B>If Tenant fails
to perform any obligation required under this Lease or by law or governmental
regulation, Landlord in its sole discretion may, following notice and expiration
of the applicable cure period, without waiving any rights or remedies and
without releasing Tenant from its obligations hereunder, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all sums
paid by Landlord in connection with such substitute performance, including
interest at the Agreed Interest Rate within thirty (30) days of Landlord's
written notice for such payment.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">14. Landlord's Liability: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Limitation on Landlord's Liability: </B> In the
event of Landlord's failure to perform any of its covenants or agreements under
this Lease, Tenant shall give Landlord written notice of such failure and shall
give Landlord thirty (30) days to cure or commence to cure such failure prior to
any claim for breach or resultant damages, provided, however, that if the nature
of the default is such that it cannot reasonably be cured within the 30-day
period, Landlord shall not be deemed in default if it commences within such
period to cure, and thereafter diligently prosecutes the same to completion. In
addition, upon any such failure by Landlord, Tenant shall give notice by
registered or certified mail to any person or entity with a security interest in
the Premises ("Mortgagee") that has provided Tenant with notice of its
interest in the Premises, and shall provide Mortgagee a reasonable opportunity
to cure such failure, including such time to obtain possession of the Premises
by power of sale or judicial foreclosure, if such should prove necessary to
effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease
has been assigned is an expressed third-party beneficiary hereof. Tenant waives
any right under California Civil Code Section 1950.7 or any other present or
future law to the collection of any payment or deposit from Mortgagee or any
purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or such
purchaser shall have actually received and not refunded the applicable payment
or deposit. Tenant Further waives any right to terminate this Lease and to
vacate the Premises on Landlord's default under this Lease. Tenant's sole
remedy on Landlord's default is an action for damages or injunctive or
declaratory relief.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Limitation on Tenant's Recourse: </B>If
Landlord is a corporation trust, partnership, joint venture, unincorporated
association or other form of business entity: (i) the obligations of Landlord
shall not constitute personal obligations of the officers, directors, trustees,
partners, joint venturers, members, owners, stockholders, or other principals or
representatives except to the extent of their interest in the Premises. Tenant
shall have recourse only to the interest of Landlord in the Premises or for the
satisfaction of the obligations of Landlord and shall not have recourse to any
other assets of Landlord for the satisfaction of such obligations.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Indemnification of Landlord: </B> As a
material part of the consideration rendered to Landlord, Tenant hereby waives
all claims against Landlord except to the extent caused by Landlord's gross
negligence, willful misconduct or a breach of this Lease for damages to goods,
wares and merchandise, and all other personal property in, upon or about said
Premises and for injuries to persons in or about said Premises, from any cause
arising at any time to the fullest extent permitted by law, and Tenant shall
indemnify and hold Landlord, Master Landlord and their shareholders, directors,
officers, trustees, employees, partners, affiliates and agents exempt and
harmless from any damage or injury to any person, or to the goods, wares and
merchandise and all other personal property of any person, arising from the use
of the Premises, Building, and/or Project by Tenant and Tenant's Agents or from
the failure of Tenant to keep the Premises in good condition and repair as
herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims
except to the extent due to the gross negligence or willful misconduct of
Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">15. Destruction of Premises: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Landlord's Obligation to Restore: </B>In the
event of a destruction of the Premises during the Lease Term Landlord shall
repair the same to the approximate condition which existed prior to such
destruction. Such destruction shall not annul or void this Lease; however,
Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while
repairs are being made, such proportionate reduction to be based upon the extent
to which the repairs interfere with Tenant's business in the Premises, as
reasonably determined by the Parties. In no event shall Landlord be required to
replace or restore Alterations, Tenant Improvements, Tenant's fixtures or
personal property. With respect to a destruction which Landlord is obligated to
repair or may elect to repair under the terms of this Section, Tenant waives the
provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code
of the State of California, and any other similarly enacted statute, and the
provisions of this Section 15 shall govern in the case of such destruction. If
Landlord is required to repair the Premises in the event of destruction pursuant
to this Lease, Landlord agrees that it will not vote under the Declaration in
favor or not repairing the Premises or Common Area.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Limitations on Landlord's Restoration
Obligation: </B>Notwithstanding the provisions of Section 15.A, Landlord shall
have no obligation to repair, or restore the Premises if any of the following
occur: (i) if the repairs cannot be made in three hundred sixty five (365) days
from the date of receipt of all governmental approvals necessary under the laws
and regulations of State, Federal, County or Municipal authorities, as
reasonably determined by Landlord, (ii) if the holder of the first deed of trust
or mortgage encumbering the Building elects not to permit the insurance proceeds
payable upon damage or destruction to be used for such repair or restoration,
(iii) the damage or destruction is not fully covered by the insurance maintained
by Landlord, (iv) the damage or destruction occurs in the last twenty four (24)
months of the Lease Term (unless Tenant commits to exercise any available option
to extend the Lease Term pursuant to Section 18 of this Lease), (v) Tenant is in
default pursuant to the provisions of Section 13 beyond expiration of the
applicable cure period, (vi) Tenant has vacated the Premises for more than
ninety (90) days, or (vii) if repair of the Common Area is necessary before
repairs to the Premises can be</P>
<P ALIGN="JUSTIFY">performed and Landlord reasonably determines that repairs to
the Common Area will not be made within one hundred eighty (180) days after the
date of the damage and destruction. In any such event Landlord may elect either
to (i) complete the repair or restoration, or (ii) terminate this Lease by
providing Tenant written notice of its election within sixty (60) days following
the damage or destruction.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Tenant's Rights with Respect to a Destruction of
the Premises</B>: Notwithstanding anything to the contrary contained in this
Lease: Landlord shall give notice to Tenant of its election to rebuild or not
to rebuild the Premises within thirty (30) days of casualty to the Premises and
such notice shall specify Landlord's architect's or engineer's reasonable
estimate as to the time required to rebuild or restore the Premises. If, in the
reasonable opinion of Landlord's architect or engineer, the Premises will take
longer than three hundred sixty five (365) days to rebuild or restore and
Landlord has elected to perform such rebuilding or restoration, Tenant may,
notwithstanding Landlord's election, terminate this Lease by written notice to
Landlord of such termination within five (5) days after its receipt of
Landlord's notice. Such termination shall be effective thirty (30) days after
the giving of Tenant's notice. If Landlord fails to restore the Premises
(including reasonable means of access thereto) within a period which is sixty
(60) days longer than the period stated in Landlord's notice to Tenant as the
estimated rebuilding period, 'Tenant, at any time thereafter until such
rebuilding is completed, may terminate this Lease by delivering written notice
to Landlord of such termination, in which event this Lease shall terminate as of
the date of the giving of such notice. If casualty to the Premises occurs
within the last twenty-four months of the term and the period in which Tenant is
obligated to exercise its option to renew the term pursuant to Section 18 has
not expired, Tenant shall have thirty (30) days after the date of casualty in
which to notify Landlord of its election to exercise such renewal option. If
Tenant elects to renew the term as provided above, Landlord shall have no right
to terminate the Lease pursuant to this Section 15.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">16. Condemnation: </B> If any part of the Premises
shall be taken for any public or quasi-public use, under any statute or by right
of eminent domain or private purchase in lieu thereof, and only a part thereof
remains which is susceptible of occupation hereunder, this Lease shall, as to
the part so taken, terminate as of the day before title vests in the condemnor
or purchaser ("Vesting Date") and Base Monthly Rent payable hereunder
shall be adjusted so that Tenant is required to pay for the remainder of the
Lease Term only such portion of Base Monthly Rent as the value of the part
remaining after such taking bears to the value of the entire Premises prior to
such taking. If all of the Premises or such part thereof be taken so that there
does not remain a portion susceptible for occupation hereunder, this Lease shall
terminate on the Vesting Date. If part or all of the Premises be taken, all
compensation awarded upon such taking shall go to Landlord, and Tenant shall
have no claim thereto; but Landlord shall cooperate with Tenant, without cost to
Landlord, to recover compensation for damage to or taking of any Alterations,
Tenant Improvements, or for Tenant's moving costs. Tenant hereby waives the
provisions of California Code of Civil Procedures Section 1265.130 and any other
similarly enacted statue, and the provisions of this Section 16 shall govern in
the case of such taking.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">17. Assignment or Sublease: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Consent by Landlord: </B>Except as
specifically provided in this Section 17.E, Tenant may not assign, sublet,
hypothecate, or allow a third party to use the Premises without the express
written consent of Landlord which shall not be unreasonably withheld,
conditioned or delayed. Except in connection with a Permitted Transfer, in the
event Tenant desires to assign this Lease or any interest herein including,
without limitation, a pledge, mortgage or other hypothecation, or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years if available, (iii) the nature of the proposed
transferee's business to be carried on in the Premises, (iv) a statement
outlining all consideration to be given on account of the Transfer, and (v) a
current financial statement of Tenant. Landlord may condition its approval of
any Transfer to a certification from both Tenant and the proposed transferee of
all consideration to be paid to Tenant in connection with such Transfer. At
Landlord's request, Tenant shall also provide additional information reasonably
required by Landlord to determine whether it will consent to the proposed
assignment or sublease. Landlord shall have a fifteen business (15) day period
following receipt of all the foregoing within which to notify Tenant in writing
that Landlord elects to: (i) terminate this Lease in the event of an assignment
only; (ii) permit Tenant to assign or sublet such space to the named
assignee/subtenant on the terms and conditions set forth in the notice; or (iii)
refuse consent. If Landlord should fail to notify Tenant in writing of such
election within the 15-day period, Landlord shall be deemed to have elected
option (ii) above. In the event Landlord elects option (i) above, this Lease
shall expire with respect to such part of the Premises on the date upon which
the proposed sublease was to commence, and from such date forward, Base Monthly
Rent and Tenant's Allocable Share of all other costs and charges shall be
adjusted based upon the proportion that the rentable area of the Premises
remaining bears to the total rentable area of the Premises. In the event
Landlord elects option (ii) above, Landlord's written consent to the proposed
assignment or sublease shall not be unreasonably withheld, provided and upon the
condition that: (i) the proposed assignee or subtenant is engaged in a business
that is limited to the use expressly permitted under this Lease; (ii) the
proposed assignee or subtenant is a company with sufficient financial worth and
management ability to undertake the financial obligation of this Lease and
Landlord has been furnished with reasonable proof thereof; (iii) the proposed
assignment or sublease is in form reasonably satisfactory to Landlord; (iv)
Tenant reimburses Landlord on demand for any reasonable costs that may be
incurred by Landlord in connection with said assignment or sublease, including
the costs of making investigations as to the acceptability of the proposed
assignee or subtenant and legal costs incurred in connection with the granting
of any requested consent; and (vi) Tenant shall not have advertised or
publicized in any way the availability of the Premises without prior notice to
Landlord. In the event all or any one of the foregoing conditions are not
satisfied, Landlord shall be considered to have acted reasonably if it withholds
its consent.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Assignment or Subletting Consideration:
</B>Any rent or other economic consideration realized by Tenant under any
sublease and assignment, in excess of the rent payable hereunder after deducting
(i) reasonable subletting and assignment costs (ii) the Monthly Amortized Cost
(defined below) of the Tenant Improvements paid by Tenant, and (iii) any
economic consideration received by Tenant for services rendered or personal
property sold or leased, shall be divided and paid fifty percent (50%) to
Landlord and fifty percent (50%) to Tenant. Monthly Amortized Cost shall be
determined by taking sum paid by Tenant for the Tenant Improvements installed in
the Building and dividing this sum by one hundred forty four (144) months.
Tenant's obligation to pay over Landlord's portion of the consideration
constitutes an obligation for additional rent hereunder. The above provisions
relating to Landlord's right to terminate the Lease and relating to the
allocation of bonus rent are independently negotiated terms of the Lease which
constitute a material inducement for the Landlord to enter into the Lease, and
are agreed by the parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting except in connection with a Permitted Transfer which
conflicts with the provisions hereof shall be void.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. No Release: </B>Any assignment or sublease
except in connection with a Permitted Transfer shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant.
Tenant shall indemnify, defend and hold Landlord harmless from and against all
losses, liabilities, damages, costs and expenses (including reasonable attorney
fees) resulting from any claims that may be made against Landlord by the
proposed assignee or subtenant or by any real estate brokers or other persons
claiming compensation in connection with the proposed assignment or sublease,
unless caused by Landlord's breach of this Lease. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Reorganization of Tenant: </B>The provisions
of this Section 17.D shall apply if Tenant is a corporation and: (i) there is a
dissolution, merger, consolidation, or other reorganization of or affecting
Tenant, where Tenant is not the surviving corporation, or (ii) there is a sale
or transfer to one person or entity (or to any group of related persons or
entities) of stock possessing more than 50% of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding and entitled to
vote for the election of directors, and after such sale or transfer of stock
Tenant's stock is no longer publicly traded. In a transaction under clause (i)
the surviving corporation shall promptly execute and deliver to Landlord an
agreement in form reasonably satisfactory to Landlord under which such
corporation assumes the obligations of Tenant hereunder, and in a transaction
under clause (ii) the transferee shall promptly execute and deliver to Landlord
an agreement in form reasonably satisfactory to Landlord under which such
transferee assumes the obligations of Tenant to the extent accruing after such
transferee's acquisition of Tenant's stock possessing more than 50% of the total
combined voting of all classes of Tenant's capital stock issued, outstanding and
entitled to vote for the election of directors.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Permitted Transfers: </B>Notwithstanding
anything contained in this Section 17, Tenant may enter into any of the
following transfers (a "Permitted Transfer") without Landlord's prior
consent, and Landlord shall not be entitled to terminate the Lease or to receive
any part of any subrent resulting therefrom that would otherwise be due pursuant
to Sections 17.A and 17.B. Tenant may sublease all or part of the Premises or
assign its interest in this Lease to (i) any person or entity which controls, is
controlled by, or is under common control with the original Tenant to this Lease
by means of an ownership interest of more than 50%; (ii) any person or entity
which results from a merger, consolidation or other reorganization in which
Tenant is not the survivor, so long as the survivor has a net worth at the time
of such transfer sufficient to enable it to meet its obligations under this
Lease; and (iii) any person or entity which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring person or
entity has a net worth at the time of such transfer that is sufficient at the
time of such transfer to enable it to meet its obligations under this Lease.
</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> F. Effect of Default: </B>In the event of Tenant's
default, Tenant hereby assigns all rents due from any assignment or subletting
to Landlord as security for performance of its obligations under this Lease, and
Landlord may collect such rents as Tenant's Attorney-in-Fact, except that Tenant
may collect such rents unless a default occurs as described in Section 13 above.
A Lease termination due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Conveyance by Landlord: </B> As used in this
Lease, the term "Landlord" is defined only as the owner for the time
being of the Premises, so that in the event of any sale or other conveyance of
the Premises or in the event of a master lease of the Premises, Landlord shall
be entirely freed and relieved of all its covenants and obligations hereunder,
and it shall be deemed and construed, without further agreement between the
parties and the purchaser at any such sale or the master tenant of the Premises,
that the purchaser or master tenant of the Premises has assumed and agreed to
carry out any and all covenants and obligations of Landlord hereunder. Such
transferor shall transfer and deliver Tenant's security deposit to the purchaser
at any such sale or the master tenant of the Premises, and thereupon the
transferor shall be discharged from any further liability in reference
thereto.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Successors and Assigns: </B> Subject to the
provisions this Section 17, the covenants and conditions of this Lease shall
apply to and bind the heirs, successors, executors, administrators and assigns
of all parties hereto; and all parties hereto shall be jointly and severally
liable hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">18.</B> <B>Option to Extend the Lease Term:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Grant and Exercise of Option: </B>Landlord
grants to Tenant, subject to the terms and conditions set forth in this Section
18.A, two (2) options (the "Options") to extend the Lease Term for an
additional term (the "Option Term"). Each Option Term shall be for a
period of sixty (60) months and shall be exercised, if at all, by written notice
to Landlord no earlier than eighteen (18) months prior to the date the Lease
Term would expire but for such exercise but no later than twelve (12) months
prior to the date the Lease Term would expire but for such exercise, time being
of the essence for the giving of such notice. If Tenant exercises the first
Option or both of the Options, all of the terms, covenants and conditions of
this Lease except this Section shall apply during the Option Term as though the
expiration date of the Option Term was the date originally set forth herein as
the Expiration Date, provided that Base Monthly Rent for the Premises payable by
Tenant during the Option Term shall be the greater of (i) the average amount of
Base Monthly Rent paid during the initial Lease Term, and (ii) ninety five
percent (95%) of the Fair Market Rental as hereinafter defined. Notwithstanding
anything herein to the contrary, if Tenant is in monetary or material non-
monetary default after expiration of any applicable cure period under any of the
terms, covenants or conditions of this Lease either at the time Tenant exercises
the Option or at any time thereafter prior to the commencement date of the
Option Term, Landlord shall have, in addition to all of Landlord's other rights
and remedies provided in this Lease, the right to terminate the Option upon
notice to Tenant, in which event the expiration date of this Lease shall be and
remain the Expiration Date. As used herein, the term "Fair Market
Rental" is defined as the rental and all other monetary payments, including
any escalations and adjustments thereto (including without limitation Consumer
Price Indexing) that Landlord could obtain during the Option Term from a third
party desiring to lease the Premises, based upon the current use and other
potential uses of the Premises, as determined by the rents then being obtained
for new leases of space comparable in age and quality to the Premises in the
locality of the Building. The appraisers shall be instructed that the foregoing
five percent (5%) discount is intended to reduce comparable rents which include
(i) brokerage commissions, (ii) tenant improvement allowances, and (iii) vacancy
costs, to account for the fact that Landlord will not suffer such costs in the
event Tenant exercises its Option.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Determination of Fair Market Rental: </B>If
Tenant exercises the Option, Landlord shall send Tenant a notice setting forth
the Fair Market Rental for the Option Term within thirty (30) days following the
Exercise Date. If Tenant disputes Landlord's determination of Fair Market
Rental for the Option Term, Tenant shall, within thirty (30) days after the date
of Landlord's notice setting forth Fair Market Rental for the Option Term, send
to Landlord a notice stating that Tenant either elects to terminate its exercise
of the Option, in which event the Option shall lapse and this Lease shall
terminate on the Expiration Date, or that Tenant disagrees with Landlord's
determination of Fair Market Rental for the Option Term and elects to resolve
the disagreement as provided in Section 18.C below. If Tenant elects to resolve
the disagreement as provided in Section 18.C and such procedures are not
concluded prior to the commencement date of the Option Term, Tenant shall pay to
Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord
in the manner provided above. If the Fair Market Rental as finally determined
pursuant to Section 18.C is greater than Landlord's determination, Tenant shall
pay Landlord the difference between the amount paid by Tenant and the Fair
Market Rental as so determined in Section 18.C within thirty (30) days after
such determination. If the Fair Market Rental as finally determined in Section
18.C is less than Landlord's determination, the difference between the amount
paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall
be credited against the next installments of rent due from Tenant to Landlord
hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Resolution of a Disagreement over the Fair
Market Rental: </B>Any disagreement regarding Fair Market Rental shall be
resolved as follows:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 1. Within thirty (30) days after Tenant's response
to Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant
shall meet at least two (2) times at a mutually agreeable time and place, in an
attempt to resolve the disagreement.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 2. If within the 30-day period referred to above,
Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party
shall select one appraiser to determine Fair Market Rental. Each such appraiser
shall arrive at a determination of Fair Market Rental and submit their
conclusions to Landlord and Tenant within thirty (30) days after the expiration
of the 30-day consultation period described above.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 3. If only one appraisal is submitted within the
requisite time period, it shall be deemed as Fair Market Rental. If both
appraisals are submitted within such time period and the two appraisals so
submitted differ by less than ten percent (10%), the average of the two shall be
deemed as Fair Market Rental. If the two appraisals differ by more than 10%,
the appraisers shall immediately select a third appraiser who shall, within
thirty (30) days after his selection, make and submit to Landlord and Tenant a
determination of Fair Market Rental. This third appraisal will then be averaged
with the closer of the two previous appraisals and the result shall be Fair
Market Rental.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 4. All appraisers specified pursuant to this
Section shall be members of the American Institute of Real Estate Appraisers
with not less than ten (10) years experience appraising office and industrial
properties in the Santa Clara Valley. Each party shall pay the cost of the
appraiser selected by such party and one-half of the cost of the third
appraiser.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Personal to Tenant: </B> All Options provided
to Tenant in this Lease are personal and granted to Siebel Systems, Inc. and any
Permitted Transferee and are not exercisable by any third party should Tenant
assign or sublet all or a portion of its rights under this Lease, unless
Landlord consents to permit exercise of any option by any assignee or subtenant,
in Landlord's sole and absolute discretion. In the event Tenant has multiple
options to extend this Lease, a later option to extend the Lease cannot be
exercised unless the prior option has been so exercised.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Extension Right in the Event the Building 3 Option
is Not Exercised: </B>In the event that the Building 3 Option is not exercised,
Tenant shall have the right to extend the initial term of this Lease to be co-
terminus with the Building 1 Lease. The exercise of such option shall not
affect Tenant's option to extend the Lease under Section 18.A above. Base
Monthly Rent during such extended term shall be equal to the Base Monthly Rent
payable immediately prior to such extension subject to adjustment pursuant to
Section 4.B.ii.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">19.</B> <B>Option to Lease:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Grant and Exercise of Option: </B>Landlord
grants to Tenant an option to lease Building 3 ("Expansion Option").
As a part of the construction of the Building 3 Landlord shall also complete the
final three (3) levels of the above-grade parking structure within the Common
Area so as to maintain a parking ratio of 3.45 spaces per 1,000 square feet.. In
order to exercise the Expansion Option, Tenant shall give Landlord written
notice no later than twelve (12) months following the Lease Commencement Date
for Building 1, which commencement date is currently estimated at August 1, 2001
("Option Expiration Date"). Tenant shall not be required to make any
option payments prior to the Lease Commencement Date for Building 1, thereafter
Tenant shall pay Landlord concurrently with and in addition to the Base Monthly
Rent, the sum of Fifty Thousand and No/100 Dollars ($50,000.00) each month to
preserve the Expansion Option. If Tenant fails to (i) exercise the Expansion
Option by the Option Expiration Date, or (ii) make any option payment required
hereunder, the Expansion Option shall terminate and Landlord shall be free any
time thereafter to construct Building 3 for a third party, subject only to
Tenant's right of first offering provided in 19.C below. In the event Tenant
exercises this Expansion Option, the Parties shall enter into a written lease
agreement with a lease term of (12) twelve years on substantially the same terms
and conditions of this Lease except as provided in Section 19.B below. Further,
in the event that Tenant leases Building 3, this Lease and the lease for
Building 1 shall be extended so as to be coterminous with the lease for Building
3. Base Monthly Rent under this Lease during such an extended term shall be
equal to the Base Monthly Rent payable immediately preceding the extended term,
subject to continued adjustment pursuant to Section 4.B of this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Lease Commencement and Base Monthly Rent:
</B>The Lease Commencement Date for the Building 3 shall occur upon completion
of the Building Shell for Building 3, parking structure and Tenant Improvements
for Building 3 estimated to occur eighteen (18) months following Tenant's
exercise of this option. The initial Base Monthly Rent shall be equal to the
sum of Four Hundred Twelve Thousand Seven Hundred Thirty Two and 32/00 Dollars
($412,732.32) [$2.464 per square foot], subject to increase as follows.
Immediately following Tenant's exercise Landlord shall seek a permanent loan
commitment to construct Building 3. If that at the time the loan commitment is
obtained for Building 3, the interest rate exceeds seven and 25/100 percent
(7.25%) on the best available non-recourse 25-year amortizing loan, then the
initial Base Monthly Rent for Building 3 shall be increased by Five Thousand
Eight Hundred Sixty Dollars ($5,860.00) [$.035 per square foot ] for every one
quarter percent increase in the interest rate above seven and 25/100 percent
(7.25%). For example, if the best obtainable interest rate was eight and No/100
percent (8.00%), then the initial Base Monthly Rent would be $430,312.32 [(3 x
$5,860) + $412,732.32] </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Right of First Offering to Lease: </B> Beginning
on the date that the Expansion Option lapses or terminates and terminating
twelve (12) months thereafter ("First Offering Period"), Landlord
hereby grants Tenant a right of first offering to lease Building 3. Prior to
Landlord offering to lease Building 3 to a third party during the First Offering
Period, Landlord shall give Tenant written notice of such desire and the terms
and other information under which Landlord intends to lease Building 3.
Provided at the time of exercise, Tenant is not in default beyond the expiration
of any applicable cure period, Tenant shall have the option, which must be
exercised, if at all, by written notice to Landlord within ten (10) days after
Tenant's receipt of Landlord's notice, to lease Building 3 at the rent and terms
of lease specified in the notice. In the event Tenant timely exercises such
option to lease Building 3, Tenant shall lease Building 3 from Landlord in
accordance with the rent and terms specified in Landlord's notice. To the
extent not specified in Landlord's notice, the terms of lease shall be otherwise
consistent with this Lease. In the event Tenant fails to exercise Tenant's
option within said ten (10) day period, Landlord shall have one hundred eighty
(180) days thereafter to lease Building 3 at no less than ninety five percent
(95%) of the rental rate and upon the terms of lease no more favorable than
those specified in the notice to Tenant. In the event Landlord fails to lease
Building 3 within said one hundred eighty (180) day period or in the event
Landlord proposes to lease Building 3 at less than ninety five percent (95%) of
the rental rate or on other material terms which are more favorable to the
prospective tenant than those proposed to Tenant, Landlord shall be required to
resubmit such offer to Tenant in accordance with this Right of First Offering,
provided further that such resubmittal would occur during the First Offering
Period. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Exclusions:</B> Notwithstanding the
foregoing, this Expansion Option shall automatically terminate, (i) upon the
expiration or sooner termination of the Lease, or (ii) in the event of a
foreclosure or other involuntary transfer of Landlord's interest in the
Building.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">20. Right Of First Offering To Purchase: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Grant and Exercise of Option: </B>In the
event either or both Master Landlord and Landlord elect to sell their respective
interests in the Building, Master Landlord and Landlord hereby grants Tenant a
right of first offering to purchase their respective interests in the Building
(Master Landlord and Landlord are individually and collectively referred to in
this Section as "Seller"). Prior to Seller offering to sell its
interest in the Building to a third party, Seller shall give Tenant written
notice of such desire and the terms and other information under which Seller
intends to sell the Building. Provided at the time of exercise, Tenant is not
in default beyond the expiration of any applicable cure period, Tenant shall
have the option, which must be exercised, if at all, by written notice to Seller
within thirty (30) days after Tenant's receipt of Seller's notice, to purchase
its interest in the Building at the sales price and terms of sale specified in
the notice. In the event Tenant timely exercises such option to purchase its
interest in the Building, Seller shall sell its interest in the Building to
Tenant, and Tenant shall purchase its interest in the Building from Seller in
accordance with the price and terms specified in Seller's notice. Seller and
Tenant shall, in good faith, attempt to reach agreement on the terms of a
mutually acceptable purchase agreement consistent with the terms set forth in
Seller's notice within thirty (30) days of Seller's notice. In the event (i)
Seller and Tenant are unable to reach agreement on a mutually acceptable
purchase agreement within such thirty (30) day period or (ii) Tenant fails to
exercise Tenant's option within said thirty (30) day period, Seller shall have
one hundred eighty (180) days thereafter to sell its interest in the Building at
no less than ninety five percent (95%) of the sales price and upon the same or
substantially the same other terms of sale as specified in the notice to Tenant.
In the event Seller fails to sell its interest in the Building within said one
hundred eighty (180) day period or in the event Seller proposes to sell its
interest in the Building at less than ninety five percent (95%) of the sales
price or on other material terms which are more favorable to the prospective
buyer than that proposed to Tenant, Seller shall be required to resubmit such
offer to Tenant in accordance with this Right of First Offering except that
Tenant shall be required to respond to any resubmission within a seven (7) day
period.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Exclusions:</B> This Right of First
Offering shall automatically terminate, (i) upon the expiration or sooner
termination of the Lease, or (ii) in the event of a foreclosure or other
involuntary transfer of Landlord's interest in the Building. Notwithstanding
the forgoing, this Right of First Offering shall not apply to transfers (but
shall survive such transfers ) of all or a portion of the Building or Project to
(i) John A. Sobrato and/or John M. Sobrato (individually and collectively
"Sobrato"), and (ii) any immediate family member of Sobrato, and (iii)
any trust established, in whole or in art, for the benefit of Sobrato and/or any
immediate family member of Sobrato, (iv) any partnership in which Sobrato or any
immediate family member, either directly or indirectly (e.g., through a
partnership or corporate entity or a trust) retains a general partner interest,
and/or (v) any corporation under the control, either directly or indirectly, by
Sobrato or any immediate family member of Sobrato.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">21. General Provisions:</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Attorney's Fees:</B> In the event a suit or
alternative form of dispute resolution is brought for the possession of the
Premises, for the recovery of any sum due hereunder, to interpret the Lease, or
because of the breach of any other covenant herein; then the losing party shall
pay to the prevailing party reasonable attorney's fees including the expense of
expert witnesses, depositions and court testimony as part of its costs which
shall be deemed to have accrued on the commencement of such action. The
prevailing party shall also be entitled to recover all costs and expenses
including reasonable attorney's fees incurred in enforcing any judgment or award
against the other party. The foregoing provision relating to post-judgment
costs is severable from all other provisions of this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Authority of Parties: </B>Tenant represents
and warrants that it is duly formed and in good standing, and is duly authorized
to execute and deliver this Lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of said corporation or
in accordance with the by-laws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms. At Landlord's
request, Tenant shall provide Landlord with corporate resolutions or other proof
in a form acceptable to Landlord, authorizing the execution of the Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Brokers: </B> Tenant represents it has not
utilized or contacted a real estate broker or finder with respect to this Lease
other than Chris Allen, d/b/a Resource Real Estate Group, which fee shall be
payable by Landlord pursuant to a written agreement and the Parties agree to
indemnify, defend and hold each other harmless against any claim, cost,
liability or cause of action asserted by any other broker or finder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Choice of Law: </B>This Lease shall be
governed by and construed in accordance with California law. Except as
provided in Section 21.E, venue shall be Santa Clara County.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Dispute Resolution: </B>Landlord and Tenant and
any other party that may become a party to this Lease or be deemed a party to
this Lease including any subtenants agree that, except for any claim by Landlord
for unlawful detainer or any claim within the jurisdiction of the small claims
court (which small claims court shall be the sole court of competent
jurisdiction), any controversy, dispute, or claim of whatever nature arising out
of, in connection with or in relation to the interpretation, performance or
breach of this Lease, including any claim based on contract, tort, or statute,
shall be resolved at the request of any party to this agreement through a two-
step dispute resolution process administered by J.A.M.S. or another judicial
mediation service mutually acceptable to the parties located in Santa Clara
County, California. The dispute resolution process shall involve first,
mediation, followed, if necessary, by final and binding arbitration administered
by and in accordance with the then existing rules and practices of J.A.M.S. or
other judicial mediation service selected. In the event of any dispute subject
to this provision, either party may initiate a request for mediation and the
parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and
commence the mediation. In the event the parties are not able to agree on a
mediator within thirty (30) days, J. A. M. S. or another judicial mediation
service mutually acceptable to the parties shall appoint a mediator. The
mediation shall be confidential and in accordance with California Evidence Code
1119 et. seq. The mediation shall be held in Santa Clara County, California
and in accordance with the existing rules and practice of J. A. M. S. (or other
judicial and mediation service selected). The parties shall use reasonable
efforts to conclude the mediation within sixty (60) days of the date of either
party's request for mediation. The mediation shall be held prior to any
arbitration or court action (other than a claim by Landlord for unlawful
detainer or any claim within the jurisdiction of the small claims court which
are not subject to this mediation/arbitration provision and may be filed
directly with a court of competent jurisdiction). Should the prevailing party in
any dispute subject to this Section 19.E attempt an arbitration or a court
action before attempting to mediate, the prevailing party shall not be entitled
to attorney's fees that might otherwise be available to them in a court action
or arbitration and in addition thereto, the party who is determined by the
arbitrator to have resisted mediation, shall be sanctioned by the arbitrator or
judge.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">If a mediation is conducted but is unsuccessful, it shall be
followed by final and binding arbitration administered by and in accordance with
the then existing rules and practices of J.A.M.S. or the other judicial and
mediation service selected, and judgment upon any award rendered by the
arbitrator(s) may be entered by any state or federal court having jurisdiction
thereof AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ,
AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR
SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT in no event shall
the parties be entitled to propound interrogatories or request for admissions
during the arbitration process. The arbitrator shall be a retired judge or a
licensed California attorney. The venue for any such arbitration or mediation
shall be in Santa Clara County, California.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND
ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE
DISPUTE LITIGATED IN A COURT OR fURY TRIAL. BY INITIALING IN THE SPACE BELOW
YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE
RIGHTS ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION
IS VOLUNTARY.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION
OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">LANDLORD: ______ TENANT: _______</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> F. Entire Agreement: </B>This Lease and the
exhibits attached hereto contains all of the agreements and conditions made
between the parties hereto and may not be modified orally or in any other manner
other than by written agreement signed by all parties hereto or their respective
successors in interest. This Lease supersedes and revokes all previous
negotiations, letters of intent, lease proposals, brochures, agreements,
representations, promises, warranties, and understandings, whether oral or in
writing, between the parties or their respective representatives or any other
person purporting to represent Landlord or Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Entry by Landlord: </B> Upon prior notice to
Tenant and subject to Tenant's reasonable security regulations, Tenant shall
permit Landlord and his agents to enter into and upon the Premises at all
reasonable times, and without any rent abatement or reduction or any liability
to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby
occasioned, unless caused by Landlord's negligence or willful misconduct, for
the following purposes: (i) inspecting and maintaining the Premises; (ii)
making repairs, alterations or additions (only if agreed by Tenant) to the
Premises; (iii) erecting additional building(s) and improvements on the land
where the Premises are situated or on adjacent land owned by Landlord; and (iv)
performing any obligations of Landlord under the Lease including remediation of
hazardous materials if determined to be the responsibility of Landlord provided
that Landlord agrees to use reasonable efforts to minimize interference with
Tenant's use. Tenant shall permit Landlord and his agents, at any time within
one hundred eighty (180) days prior to the Expiration Date (or at any time
during the Lease if Tenant is in default hereunder), to place upon the Premises
"For Lease" signs and exhibit the Premises to real estate brokers and
prospective tenants at reasonable hours.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> H. Estoppel Certificates: </B> At any time during
the Lease Term, each party (the "Responding Party") shall, within ten
(10) days following written notice from the other party (the "Requesting
Party"), execute and deliver to the Requesting Party a written statement
certifying, if true, the following: (i) that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification); (ii) the date to which rent and other charges are paid in
advance, if any; (iii) acknowledging that there are not, to Responding Party's
knowledge, any uncured defaults on Requesting Party's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Requesting Party may reasonably request. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of
Requesting Party's interest in the Premises. The Responding Party's failure to
deliver such statement within such time shall be conclusive upon the Responding
Party that this Lease is in full force and effect without modification, except
as may be represented by the Requesting Party, and that there are no uncured
defaults in Requesting Party's performance. Tenant agrees to provide, within
five (5) days of Landlord's request, Tenant's most recent three (3) years of
audited financial statements for Landlord's use in financing the Premises or
Landlord's interest therein.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> I. Exhibits: </B>All exhibits referred to are
attached to this Lease and incorporated by reference.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> J. Interest: </B>All rent due hereunder, if not
paid when due, shall bear interest at the rate of the Reference Rate published
by Bank of America, San Francisco Branch, plus two percent (2%) per annum from
that date until paid in full ("Agreed Interest Rate"). This provision
shall survive the expiration or sooner termination of the Lease. Despite any
other provision of this Lease, the total liability for interest payments shall
not exceed the limits, if any, imposed by the usury laws of the State of
California. Any interest paid in excess of those limits shall be refunded to
Tenant by application of the amount of excess interest paid against any sums
outstanding in any order that Landlord requires. If the amount of excess
interest paid exceeds the sums outstanding, the portion exceeding those sums
shall be refunded in cash to Tenant by Landlord. To ascertain whether any
interest payable exceeds the limits imposed, any non-principal payment(including
late charges) shall be considered to the extent permitted by law to be an
expense or a fee, premium, or penalty rather than interest.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>K. Modifications Required by Lender: </B>If any
Lender of Landlord or ground lessor of the Real Property Requires a modification
of this Lease that will not increase Tenant's cost or expense or materially or
adversely change Tenant's rights and obligations, this Lease shall be so
modified and Tenant shall execute whatever documents are required and deliver
them to Landlord within ten (10) days after the request.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>L. No Presumption Against Drafter: </B>Landlord
and Tenant understand, agree and acknowledge that this Lease has been freely
negotiated by both parties; and that in any controversy, dispute, or contest
over the meaning, interpretation, validity, or enforceability of this Lease or
any of its terms or conditions, there shall be no inference, presumption, or
conclusion drawn whatsoever against either party by virtue of that party having
drafted this Lease or any portion thereof.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> M. Notices: </B> All notices, demands, requests,
or consents required to be given under this Lease shall be sent in writing by
U.S. certified mail, return receipt requested, or by personal delivery or by a
nationally recognized overnight courier addressed to the party to be notified at
the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party.<B> </B>When this
Lease requires service of a notice, that notice shall replace rather than
supplement any equivalent or similar statutory notice, including any notices
required by Code of Civil Procedure Section 1161 or any similar or successor
statute. when a statute requires service of a notice in a particular manner,
service of that notice (or a similar notice required by this lease) shall
replace and satisfy the statutory service-of-notice procedures, including those
required by Code of Civil Procedure Section 1162 or any similar or successor
statute.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> N. Property Management:</B> No property
management fee shall be payable to Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> O. Rent: </B>All monetary sums due from Tenant
to Landlord under this Lease, including, without limitation those referred to as
"additional rent", shall be deemed as rent.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> P. Representations: </B>Tenant acknowledges that
neither Landlord nor any of its employees or agents have made any agreements,
representations, warranties or promises with respect to the Premises or with
respect to present or future rents, expenses, operations, tenancies or any other
matter. Except as herein expressly set forth herein, Tenant relied on no
statement of Landlord or its employees or agents for that purpose.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> Q. Rights and Remedies: </B>All rights and
remedies hereunder are cumulative and not alternative to the extent permitted by
law, and are in addition to all other rights and remedies in law and in
equity.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> R. Severability: </B>If any term or provision of
this Lease is held unenforceable or invalid by a court of competent
jurisdiction, the remainder of the Lease shall not be invalidated thereby but
shall be enforceable in accordance with its terms, omitting the invalid or
unenforceable term.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>S. Submission of Lease:</B> Submission of this
document for examination or signature by the parties does not constitute an
option or offer to lease the Premises on the terms in this document or a
reservation of the Premises in favor of Tenant. This document is not effective
as a lease or otherwise until executed and delivered by both Landlord and
Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> T. Subordination: </B> This Lease is subject and
subordinate to ground and underlying leases, mortgages and deeds of trust
(collectively "Encumbrances") which may now affect the Premises, to
any covenants, conditions or restrictions of record, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
however, if the holder or holders of any such Encumbrance ("Holder")
require that this Lease be prior and superior thereto, within seven (7) days
after written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver all documents or instruments, in the form presented to
Tenant, which Landlord or Holder deems necessary or desirable for such purposes.
Landlord shall have the right to cause this Lease to be and become and remain
subject and subordinate to any and all Encumbrances which are now or may
hereafter be executed covering the Premises or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default beyond the expiration of any applicable
cure period and continues to pay Base Monthly Rent and additional rent and
observes and performs all required provisions of this Lease. Within ten (10)
days after Landlord's written request, Tenant shall execute any documents
required by Landlord or the Holder to make this Lease subordinate to any lien of
the Encumbrance. If Tenant fails to do so, then in addition to such failure
constituting a default by Tenant, it shall be deemed that this Lease is so
subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> This Lease constitutes a sublease under that certain
Ground Lease dated March 5, 1999 (the "Existing Ground Lease") between The
Sobrato 1979 Revocable Trust, As Amended ("Master Landlord"), as landlord and
Landlord, as tenant, covering all of the real property within the Project, a
copy which has been provided to Tenant, and under the Parcel Lease described in
the next sentence. In connection with the subdivision of the Project as
contemplated by Section 2.C above, it is anticipated that a separate Parcel
Lease (as defined in the Existing Ground Lease) will be entered into between
Master Landlord, as landlord, and Landlord, as tenant, for the lot within which
the Building will be constructed. As used in this Lease, "Master Lease" shall
mean the Existing Ground Lease, until such time as the Parcel Lease is entered
into, and thereafter shall mean the Parcel Lease. Notwithstanding this Section
21.T above, concurrently with the execution of this Lease by Landlord and
Tenant, Landlord and Tenant shall execute in recordable form, and Landlord shall
cause Master Landlord to execute in recordable form, the Subordination,
Nondisturbance and Attornment Agreement attached hereto as Exhibit "G" (the
"SNDA"). Landlord shall cause the SNDA to be recorded at Landlord's cost in the
Official Records of San Mateo County, California within five (5) days after this
Lease is executed by Landlord and Tenant. Similarly, in connection with the
Parcel Lease, within ten (10) days after Landlord's request, Landlord and Tenant
shall execute in recordable form, and Landlord shall cause Master Landlord to
execute in recordable form, a Subordination, Nondisturbance and Attornment
Agreement substantially in the form of the SNDA (the "Revised SNDA"), modified
to refer to the Parcel Lease, Memorandum of Parcel Lease to be recorded in
connection with the Parcel Lease and the revised Premises description, rather
than the Original Ground Lease, the Memorandum of Ground Lease referenced in the
SNDA and the original Premises described in this Lease. Landlord shall cause
the Revised SNDA to be recorded at Landlord's cost in the Official Records of
San Mateo County, California immediately after recordation of the Memorandum of
Lease recorded for the Parcel Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Notwithstanding the foregoing, Tenant shall not be
required to subordinate its interest under this Lease unless (i) such
subordination' does not materially increase Tenant's obligations, or materially
decrease its rights under this Lease, and (ii) Landlord first obtains from the
holder of the mortgage, deed of trust, or other instrument of security to which
this Lease is to become subordinated a written agreement that provides
substantially that as long as Tenant performs its obligations under this Lease,
no foreclosure of, deed given in lieu of foreclosure of, or sale under the
encumbrance, and no steps or procedures taken under the encumbrance, shall
affect Tenant's rights hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>U. Survival of Indemnities: </B>All
indemnification, defense, and hold harmless obligations of Landlord and Tenant
under this Lease shall survive the expiration or sooner termination of the
Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> V. Time: </B>Time is of the essence
hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> W.</B> <B>Transportation Demand Management
Programs: </B>Should a government agency or municipality require Landlord to
institute TDM (Transportation Demand Management) facilities and/or program,
Tenant agrees that the cost of TDM imposed facilities required on the Premises,
including but not limited to employee showers, lockers, cafeteria, or lunchroom
facilities, shall be paid by Tenant. Further, any ongoing costs or expenses
associated with a TDM program which are required for the Premises and not
provided by Tenant, such as an on-site TDM coordinator, shall be provided by
Landlord with such reasonable costs being included as additional rent and
reimbursed to Landlord by Tenant within thirty (30) days after demand. If TDM
facilities and programs are instituted on a Project wide basis, Tenant shall pay
its proportionate share of such costs in accordance with Section 8 above.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">IN WITNESS WHEREOF</B>, Landlord and Tenant have executed
this Lease on the day and year first above written. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Landlord: </B>SOBRATO INTERESTS III<B> Tenant:
</B>SIEBEL SYSTEMS, INC.</P>
<P ALIGN="JUSTIFY">a California Limited Partnership a Delaware
Corporation</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">By: _____________________________ By:
_____________________________</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Its: General Partner Its:
_____________________________</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<B><P ALIGN="JUSTIFY">Master Landlord: </B>THE SOBRATO 1979 REVOCABLE TRUST</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">By: _____________________________</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Its: Trustee</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "A" - Building and Project - Initial
Buildout</P>
</B><I><P ALIGN="CENTER">(being finalized by architect - to be attached)</P>
</I><P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Exhibit "B" - Building and Project - Full
Buildout</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "C" - Parcel Map & Declaration of
Covenants and Grant of Easements</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "D" - Shell Plans and Specifications</P>
</B><I><P ALIGN="CENTER">(sheet references to be attached)</P>
</I><P ALIGN="JUSTIFY"></P>
<P ALIGN="CENTER"> </P>
<B><P ALIGN="CENTER">EXHIBIT "E" - Building Shell Definition</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">1. Building Structure</P>
</B><P ALIGN="JUSTIFY"> (a) All foundations to include footings, piling,
grade beams, foundation walls or other building foundation components required
to support the building structure.</P>
<P ALIGN="JUSTIFY"> (b) Concrete slab supported on beams and columns above
the parking podium and any other reinforcing or structural connections that may
be necessary or required as specified by structural engineer.</P>
<P ALIGN="JUSTIFY"> (c) Complete structural framing system comprised of
rolled steel beams, columns, and braced-frame steel construction with corrugated
metal deck and concrete fill, all members required by code to be fireproofed.
Upper floor systems provide a minimum of 3" concrete over metal deck and are
designed for an 80 lb. live load plus 20 lb. partition load. Structural framing
will include intermediate beams for HVAC units at the roof, and for major shafts
on each floor. A roof screen consistent with the design of the building and
acceptable to the local Building and Planning Departments is included.</P>
<P ALIGN="JUSTIFY"> (d) Tinted high performance glass including required
caulking and sealants. Tinted reflective glass window wall system with granite
and stainless steel accents. Two (2) pair of lobby doors, and two (2) exit
doors per building. All shell doors will be fitted with electric locks and
conduit to J-boxes ready for connection to the Tenant's security system.</P>
<P ALIGN="JUSTIFY"> (e) Four (4) ply built up roofing by Owens-Corning,
John Manville, or equal and all flashings over a light weight concrete on
corrugated metal deck roof system. Title 24 code required roof insulation is
included.</P>
<P ALIGN="JUSTIFY"> (f) Exterior painting where required with Texcoat
textural paint and all caulking of exterior concrete joints in preparation for
painting.</P>
<P ALIGN="JUSTIFY"> (g) One (1) steel fire stair at perimeter of building,
and two (2) interior fire stairs which will extent to the roof.</P>
<P ALIGN="JUSTIFY"> (h) At grade loading area with screening and scissors
lift external of building.</P>
<P ALIGN="JUSTIFY"> (i) Riser for Building sprinkler system (no sprinkler
grid or drops).</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">2. Podium Garage Structure</P>
</B><P ALIGN="JUSTIFY"> (a) Podium garage structure with access ramps,
fire sprinkler system, emergency exit stairways, and mechanical venting (if
required).</P>
<P ALIGN="JUSTIFY"> (b) Lighting in podium parking to a minimum level per
code.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">3. Sitework</P>
</B><P ALIGN="JUSTIFY"> (a) All work outside the building perimeter walls
shall be considered site work for the Building Shell and shall include asphalt
concrete paving, landscaping, landscape irrigation, storm drainage, utility
service laterals, curbs, gutters, sidewalks, specialty paving (if required),
retaining walls, planters, trash enclosure, parking lot and landscape lighting
and other exterior lighting per code. All fountains and podium landscaping
shall also be considered site work for the Building Shell.</P>
<P ALIGN="JUSTIFY"> (b) Paving sections for automobile and truck access
shall be according to the Geologic Soils Report.</P>
<P ALIGN="JUSTIFY"> (c) All parking lot striping to include handicap
spaces and signage.</P>
<P ALIGN="JUSTIFY"> (d) Underground site storm drainage system shall be
connected to the city storm system main.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">4. Plumbing</P>
</B><P ALIGN="JUSTIFY"> (a) Underground sanitary sewer lateral connected
to the city sewer main in the street and stubbed to the core of the
building.</P>
<P ALIGN="JUSTIFY"> (b) Domestic water mains connected to the city water
main in the street and stubbed to the building.</P>
<P ALIGN="JUSTIFY"> (c) Roof drain leaders and downspouts piped and
connected to the site storm drainage system.</P>
<P ALIGN="JUSTIFY"> (d) Gas lines connected to the city or public utility
mains and run to gas meters adjacent to, and in close proximity to the building.
Meter supplied by utility company.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">5. Electrical</P>
</B><P ALIGN="JUSTIFY"> (a) A primary and secondary electrical service
from the street to the building electrical room in the garage podium including
underground conduit, wire feeders, and transformer pads. Transformer supplied
by utility company. </P>
<P ALIGN="JUSTIFY"> (b) Two 4" Underground conduit from the street to the
building for telephone trunk lines by Pacific Telephone. </P>
<P ALIGN="JUSTIFY"> (c) Two 4" conduit from the building to each of the
adjacent buildings for future data connections.</P>
<P ALIGN="JUSTIFY"> (d) An electrically operated landscape irrigation
system, with controller, that is a complete and functioning system.</P>
<P ALIGN="JUSTIFY"> (e) Underground conduit from the building to the main
fire protection system post indicated valve (PIV) for installation of
supervisory alarm wiring.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">6. General</P>
</B><P ALIGN="JUSTIFY"> (a) All construction shall conform to State and
Local Building Codes, Title 24 Regulations, and shall be ADA Compliant.</P>
<P ALIGN="JUSTIFY"> (b) All building shell work shall be constructed as
described above and as show on the drawings listed in the attached Exhibit
(TBD).</P>
<P ALIGN="JUSTIFY"> (c) All other costs shall be deemed Tenant
Improvements.</P>
<P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER">EXHIBIT "F" - Tenant Improvement Plans and
Specifications</P>
</B><I><P ALIGN="CENTER">(sheet references to be attached)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
</I><B><P ALIGN="CENTER">EXHIBIT "G" - Subordination, Nondisturbance
and Attornment Agreement</P>
<P ALIGN="CENTER"></P></B></FONT>
</body>
</HTML>
Exhibit 10.09
<HTML>
<head>
<TITLE>Sobrato 2215</TITLE>
</head>
<body bgcolor=white>
<font FACE="Courier New" SIZE="2">
</font>
<B><FONT FACE="Helvetica,Arial" SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
</FONT><FONT FACE="Palatino,Book Antiqua" SIZE=2><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Lease between</P>
<P ALIGN="CENTER">Sobrato Interests III and Siebel Systems, Inc.</P>
<P ALIGN="CENTER">Building 1 - 2215 Bridgepointe Parkway, San Mateo</P>
</B><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<B><P> </P>
<P>Section Page #</P>
</B><P ALIGN="JUSTIFY">Parties </FONT><A HREF="#_Toc445685976">*</A>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Premises </FONT>
<A HREF="#_Toc445685977">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Definitions </FONT>
<A HREF="#_Toc445685978">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Description </FONT>
<A HREF="#_Toc445685979">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Use </FONT>
<A HREF="#_Toc445685980">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Permitted Uses </FONT>
<A HREF="#_Toc445685981">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Uses Prohibited </FONT>
<A HREF="#_Toc445685982">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Advertisements and
Signs </FONT><A HREF="#_Toc445685983">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Covenants, Conditions and
Restrictions </FONT><A HREF="#_Toc445685984">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Term and Rental </FONT>
<A HREF="#_Toc445685985">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Base Monthly Rent </FONT>
<A HREF="#_Toc445685986">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rental Adjustment </FONT>
<A HREF="#_Toc445685987">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Late Charges </FONT>
<A HREF="#_Toc445685988">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Security Deposit </FONT>
<A HREF="#_Toc445685989">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Construction </FONT>
<A HREF="#_Toc445685990">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Building Shell Plans </FONT>
<A HREF="#_Toc445685991">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Plans </FONT><A HREF="#_Toc445685992">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Pricing </FONT><A HREF="#_Toc445685993">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Change Orders </FONT>
<A HREF="#_Toc445685994">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Building Shell Costs </FONT>
<A HREF="#_Toc445685995">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Costs </FONT><A HREF="#_Toc445685996">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Construction </FONT>
<A HREF="#_Toc445685997">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>General Contractor Overhead &
Profit </FONT><A HREF="#_Toc445685998">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Delays </FONT>
<A HREF="#_Toc445685999">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Insurance </FONT>
<A HREF="#_Toc445686000">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Punch List &
Warranty </FONT><A HREF="#_Toc445686001">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Other Work by Tenant </FONT>
<A HREF="#_Toc445686002">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Acceptance of Possession and
Covenants to Surrender </FONT><A HREF="#_Toc445686003">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Delivery and
Acceptance </FONT><A HREF="#_Toc445686004">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Condition Upon
Surrender </FONT><A HREF="#_Toc445686005">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Failure to Surrender </FONT><A
HREF="#_Toc445686006">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Alterations and
Additions </FONT><A HREF="#_Toc445686007">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Alterations </FONT>
<A HREF="#_Toc445686008">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Free From Liens </FONT><A
HREF="#_Toc445686009">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Compliance With Governmental
Regulations </FONT><A HREF="#_Toc445686010">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Maintenance of
Premises </FONT><A HREF="#_Toc445686011">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Obligations </FONT>
<A HREF="#_Toc445686012">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Obligations </FONT>
<A HREF="#_Toc445686013">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord and Tenant's Obligations
Regarding Reimbursable Operating Costs </FONT><A
HREF="#_Toc445686014">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Reimbursable Operating
Costs </FONT><A HREF="#_Toc445686015">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Allocable
Share </FONT><A HREF="#_Toc445686016">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exclusions to Reimbursable
Operating Costs </FONT><A HREF="#_Toc445686017">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Waiver of Liability </FONT>
<A HREF="#_Toc445686018">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Right to
Audit </FONT><A HREF="#_Toc445686019">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Hazard Insurance </FONT>
<A HREF="#_Toc445686020">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Use </FONT>
<A HREF="#_Toc445686021">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Insurance </FONT>
<A HREF="#_Toc445686022">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Insurance </FONT>
<A HREF="#_Toc445686023">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Waiver </FONT>
<A HREF="#_Toc445686024">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Taxes </FONT>
<A HREF="#_Toc445686025">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Utilities </FONT>
<A HREF="#_Toc445686026">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Toxic Waste and Environmental
Damage </FONT><A HREF="#_Toc445686027">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's
Responsibility </FONT><A HREF="#_Toc445686028">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Indemnity Regarding
Hazardous Materials </FONT><A HREF="#_Toc445686029">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Indemnity Regarding
Hazardous Materials </FONT><A HREF="#_Toc445686030">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Actual Release by
Tenant </FONT><A HREF="#_Toc445686031">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Environmental
Monitoring </FONT><A HREF="#_Toc445686032">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Default </FONT>
<A HREF="#_Toc445686033">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Remedies </FONT>
<A HREF="#_Toc445686034">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Right to Re-enter </FONT>
<A HREF="#_Toc445686035">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Abandonment </FONT>
<A HREF="#_Toc445686036">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Termination </FONT>
<A HREF="#_Toc445686037">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Non-Waiver </FONT>
<A HREF="#_Toc445686038">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Performance by
Landlord </FONT><A HREF="#_Toc445686039">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Liability </FONT>
<A HREF="#_Toc445686040">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitation on Landlord's
Liability </FONT><A HREF="#_Toc445686041">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitation on Tenant's
Recourse </FONT><A HREF="#_Toc445686042">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Indemnification of
Landlord </FONT><A HREF="#_Toc445686043">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Destruction of
Premises </FONT><A HREF="#_Toc445686044">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Obligation to
Restore </FONT><A HREF="#_Toc445686045">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitations on Landlord's
Restoration Obligation </FONT><A HREF="#_Toc445686046">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Rights with Respect to a
Destruction of the Premises </FONT><A HREF="#_Toc445686047">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Condemnation </FONT>
<A HREF="#_Toc445686048">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Assignment or Sublease </FONT>
<A HREF="#_Toc445686049">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Consent by Landlord </FONT>
<A HREF="#_Toc445686050">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Assignment or Subletting
Consideration </FONT><A HREF="#_Toc445686051">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Release </FONT>
<A HREF="#_Toc445686052">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Reorganization of
Tenant </FONT><A HREF="#_Toc445686053">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Permitted Transfers </FONT>
<A HREF="#_Toc445686054">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Effect of Default </FONT>
<A HREF="#_Toc445686055">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Effects of Conveyance </FONT>
<A HREF="#_Toc445686056">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Successors and Assigns </FONT>
<A HREF="#_Toc445686057">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Option to Extend the Lease
Term </FONT><A HREF="#_Toc445686058">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc445686059">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Determination of Fair Market
Rental </FONT><A HREF="#_Toc445686060">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Resolution of a Disagreement over
the Fair Market Rental </FONT><A HREF="#_Toc445686061">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Personal to Tenant </FONT>
<A HREF="#_Toc445686062">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Option to Extend the Lease
Term </FONT><A HREF="#_Toc445686063">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc445686064">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Right of First Offering to
Purchase </FONT><A HREF="#_Toc445686065">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc445686066">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exclusions </FONT>
<A HREF="#_Toc445686067">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>General Provisions </FONT>
<A HREF="#_Toc445686068">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Attorney's Fees </FONT>
<A HREF="#_Toc445686069">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Authority of Parties </FONT>
<A HREF="#_Toc445686070">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Brokers </FONT>
<A HREF="#_Toc445686071">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Choice of Law </FONT>
<A HREF="#_Toc445686072">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Dispute Resolution </FONT>
<A HREF="#_Toc445686073">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Entire Agreement </FONT>
<A HREF="#_Toc445686074">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Entry by Landlord </FONT>
<A HREF="#_Toc445686075">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Estoppel Certificates </FONT>
<A HREF="#_Toc445686076">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exhibits </FONT>
<A HREF="#_Toc445686077">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Interest </FONT>
<A HREF="#_Toc445686078">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Modifications Required by
Lender </FONT><A HREF="#_Toc445686079">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Presumption Against
Drafter </FONT><A HREF="#_Toc445686080">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Notices </FONT>
<A HREF="#_Toc445686081">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Property Management </FONT>
<A HREF="#_Toc445686082">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rent </FONT><A
HREF="#_Toc445686083">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Representations </FONT>
<A HREF="#_Toc445686084">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rights and Remedies </FONT>
<A HREF="#_Toc445686085">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Severability </FONT>
<A HREF="#_Toc445686086">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Submission of Lease </FONT>
<A HREF="#_Toc445686087">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Subordination </FONT>
<A HREF="#_Toc445686088">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Survival of
Indemnities </FONT><A HREF="#_Toc445686089">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Time </FONT><A
HREF="#_Toc445686090">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Transportation Demand Management
Programs </FONT><A HREF="#_Toc445686091">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT A - Premises and Project -
Initial Buildout </FONT><A HREF="#_Toc445686092">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT B - Premises and Project -
Full Buildout </FONT><A HREF="#_Toc445686093">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT C - Declaration of
Covenants and Grant of Easements </FONT><A HREF="#_Toc445686094">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT D - Shell Plans and
Specifications </FONT><A HREF="#_Toc445686095">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT E - Building Shell
Definition </FONT><A HREF="#_Toc445686096">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT F - Tenant Improvement
Plans and Specifications </FONT><A HREF="#_Toc445686097">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT G - Subordination,
Nondisturbance and Attornment Agreement </FONT><A
HREF="#_Toc445686098">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P ALIGN="JUSTIFY"></P></P>
<B><P ALIGN="JUSTIFY">1. Parties: </B> <B><I>THIS LEASE,</B></I> is entered
into on this 11th day of March, 1999, ("Effective Date") between
SOBRATO INTERESTS III, a California Limited Partnership, whose address is 10600
North De Anza Boulevard, Suite 200, Cupertino, CA 95014-2075 and SIEBEL
SYSTEMS, INC., a Delaware Corporation, whose address is 1855 South Grant Street,
San Mateo, California, CA 94402-2667, hereinafter called respectively Landlord
and Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">2. Premises: </P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Definitions</B>. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>i. Building</B>. The term
"Building" shall mean that five (5) story steel frame building
containing approximately 141,496 rentable square feet and all Tenant
Improvements installed therein to be constructed by Landlord and leased by
Tenant pursuant to the terms of this Lease in the location labeled as Building 1
on <U>Exhibit "A"</U> attached hereto and commonly known as 2215
Bridgepointe Parkway. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>ii. Building 2</B>. The term
"Building 2" shall mean that five (5) story steel frame building
containing approximately 141,496 rentable square feet to be constructed by
Landlord and leased by Tenant pursuant to a separate lease between the Parties
of even date herewith ("Building 2 Lease") in the location labeled as
Building 2 on <U>Exhibit "A"</U> and commonly known as 2211
Bridgepointe Parkway.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> iii. Building 3</B>. The term
"Building 3" shall mean that five (5) story steel frame building
containing approximately 167,505 rentable square feet to be constructed by
Landlord and leased by Tenant or by a third party pursuant to the terms of
Section 19 of this Lease in the location labeled as Building 3 on <U>Exhibit
"B" </U>and commonly known as 2207 Bridgepointe Parkway. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>iv. Common Area</B>. The term
"Common Area" shall mean that certain real property beneath and
surrounding the Building, Building 2 and Building 3 consisting initially of an
underground parking garage of approximately 455 parking spaces, on-grade parking
lots consisting of approximately 255 parking spaces, the first two levels of the
above grade parking structure consisting of approximately 280 cars, recreation
areas and the adjacent landscaped site areas as shown on <U>Exhibit
"A"</U>. At the time of construction of Building 3 the Common Area
will be modified by the completion of the above grade parking structure to total
approximately 850 parking spaces and changes to portions of the landscaped sites
areas resulting in total parking at full buildout of 1,560 spaces as shown in
<U>Exhibit "B"</U> attached hereto.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Landlord shall have the power to allocate to each tenant in
the Project, the number of parking spaces in the podium garage, above-grade
parking structure or other portions of the Project as to which Tenant may have
the use in connection with its Building; provided that (i) such allocation is
requested by at least one (1) tenant in the Project, (ii) Landlord shall not
allocate to Tenant materially less than the Tenant's prorata share of parking
calculated on the basis of the square footage of the buildings in the Project,
and (iii) Landlord shall allocate parking in a manner so as to maximize the
adjacency of parking to each building. Landlord shall further retain the right
to restrict an appropriate amount of the parking for visitors of the Project or
for car pooling (as may be required by a TDM program). At the request of Tenant
or any other tenant in the Project, Landlord further agrees to restrict up to
ten (10) spaces per building for key employees of Tenant (or of other tenants in
the Project) or for other reasonable uses. Tenant shall be responsible for
seeing that the total number of vehicles parked in the Project by employees and
invitees of Tenant does not exceed the number of total spaces allocated to the
Building.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>v. Project</B>. The term
"Project" shall be that certain real property consisting of
approximately 10.8 acres at the corner of Bridgepointe Circle and Bridgepointe
Parkway in San Mateo, California and all improvements constructed thereon
consisting at full buildout of the Building, Building 2, Building 3 and the
Common Area as shown in <U>Exhibit "B"</U>. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>vi. Premises</B>. The term
"Premises" shall mean the Building and a non-exclusive right to use
the Common Area. Unless expressly provided otherwise, the term Premises as used
herein shall include the Tenant Improvements (defined in Section 5.B)
constructed by Tenant pursuant to Section 5.B.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Grant: </B>Landlord hereby leases the
Premises to Tenant, and Tenant hires the Premises from Landlord. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Recordation of Parcel Map and Declaration:
</B> Tenant consents to recordation by Landlord of a Parcel Map (Parcel
Map") and a Declaration of Covenants, Conditions and Restrictions
("Declaration"). The Parcel Map and the Declaration shall be
substantially in the form attached hereto as <U>Exhibit "C"</U> with
such changes as may be may be desired by Landlord or Landlord's lenders to
facilitate the operation, construction, financing, sale and/or leasing of the
Project, provided such changes do not materially and adversely affect Tenant's
use of the Premises, and with such changes as may be required by the city or
other governmental authority having jurisdiction over the Project. Landlord is
seeking approval of the Parcel Map and Declaration to subdivide the existing
parcel into the four lots to facilitate Landlord's operation, construction,
financing, lease and/or sale of the Project as individual buildings. Landlord's
failure to obtain approval of the Parcel Map or Declaration shall in no way
invalidate this Lease. In the event the Parcel Map and Declaration are recorded
by Landlord, the Section 2.A.vi shall be replaced by following: The term
"Premises" shall mean (i) the land area within Lot 2; (ii) the
Building; and (iii) the nonexclusive right to use the Common Area in accordance
with the terms and conditions of the Declaration and this Lease. This Lease
shall be subject and subordinate in all respects to the Declaration, as the same
may be amended from time to time. Tenant covenants and agrees to refrain from
doing or causing to be done, or permitting any thing or act to be done, which
would constitute a default under the Declaration or which would or might make
Landlord liable for any damages, claims or penalty. All assessments charged to
the Premises pursuant to the Declaration, (other than those assessments which
represent: the costs required to be paid and borne by Landlord under the express
terms of this Lease (such as Landlord's maintenance costs pursuant to Section
8.A; fines, penalties and costs of suit charged by the Association, to the
extent not caused by Tenant's breach of this Lease or violation of the
Declaration; reimbursements to the Association for diminution of the
Association's insurance proceeds, to the extent not caused by Tenant's violation
of the insurance provisions of the Declaration; and assessments levied against
the Premises because of the nonpayment of assessments levied on other lots
within the Project other than the Premises) shall constitute a part of Tenant's
Allocable Share of Reimbursable Operating Costs pursuant to Article 8 of this
Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Following recordation of the Declaration, if owners and
occupants of Building 2 or Building 3 are violating the terms and conditions of
the Declaration and such violation materially and adversely affects Tenant's
rights under this Lease, then within a reasonable time following Tenant's
request, Landlord shall take reasonable steps to enforce the provisions of the
Declaration relating to such violation, in accordance with the procedures
established in the Declaration, the cost of which shall be a Reimbursable
Operating Cost pursuant to Article 8 of this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">3. Use: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Permitted Uses: </B>Tenant shall use the
Premises only for the following purposes and shall not change the use of the
Premises without the prior written consent of Landlord: General office uses
including research and development and other incidental uses (such incidental
uses shall include without limitation, a gymnasium and/or a cafeteria for use of
Tenant's employees). Tenant shall use only the number of parking spaces
allocated to Tenant under this Lease. Following recordation of the Declaration,
if occupants of Building 2 or Building 3 are using parking spaces in excess of
the number of spaces to which they are entitled under the Declaration, then
within a reasonable time following Tenant's request, Landlord shall seek to
enforce the provisions of the Declaration relating to such excessive use, in
accordance with the procedures established in the Declaration, the cost of which
shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease.
Prior to recording the Declaration, Landlord shall cause the Declarants of the
Declaration to confirm in writing for the benefit of Tenant that the signs and
window coverings to be installed pursuant to Section 3.C of this Lease are
approved by the Declarants. Landlord shall promptly send to Tenant all notices
received from the Association pertaining to the Association's entry onto the
Premises and Common Area, insurance coverage affecting the Premises, and
assessments levied against the Premises. All commercial trucks and delivery
vehicles shall be (i) loaded and unloaded in a manner which does not interfere
with the businesses of other occupants of the Project, and (ii) permitted to
remain on the Project only so long as is reasonably necessary to complete the
loading and unloading. Landlord makes no representation or warranty that any
specific use of the Premises desired by Tenant is permitted pursuant to any
Laws.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Uses Prohibited: </B>Tenant shall not commit
or suffer to be committed on the Premises any waste, nuisance, or other act or
thing which may disturb the quiet enjoyment of any other tenant in or around the
Premises, nor allow any sale by auction or any other use of the Premises for an
unlawful purpose. Tenant shall not (i) damage or overload the electrical,
mechanical or plumbing systems of the Premises, (ii) attach, hang or suspend
anything from the ceiling, walls or columns of the building or set any load on
the floor in excess of the load limits for which such items are designed, or
(iii) generate dust, fumes or waste products which create a fire or health
hazard or damage the Premises or in the soils surrounding the Building. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature, or any waste materials, refuse, scrap or
debris, shall be stored upon or permitted to remain on any portion of the
Premises outside of the Building without Landlord's prior approval, which
approval may be withheld in its sole discretion. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Advertisements and Signs: </B> Tenant shall be
permitted to place two (2) signs mounted on the building, one monument sign
within the Common Area, and any directional signs necessary within the Common
Area, provided such signs are approved by the city or other governing authority.
Tenant shall be entitled to additional signage on Building 2 and Building 3 (if
leased) pursuant to the leases for these buildings. Any sign placed on the
Premises shall be removed by Tenant, at its sole cost, prior to the Expiration
Date or promptly following the earlier termination of the lease, and Tenant
shall repair, at its sole cost, any damage or injury to the Premises caused
thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Covenants, Conditions and Restrictions: </B>
This Lease is subject to the effect of (i) easements, mortgages or deeds of
trust, ground leases, rights of way of record and any other matters or documents
of record; and (ii) any zoning laws of the city, county and state where the
Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the
terms of any such Restrictions. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Tenant acknowledges that as to certain matters set forth
in this Lease, the Association (defined in the Declaration) has or will have
rights of approval or disapproval. If any matter requiring the Association's
approval is submitted to Landlord by Tenant for Landlord's approval, Landlord
shall respond to Tenant in a timely fashion. If Landlord approves such matter
and such matter further requires the Association's approval, Landlord shall
promptly submit the same to the Association, as applicable. In no event,
however, shall Landlord's disapproval be deemed unreasonable if the Association
has disapproved of such matter nor shall Landlord have any liability to Tenant
by reason thereof.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">4. Term and Rental: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Base Monthly Rent: </B>The term ("Lease
Term") shall be for one hundred forty four (144) months, commencing on
substantial completion of construction as finally determined pursuant to Section
5.G (the "Commencement Date") estimated to occur on August 1, 2001,
and ending one hundred forty four (144) months thereafter, ("Expiration
Date"). Notwithstanding the foregoing, Tenant shall have the right to
accelerate the commencement of construction of the Building by giving notice to
Landlord that Tenant wishes Landlord to commence construction of the Building
(the "Acceleration Notice") no later than thirteen (13) months prior
to the desired Commencement Date. Notwithstanding the fact that the Lease Term
begins on the Commencement Date, this Lease and all of the obligations of
Landlord and Tenant shall be binding and in full force and effect from and after
the Effective Date except for those obligations which begin on the Commencement
Date. In addition to all other sums payable by Tenant under this Lease, Tenant
shall pay as base monthly rent ("Base Monthly Rent") for the Premises
the amount of Three Hundred Thirty Four Thousand Three Hundred Fifty Five
Dollars ($334,355.00). Base Monthly Rent and Tenant's payment of operating
expenses and taxes pursuant to Section 8 shall be payable beginning on the
Commencement Date in advance on or before the first day of each calendar month
during the Lease Term. All sums payable by Tenant under this Lease shall be
paid to Landlord in lawful money of the United States of America, without offset
or deduction and without prior notice or demand, at the address specified in
Section 1 of this Lease or at such place or places as may be designated in
writing by Landlord during the Lease Term. Base Monthly Rent for any period
less than a calendar month shall be a pro rata portion of the monthly
installment.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Rental Adjustment: </P>
</B><P ALIGN="JUSTIFY"> <B>(i) For Variation in Rentable Square Feet:
</B>Upon Substantial Completion of construction, the Building shall be measured
(from outside wall to outside wall including all areas covered by a structural
roof), and if the actual square footage differs from 141,496 square feet, the
initial Base Monthly Rent hereunder shall be adjusted to the product of Two and
363/1000 Dollars ($2.363) and the actual rentable square feet of the Building.
</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(ii) Periodic Adjustment: </B> Beginning
thirty (30) months after the Commencement Date, and every thirty (30) months
thereafter, the then-payable Base Monthly Rent shall be increased by seven and
50/100 percent (7.50%).</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Late Charges: </B>Tenant hereby acknowledges
that late payment by Tenant to Landlord of Base Monthly Rent and other sums due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which is extremely difficult to ascertain. Such costs include
but are not limited to: administrative, processing, accounting, and late
charges which may be imposed on Landlord by the terms of any contract, revolving
credit, mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee within ten (10) days after the rent is due,
Tenant shall pay to Landlord a late charge equal to five (5%) percent of such
overdue amount, which late charge shall be due and payable on the same date that
the overdue amount was due. The parties agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant, excluding interest and attorneys fees and costs. If any rent
or other sum due from Tenant remains delinquent for a period in excess of thirty
(30) days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 21.J<B> </B>following the date such amount became due until
paid. Acceptance by Landlord of such late charge shall not constitute a waiver
of Tenant's default with respect to such overdue amount nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of Base Monthly Rent, then the Base Monthly
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding any provision of this Lease to the contrary.
After four (4) quarterly installments have been paid on time, rent shall again
be payable monthly. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Security Deposit: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(i) Amount: </B>Pursuant to the Building 2
Lease, Tenant will deposit with Landlord a letter of credit ("Letter of
Credit") in a form reasonably acceptable to Landlord in the amount of Eight
Million Four Hundred Thousand Dollars ($8,400,000.00) to secure Tenant's
obligation to complete Tenant Improvements in the Building and in Building 2.
Upon Landlord's receipt of evidence reasonably satisfactory to Landlord of lien
free completion of the Tenant Improvements and that Tenant has fully paid for
the cost of all of Tenant Improvements for the Building and for Building 2, the
Letter of Credit shall be cancelled and returned to Tenant by Landlord.
Notwithstanding the foregoing, in the event Tenant elects to defer construction
on a portion of the non-core Tenant Improvements in the Building (as provided
further and restricted in Section 5.B), Landlord shall not require Tenant to
continue to post the Letter of Credit after payment in full for all other Tenant
Improvements associated with the Building and Building 2.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(ii) Use by Landlord: </B>Landlord shall
be entitled to draw against the full amount of the Letter of Credit at any time
provided only that Landlord certifies to the issuer of the Letter of Credit that
Tenant has failed to make a payment for Tenant Improvement costs as provided in
5.F, that Tenant has failed to timely renew or extend the Letter of Credit as
required by this subsection (ii), or that Tenant has failed to amend the Letter
of Credit or obtain a new Letter of Credit as required by this subsection (ii)
and such failure has not been cured within ten (10) days following Landlord's
notice to Tenant. Tenant shall keep the Letter of Credit in effect at all times
prior to payment in full for the Tenant Improvements for the Building and for
Building 2. At least sixty (60) days prior to expiration of any Letter of
Credit, the term thereof shall be renewed or extended for a period until Tenant
has paid in full for the Tenant Improvements for the Building. Subject to the
notice requirement and cure period provided herein, Tenant's failure to so renew
or extend the Letter of Credit shall be a material default of this Lease by
Tenant entitling Landlord to draw down on the entire amount of the Letter of
Credit. Any amounts drawn on the Letter of Credit shall be used to pay for the
cost of the Tenant Improvements. In the event the Letter of Credit is drawn by
Landlord, and the proceeds used to pay for the completion of the Tenant
Improvements in the Building and Building 2, after Landlord's completion of the
Tenant Improvements in the Building, Landlord shall refund to Tenant any excess
proceeds from the Letter of Credit. In the event of termination of Landlord's
interest in this Lease, Landlord may deliver the Letter of Credit to Landlord's
successor in interest in the Premises and thereupon be relieved of further
responsibility with respect to the Letter of Credit. Except as provided herein,
no other security deposit shall be required by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(iii) Letter of Credit Fee: </B>Landlord and
Tenant agree to share equally in the fee charged to provide the Letter of
Credit. In no event, however, shall Landlord's share of the fee exceed the sum
of Forty Two Thousand Dollars ($42,000.00) per annum. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">5. Construction</B> <B>:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Building Shell Plans: </B>The Building Shell shall
be constructed in accordance with the Building Shell plans and guideline
specifications prepared by Korth Sunseri Hagey ("Shell Architect").
The design development drawings for the Building Shell are attached hereto as
<U>Exhibit "D"</U> ("Preliminary Shell Plans and
Specifications"). The Parties have generally approved the Preliminary Shell
Plans, however, Tenant reserves the right to work in a diligent manner with
Landlord and his design team to refine the Preliminary Plans and Specifications
to accommodate Tenant's requirements such that this activity does not delay the
issuance of the working drawings for the Building Shell ("Shell Permit
Drawings") on schedule. The current schedule anticipates completion of the
Shell Permit Drawings on May 5, 1999. Such refinements shall be limited to the
following areas: (i) structural issues relating to the support of the rooftop
HVAC system and other framing for its distribution inside the Building; (ii)
planning issues relating to the sizing and placement of the base building
electrical system; (iii) planning and specification issues relating to the
design of the Building security systems; (iv) utility services relating to
communications entrances from the street to the Building; (v) design of the main
electrical service and emergency power service to the Building; and (vi)
definition of the work that will be completed as a part of the construction of
the Building as it affects Tenant's ability to access the Building during the
construction of the other Buildings in the Project. The Shell Permit Drawings
(i) shall be consistent with the Preliminary Shell Plans in all material
respects, and (ii) shall provide for materials to be of a quality consistent
with a "Class A" office project the where materials are not currently
specified in the Preliminary Shell Plans. Landlord shall contract for the
installation of the pile foundation system and shall begin this work immediately
following the Effective Date. Upon completion of the Shell Permit Drawings,
Landlord shall select a general contractor ("General Contractor") on
the basis of a competitive bid of both the cost to construct the Building Shell
and the fee and general conditions bid to construct the Tenant Improvements.
Thereafter, Landlord shall cause the General Contractor to complete construction
of the Building Shell. The Building Shell shall include those items set forth in
the attached <U>Exhibit "E"</U> ("Building Shell
Definition") which scope includes the cost of the parking structures. In
the event of a conflict between <U>Exhibit "D"</U> and <U>Exhibit
"E"</U>, <U>Exhibit "E"</U> shall govern.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Tenant Improvement Plans: </B>Tenant, at
Tenant's sole cost and expense, will hire an interior architect ("Interior
Architect") to prepare plans and outline specifications to be attached as
<U>Exhibit "F"</U> ("Tenant Improvement Plans and
Specifications") with respect to the construction of improvements to the
interior premises ("Tenant Improvements"). The Tenant Improvement
Plans and Specifications plans shall be completed for all aspects of the work by
October 1, 2000, or three (3) months following the Acceleration Notice with all
detail necessary for submittal to the city and for construction and shall
include any information required by the relevant agencies regarding Tenant's use
of Hazardous Materials if applicable. The Tenant Improvements shall consist of
all items not included within the scope of the Building Shell Definition. All
Tenant Improvements affecting or otherwise related to the Building Core will be
subject to Landlord's reasonable approval. The "Building Core" shall
include those items typically associated in the industry with an office building
core including elevators, restrooms, fire sprinklers, HVAC and electrical
systems distributed to each floor, exiting stair finishes and a finished
building lobby. As to the balance of the Tenant Improvements, Landlord shall
not have rights of approval, however, Tenant Improvement Plans shall provide for
the creation of finished office space ready for occupancy with a minimum
buildout in all areas of the Premises consisting of: (i) fire sprinklers, (ii)
floorcoverings, (iii) overhead ceiling system (iv) distribution of the HVAC
system, (v) overhead florescent lighting, and (vi) any other work required by
the City of San Mateo necessary to obtain a Certificate of Occupancy. Tenant
shall have the right to defer installation of the Tenant Improvements not
associated with the Building Core in up to twenty percent (20%) of the rentable
square footage of the Building. Except as provided in the preceding sentence,
Tenant shall have no rights or ability to delay installation of any of the
Tenant Improvements. The Tenant Improvement Plans and Specifications shall be
prepared in sufficient detail to allow General Contractor to construct the
Tenant Improvements. The General Contractor shall construct the Tenant
Improvements in accordance with all Tenant Improvement Plans and Specifications.
The Tenant Improvements shall not be removed or altered by Tenant without the
prior written consent of Landlord as provided in Section 7. Tenant shall have
the right to depreciate and claim and collect any investment tax credits in the
Tenant Improvements during the Lease Term. Tenant shall further retain the
right to encumber its leasehold interest with a first priority security
interest, provided such lienholder has no right to remove any Tenant
Improvements installed by Tenant pursuant to this Lease in the event of a
default by Tenant under such encumbrance. Upon expiration of the Lease Term or
any earlier termination of the Lease, the Tenant Improvements shall become the
property of Landlord and shall remain upon and be surrendered with the Premises,
and title thereto shall automatically vest in Landlord without any payment
therefore.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Tenant Improvement Pricing. </B>Within ten (10)
days after completion of the Tenant Improvements Plans and Specifications,
Landlord shall cause the General Contractor to submit to Tenant competitive bids
from at least three (3) subcontractors for each aspect of the work in excess of
Fifty Thousand and No/100 Dollars ($50,000.00) related to the Tenant
Improvements. Landlord shall cause the General Contractor to utilize the low
bid in each case unless Tenant approves General Contractor's use of another
subcontractor, and the cost of the Tenant Improvements shall be based upon
construction expenses equal to (i) the bid amounts as approved by Tenant, (ii) a
reasonable contingency approved by Tenant to protect the General Contractor
against cost overruns, and (iii) the general contractor fee specified in Section
5.H below ("Tenant Improvement Budget"). Upon Tenant's written
approval of the Tenant Improvement Budget, which approval shall not be
unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have
given their respective approvals of the final Tenant Improvement Plans and
Specifications on which the cost estimate was made, and General Contractor shall
proceed with the construction of the Tenant Improvements in accordance with the
terms of Section 5.G below. If Tenant does not specifically approve or
disapprove the bids within ten (10) business days, Tenant shall be deemed to
have approved the bids.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Change Orders: </B>Tenant shall have the right
to order changes in the manner and type of construction of the Tenant
Improvements. Upon request and prior to Tenant's submitting any binding change
order, Landlord shall cause the General Contractor to promptly provide Tenant
with written statements of the cost to implement and the time delay and
increased construction costs associated with any proposed change order, which
statements shall be binding on General Contractor. If no time delay or
increased construction cost amount is noted on the written statement, the
parties agree that there shall be no adjustment to the construction cost or the
Commencement Date associated with such change order. If ordered by Tenant,
Landlord shall cause the General Contractor to implement such change order and
the cost of constructing the Tenant Improvements shall be increased or decreased
in accordance with the cost statement previously delivered by General Contractor
to Tenant for any such change order. In no event, however, shall Tenant have
the right to eliminate the minimum buildout requirements specified in Section
5.B above.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Building Shell Costs: </B>Landlord shall pay
all costs associated with the Building Shell.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Tenant Improvement Costs: </B>Tenant shall
pay all costs associated with the Tenant Improvements. The cost of Tenant
Improvements shall consist of only the following to the extent actually incurred
by General Contractor in connection with the construction of Tenant
Improvements: construction costs, all permit fees, construction taxes or other
costs imposed by governmental authorities related to the Tenant Improvements,
and General Contractor overhead and profit as described in Section 5.H below.
During the course of construction of Tenant Improvements, Landlord may deliver
to Tenant not more than once each calendar month a written request for payment
prepared by the General Contractor ("Progress Invoice") which shall
include and be accompanied by General Contractor's certified statements setting
forth the amount requested, certifying the percentage of completion of each item
for which reimbursement is requested, and if requested by Tenant, a certificate
from Landlord's Architect certifying the percentage completion. Tenant shall
pay the amount due pursuant to the Progress Invoice less a ten percent (10%)
retention directly to the General Contractor, within thirty (30) days after
Tenant's receipt of the above items. All costs for Tenant Improvements shall be
fully documented to and verified by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>G. Construction: </B>The Building Shell and
Tenant Improvements shall be deemed substantially complete ("Substantially
Complete" or "Substantial Completion") when the Building Shell
and Tenant Improvements have been substantially completed in accordance with the
Shell Plans and Specifications and Tenant Improvement Plans and Specifications,
as evidenced by the completion of a final inspection or the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority for the Building Shell and Tenant Improvements, and the issuance of a
certificate by the Architect certifying that the Building Shell and Tenant
Improvements have been completed in accordance with the plans. Installation of
(i) Tenant's data and phone cabling, (ii) Tenant's furniture, or (iii) the
exterior landscaping shall not be required in order to deem the Premises
Substantially Complete. Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather unusual for the season it which it occurs, labor
disputes, inability to obtain labor, materials, fuel or reasonable substitutes
therefor, governmental restrictions, regulations, controls, civil commotion,
fire or other act of God, and another causes beyond the reasonable control of
Landlord (except financial inability) shall extend the dates contained in this
Section 5.G by a period equal to the period of any said prevention, delay or
stoppage. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> If Landlord cannot obtain building permits or
Substantially Complete construction by the dates set forth herein, this Lease
shall not be void or voidable nor shall Landlord be liable for any loss or
damage resulting therefrom. Notwithstanding anything to the contrary contained
herein, if Landlord has not delivered the Premises substantially completed to
Tenant on or before August, 1, 2002 ("Termination Date"), Tenant shall
have the right to cancel this Lease by providing Landlord written notice within
sixty (60) days following the Termination Date as Tenant's sole and exclusive
remedy for such failure. In such event, Landlord shall return the Letter of
Credit to Tenant and thereafter neither party shall have any further liability
to the other under this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>H. General Contractor Overhead & Profit:
</B>As compensation to General Contractor for its services related to
construction of the Building Shell and Tenant Improvements, General Contractor
shall receive a fee based upon the cost of construction determined and agreed
upon by Landlord and Tenant at the time of the competitive bid of the Building
Shell. Except as provided therein, Landlord or General Contractor shall not
receive any other fee or payment from Tenant in connection with General
Contractor's services.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> I. Tenant Delays: </B> A "Tenant Delay"
shall mean any delay in Substantial Completion of the Building as a result of
any of the following: (i) Tenant's failure to complete or approve the Tenant
Improvement Plans by the dates set forth in Section 5.B, (ii) Tenant's failure
to approve the bids for construction by the dates set forth in Section 5.C,
(iii) changes to the plans requested by Tenant which delay the progress of the
work, (iv) Tenant's request for materials components, or finishes which are not
available in a commercially reasonable time given the anticipated Commencement
Date, (v) Tenant's failure to make a progress payment for Tenant Improvements as
provided in Section 5.F after notice from Landlord and expiration of the
applicable cure period, (vi) Tenant's request for more than one (1) rebidding of
the cost of all or a portion of the work, and (vii) any errors or omissions in
the Tenant Improvement Plans provided by Tenant's architect unless caused by
misinformation provided by Landlord, Landlord's Architect or the General
Contractor. Notwithstanding anything to the contrary set forth in this Lease,
and regardless of the actual date the Premises are Substantially Complete, the
Commencement Date shall be deemed to be the date the Commencement Date would
have occurred if no Tenant Delay had occurred as reasonable determined by
Landlord. In addition, if a Tenant Delay results in an increase in the cost of
the labor or materials, Tenant shall pay the cost of such increases. </P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> J. Insurance: </B>General Contractor shall
procure (as a cost of the Building Shell) a "Broad Form" liability
insurance policy in the amount of Three Million Dollars ($3,000,000.00).
Landlord shall also procure (as a cost of the Building Shell) builder's risk
insurance for the full replacement cost of the Building Shell and Tenant
Improvements while the Building and Tenant Improvements are under construction,
up until the date that the fire insurance policy described in Section 9 is in
full force and effect.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>K. Punch List & Warranty: </B>After the
Building Shell and Tenant Improvements are Substantially Complete, Landlord
shall cause the General Contractor to immediately correct any construction
defect or other "punch list" item which Tenant brings to General
Contractor's attention. All such work shall be performed so as to reasonably
minimize the interruption to Tenant and its activities on the Premises. General
Contractor shall provide a standard contractor's warranty with respect to the
Building Shell and the Tenant Improvements for one (1) year from the
Commencement Date. Such warranty shall exclude routine maintenance, damage
caused by Tenant's negligence or misuse, and acts of God. Notwithstanding
anything to the contrary in this Lease, Landlord warrants that on the
commencement of the term hereof, (i) the Premises shall comply with all laws,
codes, ordinances and other governmental requirements then applicable to the
Building Shell and the Common Area, (ii) all components of the Building Shell
shall be in good working order, condition, and repair, and (iii) the Premises,
the Project, and the land and groundwater thereunder, shall be free of
contamination by any Hazardous Materials then regulated by any applicable local,
state, or federal law not caused by Tenant. In the event of any breach of any
of the foregoing warranties, Landlord shall promptly rectify the same at its
sole cost and expense and shall indemnify, defend, and hold Tenant harmless from
and against any damages, liability, suits, losses, claims, actions, costs or
expenses (including attorneys' and consultants' fees and costs) suffered by
Tenant in connection with any such breach.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>L. Other Work by Tenant: </B>All work not
described in the Shell Plans and Specifications or Tenant Improvement Plans and
Specifications, such as furniture, telephone equipment, telephone wiring and
office equipment work, shall be furnished and installed by Tenant at Tenant's
cost. Prior to Substantial Completion, Tenant shall be obligated to (i) provide
active phone lines to any elevators, and (ii) contract with a firm to monitor
the fire system. When the construction of the Tenant Improvements has proceeded
to the point where Tenant's work of installing its fixtures and equipment in the
Premises can be commenced, General Contractor shall notify Tenant and shall
permit Tenant and its authorized representatives and contractors access to the
Premises before the Commencement Date for the purpose of installing Tenant's
trade fixtures and equipment. </P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">6. Acceptance of Possession and Covenants to
Surrender:</B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Delivery and Acceptance: </B>On the
Commencement Date, Landlord shall deliver and Tenant shall accept possession of
the Premises and enter into occupancy of the Premises on the Commencement Date.
Except as otherwise specifically provided herein, Tenant agrees to accept
possession of the Premises in its then existing condition, subject to all
Restrictions and without representation or warranty by Landlord except as
provided in Section 5.K above. Tenant's taking possession of any part of the
Premises shall be deemed to be an acceptance of any work of improvement done by
Landlord in such part as complete and in accordance with the terms of this Lease
except for (i) "Punch List" type items of which Tenant has given
Landlord written notice prior to the time Tenant takes possession, and (ii)
Landlord's warranties provided in Section 5.K above. Within thirty (30) days
after the Commencement Date, Tenant agrees to occupy at least a one (1) floor of
the Premises.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Condition Upon Surrender:</B> Tenant further
agrees on the Expiration Date or on the sooner termination of this Lease, to
surrender the Premises to Landlord in good condition and repair, normal wear and
tear excepted. In this regard, "normal wear and tear" shall be
construed to mean wear and tear caused to the Premises by the natural aging
process which occurs in spite of prudent application of the commercially
reasonable standards for maintenance, repair replacement, and janitorial
practices, and does not include items of neglected or deferred maintenance. In
any event, Tenant shall cause the following to be done prior to the Expiration
Date or sooner termination of this Lease: (i) all interior walls shall be free
of holes and gouges, (ii) all tiled floors shall be cleaned and waxed, (iii) all
carpets shall be cleaned and shampooed, (iv) all broken, marred, stained or
nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling placed
above the ceiling by Tenant or Tenant's contractors shall be removed, (vi) all
windows shall be washed; (vii) the HVAC system shall be serviced by a reputable
and licensed service firm and left in "good operating condition and
repair" as so certified by such firm, (viii) the plumbing and electrical
systems and lighting shall be placed in good order and repair (including
replacement of any burned out, discolored or broken light bulbs, ballasts, or
lenses. On or before the Expiration Date or sooner termination of this Lease,
Tenant shall remove all its personal property and trade fixtures from the
Premises. All property and fixtures not so removed shall be deemed as abandoned
by Tenant. Tenant shall ascertain from Landlord within ninety (90) days before
the Expiration Date whether Landlord desires to have the Premises or any parts
thereof restored to their condition as of the Commencement Date, or to cause
Tenant to surrender all Alterations (as defined in Section 7) in place to
Landlord. If Landlord shall so desire, and provided that at the time Landlord
gave its consent to their installation, Landlord also notified Tenant that such
removal would be required, Tenant shall, at Tenant's sole cost and expense,
remove such Alterations as Landlord requires and shall repair and restore said
Premises or such parts thereof before the Expiration Date. Such repair and
restoration shall include causing the Premises to be brought into compliance
with all applicable building codes and laws in effect at the time of the removal
to the extent such compliance is necessitated by the repair and restoration
work. In no event, however, shall Tenant be required to remove any portion of
the initial Tenant Improvements installed in accordance with the terms of this
Lease. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Failure to Surrender: </B>If the Premises are
not surrendered at the Expiration Date or sooner termination of this Lease,
Tenant shall be deemed in a holdover tenancy pursuant to this Section 6.C and
Tenant shall indemnify, defend, and hold Landlord harmless against loss or
liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay and costs incurred by Landlord in returning the Premises to the
required condition, plus interest at the Agreed Interest Rate. <B> </B>Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession
of the Premises after expiration or earlier termination of this Lease without
Landlord's consent, Tenant's continued possession shall be on the basis of a
tenancy at sufferance and Tenant shall pay as rent during the holdover period an
amount equal to one hundred fifty percent (150%) of the Base Monthly Rent due in
the month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease. This provision shall survive the
termination or expiration of the Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">7. Alterations and Additions: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Tenant's Alterations: </B>Tenant shall not
make, or suffer to be made, any alteration or addition to the Premises
("Alterations"), or any part thereof, without obtaining Landlord's
prior written consent and delivering to Landlord the proposed architectural and
structural plans for all such Alterations at least fifteen (15) days prior to
the start of construction. If such Alterations affect the structure of the
Building, Tenant additionally agrees to reimburse Landlord its reasonable out-
of-pocket costs incurred in reviewing Tenant's plans. Notwithstanding anything
to the contrary contained in this lease, Tenant shall be entitled to construct
Alterations which cost Tenant less than One Hundred Thousand Dollars
($100,000.00) in the aggregate each year, without obtaining Landlord's consent,
provided such Alterations do not affect the exterior of the Premises or
adversely affect the structural integrity or life safety systems of the
Premises. Tenant shall not proceed to make such Alterations until Tenant has
obtained all required governmental approvals and permits, and provides Landlord
reasonable security, in form reasonably approved by Landlord, to protect
Landlord against mechanics' lien claims. Tenant agrees to provide Landlord (i)
written notice of the anticipated and actual start-date of the work, (ii) a
complete set of half-size (15" X 21") vellum as-built drawings, and
(iii) a certificate of occupancy for the work upon completion of the Alterations
if required by applicable law. All Alterations shall be constructed in
compliance with all applicable building codes and laws including, without
limitation, the Americans with Disabilities Act of 1990. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Free From Liens: </B> Tenant shall keep the
Premises free from all liens arising out of work performed, materials furnished,
or obligations incurred by Tenant or claimed to have been performed for Tenant.
In the event Tenant fails to discharge any such lien within fifteen (15) days
after receiving notice of the filing, Landlord shall be entitled to discharge
the lien at Tenant's expense and all resulting reasonable costs incurred by
Landlord, including reasonable attorney's fees shall be due from Tenant as
additional rent.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Compliance With Governmental Regulations:
</B>The term Laws or Governmental Regulations shall include all federal, state,
county, city or governmental agency laws, statutes, ordinances, standards,
rules, requirements, or orders now in force or hereafter enacted, promulgated,
or issued. The term also includes government measures regulating or enforcing
public access, traffic mitigation, occupational, health, or safety standards for
employers, employees, landlords, or tenants. Tenant, at Tenant's sole expense
shall make all repairs, replacements, alterations, or improvements needed to
comply with all Governmental Regulations except as otherwise expressly provided
in this Lease. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action or proceeding against Tenant (whether Landlord
be a party thereto or not) that Tenant has violated any such law, regulation or
other requirement in its use of the Premises shall be conclusive of that fact as
between Landlord and Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<B><P ALIGN="JUSTIFY">8. Maintenance of Premises:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Landlord's Obligations: </B>Landlord at its
sole cost and expense, shall maintain in good condition, order, and repair, and
replace as and when necessary, the foundation, exterior load bearing walls glass
curtainwall, and roof structure of the Building Shell. Landlord further agrees
to perform repairs and replacements to the Common Area to maintain the Common
Area in good condition, order and repair (subject to Tenant's reimbursement
obligation). Tenant acknowledges and agrees that the Association formed pursuant
to the Declaration may perform the maintenance, repair and restoration
obligations of Landlord under this Section 8.A and other sections of this Lease
on behalf of Landlord and other owners of any portion of the Project, in
discharge of Landlord's maintenance, repair and restoration obligations under
this Lease. As to increases in annual assessments or the imposition of a
special assessment under the Declaration which would require the vote of the
Owners (as defined in the Declaration), Landlord agrees to vote in favor or such
assessments to the extent Landlord reasonably determines such sums are required
to maintain the Premises in the condition required by this Lease.
Notwithstanding the foregoing, in the event that Tenant leases from Landlord all
of the space then developed within the Project, Tenant shall have the right to
perform the repairs, replacements and maintenance of the Common Area and pay
such costs directly.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Tenant's Obligations: </B>Subject to Sections
15 and 16, Tenant shall clean, maintain, repair and replace when necessary the
Building and every part thereof through regular inspections and servicing,
including but not limited to: (i) all plumbing and sewage facilities, (ii) all
heating ventilating and air conditioning facilities and equipment, (iii) all
fixtures, interior walls floors, carpets and ceilings, (iv) all electrical
facilities and equipment, (v) all automatic fire extinguisher equipment, (vi)
all elevator equipment, and (vii) the roof membrane system. All wall surfaces
and floor tile are to be maintained in an as good a condition as when Tenant
took possession free of holes, gouges, or defacements. With respect to items
(ii), (vi) and (vii) above, Tenant shall provide Landlord a copy of a service
contract between Tenant and a licensed service contractor providing for periodic
maintenance of all such systems or equipment in conformance with the
manufacturer's recommendations. Tenant shall provide Landlord upon request, a
copy of such preventive maintenance contracts and paid invoices for the
recommended work if requested by Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Landlord and Tenant's Obligations Regarding
Reimbursable Operating Costs:</B> Notwithstanding the provisions of Sections
8, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for Tenant's
Allocable Share (as defined in Section 8.E below) of the expenses resulting from
Landlord's payment of Reimbursable Operating Costs (as defined in Section 8.D
below) in connection with the Premises or in connection with the Project which
are not otherwise Landlord's obligation hereunder. Tenant agrees to pay its
Allocable Share of the Reimbursable Operating Costs as additional rental within
ten (10) business days of written invoice from Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Reimbursable Operating Costs:</B> For
purposes of calculating Tenant's Allocable Share of Building and Project Costs,
the term "Reimbursable Operating Costs" is defined as all reasonable
costs and expenses of the nature hereinafter described which are incurred by
Landlord in connection with ownership and operation of the Building or the
Project in which the Premises are located. All costs and expenses shall be
determined in accordance with generally accepted accounting principles which
shall be consistently applied, including but not limited to the following: (i)
common area utilities, including water, power, telephone, heating, lighting, air
conditioning, ventilating, and Building utilities to the extent not separately
metered; (ii) common area maintenance and service agreements for the Building
and/or Project and the equipment therein, including without limitation, common
area janitorial services, alarm and security services, exterior window cleaning,
and maintenance of the sidewalks, landscaping, waterscape, roof membrane,
parking garages and parking areas, driveways, service areas, mechanical rooms,
elevators, and the building exterior; (iii) insurance premiums and costs,
including without limitation, the premiums and cost of fire, casualty and
liability coverage and rental abatement and earthquake (if available at
commercially reasonable rates) insurance applicable to the Building or Project;
(iv) repairs, replacements and general maintenance (excluding repairs and
general maintenance paid by proceeds of insurance or by Tenant or other third
parties, and repairs or alterations attributable solely to tenants of the
Building or Project other than Tenant); and (v) all real estate taxes and
assessment installments or other impositions or charges which may be levied on
the Building or Project, upon the occupancy of the Building or Project and
including any substitute or additional charges which may be imposed during, or
applicable to the Lease Term including real estate tax increases due to a sale,
transfer or other change of ownership of the Building or Project, as such taxes
are levied or appear on the City and County tax bills and assessment rolls.
Landlord shall have no obligation to provide guard services or other security
measures for the benefit of the Project. Tenant assumes all responsibility for
the protection of Tenant and Tenant's Agents from acts of third parties;
provided, however, that nothing contained herein shall prevent Landlord, at its
sole option, from providing security measures for the Project. This is a
"Net" Lease, meaning that Base Monthly Rent is paid to Landlord net of
all costs and expenses, except as provided otherwise in this Lease. The
provision for payment of Reimbursable Operating Costs by means of periodic
payment of Tenant's Allocable Share of Building and/or Project Costs is intended
to pass on to Tenant and reimburse Landlord for all costs of operating and
managing the Building and/or Project.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> E. Tenant's Allocable Share:</B> For purposes of
prorating Reimbursable Operating Costs which Tenant shall pay, Tenant's
Allocable Share of Reimbursable Operating Costs shall be computed by multiplying
the Reimbursable Operating Costs by a fraction, the numerator of which is the
rentable square footage of the Premises and the denominator of which is either
the total rentable square footage of the Building if the service or cost is
allocable only to the Building, or the total square footage of the buildings
completed within the Project if the service or cost is allocable to the entire
Project. Tenant's obligation to share in Reimbursable Operating Costs shall be
adjusted to reflect the Lease Commencement and Expiration dates and is subject
to recalculation in the event of expansion of the Building or Project.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> F. Exclusions to Reimbursable Operating Costs:
</B>Notwithstanding anything to the contrary contained in this Lease, the
following costs and expenses shall not be included within Reimbursable Operating
Costs: (i) Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating, or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Project; (ii) The cost of any service sold to any tenant (including Tenant) or
other occupant for which Landlord is entitled to be reimbursed as an additional
charge or rental over and above the basic rent and escalations payable under the
lease with that tenant; (iii) Any depreciation on the Project; (iv) Expenses in
connection with services or other benefits of a type that are not provided to
Tenant but which are provided another tenant or occupant of the Project; (v)
Costs incurred due to Landlord's violation of any terms or conditions of the
Declaration, this Lease or any other lease relating to the Project; (vi)
Overhead profit increments paid to Landlord's subsidiaries or affiliates for
services on or to the building or for supplies or other materials to the extent
that the cost of the services, supplies, or materials exceeds the cost that
would have been paid had the services, supplies, or materials been provided by
unaffiliated parties on a competitive basis; (vii) All interest, loan fees, and
other carrying costs related to any mortgage or deed of trust or related to any
capital item, and all rental and other payable due under any ground or
underlying lease, or any lease for any equipment ordinarily considered to be of
a capital nature (except janitorial equipment which is not affixed to the
Project.); (viii) Any compensation paid to clerks, attendants, or other persons
in commercial concessions operated by Landlord; (ix) Advertising and promotional
expenditures; (x) Costs of repairs and other work occasioned by fire, windstorm,
or other casualty of a nature required to be insured against under this Lease in
excess of the deductible; (xi) Any costs, fines, or penalties incurred due to
violations by Landlord of any governmental rule or authority, this Lease or any
other lease in the Project, or due to Landlord's negligence or willful
misconduct; (xii) Property management fees; (xiii) Costs for sculpture,
paintings, or other objects of art (and insurance thereon or extraordinary
security in connection therewith); (xiv) The cost of correcting any building
code or other violations which were violations prior to the Commencement Date of
this Lease; (xv) The cost of containing, removing, or otherwise remediating any
contamination of the Project (including the underlying land and ground water) by
any Hazardous Materials where such contamination was not caused by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Waiver of Liability: </B>Failure by Landlord
to perform any defined services, or any cessation thereof, when such failure is
caused by accident, breakage, repairs, strikes, lockout or other labor
disturbances or labor disputes of any character or by any other cause, similar
or dissimilar, shall not render Landlord liable to Tenant in any respect,
including damages to either person or property, nor be construed as an eviction
of Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment
of any covenant or agreement hereof. Should any equipment or machinery utilized
in supplying the services listed herein break down or for any cause cease to
function properly, upon receipt of written notice from Tenant of any deficiency
or failure of any services, Landlord shall use reasonable diligence to repair
the same promptly, but Tenant shall have no right to terminate this Lease and
shall have no claim for rebate of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom. Tenant
waives the provisions of California Civil Code Sections 1941 and 1942 concerning
the Landlord's obligation of tenantability and Tenant's right to make repairs
and deduct the cost of such repairs from the rent. Landlord shall not be liable
for a loss of or injury to person or property, however occurring, through or in
connection with or incidental to furnishing, or its failure to furnish, any of
the foregoing unless causes by its gross negligence or willful misconduct.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Tenant's Right to Audit: </B>Tenant shall have
the right to audit at Landlord's local offices, at Tenant's expense, Landlord's
accounts and records relating to Reimbursable Operating Costs. Such audit
shall be conducted by a certified public accountant approved by Landlord, which
approval shall not be unreasonably withheld. If such audit reveals that Landlord
has overcharged Tenant, the amount overcharged shall be paid to Tenant within 30
days after the audit is concluded, together with interest thereon at the rate of
ten percent (10.0%) per annum, from the date paid by Tenant until payment of the
overcharge is made to Tenant. In addition, if the amount paid by Tenant exceeds
the Reimbursable Operating Costs which should have been charged to Tenant by
more than five percent (5.0%), the cost of the audit shall be paid by
Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">9. Hazard Insurance:</B> </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Tenant's Use: </B>Tenant shall not use or
permit the Premises, or any part thereof, to be used for any purpose other than
that for which the Premises are hereby leased; and no use of the Premises shall
be made or permitted, nor acts done, which will cause an increase in premiums or
a cancellation of any insurance policy covering the Project or any part thereof,
nor shall Tenant sell or permit to be sold, kept, or used in or about the
Premises, any article prohibited by the standard form of fire insurance
policies. Tenant shall, at its sole cost, comply with all requirements of any
insurance company or organization necessary for the maintenance of reasonable
fire and public liability insurance covering the Premises and appurtenances.
</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Landlord's Insurance: </B>Landlord agrees to
purchase and keep in force fire, extended coverage insurance in an amount equal
to the replacement cost of the Building as determined by Landlord's insurance
company's appraisers. If required by the holder of the first deed of trust on
the property, such fire and property damage insurance may be endorsed to cover
loss caused by such additional perils against which Landlord may elect to
insure, including earthquake and/or flood, and shall contain reasonable
deductibles which, in the case of earthquake and flood insurance may be up to
15% of the replacement value of the property. Additionally Landlord may
maintain a policy of (i) commercial general liability insurance insuring
Landlord (and such others designated by Landlord) against liability for personal
injury, bodily injury, death and damage to property occurring or resulting from
an occurrence in, on or about the Premises or Project in an amount as Landlord
determines is reasonably necessary for its protection, and (ii) rental lost
insurance covering a twelve (12) month period. Tenant agrees to pay Landlord as
additional rent, on demand, the full cost of said insurance and any insurance
costs allocable to the Building pursuant to the Declaration as evidenced by
insurance billings to Landlord, and in the event of damage covered by said
insurance, the amount of any commercially reasonable deductible under such
policy. Payment shall be due to Landlord within thirty (30) days after written
invoice to Tenant. It is understood and agreed that Tenant's obligation under
this Section will be prorated to reflect the Lease Commencement and Expiration
Dates. Tenant acknowledges and agrees that the Association formed pursuant to
the Declaration may procure all or any portion of the insurance required to be
maintained by Landlord under this Lease on behalf of Landlord and in discharge
of Landlord's obligation to procure such insurance under this Lease, under one
or more policies procured by the Association from time to time for the benefit
of Landlord and other owners of any portion of the Project, the cost of which
shall be paid by Tenant pursuant to this section 9.B, provided that the cost to
Tenant shall not be greater than that which Tenant would have had to pay if
Landlord obtained such coverage directly.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Tenant's Insurance: </B>Tenant agrees, at its
sole cost, to insure its personal property, Tenant Improvements and Alterations
for their full replacement value (without depreciation) and to obtain worker's
compensation and public liability and property damage insurance for occurrences
within the Premises with a combined single limit of not less than Five Million
Dollars ($5,000,000.00). Tenant's liability insurance shall be primary
insurance containing a cross-liability endorsement, and shall provide coverage
on an "occurrence" rather than on a "claims made" basis.
Tenant shall name Master Landlord, Landlord and their respective lenders as an
additional insured and shall deliver evidence of insurance and renewal
certificates to Landlord. All such policies shall provide for thirty (30) days'
prior written notice to Landlord of any cancellation, termination, or reduction
in coverage. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Waiver: </B>Landlord and Tenant hereby waive
all rights each may have against the other on account of any loss or damage
sustained by Landlord or Tenant, as the case may be, or to the Premises or its
contents, which may arise from any risk covered by their respective insurance
policies (or which would have been covered had such insurance policies been
maintained in accordance with this Lease) as set forth above. The parties shall
use their reasonable efforts to obtain from their respective insurance companies
a waiver of any right of subrogation which said insurance company may have
against Landlord, Master Landlord or Tenant, as the case may be.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">10. Taxes: </B> Tenant shall be liable for and shall
pay as additional rental, prior to delinquency, the following: (i) all taxes
and assessments levied against Tenant's personal property and trade or business
fixtures; (ii) all real estate taxes and assessment installments or other
impositions or charges which may be levied on the Premises or upon the occupancy
of the Premises, including any substitute or additional charges which may be
imposed applicable to the Lease Term; and (iii) real estate tax increases due to
an increase in assessed value resulting from a sale, transfer or other change of
ownership of the Premises as it appears on the City and County tax bills during
the Lease Term. Tenant's obligation under this Section shall be prorated to
reflect the Lease Commencement and Expiration Dates. If, at any time during the
Lease Term a tax, excise on rents, business license tax or any other tax,
however described, is levied or assessed against Landlord as a substitute or
addition, in whole or in part, for taxes assessed or imposed on land or
Buildings, Tenant shall pay and discharge its pro rata share of such tax or
excise on rents or other tax before it becomes delinquent; except that this
provision is not intended to cover net income taxes, inheritance, gift or estate
tax imposed upon Landlord. In the event that a tax is placed, levied, or
assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact amount of such tax and Tenant shall pay such increase.
If by virtue of any application or proceeding brought by or on behalf of
Landlord, there results a reduction in the assessed value of the Premises during
the Lease Term, Tenant agrees to reimburse Landlord for all costs incurred by
Landlord in connection with such application or proceeding, not to exceed the
amount of any savings realized by Tenant. In the event the Project is not
subdivided as provided in Section 2.C and the tax bill covers the entire
Project, the real estate taxes and assessments shall be prorated as provided in
Section 8.E.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">11. Utilities:</B> Tenant shall pay directly to the
providing utility all water, gas, electric, telephone, and other utilities
supplied to the Premises. Landlord shall not be liable for loss of or injury to
person or property, however occurring, through or in connection with or
incidental to furnishing or the utility company's failure to furnish utilities
to the Premises unless caused by Landlord's gross negligence of willful
misconduct, and Tenant shall not be entitled to abatement or reduction of any
portion of Base Monthly Rent or any other amount payable under this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">12. Toxic Waste and Environmental Damage: </B> </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Tenant's Responsibility: </B>Without the
prior written consent of Landlord, Tenant shall not bring, use, or permit upon
the Premises, or generate, create, release, emit, or dispose (nor permit any of
the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or
solid materials or waste, including without limitation, material or substance
having characteristics of ignitability, corrosivity, reactivity, or toxicity or
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or which are identified in Division 22 Title
26 of the California Code of Regulations as the same may be amended from time to
time or any wastes, materials or substances which are or may become regulated by
or under the authority of any applicable local, state or federal laws,
judgments, ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials")
except for those substances customary in typical office uses for which no
consent shall be required. In order to obtain consent, Tenant shall deliver to
Landlord its written proposal describing the toxic material to be brought onto
the Premises, measures to be taken for storage and disposal thereof, safety
measures to be employed to prevent pollution of the air, ground, surface and
ground water. Landlord's approval may be withheld in its reasonable judgment.
In the event Landlord consents to Tenant's use of Hazardous Materials on the
Premises or such consent is not required, Tenant represents and warrants that it
shall comply with all Governmental Regulations applicable to Hazardous Materials
including doing the following: (i) adhere to all reporting and inspection
requirements imposed by Federal, State, County or Municipal laws, ordinances or
regulations and will provide Landlord a copy of any such reports or agency
inspections; (ii) obtain and provide Landlord copies of all necessary permits
required for the use and handling of Hazardous Materials on the Premises; (iii)
enforce Hazardous Materials handling and disposal practices consistent with
industry standards; (iv) surrender the Premises free from any Hazardous
Materials arising from Tenant's bringing, using, permitting, generating,
creating, releasing, emitting or disposing of Hazardous Materials; and (v)
properly close the facility with regard to Hazardous Materials including the
removal or decontamination of any process piping, mechanical ducting, storage
tanks, containers, or trenches which have come into contact with Hazardous
Materials and obtain a closure certificate from the local administering agency
prior to the Expiration Date.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Tenant's Indemnity Regarding Hazardous
Materials: </B>Tenant shall, at its sole cost and expense, comply with all
laws pertaining to, and shall with counsel reasonably acceptable to Landlord,
indemnify, defend and hold harmless Landlord, Master Landlord and their
trustees, shareholders, directors, officers, employees, partners, affiliates,
and agents from, any claims, liabilities, costs or expenses incurred or suffered
by Landlord arising from the bringing, using, permitting, generating, emitting
or disposing of Hazardous Materials by Tenant or a third party through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification and hold harmless obligations include, without
limitation, the following arising from the bringing, using, permitting,
generating, emitting or disposing of Hazardous Materials by Tenant or a third
party through the surface soils of the Premises during the Lease Term or the
violation of any Governmental Regulation or environmental law, by Tenant or
Tenant's Agents.: (i) claims, liability, costs or expenses resulting from or
based upon administrative, judicial (civil or criminal) or other action, legal
or equitable, brought by any private or public person under common law or under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980
("RCRA") or any other Federal, State, County or Municipal law,
ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining
to the identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; (iv) losses attributable to diminution in the value of the Premises or
the Building; (v) loss or restriction of use of rentable space in the Building;
(vi) Adverse effect on the marketing of any space in the Building; and (vi) all
other liabilities, obligations, penalties, fines, claims, actions (including
remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders or judgments), damages (including consequential and punitive
damages), and costs (including attorney, consultant, and expert fees and
expenses) resulting from the release or violation. This indemnification shall
survive the expiration or termination o this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Landlord's Indemnity Regarding Hazardous
Materials: </B>Landlord shall with counsel reasonably acceptable to Tenant,
indemnify, defend and hold harmless Tenant and Tenant's shareholders, directors,
officers, employees, partners, affiliates, and agents from, any claims,
liabilities, costs or expenses incurred or suffered by Tenant arising from the
bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Landlord or the violation of any Governmental Regulation or
environmental law, by Landlord or Landlord's Agents. Landlord's indemnification
and hold harmless obligations include, without limitation, the following: (i)
claims, liability, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal) or other action, legal or
equitable, brought by any private or public person under common law or under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980
("RCRA") or any other Federal, State, County or Municipal law,
ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining
to the identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; and (iv) all other liabilities, obligations, penalties, fines, claims,
actions (including remedial or enforcement actions of any kind and
administrative or judicial proceedings, orders or judgments), damages (including
consequential and punitive damages), and costs (including attorney, consultant,
and expert fees and expenses) resulting from the release or violation. This
indemnification shall survive the expiration or termination o this Lease. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Actual Release by Tenant: </B>Tenant agrees
to notify Landlord of any lawsuits or orders which relate to the remedying of or
actual release of Hazardous Materials on or into the soils or ground water at or
under the Premises. Tenant shall also provide Landlord all notices required by
Section 25359.7(b) of the Health and Safety Code and all other notices required
by law to be given to Landlord in connection with Hazardous Materials. Without
limiting the foregoing, each party shall also deliver to the other party, within
twenty (20) days after receipt thereof, any written notices from any
governmental agency alleging a material violation of, or material failure to
comply with, any federal, state or local laws, regulations, ordinances or
orders, the violation of which or failure to comply with poses a foreseeable and
material risk of contamination of the ground water or injury to humans (other
than injury solely to Tenant, Tenant's Agents and employees within the
Building).</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> In the event of any release on or into the Premises
or into the soil or ground water under the Premises, the Building or the Project
of any Hazardous Materials used, treated, stored or disposed of by Tenant or
Tenant's Agents, Tenant agrees to comply, at its sole cost, with all laws,
regulations, ordinances and orders of any federal, state or local agency
relating to the monitoring or remediation of such Hazardous Materials. In the
event of any such release of Hazardous Materials Tenant shall immediately give
verbal and follow-up written notice of the release to Landlord, and Tenant
agrees to meet and confer with Landlord and its Lender to attempt to eliminate
and mitigate any financial exposure to such Lender and resultant exposure to
Landlord under California Code of Civil Procedure Section 736(b) as a result of
such release, and promptly to take reasonable monitoring, cleanup and remedial
steps given, inter alia, the historical uses to which the Property has and
continues to be used, the risks to public health posed by the release, the then
available technology and the costs of remediation, cleanup and monitoring,
consistent with acceptable customary practices for the type and severity of such
contamination and all applicable laws. Nothing in the preceding sentence shall
eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to
indemnify and hold Landlord and Master Landlord harmless from any claims
liabilities, costs or expenses incurred or suffered by them rising from the
bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Tenant or a third party through the surface soils of the Premises
during the Lease Term or the violation of any Governmental Regulation or
environmental law, by Tenant or Tenant's Agents. Tenant shall provide Landlord
prompt written notice of Tenant's monitoring, cleanup and remedial steps.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> In the absence of an order of any federal, state or local
governmental or quasi-governmental agency relating to the cleanup, remediation
or other response action required by applicable law, any dispute arising between
Landlord and Tenant concerning Tenant's obligation to Landlord under this
Section 12.C concerning the level, method, and manner of cleanup, remediation or
response action required in connection with such a release of Hazardous
Materials shall be resolved by mediation and/or arbitration pursuant to the
provisions of Section 21.E of this Lease.</P>
<P ALIGN="CENTER"></P>
<P ALIGN="JUSTIFY"> <B>D. Environmental Monitoring: </B>Landlord and
its agents shall have the right to inspect, investigate, sample and monitor the
Premises including any air, soil, water, ground water or other sampling or any
other testing, digging, drilling or analysis to determine whether Tenant is
complying with the terms of this Section 12 provided reasonable grounds to
suspect a violation exist. If Landlord discovers that Tenant is not in
compliance with the terms of this Section 12, any such reasonable costs incurred
by Landlord, including attorneys' and consultants' fees, shall be due and
payable by Tenant to Landlord within thirty (30) days following Landlord's
written demand therefore.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">13. Tenant's Default: </B> The occurrence of any of
the following shall constitute a material default and breach of this Lease by
Tenant: (i) Tenant's failure to pay any rent including additional rent or any
other payment due under this Lease within ten (10) days following Landlord's
notice of nonpayment, (ii) the abandonment of the Premises by Tenant; (iii)
Tenant's failure to observe and perform any other required provision of this
Lease, where such failure continues for thirty (30) days after written notice
from Landlord, provided, however, that if the nature of the default is such that
it cannot reasonably be cured within the 30-day period, Tenant shall not be
deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion; (iv) Tenant's making of any
general assignment for the benefit of creditors; (v) the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed after the
filing); (vi) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within sixty
(60) days; (vii) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within sixty (60)
days; (viii) a default by Tenant under the Building 2 Lease (if then leased by
Tenant from Landlord), or (ix) a default by Tenant under the Building 3 Lease
(if leased by Tenant from Landlord).</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Remedies: </B> In the event of any such
default by Tenant, then in addition to other remedies available to Landlord at
law or in equity, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event Landlord elects to so terminate this
Lease, Landlord may recover from Tenant all the following: (i) the worth at
time of award of any unpaid rent which had been earned at the time of such
termination; (ii) the worth at time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss for the same period that Tenant proves
could have been reasonably avoided; (iii) the worth at time of award of the
amount by which the unpaid rent for the balance of the Lease Term after the time
of award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; (iv) any other amount necessary to compensate Landlord for
all detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom; including the following: (x) reasonable expenses for
repairing, altering or remodeling the Premises if such expenses are necessary to
relet the Premises, (y) reasonable broker's fees, advertising costs or other
expenses of reletting the Premises, and (z) costs of carrying the Premises such
as taxes, insurance premiums, utilities and security precautions and assessments
due under the Declaration, and (v) at Landlord's election, such other reasonable
amounts in addition to or in lieu of the foregoing as may be permitted by
applicable California law. The term "rent", as used herein, is
defined as the minimum monthly installments of Base Monthly Rent and all other
sums required to be paid by Tenant pursuant to this Lease, all such other sums
being deemed as additional rent due hereunder. As used in (i) and (ii) above,
"worth at the time of award" shall be computed by allowing interest at
a rate equal to the discount rate of the Federal Reserve Bank of San Francisco
plus five (5%) percent per annum. As used in (iii) above, "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
(1%) percent. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Right to Re-enter: </B> In the event of any
such default by Tenant, Landlord shall have the right, after terminating this
Lease, to re-enter the Premises and remove all persons and property. Such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant, and disposed of by Landlord in any manner
permitted by law.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Abandonment: </B> If Landlord does not elect
to terminate this Lease as provided in Section 13.A or 13.B above, then the
provisions of California Civil Code Section 1951.4, (Landlord may continue the
lease in effect after Tenant's breach and abandonment and recover rent as it
becomes due if Tenant has a right to sublet and assign, subject only to
reasonable limitations) as amended from time to time, shall apply and Landlord
may from time to time, without terminating this Lease, either recover all rental
as it becomes due or relet the Premises or any part thereof for such term or
terms and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable, with the right to make
alterations and repairs to the Premises. In the event that Landlord elects to
so relet, rentals received by Landlord from such reletting shall be applied in
the following order to: (i) the payment of any indebtedness other than Base
Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost
of such reletting; (iii) the payment of the cost of any alterations and repairs
to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid
hereunder. The residual rentals, if any, shall be held by Landlord and applied
in payment of future Base Monthly Rent as the same may become due and payable
hereunder. Landlord shall the obligation to market the space but shall have no
obligation to relet the Premises following a default if Landlord has other
comparable available space within the Building or Project. In the event the
portion of rentals received from such reletting which is applied to the payment
of rent hereunder during any month be less than the rent payable during that
month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord
immediately upon demand. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as ascertained, any reasonable costs
and expenses incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from such
reletting.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. No Termination: </B> Landlord's re-entry or
taking possession of the Premises pursuant to 13.B or 13.C shall not be
construed as an election to terminate this Lease unless written notice of such
intention is given to Tenant or unless the termination is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such default.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Non-Waiver: </B> Landlord may accept Tenant's
payments without waiving any rights under this Lease, including rights under a
previously served notice of default. No payment by Tenant or receipt by Landlord
of a lesser amount than any installment of rent due shall be deemed as other
than payment on account of the amount due. If Landlord accepts payments after
serving a notice of default, Landlord may nevertheless commence and pursue an
action to enforce rights and remedies under the previously served notice of
default without giving Tenant any further notice or demand. Furthermore, the
Landlord's acceptance of rent from the Tenant when the Tenant is holding over
without express written consent does not convert Tenant's Tenancy from a tenancy
at sufferance to a month to month tenancy. No waiver of any provision of this
Lease shall be implied by any failure of Landlord to enforce any remedy for the
violation of that provision, even if that violation continues or is repeated.
Any waiver by Landlord of any provision of this Lease must be in writing. Such
waiver shall affect only the provision specified and only for the time and in
the manner stated in the writing. No delay or omission in the exercise of any
right or remedy by Landlord shall impair such right or remedy or be construed as
a waiver thereof by Landlord. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute acceptance
of the surrender of the Premises by Tenant before the Expiration Date. Only
written notice from Landlord to Tenant of acceptance shall constitute such
acceptance of surrender of the Premises. Landlord's consent to or approval of
any act by Tenant which requires Landlord's consent or approvals shall not be
deemed to waive or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> F. Performance by Landlord: </B>If Tenant fails
to perform any obligation required under this Lease or by law or governmental
regulation, Landlord in its sole discretion may, following notice and expiration
of the applicable cure period, without waiving any rights or remedies and
without releasing Tenant from its obligations hereunder, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all sums
paid by Landlord in connection with such substitute performance, including
interest at the Agreed Interest Rate within thirty (30) days of Landlord's
written notice for such payment.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">14. Landlord's Liability: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Limitation on Landlord's Liability: </B> In the
event of Landlord's failure to perform any of its covenants or agreements under
this Lease, Tenant shall give Landlord written notice of such failure and shall
give Landlord thirty (30) days to cure or commence to cure such failure prior to
any claim for breach or resultant damages, provided, however, that if the nature
of the default is such that it cannot reasonably be cured within the 30-day
period, Landlord shall not be deemed in default if it commences within such
period to cure, and thereafter diligently prosecutes the same to completion. In
addition, upon any such failure by Landlord, Tenant shall give notice by
registered or certified mail to any person or entity with a security interest in
the Premises ("Mortgagee") that has provided Tenant with notice of its
interest in the Premises, and shall provide Mortgagee a reasonable opportunity
to cure such failure, including such time to obtain possession of the Premises
by power of sale or judicial foreclosure, if such should prove necessary to
effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease
has been assigned is an expressed third-party beneficiary hereof. Tenant waives
any right under California Civil Code Section 1950.7 or any other present or
future law to the collection of any payment or deposit from Mortgagee or any
purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or such
purchaser shall have actually received and not refunded the applicable payment
or deposit. Tenant Further waives any right to terminate this Lease and to
vacate the Premises on Landlord's default under this Lease. Tenant's sole
remedy on Landlord's default is an action for damages or injunctive or
declaratory relief.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Limitation on Tenant's Recourse: </B>If
Landlord is a corporation trust, partnership, joint venture, unincorporated
association or other form of business entity: (i) the obligations of Landlord
shall not constitute personal obligations of the officers, directors, trustees,
partners, joint venturers, members, owners, stockholders, or other principals or
representatives except to the extent of their interest in the Premises. Tenant
shall have recourse only to the interest of Landlord in the Premises or for the
satisfaction of the obligations of Landlord and shall not have recourse to any
other assets of Landlord for the satisfaction of such obligations.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Indemnification of Landlord: </B> As a
material part of the consideration rendered to Landlord, Tenant hereby waives
all claims against Landlord except to the extent caused by Landlord's gross
negligence, willful misconduct or a breach of this Lease for damages to goods,
wares and merchandise, and all other personal property in, upon or about said
Premises and for injuries to persons in or about said Premises, from any cause
arising at any time to the fullest extent permitted by law, and Tenant shall
indemnify and hold Landlord, Master Landlord and their shareholders, directors,
officers, trustees, employees, partners, affiliates and agents exempt and
harmless from any damage or injury to any person, or to the goods, wares and
merchandise and all other personal property of any person, arising from the use
of the Premises, Building, and/or Project by Tenant and Tenant's Agents or from
the failure of Tenant to keep the Premises in good condition and repair as
herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims
except to the extent due to the gross negligence or willful misconduct of
Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">15. Destruction of Premises: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Landlord's Obligation to Restore: </B>In the
event of a destruction of the Premises during the Lease Term Landlord shall
repair the same to the approximate condition which existed prior to such
destruction. Such destruction shall not annul or void this Lease; however,
Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while
repairs are being made, such proportionate reduction to be based upon the extent
to which the repairs interfere with Tenant's business in the Premises, as
reasonably determined by the Parties. In no event shall Landlord be required to
replace or restore Alterations, Tenant Improvements, Tenant's fixtures or
personal property. With respect to a destruction which Landlord is obligated to
repair or may elect to repair under the terms of this Section, Tenant waives the
provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code
of the State of California, and any other similarly enacted statute, and the
provisions of this Section 15 shall govern in the case of such destruction. If
Landlord is required to repair the Premises in the event of destruction pursuant
to this Lease, Landlord agrees that it will not vote under the Declaration in
favor or not repairing the Premises or Common Area.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Limitations on Landlord's Restoration
Obligation: </B>Notwithstanding the provisions of Section 15.A, Landlord shall
have no obligation to repair, or restore the Premises if any of the following
occur: (i) if the repairs cannot be made in three hundred sixty five (365) days
from the date of receipt of all governmental approvals necessary under the laws
and regulations of State, Federal, County or Municipal authorities, as
reasonably determined by Landlord, (ii) if the holder of the first deed of trust
or mortgage encumbering the Building elects not to permit the insurance proceeds
payable upon damage or destruction to be used for such repair or restoration,
(iii) the damage or destruction is not fully covered by the insurance maintained
by Landlord, (iv) the damage or destruction occurs in the last twenty four (24)
months of the Lease Term (unless Tenant commits to exercise any available option
to extend the Lease Term pursuant to Section 18 of this Lease), (v) Tenant is in
default pursuant to the provisions of Section 13 beyond expiration of the
applicable cure period, (vi) Tenant has vacated the Premises for more than
ninety (90) days, or (vii) if repair of the Common Area is necessary before
repairs to the Premises can be</P>
<P ALIGN="JUSTIFY">performed and Landlord reasonably determines that repairs to
the Common Area will not be made within one hundred eighty (180) days after the
date of the damage and destruction. In any such event Landlord may elect either
to (i) complete the repair or restoration, or (ii) terminate this Lease by
providing Tenant written notice of its election within sixty (60) days following
the damage or destruction.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Tenant's Rights with Respect to a Destruction of
the Premises</B>: Notwithstanding anything to the contrary contained in this
Lease: Landlord shall give notice to Tenant of its election to rebuild or not
to rebuild the Premises within thirty (30) days of casualty to the Premises and
such notice shall specify Landlord's architect's or engineer's reasonable
estimate as to the time required to rebuild or restore the Premises. If, in the
reasonable opinion of Landlord's architect or engineer, the Premises will take
longer than three hundred sixty five (365) days to rebuild or restore and
Landlord has elected to perform such rebuilding or restoration, Tenant may,
notwithstanding Landlord's election, terminate this Lease by written notice to
Landlord of such termination within five (5) days after its receipt of
Landlord's notice. Such termination shall be effective thirty (30) days after
the giving of Tenant's notice. If Landlord fails to restore the Premises
(including reasonable means of access thereto) within a period which is sixty
(60) days longer than the period stated in Landlord's notice to Tenant as the
estimated rebuilding period, 'Tenant, at any time thereafter until such
rebuilding is completed, may terminate this Lease by delivering written notice
to Landlord of such termination, in which event this Lease shall terminate as of
the date of the giving of such notice. If casualty to the Premises occurs
within the last twenty-four months of the term and the period in which Tenant is
obligated to exercise its option to renew the term pursuant to Section 18 has
not expired, Tenant shall have thirty (30) days after the date of casualty in
which to notify Landlord of its election to exercise such renewal option. If
Tenant elects to renew the term as provided above, Landlord shall have no right
to terminate the Lease pursuant to this Section 15.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">16. Condemnation: </B> If any part of the Premises
shall be taken for any public or quasi-public use, under any statute or by right
of eminent domain or private purchase in lieu thereof, and only a part thereof
remains which is susceptible of occupation hereunder, this Lease shall, as to
the part so taken, terminate as of the day before title vests in the condemnor
or purchaser ("Vesting Date") and Base Monthly Rent payable hereunder
shall be adjusted so that Tenant is required to pay for the remainder of the
Lease Term only such portion of Base Monthly Rent as the value of the part
remaining after such taking bears to the value of the entire Premises prior to
such taking. If all of the Premises or such part thereof be taken so that there
does not remain a portion susceptible for occupation hereunder, this Lease shall
terminate on the Vesting Date. If part or all of the Premises be taken, all
compensation awarded upon such taking shall go to Landlord, and Tenant shall
have no claim thereto; but Landlord shall cooperate with Tenant, without cost to
Landlord, to recover compensation for damage to or taking of any Alterations,
Tenant Improvements, or for Tenant's moving costs. Tenant hereby waives the
provisions of California Code of Civil Procedures Section 1265.130 and any other
similarly enacted statue, and the provisions of this Section 16 shall govern in
the case of such taking.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">17. Assignment or Sublease: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Consent by Landlord: </B>Except as
specifically provided in this Section 17.E, Tenant may not assign, sublet,
hypothecate, or allow a third party to use the Premises without the express
written consent of Landlord which shall not be unreasonably withheld,
conditioned or delayed. Except in connection with a Permitted Transfer, in the
event Tenant desires to assign this Lease or any interest herein including,
without limitation, a pledge, mortgage or other hypothecation, or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years if available, (iii) the nature of the proposed
transferee's business to be carried on in the Premises, (iv) a statement
outlining all consideration to be given on account of the Transfer, and (v) a
current financial statement of Tenant. Landlord may condition its approval of
any Transfer to a certification from both Tenant and the proposed transferee of
all consideration to be paid to Tenant in connection with such Transfer. At
Landlord's request, Tenant shall also provide additional information reasonably
required by Landlord to determine whether it will consent to the proposed
assignment or sublease. Landlord shall have a fifteen business (15) day period
following receipt of all the foregoing within which to notify Tenant in writing
that Landlord elects to: (i) terminate this Lease in the event of an assignment
only; (ii) permit Tenant to assign or sublet such space to the named
assignee/subtenant on the terms and conditions set forth in the notice; or (iii)
refuse consent. If Landlord should fail to notify Tenant in writing of such
election within the 15-day period, Landlord shall be deemed to have elected
option (ii) above. In the event Landlord elects option (i) above, this Lease
shall expire with respect to such part of the Premises on the date upon which
the proposed sublease was to commence, and from such date forward, Base Monthly
Rent and Tenant's Allocable Share of all other costs and charges shall be
adjusted based upon the proportion that the rentable area of the Premises
remaining bears to the total rentable area of the Premises. In the event
Landlord elects option (ii) above, Landlord's written consent to the proposed
assignment or sublease shall not be unreasonably withheld, provided and upon the
condition that: (i) the proposed assignee or subtenant is engaged in a business
that is limited to the use expressly permitted under this Lease; (ii) the
proposed assignee or subtenant is a company with sufficient financial worth and
management ability to undertake the financial obligation of this Lease and
Landlord has been furnished with reasonable proof thereof; (iii) the proposed
assignment or sublease is in form reasonably satisfactory to Landlord; (iv)
Tenant reimburses Landlord on demand for any reasonable costs that may be
incurred by Landlord in connection with said assignment or sublease, including
the costs of making investigations as to the acceptability of the proposed
assignee or subtenant and legal costs incurred in connection with the granting
of any requested consent; and (vi) Tenant shall not have advertised or
publicized in any way the availability of the Premises without prior notice to
Landlord. In the event all or any one of the foregoing conditions are not
satisfied, Landlord shall be considered to have acted reasonably if it withholds
its consent.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Assignment or Subletting Consideration:
</B>Any rent or other economic consideration realized by Tenant under any
sublease and assignment, in excess of the rent payable hereunder after deducting
(i) reasonable subletting and assignment costs (ii) the Monthly Amortized Cost
(defined below) of the Tenant Improvements paid by Tenant, and (iii) any
economic consideration received by Tenant for services rendered or personal
property sold or leased, shall be divided and paid fifty percent (50%) to
Landlord and fifty percent (50%) to Tenant. Monthly Amortized Cost shall be
determined by taking sum paid by Tenant for the Tenant Improvements installed in
the Building and dividing this sum by one hundred forty four (144) months.
Tenant's obligation to pay over Landlord's portion of the consideration
constitutes an obligation for additional rent hereunder. The above provisions
relating to Landlord's right to terminate the Lease and relating to the
allocation of bonus rent are independently negotiated terms of the Lease which
constitute a material inducement for the Landlord to enter into the Lease, and
are agreed by the parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting except in connection with a Permitted Transfer which
conflicts with the provisions hereof shall be void.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. No Release: </B>Any assignment or sublease
except in connection with a Permitted Transfer shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant.
Tenant shall indemnify, defend and hold Landlord harmless from and against all
losses, liabilities, damages, costs and expenses (including reasonable attorney
fees) resulting from any claims that may be made against Landlord by the
proposed assignee or subtenant or by any real estate brokers or other persons
claiming compensation in connection with the proposed assignment or sublease,
unless caused by Landlord's breach of this Lease. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Reorganization of Tenant: </B>The provisions
of this Section 17.D shall apply if Tenant is a corporation and: (i) there is a
dissolution, merger, consolidation, or other reorganization of or affecting
Tenant, where Tenant is not the surviving corporation, or (ii) there is a sale
or transfer to one person or entity (or to any group of related persons or
entities) of stock possessing more than 50% of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding and entitled to
vote for the election of directors, and after such sale or transfer of stock
Tenant's stock is no longer publicly traded. In a transaction under clause (i)
the surviving corporation shall promptly execute and deliver to Landlord an
agreement in form reasonably satisfactory to Landlord under which such
corporation assumes the obligations of Tenant hereunder, and in a transaction
under clause (ii) the transferee shall promptly execute and deliver to Landlord
an agreement in form reasonably satisfactory to Landlord under which such
transferee assumes the obligations of Tenant to the extent accruing after such
transferee's acquisition of Tenant's stock possessing more than 50% of the total
combined voting of all classes of Tenant's capital stock issued, outstanding and
entitled to vote for the election of directors.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Permitted Transfers: </B>Notwithstanding
anything contained in this Section 17, Tenant may enter into any of the
following transfers (a "Permitted Transfer") without Landlord's prior
consent, and Landlord shall not be entitled to terminate the Lease or to receive
any part of any subrent resulting therefrom that would otherwise be due pursuant
to Sections 17.A and 17.B. Tenant may sublease all or part of the Premises or
assign its interest in this Lease to (i) any person or entity which controls, is
controlled by, or is under common control with the original Tenant to this Lease
by means of an ownership interest of more than 50%; (ii) any person or entity
which results from a merger, consolidation or other reorganization in which
Tenant is not the survivor, so long as the survivor has a net worth at the time
of such transfer sufficient to enable it to meet its obligations under this
Lease; and (iii) any person or entity which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring person or
entity has a net worth at the time of such transfer that is sufficient at the
time of such transfer to enable it to meet its obligations under this Lease.
</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> F. Effect of Default: </B>In the event of Tenant's
default, Tenant hereby assigns all rents due from any assignment or subletting
to Landlord as security for performance of its obligations under this Lease, and
Landlord may collect such rents as Tenant's Attorney-in-Fact, except that Tenant
may collect such rents unless a default occurs as described in Section 13 above.
A Lease termination due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Conveyance by Landlord: </B> As used in this
Lease, the term "Landlord" is defined only as the owner for the time
being of the Premises, so that in the event of any sale or other conveyance of
the Premises or in the event of a master lease of the Premises, Landlord shall
be entirely freed and relieved of all its covenants and obligations hereunder,
and it shall be deemed and construed, without further agreement between the
parties and the purchaser at any such sale or the master tenant of the Premises,
that the purchaser or master tenant of the Premises has assumed and agreed to
carry out any and all covenants and obligations of Landlord hereunder. Such
transferor shall transfer and deliver Tenant's security deposit to the purchaser
at any such sale or the master tenant of the Premises, and thereupon the
transferor shall be discharged from any further liability in reference
thereto.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Successors and Assigns: </B> Subject to the
provisions this Section 17, the covenants and conditions of this Lease shall
apply to and bind the heirs, successors, executors, administrators and assigns
of all parties hereto; and all parties hereto shall be jointly and severally
liable hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">18.</B> <B>Option to Extend the Lease Term:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Grant and Exercise of Option: </B>Landlord
grants to Tenant, subject to the terms and conditions set forth in this Section
18.A, two (2) options (the "Options") to extend the Lease Term for an
additional term (the "Option Term"). Each Option Term shall be for a
period of sixty (60) months and shall be exercised, if at all, by written notice
to Landlord no earlier than eighteen (18) months prior to the date the Lease
Term would expire but for such exercise but no later than twelve (12) months
prior to the date the Lease Term would expire but for such exercise, time being
of the essence for the giving of such notice. If Tenant exercises the first
Option or both of the Options, all of the terms, covenants and conditions of
this Lease except this Section shall apply during the Option Term as though the
expiration date of the Option Term was the date originally set forth herein as
the Expiration Date, provided that Base Monthly Rent for the Premises payable by
Tenant during the Option Term shall be the greater of (i) the average amount of
Base Monthly Rent paid during the initial Lease Term, and (ii) ninety five
percent (95%) of the Fair Market Rental as hereinafter defined. Notwithstanding
anything herein to the contrary, if Tenant is in monetary or material non-
monetary default after expiration of any applicable cure period under any of the
terms, covenants or conditions of this Lease either at the time Tenant exercises
the Option or at any time thereafter prior to the commencement date of the
Option Term, Landlord shall have, in addition to all of Landlord's other rights
and remedies provided in this Lease, the right to terminate the Option upon
notice to Tenant, in which event the expiration date of this Lease shall be and
remain the Expiration Date. As used herein, the term "Fair Market
Rental" is defined as the rental and all other monetary payments, including
any escalations and adjustments thereto (including without limitation Consumer
Price Indexing) that Landlord could obtain during the Option Term from a third
party desiring to lease the Premises, based upon the current use and other
potential uses of the Premises, as determined by the rents then being obtained
for new leases of space comparable in age and quality to the Premises in the
locality of the Building. The appraisers shall be instructed that the foregoing
five percent (5%) discount is intended to reduce comparable rents which include
(i) brokerage commissions, (ii) tenant improvement allowances, and (iii) vacancy
costs, to account for the fact that Landlord will not suffer such costs in the
event Tenant exercises its Option.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Determination of Fair Market Rental: </B>If
Tenant exercises the Option, Landlord shall send Tenant a notice setting forth
the Fair Market Rental for the Option Term within thirty (30) days following the
Exercise Date. If Tenant disputes Landlord's determination of Fair Market
Rental for the Option Term, Tenant shall, within thirty (30) days after the date
of Landlord's notice setting forth Fair Market Rental for the Option Term, send
to Landlord a notice stating that Tenant either elects to terminate its exercise
of the Option, in which event the Option shall lapse and this Lease shall
terminate on the Expiration Date, or that Tenant disagrees with Landlord's
determination of Fair Market Rental for the Option Term and elects to resolve
the disagreement as provided in Section 18.C below. If Tenant elects to resolve
the disagreement as provided in Section 18.C and such procedures are not
concluded prior to the commencement date of the Option Term, Tenant shall pay to
Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord
in the manner provided above. If the Fair Market Rental as finally determined
pursuant to Section 18.C is greater than Landlord's determination, Tenant shall
pay Landlord the difference between the amount paid by Tenant and the Fair
Market Rental as so determined in Section 18.C within thirty (30) days after
such determination. If the Fair Market Rental as finally determined in Section
18.C is less than Landlord's determination, the difference between the amount
paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall
be credited against the next installments of rent due from Tenant to Landlord
hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Resolution of a Disagreement over the Fair
Market Rental: </B>Any disagreement regarding Fair Market Rental shall be
resolved as follows:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 1. Within thirty (30) days after Tenant's response
to Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant
shall meet at least two (2) times at a mutually agreeable time and place, in an
attempt to resolve the disagreement.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 2. If within the 30-day period referred to above,
Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party
shall select one appraiser to determine Fair Market Rental. Each such appraiser
shall arrive at a determination of Fair Market Rental and submit their
conclusions to Landlord and Tenant within thirty (30) days after the expiration
of the 30-day consultation period described above.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 3. If only one appraisal is submitted within the
requisite time period, it shall be deemed as Fair Market Rental. If both
appraisals are submitted within such time period and the two appraisals so
submitted differ by less than ten percent (10%), the average of the two shall be
deemed as Fair Market Rental. If the two appraisals differ by more than 10%,
the appraisers shall immediately select a third appraiser who shall, within
thirty (30) days after his selection, make and submit to Landlord and Tenant a
determination of Fair Market Rental. This third appraisal will then be averaged
with the closer of the two previous appraisals and the result shall be Fair
Market Rental.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 4. All appraisers specified pursuant to this
Section shall be members of the American Institute of Real Estate Appraisers
with not less than ten (10) years experience appraising office and industrial
properties in the Santa Clara Valley. Each party shall pay the cost of the
appraiser selected by such party and one-half of the cost of the third
appraiser.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Personal to Tenant: </B> All Options provided
to Tenant in this Lease are personal and granted to Siebel Systems, Inc. and any
Permitted Transferee and are not exercisable by any third party should Tenant
assign or sublet all or a portion of its rights under this Lease, unless
Landlord consents to permit exercise of any option by any assignee or subtenant,
in Landlord's sole and absolute discretion. In the event Tenant has multiple
options to extend this Lease, a later option to extend the Lease cannot be
exercised unless the prior option has been so exercised.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">19.</B> <B>Option to Lease:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Grant and Exercise of Option: </B>Landlord
grants to Tenant an option to lease Building 3 under the terms and conditions
specified in the Building 2 Lease.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">20. Right Of First Offering To Purchase: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Grant and Exercise of Option: </B>In the event
either or both Master Landlord and Landlord elect to sell their respective
interests in the Building, Master Landlord and Landlord hereby grants Tenant a
right of first offering to purchase their respective interests in the Building
(Master Landlord and Landlord are individually and collectively referred to in
this Section as "Seller"). Prior to Seller offering to sell its
interest in the Building to a third party, Seller shall give Tenant written
notice of such desire and the terms and other information under which Seller
intends to sell the Building. Provided at the time of exercise, Tenant is not
in default beyond the expiration of any applicable cure period, Tenant shall
have the option, which must be exercised, if at all, by written notice to Seller
within thirty (30) days after Tenant's receipt of Seller's notice, to purchase
its interest in the Building at the sales price and terms of sale specified in
the notice. In the event Tenant timely exercises such option to purchase its
interest in the Building, Seller shall sell its interest in the Building to
Tenant, and Tenant shall purchase its interest in the Building from Seller in
accordance with the price and terms specified in Seller's notice. Seller and
Tenant shall, in good faith, attempt to reach agreement on the terms of a
mutually acceptable purchase agreement consistent with the terms set forth in
Seller's notice within thirty (30) days of Seller's notice. In the event (i)
Seller and Tenant are unable to reach agreement on a mutually acceptable
purchase agreement within such thirty (30) day period or (ii) Tenant fails to
exercise Tenant's option within said thirty (30) day period, Seller shall have
one hundred eighty (180) days thereafter to sell its interest in the Building at
no less than ninety five percent (95%) of the sales price and upon the same or
substantially the same other terms of sale as specified in the notice to Tenant.
In the event Seller fails to sell its interest in the Building within said one
hundred eighty (180) day period or in the event Seller proposes to sell its
interest in the Building at less than ninety five percent (95%) of the sales
price or on other material terms which are more favorable to the prospective
buyer than that proposed to Tenant, Seller shall be required to resubmit such
offer to Tenant in accordance with this Right of First Offering except that
Tenant shall be required to respond to any resubmission within a seven (7) day
period.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Exclusions:</B> This Right of First
Offering shall automatically terminate, (i) upon the expiration or sooner
termination of the Lease, or (ii) in the event of a foreclosure or other
involuntary transfer of Landlord's interest in the Building. Notwithstanding
the forgoing, this Right of First Offering shall not apply to transfers (but
shall survive such transfers ) of all or a portion of the Building or Project to
(i) John A. Sobrato and/or John M. Sobrato (individually and collectively
"Sobrato"), and (ii) any immediate family member of Sobrato, and (iii)
any trust established, in whole or in art, for the benefit of Sobrato and/or any
immediate family member of Sobrato, (iv) any partnership in which Sobrato or any
immediate family member, either directly or indirectly (e.g., through a
partnership or corporate entity or a trust) retains a general partner interest,
and/or (v) any corporation under the control, either directly or indirectly, by
Sobrato or any immediate family member of Sobrato.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">21. General Provisions:</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Attorney's Fees:</B> In the event a suit or
alternative form of dispute resolution is brought for the possession of the
Premises, for the recovery of any sum due hereunder, to interpret the Lease, or
because of the breach of any other covenant herein; then the losing party shall
pay to the prevailing party reasonable attorney's fees including the expense of
expert witnesses, depositions and court testimony as part of its costs which
shall be deemed to have accrued on the commencement of such action. The
prevailing party shall also be entitled to recover all costs and expenses
including reasonable attorney's fees incurred in enforcing any judgment or award
against the other party. The foregoing provision relating to post-judgment
costs is severable from all other provisions of this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Authority of Parties: </B>Tenant represents
and warrants that it is duly formed and in good standing, and is duly authorized
to execute and deliver this Lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of said corporation or
in accordance with the by-laws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms. At Landlord's
request, Tenant shall provide Landlord with corporate resolutions or other proof
in a form acceptable to Landlord, authorizing the execution of the Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Brokers: </B> Tenant represents it has not
utilized or contacted a real estate broker or finder with respect to this Lease
other than Chris Allen, d/b/a Resource Real Estate Group, which fee shall be
payable by Landlord pursuant to a written agreement and the Parties agree to
indemnify, defend and hold each other harmless against any claim, cost,
liability or cause of action asserted by any other broker or finder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Choice of Law: </B>This Lease shall be
governed by and construed in accordance with California law. Except as
provided in Section 21.E, venue shall be Santa Clara County.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Dispute Resolution: </B>Landlord and Tenant and
any other party that may become a party to this Lease or be deemed a party to
this Lease including any subtenants agree that, except for any claim by Landlord
for unlawful detainer or any claim within the jurisdiction of the small claims
court (which small claims court shall be the sole court of competent
jurisdiction), any controversy, dispute, or claim of whatever nature arising out
of, in connection with or in relation to the interpretation, performance or
breach of this Lease, including any claim based on contract, tort, or statute,
shall be resolved at the request of any party to this agreement through a two-
step dispute resolution process administered by J.A.M.S. or another judicial
mediation service mutually acceptable to the parties located in Santa Clara
County, California. The dispute resolution process shall involve first,
mediation, followed, if necessary, by final and binding arbitration administered
by and in accordance with the then existing rules and practices of J.A.M.S. or
other judicial mediation service selected. In the event of any dispute subject
to this provision, either party may initiate a request for mediation and the
parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and
commence the mediation. In the event the parties are not able to agree on a
mediator within thirty (30) days, J. A. M. S. or another judicial mediation
service mutually acceptable to the parties shall appoint a mediator. The
mediation shall be confidential and in accordance with California Evidence Code
1119 et. seq. The mediation shall be held in Santa Clara County, California
and in accordance with the existing rules and practice of J. A. M. S. (or other
judicial and mediation service selected). The parties shall use reasonable
efforts to conclude the mediation within sixty (60) days of the date of either
party's request for mediation. The mediation shall be held prior to any
arbitration or court action (other than a claim by Landlord for unlawful
detainer or any claim within the jurisdiction of the small claims court which
are not subject to this mediation/arbitration provision and may be filed
directly with a court of competent jurisdiction). Should the prevailing party in
any dispute subject to this Section 19.E attempt an arbitration or a court
action before attempting to mediate, the prevailing party shall not be entitled
to attorney's fees that might otherwise be available to them in a court action
or arbitration and in addition thereto, the party who is determined by the
arbitrator to have resisted mediation, shall be sanctioned by the arbitrator or
judge.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">If a mediation is conducted but is unsuccessful, it shall be
followed by final and binding arbitration administered by and in accordance with
the then existing rules and practices of J.A.M.S. or the other judicial and
mediation service selected, and judgment upon any award rendered by the
arbitrator(s) may be entered by any state or federal court having jurisdiction
thereof AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ,
AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR
SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT in no event shall
the parties be entitled to propound interrogatories or request for admissions
during the arbitration process. The arbitrator shall be a retired judge or a
licensed California attorney. The venue for any such arbitration or mediation
shall be in Santa Clara County, California.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND
ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE
DISPUTE LITIGATED IN A COURT OR fURY TRIAL. BY INITIALING IN THE SPACE BELOW
YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE
RIGHTS ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION
IS VOLUNTARY.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION
OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">LANDLORD: ______ TENANT: _______</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> F. Entire Agreement: </B>This Lease and the
exhibits attached hereto contains all of the agreements and conditions made
between the parties hereto and may not be modified orally or in any other manner
other than by written agreement signed by all parties hereto or their respective
successors in interest. This Lease supersedes and revokes all previous
negotiations, letters of intent, lease proposals, brochures, agreements,
representations, promises, warranties, and understandings, whether oral or in
writing, between the parties or their respective representatives or any other
person purporting to represent Landlord or Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Entry by Landlord: </B> Upon prior notice to
Tenant and subject to Tenant's reasonable security regulations, Tenant shall
permit Landlord and his agents to enter into and upon the Premises at all
reasonable times, and without any rent abatement or reduction or any liability
to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby
occasioned, unless caused by Landlord's negligence or willful misconduct, for
the following purposes: (i) inspecting and maintaining the Premises; (ii)
making repairs, alterations or additions (only if agreed by Tenant) to the
Premises; (iii) erecting additional building(s) and improvements on the land
where the Premises are situated or on adjacent land owned by Landlord; and (iv)
performing any obligations of Landlord under the Lease including remediation of
hazardous materials if determined to be the responsibility of Landlord provided
that Landlord agrees to use reasonable efforts to minimize interference with
Tenant's use. Tenant shall permit Landlord and his agents, at any time within
one hundred eighty (180) days prior to the Expiration Date (or at any time
during the Lease if Tenant is in default hereunder), to place upon the Premises
"For Lease" signs and exhibit the Premises to real estate brokers and
prospective tenants at reasonable hours.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> H. Estoppel Certificates: </B> At any time during
the Lease Term, each party (the "Responding Party") shall, within ten
(10) days following written notice from the other party (the "Requesting
Party"), execute and deliver to the Requesting Party a written statement
certifying, if true, the following: (i) that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification); (ii) the date to which rent and other charges are paid in
advance, if any; (iii) acknowledging that there are not, to Responding Party's
knowledge, any uncured defaults on Requesting Party's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Requesting Party may reasonably request. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of
Requesting Party's interest in the Premises. The Responding Party's failure to
deliver such statement within such time shall be conclusive upon the Responding
Party that this Lease is in full force and effect without modification, except
as may be represented by the Requesting Party, and that there are no uncured
defaults in Requesting Party's performance. Tenant agrees to provide, within
five (5) days of Landlord's request, Tenant's most recent three (3) years of
audited financial statements for Landlord's use in financing the Premises or
Landlord's interest therein.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> I. Exhibits: </B>All exhibits referred to are
attached to this Lease and incorporated by reference.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> J. Interest: </B>All rent due hereunder, if not
paid when due, shall bear interest at the rate of the Reference Rate published
by Bank of America, San Francisco Branch, plus two percent (2%) per annum from
that date until paid in full ("Agreed Interest Rate"). This provision
shall survive the expiration or sooner termination of the Lease. Despite any
other provision of this Lease, the total liability for interest payments shall
not exceed the limits, if any, imposed by the usury laws of the State of
California. Any interest paid in excess of those limits shall be refunded to
Tenant by application of the amount of excess interest paid against any sums
outstanding in any order that Landlord requires. If the amount of excess
interest paid exceeds the sums outstanding, the portion exceeding those sums
shall be refunded in cash to Tenant by Landlord. To ascertain whether any
interest payable exceeds the limits imposed, any non-principal payment(including
late charges) shall be considered to the extent permitted by law to be an
expense or a fee, premium, or penalty rather than interest.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>K. Modifications Required by Lender: </B>If any
Lender of Landlord or ground lessor of the Real Property Requires a modification
of this Lease that will not increase Tenant's cost or expense or materially or
adversely change Tenant's rights and obligations, this Lease shall be so
modified and Tenant shall execute whatever documents are required and deliver
them to Landlord within ten (10) days after the request.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>L. No Presumption Against Drafter: </B>Landlord
and Tenant understand, agree and acknowledge that this Lease has been freely
negotiated by both parties; and that in any controversy, dispute, or contest
over the meaning, interpretation, validity, or enforceability of this Lease or
any of its terms or conditions, there shall be no inference, presumption, or
conclusion drawn whatsoever against either party by virtue of that party having
drafted this Lease or any portion thereof.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> M. Notices: </B> All notices, demands, requests,
or consents required to be given under this Lease shall be sent in writing by
U.S. certified mail, return receipt requested, or by personal delivery or by a
nationally recognized overnight courier addressed to the party to be notified at
the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party.<B> </B>When this
Lease requires service of a notice, that notice shall replace rather than
supplement any equivalent or similar statutory notice, including any notices
required by Code of Civil Procedure Section 1161 or any similar or successor
statute. when a statute requires service of a notice in a particular manner,
service of that notice (or a similar notice required by this lease) shall
replace and satisfy the statutory service-of-notice procedures, including those
required by Code of Civil Procedure Section 1162 or any similar or successor
statute.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> N. Property Management:</B> No property
management fee shall be payable to Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> O. Rent: </B>All monetary sums due from Tenant
to Landlord under this Lease, including, without limitation those referred to as
"additional rent", shall be deemed as rent.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> P. Representations: </B>Tenant acknowledges that
neither Landlord nor any of its employees or agents have made any agreements,
representations, warranties or promises with respect to the Premises or with
respect to present or future rents, expenses, operations, tenancies or any other
matter. Except as herein expressly set forth herein, Tenant relied on no
statement of Landlord or its employees or agents for that purpose.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> Q. Rights and Remedies: </B>All rights and
remedies hereunder are cumulative and not alternative to the extent permitted by
law, and are in addition to all other rights and remedies in law and in
equity.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> R. Severability: </B>If any term or provision of
this Lease is held unenforceable or invalid by a court of competent
jurisdiction, the remainder of the Lease shall not be invalidated thereby but
shall be enforceable in accordance with its terms, omitting the invalid or
unenforceable term.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>S. Submission of Lease:</B> Submission of this
document for examination or signature by the parties does not constitute an
option or offer to lease the Premises on the terms in this document or a
reservation of the Premises in favor of Tenant. This document is not effective
as a lease or otherwise until executed and delivered by both Landlord and
Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> T. Subordination: </B> This Lease is subject and
subordinate to ground and underlying leases, mortgages and deeds of trust
(collectively "Encumbrances") which may now affect the Premises, to
any covenants, conditions or restrictions of record, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
however, if the holder or holders of any such Encumbrance ("Holder")
require that this Lease be prior and superior thereto, within seven (7) days
after written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver all documents or instruments, in the form presented to
Tenant, which Landlord or Holder deems necessary or desirable for such purposes.
Landlord shall have the right to cause this Lease to be and become and remain
subject and subordinate to any and all Encumbrances which are now or may
hereafter be executed covering the Premises or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default beyond the expiration of any applicable
cure period and continues to pay Base Monthly Rent and additional rent and
observes and performs all required provisions of this Lease. Within ten (10)
days after Landlord's written request, Tenant shall execute any documents
required by Landlord or the Holder to make this Lease subordinate to any lien of
the Encumbrance. If Tenant fails to do so, then in addition to such failure
constituting a default by Tenant, it shall be deemed that this Lease is so
subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> This Lease constitutes a sublease under that certain
Ground Lease dated March 5, 1999 (the "Existing Ground Lease") between The
Sobrato 1979 Revocable Trust, As Amended ("Master Landlord"), as landlord and
Landlord, as tenant, covering all of the real property within the Project, a
copy which has been provided to Tenant, and under the Parcel Lease described in
the next sentence. In connection with the subdivision of the Project as
contemplated by Section 2.C above, it is anticipated that a separate Parcel
Lease (as defined in the Existing Ground Lease) will be entered into between
Master Landlord, as landlord, and Landlord, as tenant, for the lot within which
the Building will be constructed. As used in this Lease, "Master Lease" shall
mean the Existing Ground Lease, until such time as the Parcel Lease is entered
into, and thereafter shall mean the Parcel Lease. Notwithstanding this Section
21.T above, concurrently with the execution of this Lease by Landlord and
Tenant, Landlord and Tenant shall execute in recordable form, and Landlord shall
cause Master Landlord to execute in recordable form, the Subordination,
Nondisturbance and Attornment Agreement attached hereto as Exhibit "G" (the
"SNDA"). Landlord shall cause the SNDA to be recorded at Landlord's cost in the
Official Records of San Mateo County, California within five (5) days after this
Lease is executed by Landlord and Tenant. Similarly, in connection with the
Parcel Lease, within ten (10) days after Landlord's request, Landlord and Tenant
shall execute in recordable form, and Landlord shall cause Master Landlord to
execute in recordable form, a Subordination, Nondisturbance and Attornment
Agreement substantially in the form of the SNDA (the "Revised SNDA"), modified
to refer to the Parcel Lease, Memorandum of Parcel Lease to be recorded in
connection with the Parcel Lease and the revised Premises description, rather
than the Original Ground Lease, the Memorandum of Ground Lease referenced in the
SNDA and the original Premises described in this Lease. Landlord shall cause
the Revised SNDA to be recorded at Landlord's cost in the Official Records of
San Mateo County, California immediately after recordation of the Memorandum of
Lease recorded for the Parcel Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Notwithstanding the foregoing, Tenant shall not be
required to subordinate its interest under this Lease unless (i) such
subordination' does not materially increase Tenant's obligations, or materially
decrease its rights under this Lease, and (ii) Landlord first obtains from the
holder of the mortgage, deed of trust, or other instrument of security to which
this Lease is to become subordinated a written agreement that provides
substantially that as long as Tenant performs its obligations under this Lease,
no foreclosure of, deed given in lieu of foreclosure of, or sale under the
encumbrance, and no steps or procedures taken under the encumbrance, shall
affect Tenant's rights hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>U. Survival of Indemnities: </B>All
indemnification, defense, and hold harmless obligations of Landlord and Tenant
under this Lease shall survive the expiration or sooner termination of the
Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> V. Time: </B>Time is of the essence
hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> W.</B> <B>Transportation Demand Management
Programs: </B>Should a government agency or municipality require Landlord to
institute TDM (Transportation Demand Management) facilities and/or program,
Tenant agrees that the cost of TDM imposed facilities required on the Premises,
including but not limited to employee showers, lockers, cafeteria, or lunchroom
facilities, shall be paid by Tenant. Further, any ongoing costs or expenses
associated with a TDM program which are required for the Premises and not
provided by Tenant, such as an on-site TDM coordinator, shall be provided by
Landlord with such reasonable costs being included as additional rent and
reimbursed to Landlord by Tenant within thirty (30) days after demand. If TDM
facilities and programs are instituted on a Project wide basis, Tenant shall pay
its proportionate share of such costs in accordance with Section 8 above.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">IN WITNESS WHEREOF</B>, Landlord and Tenant have executed
this Lease on the day and year first above written. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Landlord: </B>SOBRATO INTERESTS III<B> Tenant:
</B>SIEBEL SYSTEMS, INC.</P>
<P ALIGN="JUSTIFY">a California Limited Partnership a Delaware
Corporation</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">By: _____________________________ By:
_____________________________</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Its: General Partner Its:
_____________________________</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">Master Landlord: </B>THE SOBRATO 1979 REVOCABLE TRUST</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">By: _____________________________</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Its: Trustee </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "A" - Building and Project - Initial
Buildout</P>
</B><I><P ALIGN="CENTER">(being finalized by architect - to be attached)</P>
</I><P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Exhibit "B" - Building and Project - Full
Buildout</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "C" - Parcel Map & Declaration of
Covenants and Grant of Easements</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "D" - Shell Plans and Specifications</P>
</B><I><P ALIGN="CENTER">(sheet references to be attached)</P>
</I><P ALIGN="JUSTIFY"></P>
<P ALIGN="CENTER"> </P>
<B><P ALIGN="CENTER">EXHIBIT "E" - Building Shell Definition</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">1. Building Structure</P>
</B><P ALIGN="JUSTIFY"> (a) All foundations to include footings, piling,
grade beams, foundation walls or other building foundation components required
to support the building structure.</P>
<P ALIGN="JUSTIFY"> (b) Concrete slab supported on beams and columns above
the parking podium and any other reinforcing or structural connections that may
be necessary or required as specified by structural engineer.</P>
<P ALIGN="JUSTIFY"> (c) Complete structural framing system comprised of
rolled steel beams, columns, and braced-frame steel construction with corrugated
metal deck and concrete fill, all members required by code to be fireproofed.
Upper floor systems provide a minimum of 3" concrete over metal deck and are
designed for an 80 lb. live load plus 20 lb. partition load. Structural framing
will include intermediate beams for HVAC units at the roof, and for major shafts
on each floor. A roof screen consistent with the design of the building and
acceptable to the local Building and Planning Departments is included.</P>
<P ALIGN="JUSTIFY"> (d) Tinted high performance glass including required
caulking and sealants. Tinted reflective glass window wall system with granite
and stainless steel accents. Two (2) pair of lobby doors, and two (2) exit
doors per building. All shell doors will be fitted with electric locks and
conduit to J-boxes ready for connection to the Tenant's security system.</P>
<P ALIGN="JUSTIFY"> (e) Four (4) ply built up roofing by Owens-Corning,
John Manville, or equal and all flashings over a light weight concrete on
corrugated metal deck roof system. Title 24 code required roof insulation is
included.</P>
<P ALIGN="JUSTIFY"> (f) Exterior painting where required with Texcoat
textural paint and all caulking of exterior concrete joints in preparation for
painting.</P>
<P ALIGN="JUSTIFY"> (g) One (1) steel fire stair at perimeter of building,
and two (2) interior fire stairs which will extent to the roof.</P>
<P ALIGN="JUSTIFY"> (h) At grade loading area with screening and scissors
lift external of building.</P>
<P ALIGN="JUSTIFY"> (i) Riser for Building sprinkler system (no sprinkler
grid or drops).</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">2. Podium Garage Structure</P>
</B><P ALIGN="JUSTIFY"> (a) Podium garage structure with access ramps,
fire sprinkler system, emergency exit stairways, and mechanical venting (if
required).</P>
<P ALIGN="JUSTIFY"> (b) Lighting in podium parking to a minimum level per
code.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">3. Sitework</P>
</B><P ALIGN="JUSTIFY"> (a) All work outside the building perimeter walls
shall be considered site work for the Building Shell and shall include asphalt
concrete paving, landscaping, landscape irrigation, storm drainage, utility
service laterals, curbs, gutters, sidewalks, specialty paving (if required),
retaining walls, planters, trash enclosure, parking lot and landscape lighting
and other exterior lighting per code. All fountains and podium landscaping
shall also be considered site work for the Building Shell.</P>
<P ALIGN="JUSTIFY"> (b) Paving sections for automobile and truck access
shall be according to the Geologic Soils Report.</P>
<P ALIGN="JUSTIFY"> (c) All parking lot striping to include handicap
spaces and signage.</P>
<P ALIGN="JUSTIFY"> (d) Underground site storm drainage system shall be
connected to the city storm system main.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">4. Plumbing</P>
</B><P ALIGN="JUSTIFY"> (a) Underground sanitary sewer lateral connected
to the city sewer main in the street and stubbed to the core of the
building.</P>
<P ALIGN="JUSTIFY"> (b) Domestic water mains connected to the city water
main in the street and stubbed to the building.</P>
<P ALIGN="JUSTIFY"> (c) Roof drain leaders and downspouts piped and
connected to the site storm drainage system.</P>
<P ALIGN="JUSTIFY"> (d) Gas lines connected to the city or public utility
mains and run to gas meters adjacent to, and in close proximity to the building.
Meter supplied by utility company.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">5. Electrical</P>
</B><P ALIGN="JUSTIFY"> (a) A primary and secondary electrical service
from the street to the building electrical room in the garage podium including
underground conduit, wire feeders, and transformer pads. Transformer supplied
by utility company. </P>
<P ALIGN="JUSTIFY"> (b) Two 4" Underground conduit from the street to the
building for telephone trunk lines by Pacific Telephone. </P>
<P ALIGN="JUSTIFY"> (c) Two 4" conduit from the building to each of the
adjacent buildings for future data connections.</P>
<P ALIGN="JUSTIFY"> (d) An electrically operated landscape irrigation
system, with controller, that is a complete and functioning system.</P>
<P ALIGN="JUSTIFY"> (e) Underground conduit from the building to the main
fire protection system post indicated valve (PIV) for installation of
supervisory alarm wiring.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">6. General</P>
</B><P ALIGN="JUSTIFY"> (a) All construction shall conform to State and
Local Building Codes, Title 24 Regulations, and shall be ADA Compliant.</P>
<P ALIGN="JUSTIFY"> (b) All building shell work shall be constructed as
described above and as show on the drawings listed in the attached Exhibit
(TBD).</P>
<P ALIGN="JUSTIFY"> (c) All other costs shall be deemed Tenant
Improvements.</P>
<P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER">EXHIBIT "F" - Tenant Improvement Plans and
Specifications</P>
</B><I><P ALIGN="CENTER">(sheet references to be attached)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
</I><B><P ALIGN="CENTER">EXHIBIT "G" - Subordination, Nondisturbance
and Attornment Agreement</P>
<P ALIGN="CENTER"></P></B></FONT>
</body>
</HTML>
Exhibit 10.10
<HTML>
<head>
<TITLE>Sobrato 2207</TITLE>
</head>
<body bgcolor=white>
<font FACE="Courier New" SIZE="2">
</font>
<B><FONT FACE="Helvetica,Arial" SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
</FONT><FONT FACE="Palatino,Book Antiqua" SIZE=2><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Lease between</P>
<P ALIGN="CENTER">Sobrato Interests III and Siebel Systems, Inc.</P>
<P ALIGN="CENTER">Building 3 - 2207 Bridgepointe Parkway, San Mateo</P>
</B><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<B><P> </P>
<P>Section Page #</P>
</B><P ALIGN="JUSTIFY">Parties </FONT><A HREF="#_Toc452448770">*</A>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Premises </FONT>
<A HREF="#_Toc452448771">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Definitions </FONT>
<A HREF="#_Toc452448772">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Description </FONT>
<A HREF="#_Toc452448773">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Use </FONT>
<A HREF="#_Toc452448774">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Permitted Uses </FONT>
<A HREF="#_Toc452448775">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Uses Prohibited </FONT>
<A HREF="#_Toc452448776">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Advertisements and
Signs </FONT><A HREF="#_Toc452448777">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Covenants, Conditions and
Restrictions </FONT><A HREF="#_Toc452448778">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Term and Rental </FONT>
<A HREF="#_Toc452448779">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Base Monthly Rent </FONT>
<A HREF="#_Toc452448780">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rental Adjustment </FONT>
<A HREF="#_Toc452448781">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Late Charges </FONT>
<A HREF="#_Toc452448782">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Security Deposit </FONT>
<A HREF="#_Toc452448783">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Construction </FONT>
<A HREF="#_Toc452448784">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Building Shell Plans </FONT>
<A HREF="#_Toc452448785">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Plans </FONT><A HREF="#_Toc452448786">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Pricing </FONT><A HREF="#_Toc452448787">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Change Orders </FONT>
<A HREF="#_Toc452448788">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Building Shell Costs </FONT>
<A HREF="#_Toc452448789">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Improvement
Costs </FONT><A HREF="#_Toc452448790">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Construction </FONT>
<A HREF="#_Toc452448791">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>General Contractor Overhead &
Profit </FONT><A HREF="#_Toc452448792">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant Delays </FONT>
<A HREF="#_Toc452448793">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Insurance </FONT>
<A HREF="#_Toc452448794">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Punch List &
Warranty </FONT><A HREF="#_Toc452448795">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Other Work by Tenant </FONT>
<A HREF="#_Toc452448796">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Acceptance of Possession and
Covenants to Surrender </FONT><A HREF="#_Toc452448797">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Delivery and
Acceptance </FONT><A HREF="#_Toc452448798">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Condition Upon
Surrender </FONT><A HREF="#_Toc452448799">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Failure to Surrender </FONT>
<A HREF="#_Toc452448800">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Alterations and
Additions </FONT><A HREF="#_Toc452448801">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Alterations </FONT>
<A HREF="#_Toc452448802">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Free From Liens </FONT>
<A HREF="#_Toc452448803">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Compliance With Governmental
Regulations </FONT><A HREF="#_Toc452448804">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Maintenance of
Premises </FONT><A HREF="#_Toc452448805">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Obligations </FONT>
<A HREF="#_Toc452448806">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Obligations </FONT>
<A HREF="#_Toc452448807">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord and Tenant's Obligations
Regarding Reimbursable Operating Costs </FONT>
<A HREF="#_Toc452448808">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Reimbursable Operating
Costs </FONT><A HREF="#_Toc452448809">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Allocable
Share </FONT><A HREF="#_Toc452448810">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exclusions to Reimbursable
Operating Costs </FONT><A HREF="#_Toc452448811">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Waiver of Liability </FONT><A
HREF="#_Toc452448812">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Right to
Audit </FONT><A HREF="#_Toc452448813">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Hazard Insurance </FONT>
<A HREF="#_Toc452448814">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Use </FONT>
<A HREF="#_Toc452448815">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Insurance </FONT>
<A HREF="#_Toc452448816">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Insurance </FONT>
<A HREF="#_Toc452448817">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Waiver </FONT>
<A HREF="#_Toc452448818">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Taxes </FONT>
<A HREF="#_Toc452448819">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Utilities </FONT>
<A HREF="#_Toc452448820">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Toxic Waste and Environmental
Damage </FONT><A HREF="#_Toc452448821">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's
Responsibility </FONT><A HREF="#_Toc452448822">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Indemnity Regarding
Hazardous Materials </FONT><A HREF="#_Toc452448823">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Indemnity Regarding
Hazardous Materials </FONT><A HREF="#_Toc452448824">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Actual Release by
Tenant </FONT><A HREF="#_Toc452448825">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Environmental
Monitoring </FONT><A HREF="#_Toc452448826">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Default </FONT>
<A HREF="#_Toc452448827">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Remedies </FONT>
<A HREF="#_Toc452448828">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Right to Re-enter </FONT>
<A HREF="#_Toc452448829">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Abandonment </FONT>
<A HREF="#_Toc452448830">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Termination </FONT>
<A HREF="#_Toc452448831">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Non-Waiver </FONT>
<A HREF="#_Toc452448832">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Performance by
Landlord </FONT><A HREF="#_Toc452448833">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Liability </FONT>
<A HREF="#_Toc452448834">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitation on Landlord's
Liability </FONT><A HREF="#_Toc452448835">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitation on Tenant's
Recourse </FONT><A HREF="#_Toc452448836">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Indemnification of
Landlord </FONT><A HREF="#_Toc452448837">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Destruction of
Premises </FONT><A HREF="#_Toc452448838">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Landlord's Obligation to
Restore </FONT><A HREF="#_Toc452448839">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Limitations on Landlord's
Restoration Obligation </FONT><A HREF="#_Toc452448840">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Tenant's Rights with Respect to a
Destruction of the Premises </FONT><A HREF="#_Toc452448841">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Condemnation </FONT>
<A HREF="#_Toc452448842">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Assignment or Sublease </FONT>
<A HREF="#_Toc452448843">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Consent by Landlord </FONT>
<A HREF="#_Toc452448844">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Assignment or Subletting
Consideration </FONT><A HREF="#_Toc452448845">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Release </FONT>
<A HREF="#_Toc452448846">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Reorganization of
Tenant </FONT><A HREF="#_Toc452448847">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Permitted Transfers </FONT>
<A HREF="#_Toc452448848">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Effect of Default </FONT>
<A HREF="#_Toc452448849">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Effects of Conveyance </FONT>
<A HREF="#_Toc452448850">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Successors and Assigns </FONT>
<A HREF="#_Toc452448851">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Option to Extend the Lease
Term </FONT><A HREF="#_Toc452448852">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc452448853">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Determination of Fair Market
Rental </FONT><A HREF="#_Toc452448854">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Resolution of a Disagreement over
the Fair Market Rental </FONT><A HREF="#_Toc452448855">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Personal to Tenant </FONT>
<A HREF="#_Toc452448856">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Option to Extend the Lease
Term </FONT><A HREF="#_Toc452448857">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Right of First Offering to
Purchase </FONT><A HREF="#_Toc452448858">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Grant and Exercise of
Option </FONT><A HREF="#_Toc452448859">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exclusions </FONT>
<A HREF="#_Toc452448860">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>General Provisions </FONT>
<A HREF="#_Toc452448861">*</A></P><DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Attorney's Fees </FONT>
<A HREF="#_Toc452448862">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Authority of Parties </FONT>
<A HREF="#_Toc452448863">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Brokers </FONT>
<A HREF="#_Toc452448864">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Choice of Law </FONT>
<A HREF="#_Toc452448865">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Dispute Resolution </FONT>
<A HREF="#_Toc452448866">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Entire Agreement </FONT>
<A HREF="#_Toc452448867">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Entry by Landlord </FONT>
<A HREF="#_Toc452448868">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Estoppel Certificates </FONT>
<A HREF="#_Toc452448869">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Exhibits </FONT>
<A HREF="#_Toc452448870">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Interest </FONT>
<A HREF="#_Toc452448871">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Modifications Required by
Lender </FONT><A HREF="#_Toc452448872">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>No Presumption Against
Drafter </FONT><A HREF="#_Toc452448873">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Notices </FONT>
<A HREF="#_Toc452448874">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Property Management </FONT>
<A HREF="#_Toc452448875">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rent </FONT>
<A HREF="#_Toc452448876">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Representations </FONT>
<A HREF="#_Toc452448877">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Rights and Remedies </FONT>
<A HREF="#_Toc452448878">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Severability </FONT>
<A HREF="#_Toc452448879">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Submission of Lease </FONT>
<A HREF="#_Toc452448880">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Subordination </FONT>
<A HREF="#_Toc452448881">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Survival of
Indemnities </FONT><A HREF="#_Toc452448882">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Time </FONT>
<A HREF="#_Toc452448883">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>Transportation Demand Management
Programs </FONT><A HREF="#_Toc452448884">*</A></P></DIR>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT A - Premises and Project -
Initial Buildout </FONT><A HREF="#_Toc452448885">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT B - Not
Applicable </FONT><A HREF="#_Toc452448886">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT C - Declaration of
Covenants and Grant of Easements </FONT><A HREF="#_Toc452448887">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT D - Shell Plans and
Specifications </FONT><A HREF="#_Toc452448888">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT E - Building Shell
Definition </FONT><A HREF="#_Toc452448889">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT F - Tenant Improvement
Plans and Specifications </FONT><A HREF="#_Toc452448890">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P>EXHIBIT G - Subordination,
Nondisturbance and Attornment Agreement </FONT><A
HREF="#_Toc452448891">*</A></P>
<FONT FACE="Palatino,Book Antiqua" SIZE=2><P ALIGN="JUSTIFY"></P></P>
<B><P ALIGN="JUSTIFY">1. Parties: </B> <B><I>THIS LEASE,</B></I> is entered
into on this 11th day of June, 1999, ("Effective Date") between
SOBRATO INTERESTS III, a California Limited Partnership, whose address is 10600
North De Anza Boulevard, Suite 200, Cupertino, CA 95014-2075 and SIEBEL
SYSTEMS, INC., a Delaware Corporation, whose address is 1855 South Grant Street,
San Mateo, California, CA 94402-2667, hereinafter called respectively Landlord
and Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">2. Premises: </P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Definitions</B>. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>i. Building</B>. The term
"Building" shall mean that five (5) story steel frame building
containing approximately 167,505 rentable square feet and all Tenant
Improvements installed therein to be constructed by Landlord and leased by
Tenant pursuant to the terms of this Lease in the location labeled as Building 3
on <U>Exhibit "A" </U>and commonly known as 2207 Bridgepointe Parkway.
</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> ii. Building 1</B>. The term "Building
1" shall mean that five (5) story steel frame building containing
approximately 141,496 rentable square feet to be constructed by Landlord and
leased by Tenant pursuant to a separate lease between the Parties dated March
11, 1999 ("Building 1 Lease") in the location labeled as Building 1 on
<U>Exhibit "A"</U> attached hereto and commonly known as 2215
Bridgepointe Parkway</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>iii. Building 2</B>. The term
"Building 2" shall mean that five (5) story steel frame building
containing approximately 141,496 rentable square feet to be constructed by
Landlord and leased by Tenant pursuant to a separate lease between the Parties
dated March 11, 1999 ("Building 2 Lease") in the location labeled as
Building 2 on <U>Exhibit "A"</U> and commonly known as 2211
Bridgepointe Parkway.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>iv. Common Area</B>. The term
"Common Area" shall mean that certain real property beneath and
surrounding the Building, Building 1 and Building 2 consisting of an underground
parking garage of approximately 455 parking spaces, on-grade parking lots
consisting of approximately 255 parking spaces, an above grade parking structure
to total approximately 850 parking spaces, and the recreation areas and the
adjacent landscaped site areas as shown on <U>Exhibit "A"</U>..</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Landlord shall have the power to allocate to each tenant in
the Project, the number of parking spaces in the podium garage, above-grade
parking structure or other portions of the Project as to which Tenant may have
the use in connection with its Building; provided that (i) such allocation is
requested by at least one (1) tenant in the Project, (ii) Landlord shall not
allocate to Tenant materially less than the Tenant's prorata share of parking
calculated on the basis of the square footage of the buildings in the Project,
and (iii) Landlord shall allocate parking in a manner so as to maximize the
adjacency of parking to each building. Landlord shall further retain the right
to restrict an appropriate amount of the parking for visitors of the Project or
for car pooling (as may be required by a TDM program). At the request of Tenant
or any other tenant in the Project, Landlord further agrees to restrict up to
ten (10) spaces per building for key employees of Tenant (or of other tenants in
the Project) or for other reasonable uses. Tenant shall be responsible for
seeing that the total number of vehicles parked in the Project by employees and
invitees of Tenant does not exceed the number of total spaces allocated to the
Building.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>v. Project</B>. The term
"Project" shall be that certain real property consisting of
approximately 10.8 acres at the corner of Bridgepointe Circle and Bridgepointe
Parkway in San Mateo, California and all improvements constructed thereon
consisting at full buildout of the Building, Building 2, Building 3 and the
Common Area as shown in <U>Exhibit "B"</U>. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>vi. Premises</B>. The term
"Premises" shall mean the Building and a non-exclusive right to use
the Common Area. Unless expressly provided otherwise, the term Premises as used
herein shall include the Tenant Improvements (defined in Section 5.B)
constructed by Tenant pursuant to Section 5.B.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Grant: </B>Landlord hereby leases the
Premises to Tenant, and Tenant hires the Premises from Landlord. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Recordation of Parcel Map and Declaration:
</B> Tenant consents to recordation by Landlord of a Parcel Map (Parcel
Map") and a Declaration of Covenants, Conditions and Restrictions
("Declaration"). The Parcel Map and the Declaration shall be
substantially in the form attached hereto as <U>Exhibit "C"</U> with
such changes as may be may be desired by Landlord or Landlord's lenders to
facilitate the operation, construction, financing, sale and/or leasing of the
Project, provided such changes do not materially and adversely affect Tenant's
use of the Premises, and with such changes as may be required by the city or
other governmental authority having jurisdiction over the Project. Landlord is
seeking approval of the Parcel Map and Declaration to subdivide the existing
parcel into the four lots to facilitate Landlord's operation, construction,
financing, lease and/or sale of the Project as individual buildings. Landlord's
failure to obtain approval of the Parcel Map or Declaration shall in no way
invalidate this Lease. In the event the Parcel Map and Declaration are recorded
by Landlord, the Section 2.A.vi shall be replaced by following: The term
"Premises" shall mean (i) the land area within Lot 3; (ii) the
Building; and (iii) the nonexclusive right to use the Common Area in accordance
with the terms and conditions of the Declaration and this Lease. This Lease
shall be subject and subordinate in all respects to the Declaration, as the same
may be amended from time to time. Tenant covenants and agrees to refrain from
doing or causing to be done, or permitting any thing or act to be done, which
would constitute a default under the Declaration or which would or might make
Landlord liable for any damages, claims or penalty. All assessments charged to
the Premises pursuant to the Declaration, (other than those assessments which
represent: the costs required to be paid and borne by Landlord under the express
terms of this Lease (such as Landlord's maintenance costs pursuant to Section
8.A; fines, penalties and costs of suit charged by the Association, to the
extent not caused by Tenant's breach of this Lease or violation of the
Declaration; reimbursements to the Association for diminution of the
Association's insurance proceeds, to the extent not caused by Tenant's violation
of the insurance provisions of the Declaration; and assessments levied against
the Premises because of the nonpayment of assessments levied on other lots
within the Project other than the Premises) shall constitute a part of Tenant's
Allocable Share of Reimbursable Operating Costs pursuant to Article 8 of this
Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Following recordation of the Declaration, if owners and
occupants of Building 1 or Building 2 are violating the terms and conditions of
the Declaration and such violation materially and adversely affects Tenant's
rights under this Lease, then within a reasonable time following Tenant's
request, Landlord shall take reasonable steps to enforce the provisions of the
Declaration relating to such violation, in accordance with the procedures
established in the Declaration, the cost of which shall be a Reimbursable
Operating Cost pursuant to Article 8 of this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">3. Use: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Permitted Uses: </B>Tenant shall use the
Premises only for the following purposes and shall not change the use of the
Premises without the prior written consent of Landlord: General office uses
including research and development and other incidental uses (such incidental
uses shall include without limitation, a gymnasium and/or a cafeteria for use of
Tenant's employees). Tenant shall use only the number of parking spaces
allocated to Tenant under this Lease. Following recordation of the Declaration,
if occupants of Building 1 or Building 2 are using parking spaces in excess of
the number of spaces to which they are entitled under the Declaration, then
within a reasonable time following Tenant's request, Landlord shall seek to
enforce the provisions of the Declaration relating to such excessive use, in
accordance with the procedures established in the Declaration, the cost of which
shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease.
Prior to recording the Declaration, Landlord shall cause the Declarants of the
Declaration to confirm in writing for the benefit of Tenant that the signs and
window coverings to be installed pursuant to Section 3.C of this Lease are
approved by the Declarants. Landlord shall promptly send to Tenant all notices
received from the Association pertaining to the Association's entry onto the
Premises and Common Area, insurance coverage affecting the Premises, and
assessments levied against the Premises. All commercial trucks and delivery
vehicles shall be (i) loaded and unloaded in a manner which does not interfere
with the businesses of other occupants of the Project, and (ii) permitted to
remain on the Project only so long as is reasonably necessary to complete the
loading and unloading. Landlord makes no representation or warranty that any
specific use of the Premises desired by Tenant is permitted pursuant to any
Laws.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Uses Prohibited: </B>Tenant shall not commit
or suffer to be committed on the Premises any waste, nuisance, or other act or
thing which may disturb the quiet enjoyment of any other tenant in or around the
Premises, nor allow any sale by auction or any other use of the Premises for an
unlawful purpose. Tenant shall not (i) damage or overload the electrical,
mechanical or plumbing systems of the Premises, (ii) attach, hang or suspend
anything from the ceiling, walls or columns of the building or set any load on
the floor in excess of the load limits for which such items are designed, or
(iii) generate dust, fumes or waste products which create a fire or health
hazard or damage the Premises or in the soils surrounding the Building. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature, or any waste materials, refuse, scrap or
debris, shall be stored upon or permitted to remain on any portion of the
Premises outside of the Building without Landlord's prior approval, which
approval may be withheld in its sole discretion. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Advertisements and Signs: </B> Tenant shall be
permitted to place two (2) signs mounted on the building, one monument sign
within the Common Area, and any directional signs necessary within the Common
Area, provided such signs are approved by the city or other governing authority.
Tenant shall be entitled to additional signage on Building 1 and Building 2
pursuant to the leases for these buildings. Any sign placed on the Premises
shall be removed by Tenant, at its sole cost, prior to the Expiration Date or
promptly following the earlier termination of the lease, and Tenant shall
repair, at its sole cost, any damage or injury to the Premises caused thereby,
and if not so removed, then Landlord may have same so removed at Tenant's
expense.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Covenants, Conditions and Restrictions: </B>
This Lease is subject to the effect of (i) easements, mortgages or deeds of
trust, ground leases, rights of way of record and any other matters or documents
of record; and (ii) any zoning laws of the city, county and state where the
Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the
terms of any such Restrictions. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Tenant acknowledges that as to certain matters set forth
in this Lease, the Association (defined in the Declaration) has or will have
rights of approval or disapproval. If any matter requiring the Association's
approval is submitted to Landlord by Tenant for Landlord's approval, Landlord
shall respond to Tenant in a timely fashion. If Landlord approves such matter
and such matter further requires the Association's approval, Landlord shall
promptly submit the same to the Association, as applicable. In no event,
however, shall Landlord's disapproval be deemed unreasonable if the Association
has disapproved of such matter nor shall Landlord have any liability to Tenant
by reason thereof.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">4. Term and Rental: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Base Monthly Rent: </B>The term ("Lease
Term") shall be for one hundred forty four (144) months, commencing on
substantial completion of construction as finally determined pursuant to Section
5.G (the "Commencement Date") estimated to occur on November 1, 2000,
and ending one hundred forty four (144) months thereafter, ("Expiration
Date"). Notwithstanding the foregoing, (i) in no event shall the
Commencement Date be less than forty five (45) days following the Commencement
Date for Building 1; and (ii) in the event Sobrato Construction acts as general
contractor for the Tenant Improvements, should substantial completion of the
Premises occur between November 2, 2000 and December 31, 2000, the Commencement
Date of the Lease shall be deemed to be January 1, 2001. Notwithstanding the
fact that the Lease Term begins on the Commencement Date, this Lease and all of
the obligations of Landlord and Tenant shall be binding and in full force and
effect from and after the Effective Date except for those obligations which
begin on the Commencement Date. In addition to all other sums payable by Tenant
under this Lease, Tenant shall pay as base monthly rent ("Base Monthly
Rent") for the Premises the amount of Three Hundred Seventy Eight Thousand
Eight Hundred Ninety Six Dollars ($378,896.00). Base Monthly Rent and Tenant's
payment of operating expenses and taxes pursuant to Section 8 shall be payable
beginning on the Commencement Date in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction and without prior notice or demand, at the address
specified in Section 1 of this Lease or at such place or places as may be
designated in writing by Landlord during the Lease Term. Base Monthly Rent for
any period less than a calendar month shall be a pro rata portion of the monthly
installment.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Rental Adjustment: </P>
</B><P ALIGN="JUSTIFY"> <B>(i) For Variation in Rentable Square Feet:
</B>Upon Substantial Completion of construction, the Building shall be measured
(from outside wall to outside wall including all areas covered by a structural
roof), and if the actual square footage differs from 167,505 square feet, the
initial Base Monthly Rent hereunder shall be adjusted to the product of Two and
262/1000 Dollars ($2.262) and the actual rentable square feet of the Building.
</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(ii) Periodic Adjustment: </B> Beginning
thirty (30) months after the Commencement Date for Building 1, and every thirty
(30) months thereafter, the then-payable Base Monthly Rent shall be increased by
seven and 50/100 percent (7.50%).</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Late Charges: </B>Tenant hereby acknowledges
that late payment by Tenant to Landlord of Base Monthly Rent and other sums due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which is extremely difficult to ascertain. Such costs include
but are not limited to: administrative, processing, accounting, and late
charges which may be imposed on Landlord by the terms of any contract, revolving
credit, mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee within ten (10) days after the rent is due,
Tenant shall pay to Landlord a late charge equal to five (5%) percent of such
overdue amount, which late charge shall be due and payable on the same date that
the overdue amount was due. The parties agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant, excluding interest and attorneys fees and costs. If any rent
or other sum due from Tenant remains delinquent for a period in excess of thirty
(30) days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 21.J<B> </B>following the date such amount became due until
paid. Acceptance by Landlord of such late charge shall not constitute a waiver
of Tenant's default with respect to such overdue amount nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of Base Monthly Rent, then the Base Monthly
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding any provision of this Lease to the contrary.
After four (4) quarterly installments have been paid on time, rent shall again
be payable monthly. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Security Deposit: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(i) Amount: </B>Tenant shall deposit with
Landlord a letter of credit ("Letter of Credit") in a form reasonably
acceptable to Landlord in the amount of Eight Million Four Hundred Thousand
Dollars ($8,400,000.00) to secure Tenant's obligation to complete Tenant
Improvements in the Building pursuant to this Lease. Upon Landlord's receipt of
evidence reasonably satisfactory to Landlord of lien free completion of the
Tenant Improvements and that Tenant has fully paid for the cost of all of Tenant
Improvements for the Building, the Letter of Credit shall be cancelled and
returned to Tenant by Landlord. Notwithstanding the foregoing, in the event
Tenant elects to defer construction on a portion of the non-core Tenant
Improvements in the Building (as provided further and restricted in Section
5.B), Landlord shall not require Tenant to continue to post the Letter of Credit
after payment in full for all other Tenant Improvements associated with the
Building.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(ii) Use by Landlord: </B>Landlord shall
be entitled to draw against the full amount of the Letter of Credit at any time
provided only that Landlord certifies to the issuer of the Letter of Credit that
Tenant has failed to make a payment for Tenant Improvement costs as provided in
5.F, that Tenant has failed to timely renew or extend the Letter of Credit as
required by this subsection (ii), or that Tenant has failed to amend the Letter
of Credit or obtain a new Letter of Credit as required by this subsection (ii)
and such failure has not been cured within ten (10) days following Landlord's
notice to Tenant. Tenant shall keep the Letter of Credit in effect at all times
prior to payment in full for the Tenant Improvements for the Building. At least
sixty (60) days prior to expiration of any Letter of Credit, the term thereof
shall be renewed or extended for a period until Tenant has paid in full for the
Tenant Improvements for the Building. Subject to the notice requirement and
cure period provided herein, Tenant's failure to so renew or extend the Letter
of Credit shall be a material default of this Lease by Tenant entitling Landlord
to draw down on the entire amount of the Letter of Credit. Any amounts drawn on
the Letter of Credit shall be used to pay for the cost of the Tenant
Improvements. In the event the Letter of Credit is drawn by Landlord, and the
proceeds used to pay for the completion of the Tenant Improvements in the
Building, after Landlord's completion of the Tenant Improvements in the
Building, Landlord shall refund to Tenant any excess proceeds from the Letter of
Credit. In the event of termination of Landlord's interest in this Lease,
Landlord may deliver the Letter of Credit to Landlord's successor in interest in
the Premises and thereupon be relieved of further responsibility with respect to
the Letter of Credit. Except as provided herein, no other security deposit
shall be required by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>(iii) Letter of Credit Fee: </B>Landlord and
Tenant agree to share equally in the fee charged to provide the Letter of
Credit. In no event, however, shall Landlord's share of the fee exceed the sum
of Forty Two Thousand Dollars ($42,000.00) per annum. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">5. Construction</B> <B>:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Building Shell Plans: </B>The Building Shell shall
be constructed in accordance with the Building Shell plans and guideline
specifications prepared by Korth Sunseri Hagey ("Shell Architect").
The design development drawings for the Building Shell are attached hereto as
<U>Exhibit "D"</U> ("Preliminary Shell Plans and
Specifications"). The Shell Permit Drawings (i) shall be consistent with
the Preliminary Shell Plans in all material respects, and (ii) shall provide for
materials to be of a quality consistent with a "Class A" office
project the where materials are not currently specified in the Preliminary Shell
Plans. Landlord's affiliated construction company, Sobrato Construction
Corporation shall act as the general contractor on the Building Shell and shall
contract for the installation of the pile foundation system and shall begin this
work immediately following the Effective Date. Upon completion of the Tenant
Improvement Plans, Landlord and Tenant shall select a general contractor
("General Contractor") on the basis of a competitive bid of the cost
to construct the Tenant Improvements. Landlord and Sobrato Construction shall
use commercially reasonable efforts to ensure effective coordination between the
General Contractor selected to construct the Tenant Improvements and Sobrato
Construction Corporation. Landlord shall cause Sobrato Construction and the
General Contractor to complete construction of the Building Shell and the Tenant
Improvements. The Building Shell shall include those items set forth in the
attached <U>Exhibit "E"</U> ("Building Shell Definition")
which scope includes the cost of the parking structures. In the event of a
conflict between <U>Exhibit "D"</U> and <U>Exhibit "E"</U>,
<U>Exhibit "E"</U> shall govern.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Tenant Improvement Plans: </B>Tenant, at
Tenant's sole cost and expense, will hire an interior architect ("Interior
Architect") to prepare plans and outline specifications to be attached as
<U>Exhibit "F"</U> ("Tenant Improvement Plans and
Specifications") with respect to the construction of improvements to the
interior premises ("Tenant Improvements"). The Tenant Improvement
Plans and Specifications plans shall be completed for all aspects of the work by
January 1, 2000, with all detail necessary for submittal to the city and for
construction and shall include any information required by the relevant agencies
regarding Tenant's use of Hazardous Materials if applicable. The Tenant
Improvements shall consist of all items not included within the scope of the
Building Shell Definition. All Tenant Improvements affecting or otherwise
related to the Building Core will be subject to Landlord's reasonable approval.
The "Building Core" shall include those items typically associated in
the industry with an office building core including elevators, restrooms, fire
sprinklers, HVAC and electrical systems distributed to each floor, exiting stair
finishes and a finished building lobby. As to the balance of the Tenant
Improvements, Landlord shall not have rights of approval, however, Tenant
Improvement Plans shall provide for the creation of finished office space ready
for occupancy with a minimum buildout in all areas of the Premises consisting
of: (i) fire sprinklers, (ii) floorcoverings, (iii) overhead ceiling system (iv)
distribution of the HVAC system, (v) overhead florescent lighting, and (vi) any
other work required by the City of San Mateo necessary to obtain a Certificate
of Occupancy. Tenant shall have the right to defer installation of the Tenant
Improvements not associated with the Building Core in up to twenty percent (20%)
of the rentable square footage of the Building. Except as provided in the
preceding sentence, Tenant shall have no rights or ability to delay installation
of any of the Tenant Improvements. The Tenant Improvement Plans and
Specifications shall be prepared in sufficient detail to allow General
Contractor to construct the Tenant Improvements. The General Contractor shall
construct the Tenant Improvements in accordance with all Tenant Improvement
Plans and Specifications. The Tenant Improvements shall not be removed or
altered by Tenant without the prior written consent of Landlord as provided in
Section 7. Tenant shall have the right to depreciate and claim and collect any
investment tax credits in the Tenant Improvements during the Lease Term. Tenant
shall further retain the right to encumber its leasehold interest with a first
priority security interest, provided such lienholder has no right to remove any
Tenant Improvements installed by Tenant pursuant to this Lease in the event of a
default by Tenant under such encumbrance. Upon expiration of the Lease Term or
any earlier termination of the Lease, the Tenant Improvements shall become the
property of Landlord and shall remain upon and be surrendered with the Premises,
and title thereto shall automatically vest in Landlord without any payment
therefore.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Tenant Improvement Pricing. </B>Within ten (10)
days after completion of the Tenant Improvements Plans and Specifications,
Landlord shall cause the General Contractor to submit to Tenant competitive bids
from at least three (3) subcontractors for each aspect of the work in excess of
Fifty Thousand and No/100 Dollars ($50,000.00) related to the Tenant
Improvements. Landlord shall cause the General Contractor to utilize the low
bid in each case unless Tenant approves General Contractor's use of another
subcontractor, and the cost of the Tenant Improvements shall be based upon
construction expenses equal to (i) the bid amounts as approved by Tenant, (ii) a
reasonable contingency approved by Tenant to protect the General Contractor
against cost overruns, and (iii) the general contractor fee specified in Section
5.H below ("Tenant Improvement Budget"). Upon Tenant's written
approval of the Tenant Improvement Budget, which approval shall not be
unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have
given their respective approvals of the final Tenant Improvement Plans and
Specifications on which the cost estimate was made, and General Contractor shall
proceed with the construction of the Tenant Improvements in accordance with the
terms of Section 5.G below. If Tenant does not specifically approve or
disapprove the bids within ten (10) business days, Tenant shall be deemed to
have approved the bids.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Change Orders: </B>Tenant shall have the right
to order changes in the manner and type of construction of the Tenant
Improvements. Upon request and prior to Tenant's submitting any binding change
order, Landlord shall cause the General Contractor to promptly provide Tenant
with written statements of the cost to implement and the time delay and
increased construction costs associated with any proposed change order, which
statements shall be binding on General Contractor. If no time delay or
increased construction cost amount is noted on the written statement, the
parties agree that there shall be no adjustment to the construction cost or the
Commencement Date associated with such change order. If ordered by Tenant,
Landlord shall cause the General Contractor to implement such change order and
the cost of constructing the Tenant Improvements shall be increased or decreased
in accordance with the cost statement previously delivered by General Contractor
to Tenant for any such change order. In no event, however, shall Tenant have
the right to eliminate the minimum buildout requirements specified in Section
5.B above.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Building Shell Costs: </B>Landlord shall pay
all costs associated with the Building Shell.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Tenant Improvement Costs: </B>Tenant shall
pay all costs associated with the Tenant Improvements. The cost of Tenant
Improvements shall consist of only the following to the extent actually incurred
by General Contractor in connection with the construction of Tenant
Improvements: construction costs, all permit fees, construction taxes or other
costs imposed by governmental authorities related to the Tenant Improvements,
and General Contractor overhead and profit as described in Section 5.H below.
During the course of construction of Tenant Improvements, Landlord may deliver
to Tenant not more than once each calendar month a written request for payment
prepared by the General Contractor ("Progress Invoice") which shall
include and be accompanied by General Contractor's certified statements setting
forth the amount requested, certifying the percentage of completion of each item
for which reimbursement is requested, and if requested by Tenant, a certificate
from Landlord's Architect certifying the percentage completion. Tenant shall
pay the amount due pursuant to the Progress Invoice less a ten percent (10%)
retention directly to the General Contractor, within thirty (30) days after
Tenant's receipt of the above items. All costs for Tenant Improvements shall be
fully documented to and verified by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>G. Construction: </B>The Building Shell and
Tenant Improvements shall be deemed substantially complete ("Substantially
Complete" or "Substantial Completion") when the Building Shell
and Tenant Improvements have been substantially completed in accordance with the
Shell Plans and Specifications and Tenant Improvement Plans and Specifications,
as evidenced by the completion of a final inspection or the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority for the Building Shell and Tenant Improvements, and the issuance of a
certificate by the Architect certifying that the Building Shell and Tenant
Improvements have been completed in accordance with the plans. Installation of
(i) Tenant's data and phone cabling, (ii) Tenant's furniture, or (iii) the
exterior landscaping shall not be required in order to deem the Premises
Substantially Complete. Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather unusual for the season it which it occurs, labor
disputes, inability to obtain labor, materials, fuel or reasonable substitutes
therefor, governmental restrictions, regulations, controls, civil commotion,
fire or other act of God, and another causes beyond the reasonable control of
Landlord (except financial inability) shall extend the dates contained in this
Section 5.G by a period equal to the period of any said prevention, delay or
stoppage. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> If Landlord cannot obtain building permits or
Substantially Complete construction by the dates set forth herein, this Lease
shall not be void or voidable nor shall Landlord be liable for any loss or
damage resulting therefrom. Notwithstanding anything to the contrary contained
herein, if Landlord has not delivered the Premises substantially completed to
Tenant on or before November, 1, 2001 ("Termination Date"), Tenant
shall have the right to cancel this Lease by providing Landlord written notice
within sixty (60) days following the Termination Date as Tenant's sole and
exclusive remedy for such failure. In such event, Landlord shall return the
Letter of Credit to Tenant and thereafter neither party shall have any further
liability to the other under this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>H. General Contractor Overhead & Profit:
</B>As compensation to General Contractor for its services related to
construction of the Building Shell and Tenant Improvements, General Contractor
shall receive a fee based upon the cost of construction determined and agreed
upon by Landlord and Tenant at the time of the competitive bid of the Tenant
Improvements. Except as provided therein, Landlord or General Contractor shall
not receive any other fee or payment from Tenant in connection with General
Contractor's services.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> I. Tenant Delays: </B> A "Tenant Delay"
shall mean any delay in Substantial Completion of the Building as a result of
any of the following: (i) Tenant's failure to complete or approve the Tenant
Improvement Plans by the dates set forth in Section 5.B, (ii) Tenant's failure
to approve the bids for construction by the dates set forth in Section 5.C,
(iii) changes to the plans requested by Tenant which delay the progress of the
work, (iv) Tenant's request for materials components, or finishes which are not
available in a commercially reasonable time given the anticipated Commencement
Date, (v) Tenant's failure to make a progress payment for Tenant Improvements as
provided in Section 5.F after notice from Landlord and expiration of the
applicable cure period, (vi) Tenant's request for more than one (1) rebidding of
the cost of all or a portion of the work, and (vii) any errors or omissions in
the Tenant Improvement Plans provided by Tenant's architect unless caused by
misinformation provided by Landlord, Landlord's Architect or the General
Contractor. Notwithstanding anything to the contrary set forth in this Lease,
and regardless of the actual date the Premises are Substantially Complete, the
Commencement Date shall be deemed to be the date the Commencement Date would
have occurred if no Tenant Delay had occurred as reasonable determined by
Landlord. In addition, if a Tenant Delay results in an increase in the cost of
the labor or materials, Tenant shall pay the cost of such increases. </P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> J. Insurance: </B>Sobrato Construction
Corporation and General Contractor shall each procure (as a cost of the Building
Shell or the Tenant Improvements as applicable) a "Broad Form"
liability insurance policies in the amount of Three Million Dollars
($3,000,000.00). Landlord shall also procure (as a cost of the Building Shell)
builder's risk insurance for the full replacement cost of the Building Shell and
Tenant Improvements while the Building and Tenant Improvements are under
construction, up until the date that the fire insurance policy described in
Section 9 is in full force and effect.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>K. Punch List & Warranty: </B>After the
Building Shell and Tenant Improvements are Substantially Complete, Landlord
shall cause Sobrato Construction Corporation and/or the General Contractor to
immediately correct any construction defect or other "punch list" item
which Tenant brings to Landlord's attention. All such work shall be performed
so as to reasonably minimize the interruption to Tenant and its activities on
the Premises. Sobrato Construction Corporation shall provide a standard
contractor's warranty with respect to the Building Shell for one (1) year from
the Commencement Date. The General Contractor shall provide a standard
contractor's warranty with respect to the Tenant Improvements for one (1) year
from the Commencement Date. Such warranties shall exclude routine maintenance,
damage caused by Tenant's negligence or misuse, and acts of God. Notwithstanding
anything to the contrary in this Lease, Landlord warrants that on the
commencement of the term hereof, (i) the Premises shall comply with all laws,
codes, ordinances and other governmental requirements then applicable to the
Building Shell and the Common Area, (ii) all components of the Building Shell
shall be in good working order, condition, and repair, and (iii) the Premises,
the Project, and the land and groundwater thereunder, shall be free of
contamination by any Hazardous Materials then regulated by any applicable local,
state, or federal law not caused by Tenant. In the event of any breach of any
of the foregoing warranties, Landlord shall promptly rectify the same at its
sole cost and expense and shall indemnify, defend, and hold Tenant harmless from
and against any damages, liability, suits, losses, claims, actions, costs or
expenses (including attorneys' and consultants' fees and costs) suffered by
Tenant in connection with any such breach.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>L. Other Work by Tenant: </B>All work not
described in the Shell Plans and Specifications or Tenant Improvement Plans and
Specifications, such as furniture, telephone equipment, telephone wiring and
office equipment work, shall be furnished and installed by Tenant at Tenant's
cost. Prior to Substantial Completion, Tenant shall be obligated to (i) provide
active phone lines to any elevators, and (ii) contract with a firm to monitor
the fire system. When the construction of the Tenant Improvements has proceeded
to the point where Tenant's work of installing its fixtures and equipment in the
Premises can be commenced, General Contractor shall notify Tenant and shall
permit Tenant and its authorized representatives and contractors access to the
Premises before the Commencement Date for the purpose of installing Tenant's
trade fixtures and equipment. </P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">6. Acceptance of Possession and Covenants to
Surrender:</B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Delivery and Acceptance: </B>On the
Commencement Date, Landlord shall deliver and Tenant shall accept possession of
the Premises and enter into occupancy of the Premises on the Commencement Date.
Except as otherwise specifically provided herein, Tenant agrees to accept
possession of the Premises in its then existing condition, subject to all
Restrictions and without representation or warranty by Landlord except as
provided in Section 5.K above. Tenant's taking possession of any part of the
Premises shall be deemed to be an acceptance of any work of improvement done by
Landlord in such part as complete and in accordance with the terms of this Lease
except for (i) "Punch List" type items of which Tenant has given
Landlord written notice prior to the time Tenant takes possession, and (ii)
Landlord's warranties provided in Section 5.K above. Within thirty (30) days
after the Commencement Date, Tenant agrees to occupy at least a one (1) floor of
the Premises.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Condition Upon Surrender:</B> Tenant further
agrees on the Expiration Date or on the sooner termination of this Lease, to
surrender the Premises to Landlord in good condition and repair, normal wear and
tear excepted. In this regard, "normal wear and tear" shall be
construed to mean wear and tear caused to the Premises by the natural aging
process which occurs in spite of prudent application of the commercially
reasonable standards for maintenance, repair replacement, and janitorial
practices, and does not include items of neglected or deferred maintenance. In
any event, Tenant shall cause the following to be done prior to the Expiration
Date or sooner termination of this Lease: (i) all interior walls shall be free
of holes and gouges, (ii) all tiled floors shall be cleaned and waxed, (iii) all
carpets shall be cleaned and shampooed, (iv) all broken, marred, stained or
nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling placed
above the ceiling by Tenant or Tenant's contractors shall be removed, (vi) all
windows shall be washed; (vii) the HVAC system shall be serviced by a reputable
and licensed service firm and left in "good operating condition and
repair" as so certified by such firm, (viii) the plumbing and electrical
systems and lighting shall be placed in good order and repair (including
replacement of any burned out, discolored or broken light bulbs, ballasts, or
lenses. On or before the Expiration Date or sooner termination of this Lease,
Tenant shall remove all its personal property and trade fixtures from the
Premises. All property and fixtures not so removed shall be deemed as abandoned
by Tenant. Tenant shall ascertain from Landlord within ninety (90) days before
the Expiration Date whether Landlord desires to have the Premises or any parts
thereof restored to their condition as of the Commencement Date, or to cause
Tenant to surrender all Alterations (as defined in Section 7) in place to
Landlord. If Landlord shall so desire, and provided that at the time Landlord
gave its consent to their installation, Landlord also notified Tenant that such
removal would be required, Tenant shall, at Tenant's sole cost and expense,
remove such Alterations as Landlord requires and shall repair and restore said
Premises or such parts thereof before the Expiration Date. Such repair and
restoration shall include causing the Premises to be brought into compliance
with all applicable building codes and laws in effect at the time of the removal
to the extent such compliance is necessitated by the repair and restoration
work. In no event, however, shall Tenant be required to remove any portion of
the initial Tenant Improvements installed in accordance with the terms of this
Lease. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Failure to Surrender: </B>If the Premises are
not surrendered at the Expiration Date or sooner termination of this Lease,
Tenant shall be deemed in a holdover tenancy pursuant to this Section 6.C and
Tenant shall indemnify, defend, and hold Landlord harmless against loss or
liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay and costs incurred by Landlord in returning the Premises to the
required condition, plus interest at the Agreed Interest Rate. <B> </B>Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession
of the Premises after expiration or earlier termination of this Lease without
Landlord's consent, Tenant's continued possession shall be on the basis of a
tenancy at sufferance and Tenant shall pay as rent during the holdover period an
amount equal to one hundred fifty percent (150%) of the Base Monthly Rent due in
the month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease. This provision shall survive the
termination or expiration of the Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">7. Alterations and Additions: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Tenant's Alterations: </B>Tenant shall not
make, or suffer to be made, any alteration or addition to the Premises
("Alterations"), or any part thereof, without obtaining Landlord's
prior written consent and delivering to Landlord the proposed architectural and
structural plans for all such Alterations at least fifteen (15) days prior to
the start of construction. If such Alterations affect the structure of the
Building, Tenant additionally agrees to reimburse Landlord its reasonable out-
of-pocket costs incurred in reviewing Tenant's plans. Notwithstanding anything
to the contrary contained in this lease, Tenant shall be entitled to construct
Alterations which cost Tenant less than One Hundred Thousand Dollars
($100,000.00) in the aggregate each year, without obtaining Landlord's consent,
provided such Alterations do not affect the exterior of the Premises or
adversely affect the structural integrity or life safety systems of the
Premises. Tenant shall not proceed to make such Alterations until Tenant has
obtained all required governmental approvals and permits, and provides Landlord
reasonable security, in form reasonably approved by Landlord, to protect
Landlord against mechanics' lien claims. Tenant agrees to provide Landlord (i)
written notice of the anticipated and actual start-date of the work, (ii) a
complete set of half-size (15" X 21") vellum as-built drawings, and
(iii) a certificate of occupancy for the work upon completion of the Alterations
if required by applicable law. All Alterations shall be constructed in
compliance with all applicable building codes and laws including, without
limitation, the Americans with Disabilities Act of 1990. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Free From Liens: </B> Tenant shall keep the
Premises free from all liens arising out of work performed, materials furnished,
or obligations incurred by Tenant or claimed to have been performed for Tenant.
In the event Tenant fails to discharge any such lien within fifteen (15) days
after receiving notice of the filing, Landlord shall be entitled to discharge
the lien at Tenant's expense and all resulting reasonable costs incurred by
Landlord, including reasonable attorney's fees shall be due from Tenant as
additional rent.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Compliance With Governmental Regulations:
</B>The term Laws or Governmental Regulations shall include all federal, state,
county, city or governmental agency laws, statutes, ordinances, standards,
rules, requirements, or orders now in force or hereafter enacted, promulgated,
or issued. The term also includes government measures regulating or enforcing
public access, traffic mitigation, occupational, health, or safety standards for
employers, employees, landlords, or tenants. Tenant, at Tenant's sole expense
shall make all repairs, replacements, alterations, or improvements needed to
comply with all Governmental Regulations except as otherwise expressly provided
in this Lease. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action or proceeding against Tenant (whether Landlord
be a party thereto or not) that Tenant has violated any such law, regulation or
other requirement in its use of the Premises shall be conclusive of that fact as
between Landlord and Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<B><P ALIGN="JUSTIFY">8. Maintenance of Premises:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Landlord's Obligations: </B>Landlord at its
sole cost and expense, shall maintain in good condition, order, and repair, and
replace as and when necessary, the foundation, exterior load bearing walls glass
curtainwall, and roof structure of the Building Shell. Landlord further agrees
to perform repairs and replacements to the Common Area to maintain the Common
Area in good condition, order and repair (subject to Tenant's reimbursement
obligation). Tenant acknowledges and agrees that the Association formed pursuant
to the Declaration may perform the maintenance, repair and restoration
obligations of Landlord under this Section 8.A and other sections of this Lease
on behalf of Landlord and other owners of any portion of the Project, in
discharge of Landlord's maintenance, repair and restoration obligations under
this Lease. As to increases in annual assessments or the imposition of a
special assessment under the Declaration which would require the vote of the
Owners (as defined in the Declaration), Landlord agrees to vote in favor or such
assessments to the extent Landlord reasonably determines such sums are required
to maintain the Premises in the condition required by this Lease.
Notwithstanding the foregoing, in the event that Tenant leases from Landlord all
of the space then developed within the Project, Tenant shall have the right to
perform the repairs, replacements and maintenance of the Common Area and pay
such costs directly.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Tenant's Obligations: </B>Subject to Sections
15 and 16, Tenant shall clean, maintain, repair and replace when necessary the
Building and every part thereof through regular inspections and servicing,
including but not limited to: (i) all plumbing and sewage facilities, (ii) all
heating ventilating and air conditioning facilities and equipment, (iii) all
fixtures, interior walls floors, carpets and ceilings, (iv) all electrical
facilities and equipment, (v) all automatic fire extinguisher equipment, (vi)
all elevator equipment, and (vii) the roof membrane system. All wall surfaces
and floor tile are to be maintained in an as good a condition as when Tenant
took possession free of holes, gouges, or defacements. With respect to items
(ii), (vi) and (vii) above, Tenant shall provide Landlord a copy of a service
contract between Tenant and a licensed service contractor providing for periodic
maintenance of all such systems or equipment in conformance with the
manufacturer's recommendations. Tenant shall provide Landlord upon request, a
copy of such preventive maintenance contracts and paid invoices for the
recommended work if requested by Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Landlord and Tenant's Obligations Regarding
Reimbursable Operating Costs:</B> Notwithstanding the provisions of Sections
8, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for Tenant's
Allocable Share (as defined in Section 8.E below) of the expenses resulting from
Landlord's payment of Reimbursable Operating Costs (as defined in Section 8.D
below) in connection with the Premises or in connection with the Project which
are not otherwise Landlord's obligation hereunder. Tenant agrees to pay its
Allocable Share of the Reimbursable Operating Costs as additional rental within
ten (10) business days of written invoice from Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Reimbursable Operating Costs:</B> For
purposes of calculating Tenant's Allocable Share of Building and Project Costs,
the term "Reimbursable Operating Costs" is defined as all reasonable
costs and expenses of the nature hereinafter described which are incurred by
Landlord in connection with ownership and operation of the Building or the
Project in which the Premises are located. All costs and expenses shall be
determined in accordance with generally accepted accounting principles which
shall be consistently applied, including but not limited to the following: (i)
common area utilities, including water, power, telephone, heating, lighting, air
conditioning, ventilating, and Building utilities to the extent not separately
metered; (ii) common area maintenance and service agreements for the Building
and/or Project and the equipment therein, including without limitation, common
area janitorial services, alarm and security services, exterior window cleaning,
and maintenance of the sidewalks, landscaping, waterscape, roof membrane,
parking garages and parking areas, driveways, service areas, mechanical rooms,
elevators, and the building exterior; (iii) insurance premiums and costs,
including without limitation, the premiums and cost of fire, casualty and
liability coverage and rental abatement and earthquake (if available at
commercially reasonable rates) insurance applicable to the Building or Project;
(iv) repairs, replacements and general maintenance (excluding repairs and
general maintenance paid by proceeds of insurance or by Tenant or other third
parties, and repairs or alterations attributable solely to tenants of the
Building or Project other than Tenant); and (v) all real estate taxes and
assessment installments or other impositions or charges which may be levied on
the Building or Project, upon the occupancy of the Building or Project and
including any substitute or additional charges which may be imposed during, or
applicable to the Lease Term including real estate tax increases due to a sale,
transfer or other change of ownership of the Building or Project, as such taxes
are levied or appear on the City and County tax bills and assessment rolls.
Landlord shall have no obligation to provide guard services or other security
measures for the benefit of the Project. Tenant assumes all responsibility for
the protection of Tenant and Tenant's Agents from acts of third parties;
provided, however, that nothing contained herein shall prevent Landlord, at its
sole option, from providing security measures for the Project. This is a
"Net" Lease, meaning that Base Monthly Rent is paid to Landlord net of
all costs and expenses, except as provided otherwise in this Lease. The
provision for payment of Reimbursable Operating Costs by means of periodic
payment of Tenant's Allocable Share of Building and/or Project Costs is intended
to pass on to Tenant and reimburse Landlord for all costs of operating and
managing the Building and/or Project.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> E. Tenant's Allocable Share:</B> For purposes of
prorating Reimbursable Operating Costs which Tenant shall pay, Tenant's
Allocable Share of Reimbursable Operating Costs shall be computed by multiplying
the Reimbursable Operating Costs by a fraction, the numerator of which is the
rentable square footage of the Premises and the denominator of which is either
the total rentable square footage of the Building if the service or cost is
allocable only to the Building, or the total square footage of the buildings
completed within the Project if the service or cost is allocable to the entire
Project. Tenant's obligation to share in Reimbursable Operating Costs shall be
adjusted to reflect the Lease Commencement and Expiration dates and is subject
to recalculation in the event of expansion of the Building or Project.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> F. Exclusions to Reimbursable Operating Costs:
</B>Notwithstanding anything to the contrary contained in this Lease, the
following costs and expenses shall not be included within Reimbursable Operating
Costs: (i) Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating, or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Project; (ii) The cost of any service sold to any tenant (including Tenant) or
other occupant for which Landlord is entitled to be reimbursed as an additional
charge or rental over and above the basic rent and escalations payable under the
lease with that tenant; (iii) Any depreciation on the Project; (iv) Expenses in
connection with services or other benefits of a type that are not provided to
Tenant but which are provided another tenant or occupant of the Project; (v)
Costs incurred due to Landlord's violation of any terms or conditions of the
Declaration, this Lease or any other lease relating to the Project; (vi)
Overhead profit increments paid to Landlord's subsidiaries or affiliates for
services on or to the building or for supplies or other materials to the extent
that the cost of the services, supplies, or materials exceeds the cost that
would have been paid had the services, supplies, or materials been provided by
unaffiliated parties on a competitive basis; (vii) All interest, loan fees, and
other carrying costs related to any mortgage or deed of trust or related to any
capital item, and all rental and other payable due under any ground or
underlying lease, or any lease for any equipment ordinarily considered to be of
a capital nature (except janitorial equipment which is not affixed to the
Project.); (viii) Any compensation paid to clerks, attendants, or other persons
in commercial concessions operated by Landlord; (ix) Advertising and promotional
expenditures; (x) Costs of repairs and other work occasioned by fire, windstorm,
or other casualty of a nature required to be insured against under this Lease in
excess of the deductible; (xi) Any costs, fines, or penalties incurred due to
violations by Landlord of any governmental rule or authority, this Lease or any
other lease in the Project, or due to Landlord's negligence or willful
misconduct; (xii) Property management fees; (xiii) Costs for sculpture,
paintings, or other objects of art (and insurance thereon or extraordinary
security in connection therewith); (xiv) The cost of correcting any building
code or other violations which were violations prior to the Commencement Date of
this Lease; (xv) The cost of containing, removing, or otherwise remediating any
contamination of the Project (including the underlying land and ground water) by
any Hazardous Materials where such contamination was not caused by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Waiver of Liability: </B>Failure by Landlord
to perform any defined services, or any cessation thereof, when such failure is
caused by accident, breakage, repairs, strikes, lockout or other labor
disturbances or labor disputes of any character or by any other cause, similar
or dissimilar, shall not render Landlord liable to Tenant in any respect,
including damages to either person or property, nor be construed as an eviction
of Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment
of any covenant or agreement hereof. Should any equipment or machinery utilized
in supplying the services listed herein break down or for any cause cease to
function properly, upon receipt of written notice from Tenant of any deficiency
or failure of any services, Landlord shall use reasonable diligence to repair
the same promptly, but Tenant shall have no right to terminate this Lease and
shall have no claim for rebate of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom. Tenant
waives the provisions of California Civil Code Sections 1941 and 1942 concerning
the Landlord's obligation of tenantability and Tenant's right to make repairs
and deduct the cost of such repairs from the rent. Landlord shall not be liable
for a loss of or injury to person or property, however occurring, through or in
connection with or incidental to furnishing, or its failure to furnish, any of
the foregoing unless causes by its gross negligence or willful misconduct.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Tenant's Right to Audit: </B>Tenant shall have
the right to audit at Landlord's local offices, at Tenant's expense, Landlord's
accounts and records relating to Reimbursable Operating Costs. Such audit
shall be conducted by a certified public accountant approved by Landlord, which
approval shall not be unreasonably withheld. If such audit reveals that Landlord
has overcharged Tenant, the amount overcharged shall be paid to Tenant within 30
days after the audit is concluded, together with interest thereon at the rate of
ten percent (10.0%) per annum, from the date paid by Tenant until payment of the
overcharge is made to Tenant. In addition, if the amount paid by Tenant exceeds
the Reimbursable Operating Costs which should have been charged to Tenant by
more than five percent (5.0%), the cost of the audit shall be paid by
Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">9. Hazard Insurance:</B> </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Tenant's Use: </B>Tenant shall not use or
permit the Premises, or any part thereof, to be used for any purpose other than
that for which the Premises are hereby leased; and no use of the Premises shall
be made or permitted, nor acts done, which will cause an increase in premiums or
a cancellation of any insurance policy covering the Project or any part thereof,
nor shall Tenant sell or permit to be sold, kept, or used in or about the
Premises, any article prohibited by the standard form of fire insurance
policies. Tenant shall, at its sole cost, comply with all requirements of any
insurance company or organization necessary for the maintenance of reasonable
fire and public liability insurance covering the Premises and appurtenances.
</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Landlord's Insurance: </B>Landlord agrees to
purchase and keep in force fire, extended coverage insurance in an amount equal
to the replacement cost of the Building as determined by Landlord's insurance
company's appraisers. If required by the holder of the first deed of trust on
the property, such fire and property damage insurance may be endorsed to cover
loss caused by such additional perils against which Landlord may elect to
insure, including earthquake and/or flood, and shall contain reasonable
deductibles which, in the case of earthquake and flood insurance may be up to
15% of the replacement value of the property. Additionally Landlord may
maintain a policy of (i) commercial general liability insurance insuring
Landlord (and such others designated by Landlord) against liability for personal
injury, bodily injury, death and damage to property occurring or resulting from
an occurrence in, on or about the Premises or Project in an amount as Landlord
determines is reasonably necessary for its protection, and (ii) rental lost
insurance covering a twelve (12) month period. Tenant agrees to pay Landlord as
additional rent, on demand, the full cost of said insurance and any insurance
costs allocable to the Building pursuant to the Declaration as evidenced by
insurance billings to Landlord, and in the event of damage covered by said
insurance, the amount of any commercially reasonable deductible under such
policy. Payment shall be due to Landlord within thirty (30) days after written
invoice to Tenant. It is understood and agreed that Tenant's obligation under
this Section will be prorated to reflect the Lease Commencement and Expiration
Dates. Tenant acknowledges and agrees that the Association formed pursuant to
the Declaration may procure all or any portion of the insurance required to be
maintained by Landlord under this Lease on behalf of Landlord and in discharge
of Landlord's obligation to procure such insurance under this Lease, under one
or more policies procured by the Association from time to time for the benefit
of Landlord and other owners of any portion of the Project, the cost of which
shall be paid by Tenant pursuant to this section 9.B, provided that the cost to
Tenant shall not be greater than that which Tenant would have had to pay if
Landlord obtained such coverage directly.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Tenant's Insurance: </B>Tenant agrees, at its
sole cost, to insure its personal property, Tenant Improvements and Alterations
for their full replacement value (without depreciation) and to obtain worker's
compensation and public liability and property damage insurance for occurrences
within the Premises with a combined single limit of not less than Five Million
Dollars ($5,000,000.00). Tenant's liability insurance shall be primary
insurance containing a cross-liability endorsement, and shall provide coverage
on an "occurrence" rather than on a "claims made" basis.
Tenant shall name Master Landlord, Landlord and their respective lenders as an
additional insured and shall deliver evidence of insurance and renewal
certificates to Landlord. All such policies shall provide for thirty (30) days'
prior written notice to Landlord of any cancellation, termination, or reduction
in coverage. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>D. Waiver: </B>Landlord and Tenant hereby waive
all rights each may have against the other on account of any loss or damage
sustained by Landlord or Tenant, as the case may be, or to the Premises or its
contents, which may arise from any risk covered by their respective insurance
policies (or which would have been covered had such insurance policies been
maintained in accordance with this Lease) as set forth above. The parties shall
use their reasonable efforts to obtain from their respective insurance companies
a waiver of any right of subrogation which said insurance company may have
against Landlord, Master Landlord or Tenant, as the case may be.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">10. Taxes: </B> Tenant shall be liable for and shall
pay as additional rental, prior to delinquency, the following: (i) all taxes
and assessments levied against Tenant's personal property and trade or business
fixtures; (ii) all real estate taxes and assessment installments or other
impositions or charges which may be levied on the Premises or upon the occupancy
of the Premises, including any substitute or additional charges which may be
imposed applicable to the Lease Term; and (iii) real estate tax increases due to
an increase in assessed value resulting from a sale, transfer or other change of
ownership of the Premises as it appears on the City and County tax bills during
the Lease Term. Tenant's obligation under this Section shall be prorated to
reflect the Lease Commencement and Expiration Dates. If, at any time during the
Lease Term a tax, excise on rents, business license tax or any other tax,
however described, is levied or assessed against Landlord as a substitute or
addition, in whole or in part, for taxes assessed or imposed on land or
Buildings, Tenant shall pay and discharge its pro rata share of such tax or
excise on rents or other tax before it becomes delinquent; except that this
provision is not intended to cover net income taxes, inheritance, gift or estate
tax imposed upon Landlord. In the event that a tax is placed, levied, or
assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact amount of such tax and Tenant shall pay such increase.
If by virtue of any application or proceeding brought by or on behalf of
Landlord, there results a reduction in the assessed value of the Premises during
the Lease Term, Tenant agrees to reimburse Landlord for all costs incurred by
Landlord in connection with such application or proceeding, not to exceed the
amount of any savings realized by Tenant. In the event the Project is not
subdivided as provided in Section 2.C and the tax bill covers the entire
Project, the real estate taxes and assessments shall be prorated as provided in
Section 8.E.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">11. Utilities:</B> Tenant shall pay directly to the
providing utility all water, gas, electric, telephone, and other utilities
supplied to the Premises. Landlord shall not be liable for loss of or injury to
person or property, however occurring, through or in connection with or
incidental to furnishing or the utility company's failure to furnish utilities
to the Premises unless caused by Landlord's gross negligence of willful
misconduct, and Tenant shall not be entitled to abatement or reduction of any
portion of Base Monthly Rent or any other amount payable under this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">12. Toxic Waste and Environmental Damage: </B> </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Tenant's Responsibility: </B>Without the
prior written consent of Landlord, Tenant shall not bring, use, or permit upon
the Premises, or generate, create, release, emit, or dispose (nor permit any of
the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or
solid materials or waste, including without limitation, material or substance
having characteristics of ignitability, corrosivity, reactivity, or toxicity or
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or which are identified in Division 22 Title
26 of the California Code of Regulations as the same may be amended from time to
time or any wastes, materials or substances which are or may become regulated by
or under the authority of any applicable local, state or federal laws,
judgments, ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials")
except for those substances customary in typical office uses for which no
consent shall be required. In order to obtain consent, Tenant shall deliver to
Landlord its written proposal describing the toxic material to be brought onto
the Premises, measures to be taken for storage and disposal thereof, safety
measures to be employed to prevent pollution of the air, ground, surface and
ground water. Landlord's approval may be withheld in its reasonable judgment.
In the event Landlord consents to Tenant's use of Hazardous Materials on the
Premises or such consent is not required, Tenant represents and warrants that it
shall comply with all Governmental Regulations applicable to Hazardous Materials
including doing the following: (i) adhere to all reporting and inspection
requirements imposed by Federal, State, County or Municipal laws, ordinances or
regulations and will provide Landlord a copy of any such reports or agency
inspections; (ii) obtain and provide Landlord copies of all necessary permits
required for the use and handling of Hazardous Materials on the Premises; (iii)
enforce Hazardous Materials handling and disposal practices consistent with
industry standards; (iv) surrender the Premises free from any Hazardous
Materials arising from Tenant's bringing, using, permitting, generating,
creating, releasing, emitting or disposing of Hazardous Materials; and (v)
properly close the facility with regard to Hazardous Materials including the
removal or decontamination of any process piping, mechanical ducting, storage
tanks, containers, or trenches which have come into contact with Hazardous
Materials and obtain a closure certificate from the local administering agency
prior to the Expiration Date.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Tenant's Indemnity Regarding Hazardous
Materials: </B>Tenant shall, at its sole cost and expense, comply with all
laws pertaining to, and shall with counsel reasonably acceptable to Landlord,
indemnify, defend and hold harmless Landlord, Master Landlord and their
trustees, shareholders, directors, officers, employees, partners, affiliates,
and agents from, any claims, liabilities, costs or expenses incurred or suffered
by Landlord arising from the bringing, using, permitting, generating, emitting
or disposing of Hazardous Materials by Tenant or a third party through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification and hold harmless obligations include, without
limitation, the following arising from the bringing, using, permitting,
generating, emitting or disposing of Hazardous Materials by Tenant or a third
party through the surface soils of the Premises during the Lease Term or the
violation of any Governmental Regulation or environmental law, by Tenant or
Tenant's Agents.: (i) claims, liability, costs or expenses resulting from or
based upon administrative, judicial (civil or criminal) or other action, legal
or equitable, brought by any private or public person under common law or under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980
("RCRA") or any other Federal, State, County or Municipal law,
ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining
to the identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; (iv) losses attributable to diminution in the value of the Premises or
the Building; (v) loss or restriction of use of rentable space in the Building;
(vi) Adverse effect on the marketing of any space in the Building; and (vi) all
other liabilities, obligations, penalties, fines, claims, actions (including
remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders or judgments), damages (including consequential and punitive
damages), and costs (including attorney, consultant, and expert fees and
expenses) resulting from the release or violation. This indemnification shall
survive the expiration or termination o this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Landlord's Indemnity Regarding Hazardous
Materials: </B>Landlord shall with counsel reasonably acceptable to Tenant,
indemnify, defend and hold harmless Tenant and Tenant's shareholders, directors,
officers, employees, partners, affiliates, and agents from, any claims,
liabilities, costs or expenses incurred or suffered by Tenant arising from the
bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Landlord or the violation of any Governmental Regulation or
environmental law, by Landlord or Landlord's Agents. Landlord's indemnification
and hold harmless obligations include, without limitation, the following: (i)
claims, liability, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal) or other action, legal or
equitable, brought by any private or public person under common law or under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980
("RCRA") or any other Federal, State, County or Municipal law,
ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining
to the identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; and (iv) all other liabilities, obligations, penalties, fines, claims,
actions (including remedial or enforcement actions of any kind and
administrative or judicial proceedings, orders or judgments), damages (including
consequential and punitive damages), and costs (including attorney, consultant,
and expert fees and expenses) resulting from the release or violation. This
indemnification shall survive the expiration or termination o this Lease. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Actual Release by Tenant: </B>Tenant agrees
to notify Landlord of any lawsuits or orders which relate to the remedying of or
actual release of Hazardous Materials on or into the soils or ground water at or
under the Premises. Tenant shall also provide Landlord all notices required by
Section 25359.7(b) of the Health and Safety Code and all other notices required
by law to be given to Landlord in connection with Hazardous Materials. Without
limiting the foregoing, each party shall also deliver to the other party, within
twenty (20) days after receipt thereof, any written notices from any
governmental agency alleging a material violation of, or material failure to
comply with, any federal, state or local laws, regulations, ordinances or
orders, the violation of which or failure to comply with poses a foreseeable and
material risk of contamination of the ground water or injury to humans (other
than injury solely to Tenant, Tenant's Agents and employees within the
Building).</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> In the event of any release on or into the Premises
or into the soil or ground water under the Premises, the Building or the Project
of any Hazardous Materials used, treated, stored or disposed of by Tenant or
Tenant's Agents, Tenant agrees to comply, at its sole cost, with all laws,
regulations, ordinances and orders of any federal, state or local agency
relating to the monitoring or remediation of such Hazardous Materials. In the
event of any such release of Hazardous Materials Tenant shall immediately give
verbal and follow-up written notice of the release to Landlord, and Tenant
agrees to meet and confer with Landlord and its Lender to attempt to eliminate
and mitigate any financial exposure to such Lender and resultant exposure to
Landlord under California Code of Civil Procedure Section 736(b) as a result of
such release, and promptly to take reasonable monitoring, cleanup and remedial
steps given, inter alia, the historical uses to which the Property has and
continues to be used, the risks to public health posed by the release, the then
available technology and the costs of remediation, cleanup and monitoring,
consistent with acceptable customary practices for the type and severity of such
contamination and all applicable laws. Nothing in the preceding sentence shall
eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to
indemnify and hold Landlord and Master Landlord harmless from any claims
liabilities, costs or expenses incurred or suffered by them rising from the
bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Tenant or a third party through the surface soils of the Premises
during the Lease Term or the violation of any Governmental Regulation or
environmental law, by Tenant or Tenant's Agents. Tenant shall provide Landlord
prompt written notice of Tenant's monitoring, cleanup and remedial steps.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> In the absence of an order of any federal, state or local
governmental or quasi-governmental agency relating to the cleanup, remediation
or other response action required by applicable law, any dispute arising between
Landlord and Tenant concerning Tenant's obligation to Landlord under this
Section 12.C concerning the level, method, and manner of cleanup, remediation or
response action required in connection with such a release of Hazardous
Materials shall be resolved by mediation and/or arbitration pursuant to the
provisions of Section 21.E of this Lease.</P>
<P ALIGN="CENTER"></P>
<P ALIGN="JUSTIFY"> <B>D. Environmental Monitoring: </B>Landlord and
its agents shall have the right to inspect, investigate, sample and monitor the
Premises including any air, soil, water, ground water or other sampling or any
other testing, digging, drilling or analysis to determine whether Tenant is
complying with the terms of this Section 12 provided reasonable grounds to
suspect a violation exist. If Landlord discovers that Tenant is not in
compliance with the terms of this Section 12, any such reasonable costs incurred
by Landlord, including attorneys' and consultants' fees, shall be due and
payable by Tenant to Landlord within thirty (30) days following Landlord's
written demand therefore.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">13. Tenant's Default: </B> The occurrence of any of
the following shall constitute a material default and breach of this Lease by
Tenant: (i) Tenant's failure to pay any rent including additional rent or any
other payment due under this Lease within ten (10) days following Landlord's
notice of nonpayment, (ii) the abandonment of the Premises by Tenant; (iii)
Tenant's failure to observe and perform any other required provision of this
Lease, where such failure continues for thirty (30) days after written notice
from Landlord, provided, however, that if the nature of the default is such that
it cannot reasonably be cured within the 30-day period, Tenant shall not be
deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion; (iv) Tenant's making of any
general assignment for the benefit of creditors; (v) the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed after the
filing); (vi) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within sixty
(60) days; (vii) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within sixty (60)
days; (viii) a default by Tenant under the Building 2 Lease (if then leased by
Tenant from Landlord), or (ix) a default by Tenant under the Building 1 Lease
(if leased by Tenant from Landlord).</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Remedies: </B> In the event of any such
default by Tenant, then in addition to other remedies available to Landlord at
law or in equity, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event Landlord elects to so terminate this
Lease, Landlord may recover from Tenant all the following: (i) the worth at
time of award of any unpaid rent which had been earned at the time of such
termination; (ii) the worth at time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss for the same period that Tenant proves
could have been reasonably avoided; (iii) the worth at time of award of the
amount by which the unpaid rent for the balance of the Lease Term after the time
of award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; (iv) any other amount necessary to compensate Landlord for
all detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom; including the following: (x) reasonable expenses for
repairing, altering or remodeling the Premises if such expenses are necessary to
relet the Premises, (y) reasonable broker's fees, advertising costs or other
expenses of reletting the Premises, and (z) costs of carrying the Premises such
as taxes, insurance premiums, utilities and security precautions and assessments
due under the Declaration, and (v) at Landlord's election, such other reasonable
amounts in addition to or in lieu of the foregoing as may be permitted by
applicable California law. The term "rent", as used herein, is
defined as the minimum monthly installments of Base Monthly Rent and all other
sums required to be paid by Tenant pursuant to this Lease, all such other sums
being deemed as additional rent due hereunder. As used in (i) and (ii) above,
"worth at the time of award" shall be computed by allowing interest at
a rate equal to the discount rate of the Federal Reserve Bank of San Francisco
plus five (5%) percent per annum. As used in (iii) above, "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
(1%) percent. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Right to Re-enter: </B> In the event of any
such default by Tenant, Landlord shall have the right, after terminating this
Lease, to re-enter the Premises and remove all persons and property. Such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant, and disposed of by Landlord in any manner
permitted by law.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Abandonment: </B> If Landlord does not elect
to terminate this Lease as provided in Section 13.A or 13.B above, then the
provisions of California Civil Code Section 1951.4, (Landlord may continue the
lease in effect after Tenant's breach and abandonment and recover rent as it
becomes due if Tenant has a right to sublet and assign, subject only to
reasonable limitations) as amended from time to time, shall apply and Landlord
may from time to time, without terminating this Lease, either recover all rental
as it becomes due or relet the Premises or any part thereof for such term or
terms and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable, with the right to make
alterations and repairs to the Premises. In the event that Landlord elects to
so relet, rentals received by Landlord from such reletting shall be applied in
the following order to: (i) the payment of any indebtedness other than Base
Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost
of such reletting; (iii) the payment of the cost of any alterations and repairs
to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid
hereunder. The residual rentals, if any, shall be held by Landlord and applied
in payment of future Base Monthly Rent as the same may become due and payable
hereunder. Landlord shall the obligation to market the space but shall have no
obligation to relet the Premises following a default if Landlord has other
comparable available space within the Building or Project. In the event the
portion of rentals received from such reletting which is applied to the payment
of rent hereunder during any month be less than the rent payable during that
month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord
immediately upon demand. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as ascertained, any reasonable costs
and expenses incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from such
reletting.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. No Termination: </B> Landlord's re-entry or
taking possession of the Premises pursuant to 13.B or 13.C shall not be
construed as an election to terminate this Lease unless written notice of such
intention is given to Tenant or unless the termination is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such default.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Non-Waiver: </B> Landlord may accept Tenant's
payments without waiving any rights under this Lease, including rights under a
previously served notice of default. No payment by Tenant or receipt by Landlord
of a lesser amount than any installment of rent due shall be deemed as other
than payment on account of the amount due. If Landlord accepts payments after
serving a notice of default, Landlord may nevertheless commence and pursue an
action to enforce rights and remedies under the previously served notice of
default without giving Tenant any further notice or demand. Furthermore, the
Landlord's acceptance of rent from the Tenant when the Tenant is holding over
without express written consent does not convert Tenant's Tenancy from a tenancy
at sufferance to a month to month tenancy. No waiver of any provision of this
Lease shall be implied by any failure of Landlord to enforce any remedy for the
violation of that provision, even if that violation continues or is repeated.
Any waiver by Landlord of any provision of this Lease must be in writing. Such
waiver shall affect only the provision specified and only for the time and in
the manner stated in the writing. No delay or omission in the exercise of any
right or remedy by Landlord shall impair such right or remedy or be construed as
a waiver thereof by Landlord. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute acceptance
of the surrender of the Premises by Tenant before the Expiration Date. Only
written notice from Landlord to Tenant of acceptance shall constitute such
acceptance of surrender of the Premises. Landlord's consent to or approval of
any act by Tenant which requires Landlord's consent or approvals shall not be
deemed to waive or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> F. Performance by Landlord: </B>If Tenant fails
to perform any obligation required under this Lease or by law or governmental
regulation, Landlord in its sole discretion may, following notice and expiration
of the applicable cure period, without waiving any rights or remedies and
without releasing Tenant from its obligations hereunder, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all sums
paid by Landlord in connection with such substitute performance, including
interest at the Agreed Interest Rate within thirty (30) days of Landlord's
written notice for such payment.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">14. Landlord's Liability: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Limitation on Landlord's Liability: </B> In the
event of Landlord's failure to perform any of its covenants or agreements under
this Lease, Tenant shall give Landlord written notice of such failure and shall
give Landlord thirty (30) days to cure or commence to cure such failure prior to
any claim for breach or resultant damages, provided, however, that if the nature
of the default is such that it cannot reasonably be cured within the 30-day
period, Landlord shall not be deemed in default if it commences within such
period to cure, and thereafter diligently prosecutes the same to completion. In
addition, upon any such failure by Landlord, Tenant shall give notice by
registered or certified mail to any person or entity with a security interest in
the Premises ("Mortgagee") that has provided Tenant with notice of its
interest in the Premises, and shall provide Mortgagee a reasonable opportunity
to cure such failure, including such time to obtain possession of the Premises
by power of sale or judicial foreclosure, if such should prove necessary to
effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease
has been assigned is an expressed third-party beneficiary hereof. Tenant waives
any right under California Civil Code Section 1950.7 or any other present or
future law to the collection of any payment or deposit from Mortgagee or any
purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or such
purchaser shall have actually received and not refunded the applicable payment
or deposit. Tenant Further waives any right to terminate this Lease and to
vacate the Premises on Landlord's default under this Lease. Tenant's sole
remedy on Landlord's default is an action for damages or injunctive or
declaratory relief.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Limitation on Tenant's Recourse: </B>If
Landlord is a corporation trust, partnership, joint venture, unincorporated
association or other form of business entity: (i) the obligations of Landlord
shall not constitute personal obligations of the officers, directors, trustees,
partners, joint venturers, members, owners, stockholders, or other principals or
representatives except to the extent of their interest in the Premises. Tenant
shall have recourse only to the interest of Landlord in the Premises or for the
satisfaction of the obligations of Landlord and shall not have recourse to any
other assets of Landlord for the satisfaction of such obligations.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. Indemnification of Landlord: </B> As a
material part of the consideration rendered to Landlord, Tenant hereby waives
all claims against Landlord except to the extent caused by Landlord's gross
negligence, willful misconduct or a breach of this Lease for damages to goods,
wares and merchandise, and all other personal property in, upon or about said
Premises and for injuries to persons in or about said Premises, from any cause
arising at any time to the fullest extent permitted by law, and Tenant shall
indemnify and hold Landlord, Master Landlord and their shareholders, directors,
officers, trustees, employees, partners, affiliates and agents exempt and
harmless from any damage or injury to any person, or to the goods, wares and
merchandise and all other personal property of any person, arising from the use
of the Premises, Building, and/or Project by Tenant and Tenant's Agents or from
the failure of Tenant to keep the Premises in good condition and repair as
herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims
except to the extent due to the gross negligence or willful misconduct of
Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">15. Destruction of Premises: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Landlord's Obligation to Restore: </B>In the
event of a destruction of the Premises during the Lease Term Landlord shall
repair the same to the approximate condition which existed prior to such
destruction. Such destruction shall not annul or void this Lease; however,
Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while
repairs are being made, such proportionate reduction to be based upon the extent
to which the repairs interfere with Tenant's business in the Premises, as
reasonably determined by the Parties. In no event shall Landlord be required to
replace or restore Alterations, Tenant Improvements, Tenant's fixtures or
personal property. With respect to a destruction which Landlord is obligated to
repair or may elect to repair under the terms of this Section, Tenant waives the
provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code
of the State of California, and any other similarly enacted statute, and the
provisions of this Section 15 shall govern in the case of such destruction. If
Landlord is required to repair the Premises in the event of destruction pursuant
to this Lease, Landlord agrees that it will not vote under the Declaration in
favor or not repairing the Premises or Common Area.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Limitations on Landlord's Restoration
Obligation: </B>Notwithstanding the provisions of Section 15.A, Landlord shall
have no obligation to repair, or restore the Premises if any of the following
occur: (i) if the repairs cannot be made in three hundred sixty five (365) days
from the date of receipt of all governmental approvals necessary under the laws
and regulations of State, Federal, County or Municipal authorities, as
reasonably determined by Landlord, (ii) if the holder of the first deed of trust
or mortgage encumbering the Building elects not to permit the insurance proceeds
payable upon damage or destruction to be used for such repair or restoration,
(iii) the damage or destruction is not fully covered by the insurance maintained
by Landlord, (iv) the damage or destruction occurs in the last twenty four (24)
months of the Lease Term (unless Tenant commits to exercise any available option
to extend the Lease Term pursuant to Section 18 of this Lease), (v) Tenant is in
default pursuant to the provisions of Section 13 beyond expiration of the
applicable cure period, (vi) Tenant has vacated the Premises for more than
ninety (90) days, or (vii) if repair of the Common Area is necessary before
repairs to the Premises can be</P>
<P ALIGN="JUSTIFY">performed and Landlord reasonably determines that repairs to
the Common Area will not be made within one hundred eighty (180) days after the
date of the damage and destruction. In any such event Landlord may elect either
to (i) complete the repair or restoration, or (ii) terminate this Lease by
providing Tenant written notice of its election within sixty (60) days following
the damage or destruction.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Tenant's Rights with Respect to a Destruction of
the Premises</B>: Notwithstanding anything to the contrary contained in this
Lease: Landlord shall give notice to Tenant of its election to rebuild or not
to rebuild the Premises within thirty (30) days of casualty to the Premises and
such notice shall specify Landlord's architect's or engineer's reasonable
estimate as to the time required to rebuild or restore the Premises. If, in the
reasonable opinion of Landlord's architect or engineer, the Premises will take
longer than three hundred sixty five (365) days to rebuild or restore and
Landlord has elected to perform such rebuilding or restoration, Tenant may,
notwithstanding Landlord's election, terminate this Lease by written notice to
Landlord of such termination within five (5) days after its receipt of
Landlord's notice. Such termination shall be effective thirty (30) days after
the giving of Tenant's notice. If Landlord fails to restore the Premises
(including reasonable means of access thereto) within a period which is sixty
(60) days longer than the period stated in Landlord's notice to Tenant as the
estimated rebuilding period, 'Tenant, at any time thereafter until such
rebuilding is completed, may terminate this Lease by delivering written notice
to Landlord of such termination, in which event this Lease shall terminate as of
the date of the giving of such notice. If casualty to the Premises occurs
within the last twenty-four months of the term and the period in which Tenant is
obligated to exercise its option to renew the term pursuant to Section 18 has
not expired, Tenant shall have thirty (30) days after the date of casualty in
which to notify Landlord of its election to exercise such renewal option. If
Tenant elects to renew the term as provided above, Landlord shall have no right
to terminate the Lease pursuant to this Section 15.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">16. Condemnation: </B> If any part of the Premises
shall be taken for any public or quasi-public use, under any statute or by right
of eminent domain or private purchase in lieu thereof, and only a part thereof
remains which is susceptible of occupation hereunder, this Lease shall, as to
the part so taken, terminate as of the day before title vests in the condemnor
or purchaser ("Vesting Date") and Base Monthly Rent payable hereunder
shall be adjusted so that Tenant is required to pay for the remainder of the
Lease Term only such portion of Base Monthly Rent as the value of the part
remaining after such taking bears to the value of the entire Premises prior to
such taking. If all of the Premises or such part thereof be taken so that there
does not remain a portion susceptible for occupation hereunder, this Lease shall
terminate on the Vesting Date. If part or all of the Premises be taken, all
compensation awarded upon such taking shall go to Landlord, and Tenant shall
have no claim thereto; but Landlord shall cooperate with Tenant, without cost to
Landlord, to recover compensation for damage to or taking of any Alterations,
Tenant Improvements, or for Tenant's moving costs. Tenant hereby waives the
provisions of California Code of Civil Procedures Section 1265.130 and any other
similarly enacted statue, and the provisions of this Section 16 shall govern in
the case of such taking.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">17. Assignment or Sublease: </B> </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Consent by Landlord: </B>Except as
specifically provided in this Section 17.E, Tenant may not assign, sublet,
hypothecate, or allow a third party to use the Premises without the express
written consent of Landlord which shall not be unreasonably withheld,
conditioned or delayed. Except in connection with a Permitted Transfer, in the
event Tenant desires to assign this Lease or any interest herein including,
without limitation, a pledge, mortgage or other hypothecation, or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years if available, (iii) the nature of the proposed
transferee's business to be carried on in the Premises, (iv) a statement
outlining all consideration to be given on account of the Transfer, and (v) a
current financial statement of Tenant. Landlord may condition its approval of
any Transfer to a certification from both Tenant and the proposed transferee of
all consideration to be paid to Tenant in connection with such Transfer. At
Landlord's request, Tenant shall also provide additional information reasonably
required by Landlord to determine whether it will consent to the proposed
assignment or sublease. Landlord shall have a fifteen business (15) day period
following receipt of all the foregoing within which to notify Tenant in writing
that Landlord elects to: (i) terminate this Lease in the event of an assignment
only; (ii) permit Tenant to assign or sublet such space to the named
assignee/subtenant on the terms and conditions set forth in the notice; or (iii)
refuse consent. If Landlord should fail to notify Tenant in writing of such
election within the 15-day period, Landlord shall be deemed to have elected
option (ii) above. In the event Landlord elects option (i) above, this Lease
shall expire with respect to such part of the Premises on the date upon which
the proposed sublease was to commence, and from such date forward, Base Monthly
Rent and Tenant's Allocable Share of all other costs and charges shall be
adjusted based upon the proportion that the rentable area of the Premises
remaining bears to the total rentable area of the Premises. In the event
Landlord elects option (ii) above, Landlord's written consent to the proposed
assignment or sublease shall not be unreasonably withheld, provided and upon the
condition that: (i) the proposed assignee or subtenant is engaged in a business
that is limited to the use expressly permitted under this Lease; (ii) the
proposed assignee or subtenant is a company with sufficient financial worth and
management ability to undertake the financial obligation of this Lease and
Landlord has been furnished with reasonable proof thereof; (iii) the proposed
assignment or sublease is in form reasonably satisfactory to Landlord; (iv)
Tenant reimburses Landlord on demand for any reasonable costs that may be
incurred by Landlord in connection with said assignment or sublease, including
the costs of making investigations as to the acceptability of the proposed
assignee or subtenant and legal costs incurred in connection with the granting
of any requested consent; and (vi) Tenant shall not have advertised or
publicized in any way the availability of the Premises without prior notice to
Landlord. In the event all or any one of the foregoing conditions are not
satisfied, Landlord shall be considered to have acted reasonably if it withholds
its consent.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Assignment or Subletting Consideration:
</B>Any rent or other economic consideration realized by Tenant under any
sublease and assignment, in excess of the rent payable hereunder after deducting
(i) reasonable subletting and assignment costs (ii) the Monthly Amortized Cost
(defined below) of the Tenant Improvements paid by Tenant, and (iii) any
economic consideration received by Tenant for services rendered or personal
property sold or leased, shall be divided and paid fifty percent (50%) to
Landlord and fifty percent (50%) to Tenant. Monthly Amortized Cost shall be
determined by taking sum paid by Tenant for the Tenant Improvements installed in
the Building and dividing this sum by one hundred forty four (144) months.
Tenant's obligation to pay over Landlord's portion of the consideration
constitutes an obligation for additional rent hereunder. The above provisions
relating to Landlord's right to terminate the Lease and relating to the
allocation of bonus rent are independently negotiated terms of the Lease which
constitute a material inducement for the Landlord to enter into the Lease, and
are agreed by the parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting except in connection with a Permitted Transfer which
conflicts with the provisions hereof shall be void.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>C. No Release: </B>Any assignment or sublease
except in connection with a Permitted Transfer shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant.
Tenant shall indemnify, defend and hold Landlord harmless from and against all
losses, liabilities, damages, costs and expenses (including reasonable attorney
fees) resulting from any claims that may be made against Landlord by the
proposed assignee or subtenant or by any real estate brokers or other persons
claiming compensation in connection with the proposed assignment or sublease,
unless caused by Landlord's breach of this Lease. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Reorganization of Tenant: </B>The provisions
of this Section 17.D shall apply if Tenant is a corporation and: (i) there is a
dissolution, merger, consolidation, or other reorganization of or affecting
Tenant, where Tenant is not the surviving corporation, or (ii) there is a sale
or transfer to one person or entity (or to any group of related persons or
entities) of stock possessing more than 50% of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding and entitled to
vote for the election of directors, and after such sale or transfer of stock
Tenant's stock is no longer publicly traded. In a transaction under clause (i)
the surviving corporation shall promptly execute and deliver to Landlord an
agreement in form reasonably satisfactory to Landlord under which such
corporation assumes the obligations of Tenant hereunder, and in a transaction
under clause (ii) the transferee shall promptly execute and deliver to Landlord
an agreement in form reasonably satisfactory to Landlord under which such
transferee assumes the obligations of Tenant to the extent accruing after such
transferee's acquisition of Tenant's stock possessing more than 50% of the total
combined voting of all classes of Tenant's capital stock issued, outstanding and
entitled to vote for the election of directors.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Permitted Transfers: </B>Notwithstanding
anything contained in this Section 17, Tenant may enter into any of the
following transfers (a "Permitted Transfer") without Landlord's prior
consent, and Landlord shall not be entitled to terminate the Lease or to receive
any part of any subrent resulting therefrom that would otherwise be due pursuant
to Sections 17.A and 17.B. Tenant may sublease all or part of the Premises or
assign its interest in this Lease to (i) any person or entity which controls, is
controlled by, or is under common control with the original Tenant to this Lease
by means of an ownership interest of more than 50%; (ii) any person or entity
which results from a merger, consolidation or other reorganization in which
Tenant is not the survivor, so long as the survivor has a net worth at the time
of such transfer sufficient to enable it to meet its obligations under this
Lease; and (iii) any person or entity which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring person or
entity has a net worth at the time of such transfer that is sufficient at the
time of such transfer to enable it to meet its obligations under this Lease.
</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> F. Effect of Default: </B>In the event of Tenant's
default, Tenant hereby assigns all rents due from any assignment or subletting
to Landlord as security for performance of its obligations under this Lease, and
Landlord may collect such rents as Tenant's Attorney-in-Fact, except that Tenant
may collect such rents unless a default occurs as described in Section 13 above.
A Lease termination due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Conveyance by Landlord: </B> As used in this
Lease, the term "Landlord" is defined only as the owner for the time
being of the Premises, so that in the event of any sale or other conveyance of
the Premises or in the event of a master lease of the Premises, Landlord shall
be entirely freed and relieved of all its covenants and obligations hereunder,
and it shall be deemed and construed, without further agreement between the
parties and the purchaser at any such sale or the master tenant of the Premises,
that the purchaser or master tenant of the Premises has assumed and agreed to
carry out any and all covenants and obligations of Landlord hereunder. Such
transferor shall transfer and deliver Tenant's security deposit to the purchaser
at any such sale or the master tenant of the Premises, and thereupon the
transferor shall be discharged from any further liability in reference
thereto.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>F. Successors and Assigns: </B> Subject to the
provisions this Section 17, the covenants and conditions of this Lease shall
apply to and bind the heirs, successors, executors, administrators and assigns
of all parties hereto; and all parties hereto shall be jointly and severally
liable hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">18.</B> <B>Option to Extend the Lease Term:</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>A. Grant and Exercise of Option: </B>Landlord
grants to Tenant, subject to the terms and conditions set forth in this Section
18.A, two (2) options (the "Options") to extend the Lease Term for an
additional term (the "Option Term"). Each Option Term shall be for a
period of sixty (60) months and shall be exercised, if at all, by written notice
to Landlord no earlier than eighteen (18) months prior to the date the Lease
Term would expire but for such exercise but no later than twelve (12) months
prior to the date the Lease Term would expire but for such exercise, time being
of the essence for the giving of such notice. If Tenant exercises the first
Option or both of the Options, all of the terms, covenants and conditions of
this Lease except this Section shall apply during the Option Term as though the
expiration date of the Option Term was the date originally set forth herein as
the Expiration Date, provided that Base Monthly Rent for the Premises payable by
Tenant during the Option Term shall be the greater of (i) the average amount of
Base Monthly Rent paid during the initial Lease Term, and (ii) ninety five
percent (95%) of the Fair Market Rental as hereinafter defined. Notwithstanding
anything herein to the contrary, if Tenant is in monetary or material non-
monetary default after expiration of any applicable cure period under any of the
terms, covenants or conditions of this Lease either at the time Tenant exercises
the Option or at any time thereafter prior to the commencement date of the
Option Term, Landlord shall have, in addition to all of Landlord's other rights
and remedies provided in this Lease, the right to terminate the Option upon
notice to Tenant, in which event the expiration date of this Lease shall be and
remain the Expiration Date. As used herein, the term "Fair Market
Rental" is defined as the rental and all other monetary payments, including
any escalations and adjustments thereto (including without limitation Consumer
Price Indexing) that Landlord could obtain during the Option Term from a third
party desiring to lease the Premises, based upon the current use and other
potential uses of the Premises, as determined by the rents then being obtained
for new leases of space comparable in age and quality to the Premises in the
locality of the Building. The appraisers shall be instructed that the foregoing
five percent (5%) discount is intended to reduce comparable rents which include
(i) brokerage commissions, (ii) tenant improvement allowances, and (iii) vacancy
costs, to account for the fact that Landlord will not suffer such costs in the
event Tenant exercises its Option.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Determination of Fair Market Rental: </B>If
Tenant exercises the Option, Landlord shall send Tenant a notice setting forth
the Fair Market Rental for the Option Term within thirty (30) days following the
Exercise Date. If Tenant disputes Landlord's determination of Fair Market
Rental for the Option Term, Tenant shall, within thirty (30) days after the date
of Landlord's notice setting forth Fair Market Rental for the Option Term, send
to Landlord a notice stating that Tenant either elects to terminate its exercise
of the Option, in which event the Option shall lapse and this Lease shall
terminate on the Expiration Date, or that Tenant disagrees with Landlord's
determination of Fair Market Rental for the Option Term and elects to resolve
the disagreement as provided in Section 18.C below. If Tenant elects to resolve
the disagreement as provided in Section 18.C and such procedures are not
concluded prior to the commencement date of the Option Term, Tenant shall pay to
Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord
in the manner provided above. If the Fair Market Rental as finally determined
pursuant to Section 18.C is greater than Landlord's determination, Tenant shall
pay Landlord the difference between the amount paid by Tenant and the Fair
Market Rental as so determined in Section 18.C within thirty (30) days after
such determination. If the Fair Market Rental as finally determined in Section
18.C is less than Landlord's determination, the difference between the amount
paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall
be credited against the next installments of rent due from Tenant to Landlord
hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Resolution of a Disagreement over the Fair
Market Rental: </B>Any disagreement regarding Fair Market Rental shall be
resolved as follows:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 1. Within thirty (30) days after Tenant's response
to Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant
shall meet at least two (2) times at a mutually agreeable time and place, in an
attempt to resolve the disagreement.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 2. If within the 30-day period referred to above,
Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party
shall select one appraiser to determine Fair Market Rental. Each such appraiser
shall arrive at a determination of Fair Market Rental and submit their
conclusions to Landlord and Tenant within thirty (30) days after the expiration
of the 30-day consultation period described above.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 3. If only one appraisal is submitted within the
requisite time period, it shall be deemed as Fair Market Rental. If both
appraisals are submitted within such time period and the two appraisals so
submitted differ by less than ten percent (10%), the average of the two shall be
deemed as Fair Market Rental. If the two appraisals differ by more than 10%,
the appraisers shall immediately select a third appraiser who shall, within
thirty (30) days after his selection, make and submit to Landlord and Tenant a
determination of Fair Market Rental. This third appraisal will then be averaged
with the closer of the two previous appraisals and the result shall be Fair
Market Rental.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> 4. All appraisers specified pursuant to this
Section shall be members of the American Institute of Real Estate Appraisers
with not less than ten (10) years experience appraising office and industrial
properties in the Santa Clara Valley. Each party shall pay the cost of the
appraiser selected by such party and one-half of the cost of the third
appraiser.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Personal to Tenant: </B> All Options provided
to Tenant in this Lease are personal and granted to Siebel Systems, Inc. and any
Permitted Transferee and are not exercisable by any third party should Tenant
assign or sublet all or a portion of its rights under this Lease, unless
Landlord consents to permit exercise of any option by any assignee or subtenant,
in Landlord's sole and absolute discretion. In the event Tenant has multiple
options to extend this Lease, a later option to extend the Lease cannot be
exercised unless the prior option has been so exercised.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">19.</B> <B>This section intentionally left blank.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">20. Right Of First Offering To Purchase: </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> A. Grant and Exercise of Option: </B>In the event
either or both Master Landlord and Landlord elect to sell their respective
interests in the Building, Master Landlord and Landlord hereby grants Tenant a
right of first offering to purchase their respective interests in the Building
(Master Landlord and Landlord are individually and collectively referred to in
this Section as "Seller"). Prior to Seller offering to sell its
interest in the Building to a third party, Seller shall give Tenant written
notice of such desire and the terms and other information under which Seller
intends to sell the Building. Provided at the time of exercise, Tenant is not
in default beyond the expiration of any applicable cure period, Tenant shall
have the option, which must be exercised, if at all, by written notice to Seller
within thirty (30) days after Tenant's receipt of Seller's notice, to purchase
its interest in the Building at the sales price and terms of sale specified in
the notice. In the event Tenant timely exercises such option to purchase its
interest in the Building, Seller shall sell its interest in the Building to
Tenant, and Tenant shall purchase its interest in the Building from Seller in
accordance with the price and terms specified in Seller's notice. Seller and
Tenant shall, in good faith, attempt to reach agreement on the terms of a
mutually acceptable purchase agreement consistent with the terms set forth in
Seller's notice within thirty (30) days of Seller's notice. In the event (i)
Seller and Tenant are unable to reach agreement on a mutually acceptable
purchase agreement within such thirty (30) day period or (ii) Tenant fails to
exercise Tenant's option within said thirty (30) day period, Seller shall have
one hundred eighty (180) days thereafter to sell its interest in the Building at
no less than ninety five percent (95%) of the sales price and upon the same or
substantially the same other terms of sale as specified in the notice to Tenant.
In the event Seller fails to sell its interest in the Building within said one
hundred eighty (180) day period or in the event Seller proposes to sell its
interest in the Building at less than ninety five percent (95%) of the sales
price or on other material terms which are more favorable to the prospective
buyer than that proposed to Tenant, Seller shall be required to resubmit such
offer to Tenant in accordance with this Right of First Offering except that
Tenant shall be required to respond to any resubmission within a seven (7) day
period.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>B. Exclusions:</B> This Right of First
Offering shall automatically terminate, (i) upon the expiration or sooner
termination of the Lease, or (ii) in the event of a foreclosure or other
involuntary transfer of Landlord's interest in the Building. Notwithstanding
the forgoing, this Right of First Offering shall not apply to transfers (but
shall survive such transfers ) of all or a portion of the Building or Project to
(i) John A. Sobrato and/or John M. Sobrato (individually and collectively
"Sobrato"), and (ii) any immediate family member of Sobrato, and (iii)
any trust established, in whole or in art, for the benefit of Sobrato and/or any
immediate family member of Sobrato, (iv) any partnership in which Sobrato or any
immediate family member, either directly or indirectly (e.g., through a
partnership or corporate entity or a trust) retains a general partner interest,
and/or (v) any corporation under the control, either directly or indirectly, by
Sobrato or any immediate family member of Sobrato.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">21. General Provisions:</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> A. Attorney's Fees:</B> In the event a suit or
alternative form of dispute resolution is brought for the possession of the
Premises, for the recovery of any sum due hereunder, to interpret the Lease, or
because of the breach of any other covenant herein; then the losing party shall
pay to the prevailing party reasonable attorney's fees including the expense of
expert witnesses, depositions and court testimony as part of its costs which
shall be deemed to have accrued on the commencement of such action. The
prevailing party shall also be entitled to recover all costs and expenses
including reasonable attorney's fees incurred in enforcing any judgment or award
against the other party. The foregoing provision relating to post-judgment
costs is severable from all other provisions of this Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> B. Authority of Parties: </B>Tenant represents
and warrants that it is duly formed and in good standing, and is duly authorized
to execute and deliver this Lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of said corporation or
in accordance with the by-laws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms. At Landlord's
request, Tenant shall provide Landlord with corporate resolutions or other proof
in a form acceptable to Landlord, authorizing the execution of the Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> C. Brokers: </B> Tenant represents it has not
utilized or contacted a real estate broker or finder with respect to this Lease
other than Chris Allen, d/b/a Resource Real Estate Group, which fee shall be
payable by Landlord pursuant to a written agreement and the Parties agree to
indemnify, defend and hold each other harmless against any claim, cost,
liability or cause of action asserted by any other broker or finder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> D. Choice of Law: </B>This Lease shall be
governed by and construed in accordance with California law. Except as
provided in Section 21.E, venue shall be Santa Clara County.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>E. Dispute Resolution: </B>Landlord and Tenant and
any other party that may become a party to this Lease or be deemed a party to
this Lease including any subtenants agree that, except for any claim by Landlord
for unlawful detainer or any claim within the jurisdiction of the small claims
court (which small claims court shall be the sole court of competent
jurisdiction), any controversy, dispute, or claim of whatever nature arising out
of, in connection with or in relation to the interpretation, performance or
breach of this Lease, including any claim based on contract, tort, or statute,
shall be resolved at the request of any party to this agreement through a two-
step dispute resolution process administered by J.A.M.S. or another judicial
mediation service mutually acceptable to the parties located in Santa Clara
County, California. The dispute resolution process shall involve first,
mediation, followed, if necessary, by final and binding arbitration administered
by and in accordance with the then existing rules and practices of J.A.M.S. or
other judicial mediation service selected. In the event of any dispute subject
to this provision, either party may initiate a request for mediation and the
parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and
commence the mediation. In the event the parties are not able to agree on a
mediator within thirty (30) days, J. A. M. S. or another judicial mediation
service mutually acceptable to the parties shall appoint a mediator. The
mediation shall be confidential and in accordance with California Evidence Code
1119 et. seq. The mediation shall be held in Santa Clara County, California
and in accordance with the existing rules and practice of J. A. M. S. (or other
judicial and mediation service selected). The parties shall use reasonable
efforts to conclude the mediation within sixty (60) days of the date of either
party's request for mediation. The mediation shall be held prior to any
arbitration or court action (other than a claim by Landlord for unlawful
detainer or any claim within the jurisdiction of the small claims court which
are not subject to this mediation/arbitration provision and may be filed
directly with a court of competent jurisdiction). Should the prevailing party in
any dispute subject to this Section 19.E attempt an arbitration or a court
action before attempting to mediate, the prevailing party shall not be entitled
to attorney's fees that might otherwise be available to them in a court action
or arbitration and in addition thereto, the party who is determined by the
arbitrator to have resisted mediation, shall be sanctioned by the arbitrator or
judge.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">If a mediation is conducted but is unsuccessful, it shall be
followed by final and binding arbitration administered by and in accordance with
the then existing rules and practices of J.A.M.S. or the other judicial and
mediation service selected, and judgment upon any award rendered by the
arbitrator(s) may be entered by any state or federal court having jurisdiction
thereof AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ,
AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR
SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT in no event shall
the parties be entitled to propound interrogatories or request for admissions
during the arbitration process. The arbitrator shall be a retired judge or a
licensed California attorney. The venue for any such arbitration or mediation
shall be in Santa Clara County, California.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND
ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE
DISPUTE LITIGATED IN A COURT OR fURY TRIAL. BY INITIALING IN THE SPACE BELOW
YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE
RIGHTS ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION
IS VOLUNTARY.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION
OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">LANDLORD: ______ TENANT: _______</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> F. Entire Agreement: </B>This Lease and the
exhibits attached hereto contains all of the agreements and conditions made
between the parties hereto and may not be modified orally or in any other manner
other than by written agreement signed by all parties hereto or their respective
successors in interest. This Lease supersedes and revokes all previous
negotiations, letters of intent, lease proposals, brochures, agreements,
representations, promises, warranties, and understandings, whether oral or in
writing, between the parties or their respective representatives or any other
person purporting to represent Landlord or Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> G. Entry by Landlord: </B> Upon prior notice to
Tenant and subject to Tenant's reasonable security regulations, Tenant shall
permit Landlord and his agents to enter into and upon the Premises at all
reasonable times, and without any rent abatement or reduction or any liability
to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby
occasioned, unless caused by Landlord's negligence or willful misconduct, for
the following purposes: (i) inspecting and maintaining the Premises; (ii)
making repairs, alterations or additions (only if agreed by Tenant) to the
Premises; (iii) erecting additional building(s) and improvements on the land
where the Premises are situated or on adjacent land owned by Landlord; and (iv)
performing any obligations of Landlord under the Lease including remediation of
hazardous materials if determined to be the responsibility of Landlord provided
that Landlord agrees to use reasonable efforts to minimize interference with
Tenant's use. Tenant shall permit Landlord and his agents, at any time within
one hundred eighty (180) days prior to the Expiration Date (or at any time
during the Lease if Tenant is in default hereunder), to place upon the Premises
"For Lease" signs and exhibit the Premises to real estate brokers and
prospective tenants at reasonable hours.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> H. Estoppel Certificates: </B> At any time during
the Lease Term, each party (the "Responding Party") shall, within ten
(10) days following written notice from the other party (the "Requesting
Party"), execute and deliver to the Requesting Party a written statement
certifying, if true, the following: (i) that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification); (ii) the date to which rent and other charges are paid in
advance, if any; (iii) acknowledging that there are not, to Responding Party's
knowledge, any uncured defaults on Requesting Party's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Requesting Party may reasonably request. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of
Requesting Party's interest in the Premises. The Responding Party's failure to
deliver such statement within such time shall be conclusive upon the Responding
Party that this Lease is in full force and effect without modification, except
as may be represented by the Requesting Party, and that there are no uncured
defaults in Requesting Party's performance. Tenant agrees to provide, within
five (5) days of Landlord's request, Tenant's most recent three (3) years of
audited financial statements for Landlord's use in financing the Premises or
Landlord's interest therein.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> I. Exhibits: </B>All exhibits referred to are
attached to this Lease and incorporated by reference.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> J. Interest: </B>All rent due hereunder, if not
paid when due, shall bear interest at the rate of the Reference Rate published
by Bank of America, San Francisco Branch, plus two percent (2%) per annum from
that date until paid in full ("Agreed Interest Rate"). This provision
shall survive the expiration or sooner termination of the Lease. Despite any
other provision of this Lease, the total liability for interest payments shall
not exceed the limits, if any, imposed by the usury laws of the State of
California. Any interest paid in excess of those limits shall be refunded to
Tenant by application of the amount of excess interest paid against any sums
outstanding in any order that Landlord requires. If the amount of excess
interest paid exceeds the sums outstanding, the portion exceeding those sums
shall be refunded in cash to Tenant by Landlord. To ascertain whether any
interest payable exceeds the limits imposed, any non-principal payment(including
late charges) shall be considered to the extent permitted by law to be an
expense or a fee, premium, or penalty rather than interest.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>K. Modifications Required by Lender: </B>If any
Lender of Landlord or ground lessor of the Real Property Requires a modification
of this Lease that will not increase Tenant's cost or expense or materially or
adversely change Tenant's rights and obligations, this Lease shall be so
modified and Tenant shall execute whatever documents are required and deliver
them to Landlord within ten (10) days after the request.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>L. No Presumption Against Drafter: </B>Landlord
and Tenant understand, agree and acknowledge that this Lease has been freely
negotiated by both parties; and that in any controversy, dispute, or contest
over the meaning, interpretation, validity, or enforceability of this Lease or
any of its terms or conditions, there shall be no inference, presumption, or
conclusion drawn whatsoever against either party by virtue of that party having
drafted this Lease or any portion thereof.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> M. Notices: </B> All notices, demands, requests,
or consents required to be given under this Lease shall be sent in writing by
U.S. certified mail, return receipt requested, or by personal delivery or by a
nationally recognized overnight courier addressed to the party to be notified at
the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party.<B> </B>When this
Lease requires service of a notice, that notice shall replace rather than
supplement any equivalent or similar statutory notice, including any notices
required by Code of Civil Procedure Section 1161 or any similar or successor
statute. when a statute requires service of a notice in a particular manner,
service of that notice (or a similar notice required by this lease) shall
replace and satisfy the statutory service-of-notice procedures, including those
required by Code of Civil Procedure Section 1162 or any similar or successor
statute.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> N. Property Management:</B> No property
management fee shall be payable to Landlord.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> O. Rent: </B>All monetary sums due from Tenant
to Landlord under this Lease, including, without limitation those referred to as
"additional rent", shall be deemed as rent.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> P. Representations: </B>Tenant acknowledges that
neither Landlord nor any of its employees or agents have made any agreements,
representations, warranties or promises with respect to the Premises or with
respect to present or future rents, expenses, operations, tenancies or any other
matter. Except as herein expressly set forth herein, Tenant relied on no
statement of Landlord or its employees or agents for that purpose.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> Q. Rights and Remedies: </B>All rights and
remedies hereunder are cumulative and not alternative to the extent permitted by
law, and are in addition to all other rights and remedies in law and in
equity.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> R. Severability: </B>If any term or provision of
this Lease is held unenforceable or invalid by a court of competent
jurisdiction, the remainder of the Lease shall not be invalidated thereby but
shall be enforceable in accordance with its terms, omitting the invalid or
unenforceable term.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>S. Submission of Lease:</B> Submission of this
document for examination or signature by the parties does not constitute an
option or offer to lease the Premises on the terms in this document or a
reservation of the Premises in favor of Tenant. This document is not effective
as a lease or otherwise until executed and delivered by both Landlord and
Tenant.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> T. Subordination: </B> This Lease is subject and
subordinate to ground and underlying leases, mortgages and deeds of trust
(collectively "Encumbrances") which may now affect the Premises, to
any covenants, conditions or restrictions of record, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
however, if the holder or holders of any such Encumbrance ("Holder")
require that this Lease be prior and superior thereto, within seven (7) days
after written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver all documents or instruments, in the form presented to
Tenant, which Landlord or Holder deems necessary or desirable for such purposes.
Landlord shall have the right to cause this Lease to be and become and remain
subject and subordinate to any and all Encumbrances which are now or may
hereafter be executed covering the Premises or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default beyond the expiration of any applicable
cure period and continues to pay Base Monthly Rent and additional rent and
observes and performs all required provisions of this Lease. Within ten (10)
days after Landlord's written request, Tenant shall execute any documents
required by Landlord or the Holder to make this Lease subordinate to any lien of
the Encumbrance. If Tenant fails to do so, then in addition to such failure
constituting a default by Tenant, it shall be deemed that this Lease is so
subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> This Lease constitutes a sublease under that certain
Ground Lease dated March 5, 1999 (the "Existing Ground Lease") between The
Sobrato 1979 Revocable Trust, As Amended ("Master Landlord"), as landlord and
Landlord, as tenant, covering all of the real property within the Project, a
copy which has been provided to Tenant, and under the Parcel Lease described in
the next sentence. In connection with the subdivision of the Project as
contemplated by Section 2.C above, it is anticipated that a separate Parcel
Lease (as defined in the Existing Ground Lease) will be entered into between
Master Landlord, as landlord, and Landlord, as tenant, for the lot within which
the Building will be constructed. As used in this Lease, "Master Lease" shall
mean the Existing Ground Lease, until such time as the Parcel Lease is entered
into, and thereafter shall mean the Parcel Lease. Notwithstanding this Section
21.T above, concurrently with the execution of this Lease by Landlord and
Tenant, Landlord and Tenant shall execute in recordable form, and Landlord shall
cause Master Landlord to execute in recordable form, the Subordination,
Nondisturbance and Attornment Agreement attached hereto as Exhibit "G" (the
"SNDA"). Landlord shall cause the SNDA to be recorded at Landlord's cost in the
Official Records of San Mateo County, California within five (5) days after this
Lease is executed by Landlord and Tenant. Similarly, in connection with the
Parcel Lease, within ten (10) days after Landlord's request, Landlord and Tenant
shall execute in recordable form, and Landlord shall cause Master Landlord to
execute in recordable form, a Subordination, Nondisturbance and Attornment
Agreement substantially in the form of the SNDA (the "Revised SNDA"), modified
to refer to the Parcel Lease, Memorandum of Parcel Lease to be recorded in
connection with the Parcel Lease and the revised Premises description, rather
than the Original Ground Lease, the Memorandum of Ground Lease referenced in the
SNDA and the original Premises described in this Lease. Landlord shall cause
the Revised SNDA to be recorded at Landlord's cost in the Official Records of
San Mateo County, California immediately after recordation of the Memorandum of
Lease recorded for the Parcel Lease.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> Notwithstanding the foregoing, Tenant shall not be
required to subordinate its interest under this Lease unless (i) such
subordination' does not materially increase Tenant's obligations, or materially
decrease its rights under this Lease, and (ii) Landlord first obtains from the
holder of the mortgage, deed of trust, or other instrument of security to which
this Lease is to become subordinated a written agreement that provides
substantially that as long as Tenant performs its obligations under this Lease,
no foreclosure of, deed given in lieu of foreclosure of, or sale under the
encumbrance, and no steps or procedures taken under the encumbrance, shall
affect Tenant's rights hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> <B>U. Survival of Indemnities: </B>All
indemnification, defense, and hold harmless obligations of Landlord and Tenant
under this Lease shall survive the expiration or sooner termination of the
Lease.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> V. Time: </B>Time is of the essence
hereunder.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> W.</B> <B>Transportation Demand Management
Programs: </B>Should a government agency or municipality require Landlord to
institute TDM (Transportation Demand Management) facilities and/or program,
Tenant agrees that the cost of TDM imposed facilities required on the Premises,
including but not limited to employee showers, lockers, cafeteria, or lunchroom
facilities, shall be paid by Tenant. Further, any ongoing costs or expenses
associated with a TDM program which are required for the Premises and not
provided by Tenant, such as an on-site TDM coordinator, shall be provided by
Landlord with such reasonable costs being included as additional rent and
reimbursed to Landlord by Tenant within thirty (30) days after demand. If TDM
facilities and programs are instituted on a Project wide basis, Tenant shall pay
its proportionate share of such costs in accordance with Section 8 above.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">IN WITNESS WHEREOF</B>, Landlord and Tenant have executed
this Lease on the day and year first above written. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Landlord: </B>SOBRATO INTERESTS III<B> Tenant:
</B>SIEBEL SYSTEMS, INC.</P>
<P ALIGN="JUSTIFY">a California Limited Partnership a Delaware
Corporation</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">By: _____________________________ By:
_____________________________</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Its: General Partner Its:
_____________________________</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">Master Landlord: </B>THE SOBRATO 1979 REVOCABLE TRUST</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">By: _____________________________</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Its: Trustee </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "A" - Building and Project</P>
</B><P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Exhibit "B" - Not applicable</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "C" - Parcel Map & Declaration of
Covenants and Grant of Easements</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">EXHIBIT "D" - Shell Plans and Specifications</P>
</B><I><P ALIGN="CENTER">(sheet references to be attached)</P>
</I><P ALIGN="JUSTIFY"></P>
<P ALIGN="CENTER"> </P>
<B><P ALIGN="CENTER">EXHIBIT "E" - Building Shell Definition</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">1. Building Structure</P>
</B><P ALIGN="JUSTIFY"> (a) All foundations to include footings, piling,
grade beams, foundation walls or other building foundation components required
to support the building structure.</P>
<P ALIGN="JUSTIFY"> (b) Concrete slab supported on beams and columns above
the parking podium and any other reinforcing or structural connections that may
be necessary or required as specified by structural engineer.</P>
<P ALIGN="JUSTIFY"> (c) Complete structural framing system comprised of
rolled steel beams, columns, and braced-frame steel construction with corrugated
metal deck and concrete fill, all members required by code to be fireproofed.
Upper floor systems provide a minimum of 3" concrete over metal deck and are
designed for an 80 lb. live load plus 20 lb. partition load. Structural framing
will include intermediate beams for HVAC units at the roof, and for major shafts
on each floor. A roof screen consistent with the design of the building and
acceptable to the local Building and Planning Departments is included.</P>
<P ALIGN="JUSTIFY"> (d) Tinted high performance glass including required
caulking and sealants. Tinted reflective glass window wall system with granite
and stainless steel accents. Two (2) pair of lobby doors, and two (2) exit
doors per building. All shell doors will be fitted with electric locks and
conduit to J-boxes ready for connection to the Tenant's security system.</P>
<P ALIGN="JUSTIFY"> (e) Four (4) ply built up roofing by Owens-Corning,
John Manville, or equal and all flashings over a light weight concrete on
corrugated metal deck roof system. Title 24 code required roof insulation is
included.</P>
<P ALIGN="JUSTIFY"> (f) Exterior painting where required with Texcoat
textural paint and all caulking of exterior concrete joints in preparation for
painting.</P>
<P ALIGN="JUSTIFY"> (g) One (1) steel fire stair at perimeter of building,
and two (2) interior fire stairs which will extent to the roof.</P>
<P ALIGN="JUSTIFY"> (h) At grade loading area with screening and scissors
lift external of building.</P>
<P ALIGN="JUSTIFY"> (i) Riser for Building sprinkler system (no sprinkler
grid or drops).</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">2. Podium Garage Structure</P>
</B><P ALIGN="JUSTIFY"> (a) Podium garage structure with access ramps,
fire sprinkler system, emergency exit stairways, and mechanical venting (if
required).</P>
<P ALIGN="JUSTIFY"> (b) Lighting in podium parking to a minimum level per
code.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">3. Sitework</P>
</B><P ALIGN="JUSTIFY"> (a) All work outside the building perimeter walls
shall be considered site work for the Building Shell and shall include asphalt
concrete paving, landscaping, landscape irrigation, storm drainage, utility
service laterals, curbs, gutters, sidewalks, specialty paving (if required),
retaining walls, planters, trash enclosure, parking lot and landscape lighting
and other exterior lighting per code. All fountains and podium landscaping
shall also be considered site work for the Building Shell.</P>
<P ALIGN="JUSTIFY"> (b) Paving sections for automobile and truck access
shall be according to the Geologic Soils Report.</P>
<P ALIGN="JUSTIFY"> (c) All parking lot striping to include handicap
spaces and signage.</P>
<P ALIGN="JUSTIFY"> (d) Underground site storm drainage system shall be
connected to the city storm system main.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">4. Plumbing</P>
</B><P ALIGN="JUSTIFY"> (a) Underground sanitary sewer lateral connected
to the city sewer main in the street and stubbed to the core of the
building.</P>
<P ALIGN="JUSTIFY"> (b) Domestic water mains connected to the city water
main in the street and stubbed to the building.</P>
<P ALIGN="JUSTIFY"> (c) Roof drain leaders and downspouts piped and
connected to the site storm drainage system.</P>
<P ALIGN="JUSTIFY"> (d) Gas lines connected to the city or public utility
mains and run to gas meters adjacent to, and in close proximity to the building.
Meter supplied by utility company.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">5. Electrical</P>
</B><P ALIGN="JUSTIFY"> (a) A primary and secondary electrical service
from the street to the building electrical room in the garage podium including
underground conduit, wire feeders, and transformer pads. Transformer supplied
by utility company. </P>
<P ALIGN="JUSTIFY"> (b) Two 4" Underground conduit from the street to the
building for telephone trunk lines by Pacific Telephone. </P>
<P ALIGN="JUSTIFY"> (c) Two 4" conduit from the building to each of the
adjacent buildings for future data connections.</P>
<P ALIGN="JUSTIFY"> (d) An electrically operated landscape irrigation
system, with controller, that is a complete and functioning system.</P>
<P ALIGN="JUSTIFY"> (e) Underground conduit from the building to the main
fire protection system post indicated valve (PIV) for installation of
supervisory alarm wiring.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">6. General</P>
</B><P ALIGN="JUSTIFY"> (a) All construction shall conform to State and
Local Building Codes, Title 24 Regulations, and shall be ADA Compliant.</P>
<P ALIGN="JUSTIFY"> (b) All building shell work shall be constructed as
described above and as show on the drawings listed in the attached Exhibit
(TBD).</P>
<P ALIGN="JUSTIFY"> (c) All other costs shall be deemed Tenant
Improvements.</P>
<P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER">EXHIBIT "F" - Tenant Improvement Plans and
Specifications</P>
</B><I><P ALIGN="CENTER">(sheet references to be attached)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
</I><B><P ALIGN="CENTER">EXHIBIT "G" - Subordination, Nondisturbance
and Attornment Agreement</P>
<P ALIGN="CENTER"></P></B></FONT>
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<P ALIGN="CENTER">WATERGATE OFFICE LEASE</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<B><P ALIGN="CENTER">WATERGATE TOWER ASSOCIATES,</P>
</B><P ALIGN="CENTER">A California Limited Partnership,</P>
<P ALIGN="CENTER">Landlord</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">And</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<B><P ALIGN="CENTER">SCOPUS TECHNOLOGY, INC.,</P>
</B><P ALIGN="CENTER">A California Corporation,</P>
<P ALIGN="CENTER">Tenant</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<B><P ALIGN="CENTER">TABLE OF CONTENTS</P>
</B>
<P> </P>
<P> </P>
<P> </P>
<P> </P>
<OL>
<LI>PARTIES; BASIC LEASE PROVISIONS; DEFINED TERMS</LI>
<OL>
<LI>Parties</LI>
<LI>Basic Lease Provisions</LI>
<LI>Defined Terms</LI></OL>
<LI>PREMISES; COMMON AREAS; TENANT PARKING</LI>
<OL>
<LI>Demise of Premises</LI>
<LI>Condition of Premises</LI>
<LI>Common Areas</LI>
<LI>Tenant Parking</LI></OL>
<LI>TERM</LI>
<OL>
<LI>Period</LI>
<LI>Term Commencement</LI>
<LI>Delayed Occupancy</LI>
<LI>Holding Over</LI></OL>
<LI>BASE RENT; SECURITY DEPOSIT; OPERATING COSTS; TAXES</LI>
<OL>
<LI>Base Rent</LI>
<LI>Security Deposit</LI>
<LI>Operating Costs</LI>
<LI>Taxes Payable By Tenant</LI>
<LI>Late Charges and Interest</LI></OL>
<LI>USES</LI>
<OL>
<LI>Authorized</LI>
<LI>Suitability</LI>
<LI>Insurance</LI>
<LI>Laws</LI>
<LI>Nuisance</LI>
<LI>Rules and Regulations</LI></OL>
<P> </P>
<LI>SERVICES AND UTILITIES</LI>
<OL>
<LI>Basic Services by Landlord</LI>
<LI>Additional Heating and Air Conditioning</LI>
<LI>Special Apparatuses</LI>
<LI>Interruption in Services</LI>
<LI>Tenant's Other Utilities</LI></OL>
<LI>TENANT'S ALTERATIONS; PROTECTION AGAINST LIENS</LI>
<OL>
<LI>Landlord's Consent Required</LI>
<LI>Removal of Tenant's Alterations</LI>
<LI>Protection Against Liens</LI></OL>
<LI>MAINTENANCE AND REPAIRS</LI>
<OL>
<LI>Landlord's Obligations</LI>
<LI>Tenant's Obligations</LI></OL>
<LI>INDEMNITY AND EXEMPTIONS OF LANDLORD</LI>
<OL>
<LI>Indemnity</LI>
<LI>Exemption of Landlord From Liability</LI></OL>
<LI>INSURANCE</LI>
<OL>
<LI>Tenant's Insurance</LI>
<LI>Landlord's Insurance</LI>
<LI>Subrogation Waiver</LI></OL>
<LI>ASSIGNMENT AND SUBLETTING</LI>
<OL>
<LI>Landlord's Consent Required</LI>
<LI>Tenant's Application</LI>
<LI>Required Provisions</LI>
<LI>Bonus Rent</LI>
<LI>Fees for Review</LI>
<LI>No Release of Tenant</LI>
<LI>Assumption of Obligations</LI>
<LI>Deemed Transfers</LI>
<LI>Landlord's Option to Recapture</LI></OL>
<LI>SUBORDINATION AND ATTORNMENT</LI>
<OL>
<LI>Subordination</LI>
<LI>Attornment</LI>
<LI>Nonmaterial Amendments</LI></OL>
<LI>DEFAULT BY TENANT</LI>
<OL>
<LI>Acts Constituting Default</LI>
<LI>Landlord's Remedies</LI></OL>
<LI>DEFAULT BY LANDLORD</LI>
<OL>
<LI>Existence of Default</LI>
<LI>Mortgagee's Right To Cure</LI>
<LI>Judgment Against Landlord</LI></OL>
<LI>CONDEMNATION</LI>
<OL>
<LI>Termination Due To Taking</LI>
<LI>Award For Taking</LI>
<LI>No Termination Due To Taking</LI></OL>
<LI>DAMAGE AND DESTRUCTION</LI>
<OL>
<LI>Partial Damage - Insured</LI>
<LI>Partial Damage - Uninsured</LI>
<LI>Total Destruction</LI>
<LI>Landlord's Obligations</LI>
<LI>Waiver by Tenant</LI></OL>
<LI>DEFINITIONS</LI>
<OL>
<LI>"Base Rent"</LI>
<LI>"Base Year"</LI>
<LI>"Basic Lease Provisions"</LI>
<LI>"Bonus Rent"</LI>
<LI>"Building"</LI>
<LI>"Commencement Date"</LI>
<LI>"Common Areas"</LI>
<LI>"Environmental Damages"</LI>
<LI>"Environmental Requirements"</LI>
<LI>"Expiration Date"</LI>
<LI>"Hazardous Materials"</LI>
<LI>"Increased Operating Costs'</LI>
<LI>"Landlord's Work"</LI>
<LI>"Lease Date"</LI>
<LI>"Mortgagee"</LI>
<LI>"Office Complex"</LI>
<LI>"Operating Costs"</LI>
<LI>"Overdue Rates"</LI>
<LI>"Parking Charge"</LI>
<LI>"Parking Facilities"</LI>
<LI>"Premises"</LI>
<LI>"Rules and Regulations"</LI>
<LI>"Security Deposit"</LI>
<LI>"Scope of Work"</LI>
<LI>"Subsequent Year"</LI>
<LI>"Substantial Completion"</LI>
<LI>"Taking"</LI>
<LI>"Tenant Parking"</LI>
<LI>"Tenant's Share"</LI>
<LI>"Term"</LI></OL>
<LI>MISCELLANEOUS PROVISIONS</LI>
<OL>
<LI>Estoppel Certificates</LI>
<LI>Surrender of Premises</LI>
<LI>Light and Air</LI>
<LI>Waiver</LI>
<LI>Attorneys' Fees</LI>
<LI>Notices</LI>
<LI>Merger</LI>
<LI>Substituted Premises</LI>
<LI>Headings</LI>
<LI>Time and Applicable Law</LI>
<LI>Successors and Assigns</LI>
<LI>Entry by Landlord</LI>
<LI>Entire Agreement</LI>
<LI>Severability</LI>
<LI>Signs</LI>
<LI>Execution by Landlord</LI>
<LI>Brokers</LI>
<LI>Name of building</LI>
<LI>Nonrecordability of Lease</LI>
<LI>Construction</LI>
<LI>Inability to Perform</LI>
<LI>Authority</LI>
<LI>Quiet Enjoyment</LI></OL>
<LI>EXTRA PARKING PERMITS </LI>
<LI>LETTER OF CREDIT/SECURITY DEPOSIT</LI>
<LI>RIGHT TO NEGOTIATE LEASE OF ADDITIONAL SPACE</LI>
<OL>
<LI>Grant of Right</LI>
<LI>Notice of Space Requirement</LI>
<LI>Exercise of Negotiation Right</LI>
<LI>Limitation of Right</LI></OL>
</OL>
<P>22. TERMINATION OF EXISTING LEASE</P>
<P> </P>
<P> </P>
<P> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
</FONT><P ALIGN="CENTER"> </P>
<p align="center"><strong> WATERGATE OFFICE LEASE</strong></p>
<p><strong>1. PARTIES BASIC LEASE PROVISIONS; DEFINED TERMS</strong></p>
<p> 1.1 Parties. This Watergate Office Lease ("Lease") is entered
into in the City of Emeryville, County of Alameda, State of California,
between Watergate Tower Associates, a California limited partnership
("Landlord"), and Scopus Technology, Inc,, a California corporation
("Tenant").
<p> 1.2 Basic Lease Provisions. The following Basic Lease Provisions
constitute an integral part of this Lease, and each reference in this
Lease to the Basic Lease Provisions shall mean the provisions set forth
in this Paragraph 1.2. Section references in this Paragraph 1.2 are to
the section in which the particular Basic Lease Provision is first
discussed. In the event of any conflict between the Basic Lease
Provisions and the remainder of the Lease, the latter shall control.
Lease Date: August 24, 1994
Address of Landlord: 2000 Powell Street, Suite 1600
Emeryville, CA 94608
Address of Tenant: Before Lease Execution:
1900 Powell Street
Suite 900
Emeryville, CA 94608
After Lease Execution;
1900 Powell Street
Suite 700
Emeryville, CA 94608
Section 2:
Premises: Suite 700
Building: Watergate Tower 1
1900 Powell Street
Emeryville, CA 94608
Premises Rentable Area: 18,539 square feet
Premises Usable Area: 16,406 square feet
Building Rentable Area: 215,978 square feet
Tenant Parking: Forty-nine (49)
Extra Parking: Permits Sixteen (16)
permits subject to Section
19, hereinbelow
Parking Charge: $25.00 per permit
Section 3:
Term: Five (5) years
Commencement Date: October 16, 1994
Expiration Date: October 15, 1999
Section 4:
Base Rent:
October 16, 1994 - October 31, 1994:
$9,722.22
November 1, 1994 - November 30, 1994:
$18,836.80 per month
December 1, 1994 - December 31, 1994:
$23,636.80 per month
January 1, 1995 - September 30, 1995:
$27,577.40 per month
October 1, 1995 - September 30, 1997:
$31,516.34 per month
October 1, 1997 - October 15, 1999:
$32,443.25 per month
Security Deposit: $32,443.25, subject to Section 20 hereinbelow
Base Year: 1995
Tenant's Share: 8.58 percent
<p> 1.3 Defined Terms. Words and phrases which are capitalized in this
Lease (other than words which are capitalized solely to donate the
beginning of sentences) are defined terms. The definitions of such words
and phrases are set forth in Section 17 of this Lease.
<p><strong>2. PREMISES COMMON AREAS; TENANT PARKING</strong></p>
<p> 2.1 Demise of Premices. on and subject to the terms, covenants and
conditions set forth in this Lease, Landlord demises the Premises to
Tenant and Tenant rents and hires the Premises from Landlord. The usable
and rentable area of the Premises, and the rentable area of the Building,
for all purposes under this Lease, are stipulated to be as specified in
the Basic Lease Provisions. Landlord shall not be liable to Tenant, nor
shall Tenant have any claim against Landlord or defense to the
enforcement of this Lease, if it is determined that the actual rentable
or usable area of the Premises or the rentable area of the Building
differs from that specified in the Basic Lease Provisions.
<p> 2.2 Condition of Premises. Except as otherwise expressly provided
in a Scope of Work executed by Landlord and Tenant concurrently with
their execution of this Lease, Tenant shall accept the Premises in an "as
is" condition on the date the Term commences and Landlord shall have no
obligation to improve, alter, remodel or otherwise modify the Premises
prior to Tenant's occupancy. Landlord shall construct or install in the
Premises only the improvements specified in the Scope of Work, The Scope
of Work, if any, will be attached as Exhibit B to this Lease, and ,
subject to events of force majeure and Tenant delays, Landlord shall
cause the Substantial Completion of Landlord's Work pursuant to the Scope
of Work on or before the Commencement Date.
<p> 2.3 Common Areas, During the Term, Tenant shall have the
nonexclusive right to use of the Common Areas for their intended and
usual purpose. However, the manner in which the Common Areas are
maintained shall be at the sole reasonable discretion of landlord and use
thereof shall be subject to the Rules and Regulations. Landlord reserves
the right to make alterations, additions or deletions to, or to change
the location of elements of the Common Areas, Building Or Office Complex,
and to use the roof, exterior walls and the area above and beneath the
Premises, together with the right to install, use, maintain and replace
equipment, machinery, pipes, conduits and wiring through the Premises,
which serve other parts of the Building or Office Complex, in a manner
and in locations which do not unreasonably interfere with Tenant's use of
or access to the Premises.
<p> 2.4 Tenant Parking. Tenant shall have the right to obtain the
number of parking permits designated as Tenant Parking in the Basic Lease
Provisions, and each such permit shall authorize Tenant or its employees
to park one passenger automobile in the Parking Facilities. Issuance of
such parking permits shall be subject to Tenant's payment of the Parking
Charge for each permit specified in the Basic Lease Provisions, which
Parking Charge shall be payable on the first day of each calendar month
during the Term and may be increased by Landlord at any time, and from
time to time, during the Term upon not less than thirty (30) days' prior
written notice to Tenant. Tenant and its employees shall at all times
observe such terms and conditions and charges as may be established by
Landlord from time to time concerning the operation and use of the
Parking Facilities. Tenant's employees shall not be entitled to park in
areas located in the Parking Facilities designated by Landlord for
reserved parking or for use by visitors to the Office Complex.
<p><strong>3. TERM</strong></p>
<p> 3.1 Period. The Term shall be for the period specified in the Basic
Lease Provisions. The Term shall commence on the Commencement Date end
shall end on the Expiration Date, as such dates are determined under
Paragraph 3.2 below, unless sooner terminated pursuant to any provision
of this Lease.
<p> 3.2 Term Commencement. The anticipated Commencement Date and the
corresponding Expiration Date are specified in the Basic Lease
Provisions. However, the actual Commencement Date shall be the earlier of
(a) the date Tenant first occupies any part of the Premises, or (b) the
date of Substantial Completion of the Landlord's Work or (c) the date
established by Landlord in the event of a delay by Tenant, as provided in
Paragraph 3.3(b) below; and the Expiration Date shall be adjusted so that
the period between the actual Commencement Date and the Expiration Date
is equal to the Term specified in the Basic Lease Provisions. If the
actual Commencement I-ease Date and the Expiration Date differ from those
inserted in the Base Lease Provisions as of the Lease Date, then promptly
after the Commencement Date Landlord and Tenant shall execute a written
acknowledgment of the Commencement Date and the Expiration Late, and
attach it as Exhibit C to this Lease,
<p> 3.3 Delayed Occupancy.
<p> (a) Landlord shall Substantially Complete any Landlord's
Work on or before the Commencement Date specified in the Basic Lease
Provisions, provided, however, that the Commencement Date for purposes of
Landlord's obligation with respect to Landlord's Work shall be extended
one (1) day for each day (i) that the Lease is not fully executed by
August 22, 1994, (ii) that Tenant causes a delay in Landlord's Work, and
(iii) that an event of force majeure delays Landlord's Work. However,
this Lease shall not be void or voidable, nor shall Landlord or its
agents or contractors have any liability to Tenant, by reason of
Landlord's failure to substantially complete Landlord's Work by the
Commencement Date specified in the Basic Lease Provisions, or by reason
of Landlord's failure to deliver possession of the Premises due to any
other cause beyond Landlord's reasonable control, arid postponement of
Tenant's rental obligation prior to delivery of possession of the
Premises shall be Tenant's exclusive remedy and in sole satisfaction of
all claims Tenant might otherwise have by reason of Landlord's failure to
deliver the Premises by the Commencement Date specified in the Basic
Lease Provisions. Notwithstanding the foregoing, if the Premises are not
Substantially Completed on or before the termination date under the
Existing Lease (as defined in Section 22) or the date Tenant's right to
occupy a portion of its existing space on the ninth floor of the Building
under a certain sublease with Preferred Health Network ("Sublease")
expires, provided such delay in Landlord's Work has not been caused by
Tenant and the termination of the Existing Lease or the Sublease, as the
case may be, does not result from Tenant's default, Tenant shall have the
right to continue to occupy its entire existing space on the ninth floor
of the Building on the same terms and conditions as the Existing Lease.
<p> (b) Time is of the essence in connection with the
delivery to Landlord of each and every drawing, plan, specification,
schedule or other item required to be given by Tenant to Landlord or to
be approved by Tenant pursuant to the schedule in and provisions of the
Scope of Work. Accordingly, notwithstanding any contrary provision of
this Lease, if Landlord is delayed in the Substantial Completion of
Landlord's Work as a result of (i) Tenant's failure to approve plans,
specifications, changes, cost estimates and other items within the time
limits specified therefor in the Scope of Work, or (ii) any change by
Tenant in said plans, specifications, or other items after the expiration
of such time limits, or ;iii) any default by Tenant relating to its
obligations hereunder or under the Scope of Work, then, in any or all
such instances and without limitation as to any other right or remedy
available to Landlord, Landlord may under clause (c) of Paragraph 3.2
determine in its sole reasonable discretion that the actual Commencement
Date is the date that Substantial Completion of Landlord's Work would
have occurred but for such delay.
<p> 3.4 Holding Over. Tenant shall not be entitled to remain in
possession of the Premises after the Expiration Date or after earlier
termination of this Lease, except with Landlord's prior written consent.
Any such continuance of possession with Landlord's consent shall
constitute a month-to-month tenancy on all of the terms and conditions of
this Lease, except that the Base Rent shall be 150% of the Base Rent in
effect as of the Expiration Date or the earlier termination date. Any
such continuance in possession without Landlord's consent (or after such
consent has been withdrawn upon thirty (30) days' notice to Tenant) shall
constitute an unlawful detention of the Premises; and Tenant shall
indemnify, defend and hold Landlord harmless from all claims, losses or
liability resulting from Landlord's inability to timely deliver
possession of the Premises to any succeeding tenant.
<p><strong>4. BASE RENT; SECURITY DEPOSIT; OPERATING COSTS; TAXES</strong></p>
<p> 4.1 Base Rent. Tenant shall pay to Landlord as monthly Base Rent
for the Premises, in advance, without deduction, setoff, prior notice or
demand, the sum specified in the Basic Lease Provisions. The first
month's Base Rent shall be paid upon Tenant's execution of this Lease,
and the Base Rent for each calendar month thereafter during the Term
shall be paid on the first day of each such calendar month. If the
Commencement Date occurs ors a day other than the first day of a calendar
month, the Base Rent payable for the first calendar month of the Term
shall be prorated on the basis which the number of days of the Term in
the first month bears to the total number of days in such month; and, in
such case, Tenant shall pay such prorated Base Rent to Landlord on the
Commencement Date, and the first month's Base Rent paid upon execution of
this Lease shall be credited against the Base Rent for the second
calendar month. If the Term ends on a day other than the last day of a
calendar month, the Base Rent payable for the last calendar month of the
Term shall be prorated on the basis which the number of days of the Term
in the last calendar month tears to the total number of days in such
month.
<p> 4.2 Security Deposit.
<p> (a) Upon Tenant's execution of this Lease, Tenant shall
deposit with Landlord the sum specified as the Security Deposit in the
Basic Lease Provisions, which shall be held by Landlord as security for
the faithful performance by Tenant of all of the terms, covenants, and
conditions of this Lease, it being expressly understood and agreed that
the Security Deposit is not an advance deposit for rent or a measure of
Landlord's damages in case of Tenant's default. If at any time Tenant's
Base Rent is increased, the Security Deposit shall also be increased by
the same percentage Ds the increase in Base Rent and Tenant shall, within
ten (101 days after receipt of notice of such increase in Base Rent,
deposit cash with Landlord in an amount sufficient to affect such
adjustment.
<p> (b) The Security Deposit may be retained, used or
applied by Landlord to remedy any default by Tenant, to repair damage
caused by Tenant to any part of the Premises or the Building, and to
clean the Premises upon expiration or earlier termination of this Lease,
as well as to reimburse Landlord for any amount which Landlord may spend
by reason of Tenant's default or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default.
If any portion of the Security Deposit is so used or applied, Tenant
shall, within ten 110) days after written demand therefor, deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to
the full amount required hereunder, and Tenant's failure to do so shall
be a material breach of this Lease. Landlord shall not be required to
keep the Security Deposit separate from its general funds, and Tenant
shall not be entitled to interest on, or any other compensation for,
Landlord's retention of the Security Deposit. Tenant may not elect to
apply any portion of the Security Deposit toward payment of Base Rent or
any other amounts payable by Tenant under this Lease, although Landlord
may elect to do so in the event Tenant is in default or is insolvent, If
Tenant shall fully and faithfully perform every provision of this Lease
to be performed by it, the Security Deposit or any balance thereof shall
be returned to Tenant at Tenant's last known address (or, at Landlord's
option, to the last assignee of -tenant's interest hereunder) within
thirty (30) days after the Term has ended and Tenant has vacated the
Premises.
<p> 4.3 Operating Costs. Tenant shall pay to Landlord Tenant's Share
of the Increased Operating Costs as follows:
<p> (a) Landlord shall submit to Tenant before January 1 of
each Subsequent Year, or as soon thereafter as Landlord has sufficient
data, a reasonably detailed statement showing the estimated Increased
Operating Costs for such Subsequent Year, which determination shall be
made by Landlord based upon experience with actual costs and
projections. At the first monthly Base Rent payment date following the
submittal of such statement and at each succeeding monthly rent payment
date thereafter during the Subsequent Year, Tenant shall pay to Landlord
an amount equal to one-twelfth (1112th) of the Increased Operating
Costs. If Landlord does not submit said statement to Tenant prior to
January 1 of any Subsequent Year, Tenant shall continue to pay Tenant's
Share of the Increased Operating Costs at the then existing rate until
such statement is submitted and, thereafter, at the monthly Base Rent
payment date next following the submittal of such statement Tenant shall
pay Tenant's Share of the Increased Operating Costs based on the rate
set forth in such statement plus, if the new rate is greater than the
old rate, the difference accrued from January 1 of such Subsequent Year.
Landlord may revise such estimated Increased Operating Costs at the end
of any calendar quarter.
<p> (b) On or before March 31 of the second and each
succeeding Subsequent Year or as soon thereafter as Landlord has
sufficient data, Landlord shall submit to Tenant a reasonably detailed
statement showing the actual Building Operating Costs paid or incurred by
Landlord during the previous calendar year. If Tenant's Share of the
actual Increased Operating Costs is less than the amount of Tenant's
Share of the estimated Increased Operating Costs for the previous
Subsequent Year theretofore paid by Tenant, Landlord shall credit such
difference against the next Increased Operating Costs payments coming
due. If Tenant's Share of the actual Increased Operating Costs is more
than the amount of Tenant's Share of the estimated Increased Operating
Costs for such previous Subsequent Year theretofore paid by Tenant,
Tenant shall pay to Landlord the full amount of such difference at the
monthly Base Rent payment date next following the submittal of such
statement to Tenant.
<p> (c) If the Expiration Date or the date of earlier
termination of this Lease is other than December 31, the Operating Costs
for both the Base Year and the last Subsequent Year shall be prorated
based on what the number of days in the Term in the last Subsequent Year
bears to 365; and any amounts owed or to be credited pursuant to
Paragraph shall be paid at the time in the last Subsequent Year, or in
the calendar year immediately following the last Subsequent Year, that
such amount is calculated pursuant to Paragraph 4.3(c).
<p> 4.4 Taxes Payable By Tenant, Tenant shall pay before delinquency
any and all taxes levied or assessed and which become payable by Tenant
(or directly or indirectly by Landlord) during the Term (excluding,
however, state and .federal personal or corporate income taxes measured
by the income of Landlord from all sources, capital stock taxes, and
estate and inheritance taxes, collectively, "Landlord's Taxes"), whether
or not now customary or within the contemplation of the parties hereto,
which are based upon, measured by or otherwise calculated with respect
to: (a) the gross or net rental income of Landlord under this Lease,
including, without limitation, any gross receipts tax levied by any
taxing authority as a supplemental tax, or any other gross income tax or
excise tax levied by any taxing authority with respect to the receipt of
the rental payable hereunder as a supplemental tax, but specifically
excluding Landlord's Taxes; (b1 the value of Tenant's equipment,
furniture, fixtures or other personal property located in the Premises;
(c1 the possession, lease, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises or any
portion thereof; (d) the value of any leasehold improvements, alterations
or additions made in or to the Premises, regardless of whether title to
such improvements, alterations or additions shall be in Tenant or
Landlord; or (e) this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises.
<p> 4.5 Late Charges and Interest. Ail amounts payable under this Lease
shall be paid in lawful money of the United States of America. Any amount
of Base Rent, Tenant's Share of Increased Operating Costs, Parking
Charges or any other amount payable under this Lease which is not paid
within ten (1 0) days after it is due shall be subject to a late charge
of 5% of the amount unpaid, Any amount due to Landlord that is not paid
when due shall bear interest at the Overdue Rate, except that no interest
shall accrue for the month in which a late charge is assessed. Tenant's
failure to perform any monetary obligations under this Lease shall have
the same consequences as Tenant's failure to pay Base Rent.
<p><strong>5. USES</strong></p>
<p> 5.1 Authorized. Tenant shall use the Premises solely for general
office purposes and for no other purpose. Tenant shall not use or permit
or suffer the Premises or any part thereof to be used for any purpose
other than the purpose expressly authorized herein.
<p> 5.2 Suitability, Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty with respect to
the Premises, the Building or the Office Complex, or with respect to the
suitability of same for the conduct of Tenant's business, except as
expressly provided in this Lease. Tenant's acceptance of possession of
the Premises shall conclusively establish that the foregoing were at such
time in satisfactory condition.
<p> 5.3 Insurance. Tenant shall not do or suffer anything to be done in
or about the Premises, nor shall Tenant bring or allow anything to be
brought into the Premises, which will in any way increase the rate of any
fire insurance or other insurance upon the Building or its contents,
cause a cancellation of said insurance or otherwise affect said insurance
in any manner: provided, however, that Tenant's business as a computer
software vendor, in particular Tenant's proposed electrical usage as
shown on the Final Plans, shall be deemed to comply with this Section
5.3,
<p> 5.4 Laws. Tenant shall not do or suffer anything to be done in or
about the Premises which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement now in
force or which may be subsequently enacted or promulgated. Tenant shall,
at its sole cost and expense, promptly comply with each and all of said
governmental measures and also with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted to deal
with the condition, use or occupancy of the Premises, excluding
structural changes not related to or affected by Tenant's alterations,
additions or improvements. Without limiting the generality of the
foregoing, Tenant will maintain throughout the Term a copy of the most
current list of chemicals known to the State of California to cause
cancer or reproductive toxicity, as published by the State Health and
Welfare Agency in accordance with the Safe Drinking Water and Toxic
Enforcement Act of 1986 ("Proposition 65"). Tenant will monitor the
chemicals Tenant maintains on the Premises and will comply with both the
warning requirements and the discharge prohibitions of Proposition 65 for
all chemicals on the Premises that appear on such list. The judgment of
any court of competent jurisdiction or the admission 8f Tenant in any
judicial action, regardless of whether Landlord is a party thereto, that
Tenant has violated any of said governmental measures or requirements
shall be conclusive of that fact as between Landlord and Tenant.
<p> 5.5 Nuisance. Tenant shall not place or permit to be placed on any
floor a load exceeding the floor load which such floor was designed to
carry. Tenant also shall not do or suffer anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Building or injure or annoy said
tenants or occupants, nor shall Tenant use or suffer the Premises to be
used for any unlawful purposes, In no event shall Tenant cause or permit
any nuisance in or about the Premises, and no loudspeakers or similar
devices shall be used without the prior written approval of Landlord,
which approval may be withheld in Landlord's sole discretion. Tenant
shall not commit or suffer to be committed any waste in or upon the
Premises. The provisions of this paragraph are for the benefit of
Landlord only and shall not be construed to be for the benefit of any
tenant or occupant of the Building.
<p> 5.6 Rules and Regulations. Tenant shall comply with the Rules and
Regulations for the Building, together with all modifications and
additions thereto adopted by Landlord from time to time. If there is any
conflict between the Rules and Regulations and the provisions of this
Lease, the provisions of this Lease shall prevail. Subject to Tenant's
right to quiet enjoyment of the Premises under Section 18.23, Landlord
shall not be responsible to Tenant for the nonperformance of any of the
Rules and Regulations by any other tenants or occupants of the Building,
<p><strong>6. SERVICES AND UTILITIES</strong></p>
<p> 6.1 Basic Services by Landlord. Provided Tenant is not in default
under this Lease, and subject to the provisions elsewhere in this Lease
and to the Rules arid Regulations of the Building, Landlord shall furnish
the Premises with: (a) water, sewage and electricity suitable in
Landlord's judgment for the intended use of the Premises and for the
operation of Tenant's business as a computer software vendor, provided
Tenant's electrical usage does not exceed Tenant's proposed usage as
shown on the Final Plans; (b) heat and air conditioning between 8:00 a.m.
and 5:00 p.m. on days other than Saturdays, Sundays arid generally
recognized holidays, in an amount reasonably required in Landlord's
judgment for the comfortable occupation of the Premises; (c) elevator
service, which shall mean service by non-attended automatic elevators or
elevators with attendants, either or both, at the option of Landlord; and
(d) daily janitorial service (five nights per week) similar to that which
is provided in comparable office buildings in the Oakland/Emeryville
area. Landlord shall maintain the Common Areas in a clean and orderly
manner and in a good state of repair,
<p> 6.2 Additional Heating and Air Conditioning. Landlord shall use
reasonable efforts to provide additional or after-hours heating or air
conditioning at Tenant's request, provided Tenant pays to Landlord the
cost of such services as determined solely by Landlord based upon
Landlord's reasonable estimates of the costs of such additional services,
plus a reasonable charge (not to exceed ten percent (10%) of the cost of
such services) for Landlord's overhead expense. Tenant shall keep all
draperies closed when necessary because of the sun's position and at all
times reasonably cooperate with Landlord and abide by all the regulations
and requirements which Landlord may prescribe from time to time for the
proper functioning and protection of the heating, ventilating and air
conditioning systems. Whenever heat-generating machines or equipment or
lighting used in the Premises by Tenant affect the temperature otherwise
maintained by the air conditioning system, Landlord shall have the right
to install any machinery and equipment Landlord deems reasonably
necessary to restore the temperature balance in any affected part of the
Building, including but not limited to modifications to the Building's
air conditioning system or installation of supplementary air conditioning
units. Tenant shall pay the cost thereof, including installation and any
additional costs of operation and maintenance occasioned thereby, to
Landlord upon demand.
<p> 6.3 Special Apparatus. Tenant shall not, except with Landlord's
prior written consent, which consent may be withheld in Landlord's sole
discretion, either: (a) use any apparatus or device in the Premises which
will increase the amount of cooling, ventilation, electricity or water
supplied to the Premises beyond that provided as part of Landlord's Work;
or (b) connect with electric current or water pipes any device or
apparatus for the purpose of using electrical current or water, except as
such connections now exist or as may be provided for in the Scope of
Work. If Landlord consents to the use and/or connection of any apparatus
or device described in clauses (a) and (b) above, Landlord may install
meters or similar monitoring devices to measure the amount of utilities
consumed by such apparatus or devices and Tenant shall pay for the cost
of all work and materials required for the installation, maintenance and
use of such meters and monitoring devices. If Landlord elects not to
install a special meter or monitoring device, Landlord shall determine
the amount of additional utilities and resources consumed by such
apparatus tar device based upon Landlord's reasonable estimates and best
judgment, and such determination, made in good faith by Landlord, shall
be conclusive on Tenant. Tenant shall pay to Landlord promptly upon
demand the cost of any excess use of utilities and resources based on the
rates charged by the local public utility company or other supplier
furnishing same, plus any additional expense incurred by Landlord in
keeping account of the foregoing and administering same.
<p> 6.4 Interruption In Service. Landlord shall use diligent efforts to
remedy any interruption in the furnishing of services and utilities.
However, Landlord shall not be in default under this Lease or liable for
any damages directly or indirectly arising from, nor shall the rent be
abated except as provided below by reason of, any failure to provide or
any reduction in any of the above services or utilities if such failure
or reduction is caused by the making of repairs or improvements to the
Premises or the Building, the installation of equipment, acts of God or
the elements, labor disturbances of any character, or any other events or
conditions whatsoever beyond the reasonable control of Landlord, or
rationing or restrictions on the use of said services and utilities due
to energy shortages or other causes, whether or not any of the above
result from acts or omissions of Landlord. Furthermore, Landlord shall be
entitled to cooperate voluntarily in a reasonable manner with the efforts
of national, state or local governmental bodies or utilities suppliers in
reducing energy or other resources consumption. The failure of Landlord
to provide the utilities and services specified in this Section B shall
not constitute a constructive or other eviction of Tenant. If any
interruption in the furnishing of utilities or services to the Premises
materially, adversely affects Tenant's use and occupancy of the Premises,
Tenant shall be entitled to an abatement of Base Rent in proportion to
the interference with Tenant's use and occupancy, only if, and to the
extent that, such interruption continues for more than thirty (30) days.
<p> 6.5 Tenant's Other Utilities. Tenant shall pay prior t0
delinquency for all telephone and all other materials and services not
expressly required to be provided by Landlord, which may be furnished to
or used in, on or about the Premises during the Term.
<p><strong>7. TENANT'S ALTERATIONS; PROTECTION AGAINST LIENS</strong></p>
<p> 7.1 Landlord's Consent Required, Tenant shall not make or permit to
be made any alterations, additions or improvements to the Premises or any
part thereof, without first obtaining Landlord's written consent. When
applying for such consent, Tenant shall, if required by Landlord, furnish
complete plans and specifications for such alterations, additions or
improvements. All alterations, additions or improvements to the Premises
shall be performed by contractors selected and supervised by Landlord for
Tenant's account and at Tenant's sole cost and expense. Within ten (101
days after receipt of a written statement from Landlord, Tenant shall
reimburse Landlord for all reasonable costs arising in connection with
Landlord's approval of plans and specifications and supervision of
contractors. Landlord shall have the right to require that any contractor
performing alterations, improvements or additions to the Premises shall,
prior to commencement of any work, provide Landlord with a performance
bond and labor and materials payment bond in the amount of the contract
price for the work, naming Landlord and Tenant (and any other persons
designated by Landlord as co-obligees). All alterations, additions,
fixtures and improvements, including without limitation all improvements
made pursuant to a Scope of Work, whether temporary or permanent in
character, made in or upon the Premises either by Landlord or Tenant,
shall at once belong to Landlord and become part of the Premises and
shall remain on the Premises without compensation of any kind to Tenant,
unless Landlord requires their removal under Paragraph 7.2 below. Tenant
shall carry insurance as required by Section 10 covering any
improvements, alterations or additions to the Premises made or paid for
by Tenant except for Landlord's Work described in the Scope of Work, it
being understood and agreed that none of such alterations, additions or
improvements shall be insured by Landlord nor shall Landlord be required
under any provision of this Lease to repair, reconstruct or reinstall any
such alterations, additions or improvements. Movable furniture and
equipment which are removable without material damage to the Building or
the Premises shall remain the property of Tenant.
<p> 7.2 Removal of Tenant's Alterations. Notwithstanding any contrary
provision in this Lease, Tenant shall, upon Landlord's written request
made prior to or within thirty (30i days following the Expiration pate or
the earlier termination of this Lease, promptly remove any alterations,
additions, fixtures or improvements designated by Landlord to be removed
and repair any damage to the Premises resulting from such removal.
Landlord may, in connection with any such removal which might in
Landlord's judgment involve damage to the Promises, require that such
removal be performed by a bonded contractor or other person for whom a
bond satisfactory to Landlord has been furnished covering the cost of
repairing the anticipated damage.
<p> 7.3 Protection Against Liens. Tenant shall keep the Premises, the
Building and the Common Areas free from any liens arising out of work
performed, materials furnished, or obligations incurred by Tenant and
shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed or materials furnished by
or at the direction of Tenant, In the event that Tenant shall not,
within twenty (201 days following written notice of the imposition of
any such lien, cause such lien to be released of record by payment or
posting of a proper bond, Landlord shall have, in addition to all other
remedies provided in this Lease and by law, the right, but no
obligation, to cause the same to be released by such means as Landlord
shall deem proper, including payment of the claim giving rise to such
lien. All such sums paid by Landlord and all expenses incurred by it in
connection therewith, including attorneys' fees and costs, shall be
payable by Tenant upon demand with interest at the Overdue Rate from the
date such sums are paid or expenses incurred by Landlord. Landlord shall
have the right at all times to post and keep posted on the Premises any
notices permitted or required by law, or which Landlord shall deem
proper, for the protection of Landlord and the Premises, and any other
party having an interest therein, from mechanics' and materialmen's
liens, and Tenant shall give to Landlord at least ten (101 business days'
prior written notice of the day of commencement of any work relating to
alterations, additions or improvements in or to the Premises.
<p><strong>8. MAINTENANCE AND REPAIRS</strong></p>
<p> 8.1 Landlord's Obligations. Subject to Sections 15 and 16, Landlord
shall maintain in good order, condition and repair the structural
portions of the Building including the exterior walls, underflooring and
roof, the basic heating, ventilating, air conditioning, plumbing,
electrical, arid fire detection and security systems, and all other
portions of the Premises not the obligation of Tenant or any other tenant
in the Building. However, if any such maintenance or repair becomes
necessary in whole or in part because of wrongful acts or omissions by
Tenant or Tenant's employees, agents, invitees or customers, or because
of a breaking and entering, Tenant shall pay the entire cost thereof upon
demand. Landlord shall not be liable to Tenant, and rent shall not be
abated, for any failure by Landlord to maintain and repair areas which
are being used in connection with construction of improvements, or for
any failure to make any repairs or perform any maintenance unless such
failure shall continue for an unreasonable time after written notice of
the need therefor is given to Landlord by Tenant. Landlord shall also not
be liable under any circumstances for loss of profits or for injury to or
interference with Tenant's business arising from or in connection with
the making of or the failure of Landlord to make any repairs,
maintenance, alterations or improvements in order to make any repairs,
maintenance, alterations or improvements in or to any portion of the
Building or the Common Areas or in or to fixtures, appurtenances and
equipment therein. Notwithstanding the foregoing. if Landlord fails to
make any repairs or perform any maintenance within a reasonable time
after written notice of the need therefor from Tenant to Landlord, Tenant
may, after giving Landlord at least ten (10) days' prior written notice
of its intent to do so, make necessary repairs or perform necessary
maintenance, provided, however, (a) Tenant's work does not affect
structural elements of the Building or Building systems, and (b) so long
as Landlord is diligently attempting to make the necessary repairs or
perform the necessary maintenance, Tenant shall have no right of
"self-help."
<p> 8.2 Tenant's Obligation,
<p> (a) Tenant shall maintain the Premises in good order,
condition and repair including the interior surfaces of the ceilings,
walls and floors, all doors, interior windows, and all special plumbing
pipes, valves and fixtures, electrical wiring, panels, switches, and all
other fixtures and equipment installed for the use of the Premises by or
on behalf of Tenant, including, without limitation, the "PBX Switchboard
Area" and "Computer Labs" shown on the Final Plans (as defined in the
Scope of Work. Tenant expressly waives the benefit of any statute,
ordinance or judicial decision now or hereafter in effect which would
otherwise afford Tenant the right to make repairs at Landlord's expense
or to terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair,
<p> (b) Upon the Expiration Date or the earlier termination
of this Lease, Tenant shall surrender the Premises in the same condition
as received, except for ordinary wear and tear and damage by fire,
earthquake, acts of God or the elements, not caused by wrongful act or
omission of Tenant or Tenant's agents, and shall promptly remove or cause
to be removed, at Tenant's expense, from the Premises and the Building
any signs, notices and displays placed by Tenant.
<p> (c) Tenant shall repair any damage to the Premises or
the Building caused by or in connection with the removal of any articles
of personal property, business or trade fixtures, machinery, equipment,
cabinetwork, furniture, movable partitions or permanent improvements or
additions, including without limitation, repairing the floor and patching
and painting the walls where required by Landlord to Landlord's
reasonable satisfaction, but excluding any damage caused by reasonable
use. Tenant shall indemnify Landlord against any loss or liability
resulting from delay by Tenant in so surrendering the Premises, including
without limitation, any claims made by any succeeding tenant reasonably
founded on such delay.
<p> (d) Tenant shall do all acts required to comply with all
applicable laws, ordinances, regulations and rules of any public
authority relating to Tenant's use and occupancy of the Premises.
<p> (e) If Tenant fails to maintain the Premises in good
order, condition and repair, or to comply with applicable laws,
ordinances, regulations or rules, Landlord shall give Tenant written
notice to do such acts as are reasonably required to satisfy its
obligations under this paragraph. If Tenant fails to promptly commence
such work and diligently prosecute it to completion, Landlord shall have
the right after first giving Tenant at least ten (10) days' written
notice (except in an emergency), but no obligation, to do such acts and
expend such funds as are reasonably required to perform such work. Any
amount so expended by Landlord shall be paid by Tenant promptly after
demand with interest at the Overdue Rate from the date of such work.
Landlord shall have no liability to Tenant for any damage, inconvenience
or interference with the use of the Premises by Tenant as a result of
performing any such work.
<p><strong>9. INDEMNITY AND EXEMPTIONS OF LANDLORD</strong></p>
<p> 9.1 Indemnity. Except as set forth herein, Tenant shall indemnify,
hold harmless, and defend Landlord against arty and all claims of
liability for any death or injury to any person or damage to any property
whatsoever occurring in, on or about the Premises or any part thereof, or
occurring in, on or about any of the Common Areas, to the extent such
injury or damage is cause by the act, negligence, fault or omission of
any duty with respect to the same by Tenant, its agents, contractors,
employees, invitees or customers. Tenant shall further indemnify, hold
harmless and defend Landlord from and against any and all claims, actions
and liabilities arising from (a) any breach or default in the performance
of any obligation on Tenant's part to be performed under this Lease, or
(b) arising from any act or negligence of Tenant, or any of its agents,
contractors, invitees or employees, or (c) any Environmental Damages
arising from the presence of Hazardous Materials upon, within or about
the Premises due to any act or omission of Tenant or any of its agents,
contractors, invitees or employees, or Id) violation of any Environmental
Requirements pertaining to the Premises or the activities therein, and
(e) from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim, action or liability, and any
proceeding brought thereon. In case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant, upon notice from
Landlord, shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord; provided, however, that Tenant shall not be
liable for damage to property or death or injury to persons) occasioned
by the gross negligence or intentional misconduct of Landlord or its
agents or employees unless covered by insurance Tenant is required to
provide.
<p> 9.2 Exemption of Landlord From Liability. Tenant hereby assumes all
risk of damage to property or injury to persons in, upon or about the
Premises from any cause other than the active negligence or intentional
misconduct of Landlord and its agents or employees. Without limiting the
generality of the foregoing, Landlord shall not be liable for injury or
damage which may be sustained by the person, goods, wares, merchandise or
property of Tenant, its employees, invitees or customers, or any other
person in or about the Premises caused by or resulting from fire, steam,
electricity, gas, water or rain, which may leak or flow from or into any
part of the Premises, or from the breakage, leakage, obstruction or other
defects of the pipes, sprinklers, wires, appliances, plumbing, heating,
air conditioning or lighting fixtures of the same, whether the damage or
injury results from conditions arising upon the Premises or upon other
portions of the Building from other sources. Landlord shall not be liable
for any damages arising from any act or omission of any other tenant or
occupant of the Building except to the extent caused by the gross
negligence or intentional misconduct of Landlord.
<p><strong>10. INSURANCE</strong></p>
<p> 10.1 Tenant's Insurance.
<p> (a) At all times during the Term Tenant shall maintain
in effect policies of casualty insurance covering (i) all alterations,
additions or improvements in, on or to the Premises as may be made or
paid for by Tenant (except for Landlord's Work described in the Scope of
Work), and (11) al( trade fixtures, merchandise and other personal
property from time to time in, on or upon the Premises, in an amount not
less than their actual replacement cost, providing protection against any
peril included within the classification of "Fire and Extended Coverage"
together with insurance against sprinkler damage, vandalism and malicious
mischief, including cost of debris removal and demolition. Replacement
cost for purposes hereof shall be determined by mutual agreement, or
failing such agreement, by an accredited appraiser selected by Landlord,
with the cost of such appraisal to be borne by Tenant. The proceeds of
such insurance shall be used for the repair or replacement of the
property so insured. Upon termination of this Lease following a casualty
as set forth in Section 16, the proceeds under clause (i) above shall be
paid to Landlord, and the proceeds under clause (ii) above shall be paid
to Tenant.
<p> (b) At all times during the Term Tenant shall maintain
in effect workers' compensation insurance and comprehensive public
liability and property damage insurance adequate to protect Landlord
against liability for injury to or death of any person or loss or injury
to any property in connection with the activities of Tenant in, on or
about the Premises or with the use, operation or condition of the
Premises. Such insurance at all times shall afford combined single limit
coverage in an amount of not less than Two Million Dollars ($2,000,000).
The limits of such insurance shall not limit the liability of Tenant
under this Lease. All public liability and property damage policies shall
contain a provision that Landlord, although named as an insured, shall
nevertheless be entitled to recovery under said policies for any loss
occasioned to it, its servants, agents or employees by reason of Tenant's
negligence.
<p> (c) All insurance required to be carried by Tenant
hereunder shall be issued by responsible insurance companies acceptable
to Landlord and any Mortgagee. All policies of insurance provided for in
this Lease shall be issued by insurance companies licensed to do business
in the State of California, with general policy holder's rating of not
less than "A" and a financial rating of not less than "Class X" as rated
in the most current available "Best's Insurance Reports,' Each policy
shall name Landlord and at Landlord's request any Mortgagee as an
additional insured, as their respective interests may appear, and a
duplicate original of all policies or certificates evidencing the
existence and amounts of such insurance shall be delivered to Landlord by
Tenant at least ten (10) days prior to Tenant's occupancy of the
Premises. All policies of insurance delivered to Landlord must contain a
provision that the company writing said policy will give Landlord thirty
(30) days' written notice in advance of any cancellation or lapse of or
any change in such insurance. All public liability, property damage and
other casualty insurance policies shall be written as primary policies,
not contributing with, and not in excess of coverage which Landlord may
carry. Tenant shall furnish Landlord with renewals or "binders" of any
such policy at least thirty (301 flays prior to the expiration thereof.
If Tenant does not procure and maintain such insurance, Landlord may (but
shall not be required to) obtain such insurance on Tenant's behalf and
charge Tenant the premiums therefor which shall be payable upon demand,
and no such action by Landlord shall constitute a waiver of Tenant's
default hereunder. Tenant may carry such insurance under a blanket
policy, provided such blanket policy expressly affords the coverage
required by this Lease by a Landlord's protective liability endorsement
or otherwise.
<p> (d) Every five (5) years during the Term or whenever
Tenant materially improves or alters the Premises, Tenant shall increase
the policy limits for the insurance to be carried by Tenant under this
Section 10 to such amounts as Landlord reasonably determines are
appropriate.
<p> 10.2 Landlord's Insurance. At all times during the Term Landlord
shall maintain in effect a policy or policies of insurance covering the
Building in an amount not less than ninety percent 190%) of full
replacement cost (exclusive of the cost of excavations, foundations,
footings and all tenant improvements constructed at the request or cost
of Tenant, but inclusive of the cost of building standard tenant
improvements) from time to time during the Term, providing protection
against any peril generally included in the classification "Fire and
Extended Coverage" together with insurance against sprinkler damage,
vandalism and malicious mischief. Landlord's obligation to carry the
insurance provided for herein may be brought within the coverage of any
blanket policy or policies of insurance carried and maintained by
Landlord. In addition to the coverage required by this paragraph,
Landlord shall be entitled to procure (and include the premiums therefor
in Operating Costs) such other types of insurance and in such amounts as
Landlord may deem to be necessary or appropriate.
<p> 10.3 Subrogation Waiver. Landlord and Tenant each hereby waive any
and all rights of recovery against the other or against the officers,
partners, employees, agents and representatives of the other, on account
of loss or damage of such waiving party or its property, or the property
of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy
which either may have in force at the time of such loss or damage. Tenant
shall, upon obtaining the policies of insurance required under this
Lease, give notice to its insurance carriers) that the foregoing mutual
waiver of subrogation is contained in this Lease. The waivers set forth
herein shall be required and effective only to the extent such waivers
are available from each party's insurer without additional premium; if an
extra charge is incurred to obtain such waiver, it shall be paid by the
party in whose favor the waiver runs within fifteen (15) days after
written notice from the other party, and, if not so paid, such other
party's waiver under this paragraph shall be neither required nor
effective.
<p><strong>11. ASSIGNMENT AND SUBLETTING</strong></p>
<p> 11.1 Landlord's Consent Required. Tenant shall not sell, assign,
mortgage, pledge, hypothecate, encumber or otherwise transfer this Lease
or any interest therein, and shall not sublet the Premises or any part
thereof, or suffer or permit the Premises or any part thereof to be
occupied by any other person (the agents, employees, and invitees of
Tenant excepted), without the prior written consent of Landlord in each
instance; and any attempt to do so without such consent shall be voidable
and, at Landlord's election, shall constitute a noncurable default under
this Lease. No interest of Tenant in this Lease or the Premises shall be
assignable by operation of law. Subject to the terms and conditions
contained in this section, Landlord shall not unreasonably withhold its
consent to a voluntary assignment of this Lease or a subletting of the
Premises.
<p> 11.2 Tenant's Application If Tenant desires at any time to assign
this Lease or to sublet the Premises or any portion thereof, Tenant shall
submit to Landlord at least thirty (30) days prior to the proposed
effective date of the assignment or sublease, in writing: (a) a notice of
intent to assign or sublease, setting forth the proposed effective date
thereof; (b) the name of the proposed assignee or subtenant; (c) the
nature of the proposed assignee's or subtenant's business to be carried
on in the Premises; (d) the terms and provisions of the proposed
assignment or sublease; and (e) such financial information as Landlord
may request concerning the proposed assignee or subtenant, including
recent financial statements and bank references. At the time of Tenant's
application to assign the Lease, Tenant may also request Landlord in
writing to be released from liability under this Lease, which request may
or may not be granted in Landlord's sole discretion.
<p> 11.3 Required Provisions. All assignment or sublease agreements
shall (a) contain such terms as are described in Tenant's notice under
Paragraph 11.2 above or as otherwise agreed by Landlord, (b) prohibit
further assignments or subleases except with Landlord's written consent,
(c) impose the same obligations and conditions on the assignee or
sublessee as are imposed on Tenant by this Lease (except as to rent and
term or as otherwise agreed by Landlord), (d) be expressly subject and
subordinate to each and every provision of this Lease, (e) have a term
that expires on or before the Expiration Date, and (f) provide that
Tenant and/or the assignee or sublessee shall pay Landlord the amount of
any additional costs or expenses incurred by Landlord for repairs,
maintenance or otherwise as a result of any change in the nature of
occupancy caused by the assignment or sublease.
<p> 11.4 Bonus Rent. Landlord shall be entitled to receive all Bonus
Rent payable in connection with any assignment or sublease. Within
fifteen (15) days after written request by Landlord, Tenant shall
provide and certify to Landlord all financial information required for
the calculation of Bonus Rent.
<p> 11.5 Fees for Review. If Landlord retains the services of an
attorney to review any aspect of the proposed assignment or sublease
transaction, Tenant shall pay to Landlord all attorneys' fees reasonably
incurred by Landlord in connection therewith, Tenant shall pay such
attorneys' fees to Landlord within thirty (30) days after written
request therefor.
<p> 11.6 No Release of Tenant. Unless Landlord has specifically
released Tenant in writing from all obligations under the Lease, no
consent of landlord to any assignment or subletting by Tenant shall
relieve Tenant of the obligations to be performed by Tenant under this
Lease, whether accruing before or after such assignment, or subletting,
and notwithstanding any subsequent modification, extension or renewal of
this Lease made with or without Tenant's consent. The consent by Landlord
to any assignment, transfer or subletting shall not relieve Tenant from
the obligations to obtain Landlord's express prior written consent to any
subsequent or other transfer or subletting. The acceptance by Landlord of
payment from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any
transfer or sublease, or to be a release of Tenant from any obligation
under this Lease. If the Premises or any part thereof is sublet or
occupied by any person other than Tenant, Landlord may, after default by
Tenant, collect the rent from any such transferee, subtenant or occupant
and apply the net amount collected to the rent reserved herein, and no
such action by Landlord shall be deemed a consent to such transfer,
sublease or occupancy.
<p> 11.7 Assumption of Obligations. Each assignee of Tenant shall
assume all obligations of Tenant under this Lease and shall be and remain
liable jointly and severally with Tenant (unless Landlord has
specifically released Tenant in writing from all obligations under the
Lease) for the payment of the rent and the performance of all the terms,
covenants, conditions and agreements herein contained on Tenant's part to
be performed for the Term. No assignment shall be binding on Landlord
unless the assignee or Tenant delivers to Landlord a counterpart of the
assignment instrument in recordable form which contains a covenant of
assumption by the transferee satisfactory in substance and form to
Landlord, consistent with the requirements of this section.
The failure or refusal of any assignee t0 execute such instrument of
assumption shall not release or discharge the assignee from its liability
to Landlord hereunder. Landlord shall have no obligation whatsoever to
perform directly any duty to or respond directly to any request from any
sublessee, it being the obligation of Tenant to administer the terms of
its subleases; provided, however, Landlord shall remain liable to Tenant
to perform all of Landlord's obligations under this Lease.
<p> 11.8 Deemed Transfers. If Tenant is a privately held corporation,
or is an unincorporated association or partnership, the transfer,
assignment or hypothecation of any stock or interest in such
corporation, association or partnership in the aggregate from the Lease
Date in excess of fifty percent (50%) shall be deemed an assignment or
transfer within the meaning of this section.
Tenant may assign this Lease or sublet the Premises or any part thereof
without Landlord's prior written consent to any corporation which
controls Tenant, is controlled by Tenant, or is under common control with
Tenant or to any entity resulting from any reorganization, merger or the
sale of substantially all of Tenant's stock, provided Tenant gives
Landlord at least thirty (301 days' prior written notice of such
subletting or assignment; and such subletting or assignment shall not
release or discharge Tenant from any liability under this Lease.
<p> 11.9 Landlord's Option t Recapture. Landlord reserves the option,
to be exercised by giving notice to Tenant within fifteen (151 days after
receipt of Tenant's notice of intent to assign of sublease to recapture
the portion of the Premises described in Tenant's notice for the
remainder of the Term, and to terminate this Lease with respect to such
recaptured Premises. The effective date of such recapture and termination
shall be as specified in Landlord's notice of exercise of its recapture
option, but shall not be less than thirty (301 days nor more than sixty
(601 days after the delivery of such notice. The option to recapture
reserved to Landlord hereunder shall also arise in the event Tenant
shall, voluntarily or involuntarily, sell, assign, mortgage, pledge,
encumber or otherwise transfer this Lease or any interest herein, or
sublet the Premises or any portion thereof, or suffer or permit the
Premises to be occupied by any third person (the agents, employees,
invitees and customers of Tenant excepted), without first obtaining the
written consent of Landlord and in such event the recapture option shall
apply to the portion of the Premises so affected and be exercisable but
Landlord at any time after the occurrence of the event for which
Landlord's consent was required by not obtained by Tenant. If this Lease
is terminated pursuant to Landlord's recapture option with respect to
only a portion of the Premises, the Base Rent required under this Lease
and Tenant's Share shall be adjusted proportionately based on the
rentable square footage retained by Tenant and the rentable square
footage of the Premises leased by Tenant immediately prior to such
recapture and cancellation, and Landlord and Tenant shall thereupon
execute an amendment of this Lease in accordance therewith. If Landlord
so recaptures a portion of the Premises, it shall construct and erect at
is sole cost such partitions as may be required in Landlord's and
Tenant's reasonable judgment to sever the space retained by Tenant from
the space recaptured by Landlord; provided, however, that Tenant shall
bear the cost of painting, covering or otherwise decorating the surfaces
of such partitions which face the remaining Premises. Landlord may,
without limitation, lease the recaptured portion of the Premises to the
proposed subtenant or assignee, on the same or different terms as were
proposed by Tenant, without liability to Tenant.
<p><strong>12. SUBORDINATION AND ATTORNMENT</strong></p>
<p> 12.1 Subordination. Upon the written request of Landlord or any
Mortgagee, Tenant will in writing subordinate its rights under this Lease
to the lien of any mortgage or deed of trust now or hereafter in force
against the Premises, the Building or the underlying land and to all
advances made or hereafter to be made upon the security thereof, and to
all extensions, modifications and renewals thereunder. Tenant shall also,
upon Landlord's request, subordinate its rights hereunder t0 any ground
or underlying lease which may now exist or hereafter be executed
affecting the Building and/or the underlying land. Tenant shall have the
right to condition its subordination upon the execution and delivery of
an attornment and nondisturbance agreement, as described in Paragraph
12.2, between the Mortgagee or the lessor under any such ground or
underlying lease and Tenant Tenant shall not subordinate its rights
hereunder to any lien other than that of a first mortgage or first deed
of trust, except with the prior written consent of the Mortgagee holding
such first mortgage or deed of trust.
<p> 12.2 Attornment. Upon the written request of the Landlord or any
Mortgagee or any lessor under a ground or underlying lease, Tenant shall
attorn to any Mortgagee or lessor, provided such Mortgagee or lessor
agrees that if Tenant is not in default under this Lease, Tenant's
possession of the Premises in accordance with the terms of this Lease
shall not be disturbed, Such agreement shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that
Tenant pay rent to said Mortgagee or lessor from the date of said
attornment, (c) that said Mortgagee or lessor shall not be responsible to
Tenant under this Lease except for obligations accruing subsequent to the
date of such attornment, and (d) that Tenant, in the event of foreclosure
or a deed in lieu thereof or a termination of the ground or underlying
lease, will enter into a new lease with the Mortgagee, lessor or other
person having or acquiring title on the same terms and conditions as this
Lease and for the balance of the Term.
<p> 12.3 Nonmaterial Amendments. If any lender should require any
modification of this Lease as a condition of loans secured by a lien on
the Premises, the Building or the land underlying the Building, or if any
such modification is required as a condition to a ground or underlying
lease, Tenant will not unreasonably withhold its approval or execution of
any such modifications, promptly after request by Landlord provided no
such modification shall relate to the rent payable hereunder, the length
of the Term or otherwise materially change the rights or obligations of
Landlord or Tenant.
<p><strong>13. DEFAULT BY TENANT</strong></p>
<p> 13.1 Acts Constituting Default. In addition to the events specified
as a default elsewhere in this Lease, the failure of Tenant to perform
each covenant made under this Lease, or any abandonment of the Premises
by Tenant, shall constitute a default hereunder. However, Landlord shall
not commence any action to terminate Tenant's right of possession as a
consequence of a default until any period of grace with respect thereto
has elapsed; provided, that any such period of grace shall be in lieu of
and not in addition to the period during which Tenant may cure such
default following the delivery of notice pursuant to California Code of
Civil Procedure Section 1 161.
<p> (a) Subject to the limitation expressed in Paragraph
13.1(c), Tenant shall have a period of three (3) days from the date of
written notice from Landlord within which to cure any default in the
payment of any monetary obligations of Tenant under this Lease.
<p> (b) Tenant shall have a period of fifteen (15) days from
the date of written notice from Landlord within which to cure any other
default under this Lease which is capable of being cured; provided,
however, that with respect to any default which cannot reasonably be
cured within fifteen (15) days, the default shall not be deemed to be
uncured if Tenant commences to cure within five (5) days from Landlord's
notice and thereafter prosecutes diligently and continuously to
completion all acts required to cure the default.
<p> (c) There shall be no period of grace with respect to
any default by Tenant which is not capable of being cured. Landlord and
Tenant stipulate that the following defaults are not capable of being
cured by Tenant: (i) any default which is specified in this Lease as
being incurable; (ii) any unauthorized sale, assignment, mortgage,
pledge, hypothecation, encumbrance or other transfer of this Lease or any
interest herein, or any unauthorized subletting of all or any portion of
the Premises; (iii) the commission of waste by Tenant; (iv) the failure
of Tenant to pay rent or any other monetary obligation of Tenant
hereunder on the due date thereof where such failure occurs on more than
three (3) consecutive occasions or more than six (61 occasions during any
twelve (12) month period; and (v) any other default which is recognized
under California law as being incurable.
<p> 13.2 Landlord's Remedies. If Tenant fails to cure a default, or in
the event of a default which is not capable of being cured by Tenant,
Landlord shall have the following rights and remedies in addition to any
other rights and remedies available to Landlord at law or in equity:
<p> (a) Landlord shall have all rights and remedies
provided by California Civil Code Section 1951.2 (or any successor
statute), including but not limited to, recovery of the worth at the
time of award of the amount by which the unpaid rent for the balance of
the Term after the time of award exceeds the amount of rental loss for
the same period that Tenant proves could be reasonably avoided, as
computed pursuant to subsection (b) of said Section 1951.2;
<p> (b) Landlord shall have rights and remedies provided by
California Civil Code Section 1951,4 (or any successor statute), which
allows Landlord to continue this Lease in effect and to enforce all of
its rights and remedies under this Lease, including the right to recover
rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession. Acts of maintenance or preservation,
efforts to relet the Premises, or the appointment of a receiver upon the
Landlord's initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession; and
<p> (c) Landlord shall have the right, but not the
obligation, to make any payment or perform any act on Tenant's part as
may be required to cure Tenant's default, without waiving its rights
based upon such default by Tenant and without releasing Tenant from any
of its obligations. All sums so paid and all costs incurred by Landlord,
together with interest thereon at the Overdue Rate from the date of such
payment or the incurrence of such cost by Landlord, whichever occurs
first, shall be paid to Landlord on demand.
<p><strong>14. DEFAULT BY LANDLORD</strong></p>
<p> 14.1 Existence of Default. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and
until it has failed to perform such obligation within twenty (20) days
after receipt of written notice by Tenant to Landlord specifying such
failure; provided, however, that if the nature of the Landlord's default
is such that more than twenty (20) days are required for its cure, then
Landlord shall not be deemed to be in default if it commences such cure
within the twenty (20) day period and thereafter diligently prosecutes
such cure to completion,
<p> 14.2 Mortagaee's Right To Cure. Tenant shall give any Mortgagee a
copy, by registered mail, of any notice of default served upon Landlord,
provided that Tenant previously has been notified in writing (by way of
Notice of Assignment of Rents and Leases, or otherwise), of the address
of such Mortgagee. If Landlord fails to cure such default within the time
provided in this Lease, any such Mortgagee shall have an additional
forty-five (45) days within which to cure such default by Landlord, or if
such default cannot be cured within that time, then such additional time
as may be necessary if within that forty-five (45) day period the
Mortgagee has commenced and is pursuing the remedies necessary to cure
such default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event this Lease
shall not be terminated while such remedies are being so pursued.
<p> 14.3 Judgment Against Landlord. If Tenant recovers any judgment
against Landlord for a default by Landlord under this Lease, the
judgment shall be satisfied only out of the interest of Landlord in the
Building and neither Landlord nor any of its partners, officers,
employees or agents shall be personally liable for any such default or
for any deficiency.
<p><strong>15. CONDEMNATION</strong></p>
<p> 15.1 Termination Due To Taking. If ail or any part of the Premises
are the subject of a Taking, either Landlord or Tenant may, by written
notice given to the other within thirty (30) days of receipt of notice of
such Taking, elect to terminate this Lease as of the date possession is
transferred pursuant to the Taking; provided, however, that before Tenant
may terminate this Lease for a Taking, such 'faking must be of such an
extent and nature as to substantially impede Tenant's use of the
Premises, If any pan of the Building other than the Premises shall be the
subject of a Taking, Landlord may elect to Terminate this Lease. If there
is a Taking of all or a part of the Parking Facilities and the parking
rights granted to Tenant under Paragraph 2.4 are substantially reduced
thereby, Landlord shall have the right to provide replacement parking to
compensate for such reduction within other parking areas serving the
Office Complex. 1f such replacement parking is not provided, then for a
period of thirty (30) days after Landlord notifies Tenant that such
replacement parking cannot be provided, Tenant shall have the right to
terminate this Lease, effective at a time specified by Tenant not to
exceed thirty (30) days from the date of the notice.
<p> 15.2 No Termination Due To Taking. If a partial Taking of the
Premises does not result in a termination of this Lease, Base Rent,
Tenant's Share of Increased Operating Costs and Tenant's parking rights
shall be reduced in proportion to what the area of the Premises taken
bears to the area of the Premises immediately prior to the Taking. No
temporary taking of the Premises or any part of the Building shall
terminate this Lease, except at Landlord's election, or give Tenant any
right to any abatement of Base Rent or Increased Operating Costs, except
that Base Rent and Operating Costs shall be reduced in accordance with
the preceding sentence during that portion of any temporary Taking of
the Premises lasting more than thirty (301 days. Each party hereto
waives the provisions of California Code of Civil Procedure Section
1265.130 (or any successor statute) allowing either party to file a
petition to terminate this Lease for a partial Taking.
<p> 15.3 Award For Taking. No award for any partial or entire Taking
shall be apportioned, and Tenant hereby assigns to Landlord any and all
rights of Tenant to any portion of the award for a Taking. However,
nothing contained herein shall be deemed to give Landlord any interest
in or to require Tenant to assign to Landlord any award made to Tenant
for taking of personal property belonging to Tenant.
<p><strong>16. DAMAGE AND DESTRUCTION</strong></p>
<p> 16.1 Partial Damage - Insured. If the Premises or the Building are
damaged by a risk covered under fire and extended coverage insurance
insuring Landlord, then Landlord shall restore such damage provided
insurance proceeds are available to Landlord to pay ninety percent (90%)
or more of the cost of restoration, and provided such restoration by
Landlord can be completed within eight (8) months after the commencement
of work in the opinion of a licensed architect or engineer appointed by
Landlord. 1n such event this Lease shall continue in full force and
effect, except that Tenant shall, so long as the damage is not due to the
act or omission of Tenant, be entitled to an equitable reduction of Bass
Rent and Tenant's Share of Increased Operating Costs while such
restoration takes place, such reduction to be based upon the extent to
which the damage or restoration efforts materially interfere with
Tenant's use of the Premises.
<p> 16.2 Partial Damage - Uninsured. If the Premises or the Building
are damaged by a risk not covered by such insurance or if the insurance
proceeds available to Landlord are less than eighty percent (80%) of the
cost of restoration, or if the restoration cannot be completed within
eight (8) months after the commencement of work in the opinion of the
licensed architect or engineer appointed by Landlord, then Landlord shall
have the option either to (a) repair or restore such damage, this Lease
continuing in full force and effect, with the Base Rent and Tenant's
Share of Increased Operating Costs to be equitably reduced as provided in
Paragraph 16.1, or (b) give notice to Tenant at any time within ninety
(90) days after such damage terminating this Lease as of a date to be
specified in such notice, which date shall be not less than thirty (30)
nor more than sixty (60) days after the giving of such notice. If such
notice is given, this Lease shall expire and any interest of Tenant in
the Premises shall terminate on the date specified in such notice. The
Base Rent and Tenant's Share of Increased Operating Costs during the
period prior to the termination shall be reduced as provided in Paragraph
16.1 and paid up through the date of termination.
<p> 16.3 Total Destruction. if the Premises are totally destroyed or in
Landlord's judgment the Premises cannot be restored as required herein
under applicable laws and regulations, notwithstanding the availability
of insurance proceeds, this Lease shall be terminated effective as of the
date of the damage.
<p> 16.4 Landlord's Obligations. Any restoration by Landlord pursuant
to Paragraphs 16.1 or 16.2 shall be commenced as soon as reasonably
possible after the date of damage and prosecuted diligently to completion
at the earliest possible date. Landlord shall not be required to carry
insurance of any kind on Tenant's property and shall not be required to
repair any injury or damage thereto by fire or other causes, or to make
any restoration or replacement of any paneling, decorations, partitions,
ceilings, floor covering, office fixtures or any other improvements or
property installed in the Premises by or at the direct or indirect
expense of Tenant and Tenant shall be required to restore or replace same
in the event of damage. Tenant shall have no claim against Landlord for
any loss suffered by reason of any such damage, destruction, repair or
restoration. Notwithstanding anything to the contrary contained in this
section, Landlord shall have no obligation to repair, reconstruct or
restore the Premises with respect to damage or destruction as described
in this section occurring during the last twelve (12) months of the Term.
<p> 16.5 Waiver by Tenant. Tenant shall have no right to terminate this
Lease as a result of any statutory provisions now or hereafter in effect
pertaining to the damage and destruction of the Premises or the Building,
except as expressly provided herein, and Tenant expressly waives the
provisions of California Civil Code Sections 1932(2) and 1933(4) with
respect to any damage or destruction of the Premises.
<p><strong>17. DEFINITIONS</strong></p>
<p> 17.1 "Rase Rent" means the monthly rent payable pursuant to
Paragraph 4.1, and as specified in the Basic Lease Provisions.
<p> 17.2 "Base Year" means the calendar year specified in the Basic
Lease Provisions.
<p> 17.3 "Basic Lease Provisions" means the
provisions contained in Paragraph 1.2 of this Lease.
<p> 17.4 "Bonus Rent" means the excess of (a) all consideration
received by Tenant from an assignment of this Lease or a sublease of all
or any portion of the Premises over (b) the Base Rent, Increased
Operating Costs and other charges payable by Tenant to Landlord under
this Lease (prorated, in the case of a sublease of less than all of the
Premises, to reflect obligations allocable to only the portion of the
Premises so sublet). In determining the total consideration under the
foregoing clause la), Tenant shall be entitled to exclude therefrom
reasonable leasing commissions paid by Tenant to any unaffiliated third
party, payments attributable to the amortization of the cost of
improvements Tenant must make to the Premises at its cost to ready same
for the assignee or sublessee, and other reasonable, out-of-pocket costs
paid by Tenant which are directly related to Tenant's obtaining the
assignment or sublease.
<p> 17.5 "Building" means the highrise office building described in the
Basic Lease Provisions, the parcels of land on which such office building
is situated, all other improvements situated on the land, and all rights
and easements appurtenant thereto. Except where the context requires
otherwise, references to the "Building" shall include the Common Areas
and the Parking Facilities serving the Building and other buildings in
the Office Complex.
<p> 17.6 "Commencement Date" means the date determined pursuant to
Paragraph 3.2 of this Lease for the commencement of the Term.
17.7 "Common Areas" means areas within the Building (including
common corridors and hallways, stairwells, elevators, restrooms, lobbies
and other public areas) and within the Office Complex which are available
for nonexclusive use by Tenant and other tenants of the Building or the
Office Complex.
<p> 17.7 "Common Areas" means areas within the Building (including
common corridors and hallways, stairwells, elevators, restrooms, lobbies
and other public areas) and within the Office Complex which are available
for nonexclusive use by Tenant and other tenants of the Building or the
office Complex.
<p> 17.8 "Environmental Damages" means all claims, judgments, damages,
losses, penalties, fines, liabilities, strict costs and expenses of
defense of any claim and of any settlement or judgment, including without
limitation reasonable attorneys' fees and consultants' fees, any of which
are incurred at any time as a result of the existence of "Hazardous
Material" upon, about, beneath the Premises or migrating or threatening
to migrate to or from the Premises, or the existence of a violation of
"Environmental Requirements" pertaining to the Premises including,
without limitation: (a) damages for personal injury, or injury to
property or natural resources occurring upon or off of the Premises,
foreseeable or unforeseeable, including, without limitation, lost
profits, consequential damages, interest and penalties including but not
limited to claims brought by or on behalf of employees of Tenant, with
respect to which Tenant waives any immunity to which it may be entitled
under any industrial or worker's compensation laws; (b) diminution in the
value of the premises, and damages for the loss of or restriction on the
use of or adverse impact on the marketing of rentable or usable space of
any amenity of the Premises; (c) fees incurred for the services of
attorneys, consultants, contractors, experts, laboratories and all other
costs incurred in connection with the investigation or remediation of
such "Hazardous Materials" or violation of "Environmental Requirements"
including, but not limited to, the preparation of any feasibility studies
or reports or the performance of any cleanup, remedial, removal,
containment, restoration or monitoring work required by any federal,
state or local governmental agency or political subdivision, or
reasonably necessary to make full economic use of the Premises or any
other property or otherwise expended in connection with such conditions,
and including without limitation any attorneys' fees, costs and expenses
incurred in enforcing this agreement or collecting any sums due
hereunder; and (d) liability to any third person or governmental agency
to indemnify such person or agency for costs expended in connection with
the items referenced in subparagraph (c) herein.
<p> 17.9 "Environmental Requirements" means all applicable present and
future statutes, regulations, rules, ordinances, codes, licenses,
permits, orders, approvals, plans, authorizations, concessions,
franchises and similar items, of all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States,
states and political subdivisions thereof and all applicable judicial and
administrative and regulatory decrees, judgments and orders relating to
the protection of human health, or the environment, including, without
limitation: (a) all requirements, including but not limited to, those
pertaining to reporting, licensing, permitting, investigation and
remediation of emissions, discharges, releases or threatened releases of
"Hazardous Materials," chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes whether solid, liquid
or gaseous in nature, into the air, surface water, groundwater or land,
or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of chemical substances,
pollutants, contaminants or hazardous or toxic substances, materials, or
wastes, whether solid, liquid or gaseous in nature; and (b) all
requirements pertaining to the protection of the health and safety of
employees or the public.
<p> 17.10 "Expiration Date" means the scheduled date on which the Term
will expire as determined pursuant to Paragraph 3.2 of this Lease.
<p> 17.11 "Hazardous Materials" means any substance (a) the presence of
which requires investigation or remediation under any federal, state or
local statute, regulation, ordinance, order, action or policy; or (b)
which is or becomes defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto; or (c) which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic,
or otherwise hazardous and is or becomes regulated by any governmental
authority, agency, department, commission, board, agency or
instrumentality of the United States, the State of California or any
political subdivision thereof; or (d) the presence of which on the
Premises causes or threatens to cause a nuisance upon the Premises or to
adjacent properties or poses or threatens to pose a hazard to the
Premises or the health or safety of persons on or about the Premises; or
(e) without limitation, which contains gasoline, diesel fuel or other
petroleum hydrocarbons; or (f) which contains polychlorinated bipheynols
(PCBs), asbestos or urea formaldehyde foam insulation.
<p> 17.12 "Increased Operating Costs" means the amount by which the
Operating Costs during any Subsequent Year exceed the Operating Costs
for the Base Year.
<p> 17.13 "Landlord's Work" means the work, if any, to be performed by
Landlord to ready the Premises for Tenant's occupancy, as specified in
the Scope of Work.
<p> 17.14 "Lease Date" means the date specified in the Basic Lease
Provisions, which shall be the effective date of execution of this Lease
by Landlord and Tenant unless otherwise provided in this Lease.
<p> 17.15 "Mortgagee" means the holder of any mortgage or deed of trust
secured by the Building or the Premises or any portion thereof.
<p> 17.16 "Office Complex" means the development comprised of the three
office buildings commonly known as Watergate Towers I, II and III,
addressed, respectively, as 1900 Powell Street, 2200 Powell Street and
2000 Powell Street, Emeryville, California.
<p> 17.17 "Operating Costs" means all actual costs of ownership,
operation, maintenance, repair and management of the Building, including
the Building's share of all such costs of the Parking Facilities and the
Common Areas which are shared with other buildings in the Office Complex
to be based on Landlord's reasonable allocation among the buildings. If
during the Base Year or any Subsequent Year the Building is less than
ninety-five percent (95%) occupied, those Operating Costs which vary
based on the level of occupancy shall be adjusted upward to reflect, in
Landlord's reasonable judgment, the Operating Costs that would apply
during such year if the Building were at least ninety-five percent (95%)
occupied.
<p> 17.17.1. Operating Costs shall include:
<p> (a) salaries, and other compensation, including payroll
taxes, vacation, holiday and other paid absences, and welfare, retirement
and other fringe benefits, paid to employees, independent contractors or
agents of Landlord engaged in the operation, repair, management or
maintenance of the Building, including (i) elevator operators, (ii)
window cleaners, miscellaneous repair personnel, janitors, cleaning
personnel and porters, (iii) security personnel and caretakers, and (iv)
engineers, mechanics, electricians and plumbers;
<p> (b) repairs and maintenance of the Building and the
costs of supplies, tools, materials and equipment for such repairs and
maintenance that are under generally accepted accounting principles not
capitalized;
<p> (c) premiums and other charges incurred by Landlord for
insurance on the Building and for Landlord's employees, including (i)
fire and extended coverage insurance, and earthquake, windstorm, flood
and explosion insurance, (ii) public liability and property damage
insurance, (iii) worker's compensation insurance, (iv) boiler and
machinery insurance, sprinkler leakage, water damage and related
liability insurance, and burglary, fidelity and pilferage insurance on
equipment and materials, (v) health, accident and group life insurance,
(vi) such other insurance as is customarily carried by operators of
comparable first-class office buildings in the San Francisco Bay Area;
<p> (d) costs incurred for inspection and servicing,
including all outside maintenance contracts necessary for the maintenance
of the Building, such as janitorial and window cleaning, rubbish removal,
exterminating, water treatment, elevator, electrical, plumbing and
mechanical equipment, and the costs of materials, tools, supplies and
equipment used for inspection and servicing of the Building;
<p> (e) costs incurred for electricity, water, gas, fuel
and' other utilities;
<p> (f) payroll taxes, federal taxes, state and local
unemployment taxes, and social security taxes paid for the employees of
Landlord engaged in the operation, maintenance and repair of the
Building;
<p> (g) sales, use and excise taxes on goods and services
purchased by Landlord for use in the Building;
<p> (h) license, permit and inspection fees;
(i) accounting and legal fees;
<p> (j) Customary management fees not to exceed five
percent (5%) of the gross revenues of the Building;
<p> (k) the annual amortization over its useful life, with
a reasonable salvage value on a straightline basis, of the costs of any
capital improvements made by Landlord and required by any changes in
applicable laws, rules or regulations of any governmental authority
enacted after the Building was completed;
<p> (l) the annual amortization over its useful life, with
a reasonable salvage value on a straightline basis, of the costs of any
equipment or capital improvements made by Landlord after the Building was
completed as a labor-saving measure or to accomplish other savings in
operating, repairing, managing or maintaining the Building, but only to
the extent of the savings;
<p> (m) the annual amortization, over its useful life on a
straight line basis, of the cost of any exterior window draperies
provided by Landlord and the carpeting in the Common Areas;
<p> (n) any costs for substituting work, labor, materials
or services in place of any of the above items, or for any additional
work, labor, materials, services or improvements to comply with any
governmental laws, rules, regulations or other requirements applicable to
the Building enacted after the Building was completed which are
considered operating expenses under generally accepted accounting
principles;
<p> (o) other costs reasonably necessary to maintain,
operate, repair and manage the Building in a first-class mariner and
condition;
<p> (p) all real property taxes on the Building, the land
on which the Building is situated, and the various estates in the
Building and a proportion of the real property taxes on the land and
improvements comprising the Parking Facilities and the Common Areas
shared with other buildings in the Office Complex, based on Landlord's
reasonable allocation among the buildings using such facilities and
areas;
<p> (q) all personal property taxes levied on property used
in the operation of the Building;
<p> (r) all taxes of every kind and nature whatsoever
levied or assessed in lieu of or in substitution for existing or
additional real or personal property taxes on the Building, land or
personal property other than taxes covered by Paragraph 4.4, including,
but not limited to, any charge, levy, excise or assessment upon
Landlord's business of leasing the Premises or other portions of the
Building or the Parking Facilities; and
<p> (s) the cost to Landlord of contesting the amount,
validity or applicability of any of the foregoing items.
<p> 17.17.2. Operating Costs shall exclude:
<p> (a) leasing commissions, costs, disbursements,
attorneys' fees, accounting fees and other expenses incurred for leasing,
renovating or improving space for tenants;
<p> (b) the cost of electricity or other services sold to
tenants for which Landlord is to be reimbursed as a charge over the rent
payable under the leases with such tenants;
<p> (c) costs incurred because Landlord or another tenant
violated the terms of any lease of the Building;
<p> (d) interest on debt or amortization payments on
mortgages or deeds of trust or any other debt for borrowed money, except
as herein expressly permitted;
<p> (e) items and services for which Tenant reimburses
Landlord or pays third parties or that Landlord provides selectively to
one or more tenants of the Building other than Tenant without
reimbursement;
<p> (f) advertising and promotional
expenses;
<p> (g) repairs or other work needed because of fire or
other casualty insured against by Landlord;
<p> (h) costs incurred in operating the Parking Facilities
except to the extent the cost of operating the Parking Facilities exceeds
the revenues generated from operation thereof;
<p> (i) nonrecurring costs incurred to remedy structural
defects in the original construction materials or insulation; and
<p> (j) costs incurred by Landlord for alterations that are
considered capital improvements under generally accepted accounting
principles except to the extent the same are expressly permitted under
Paragraph 17.17.1
<p> 17.18 "Overdue Rate" means the lesser of; (a) eighteen percent
(18%) per annum; or (b) the maximum rate permitted under applicable
usury law.
<p> 17.19 "Parking Charge" means the monthly amount to be paid by
Tenant for each parking permit issued to Tenant pursuant to Paragraph
2.4, which amount is specified in the Basic Lease Provisions and subject
to increase.
<p> 17.20 "Parking Facilities" means the parking lot(s) and parking
structure(s) located within or adjacent to the Office Complex and
designated by Landlord as serving the Building.
<p> 17.21 "Premises" means the portion of the Building demised by this
Lease, as designated by suite number in the Basic Lease Provisions and
shown on Exhibit A to this Lease.
<p> 17.22 "Rule and Regulations" means the rules and regulations
regulating the use of the Premises, the Common Areas, Parking Facilities
and other portions of the Building promulgated by Landlord from time to
time as provided in paragraph 5.6 of this Lease.
<p> 17.23 "Security Deposit" means the amount specified in the Basic
Lease Provisions, which is to be held by Landlord to secure tenant's
performance of its obligations under this Lease as provided in paragraph
4.2
<p> 17.24 "Scope of Work" means the Scope of Work Agreement if any,
executed by Landlord and Tenant concurrently with their execution of the
Lease, which will de attached as Exhibit B to this Lease and will
establish the full extent of Landlord's Work in readying the Premises for
Tenant's occupancy hereunder.
<p> 17.25 "Subsequent Year" means any calendar
year during the Term after the Base Year.
<p> 17.26 "Substantial Completion" means (a) completion, as determined
in the event of a dispute by Landlord's architect in accordance with AIA
standards, of Landlord's Work except for such items a$ constitute a minor
defect or deficiency which can be completed or corrected after occupancy
without causing any material interference with Tenant's use of the
Premises, and (b) the issuance of a certificate of occupancy by the City
of Emeryville or such other governmental authorization as may be required
for occupancy of the Premises.
<p> 17.27 "Taking" means the taking of property or any interest therein
for public or quasi public use by exercise of the power of eminent domain
or otherwise, or a taking in the nature of inverse condemnation, with or
without litigation, or a transfer of property or any interest therein
pursuant to an agreement entered into under threat of exercise of the
power of eminent domain.
<p> 17.28 "Tenant Parking" means the number of permits to park
passenger automobiles in the Parking Facilities which are to be issued to
Tenant pursuant to paragraph 2.4, and as specified in the Basic Lease
Provisions.
<p> 17.29 "Tenant's Share" means the ratio that the rentable square
footage of the Premises bears to the total rentable square footage of the
Building. If the rentable square footage of the Premises and/or the total
rentable square footage of the Building changes, Tenant's Share shall be
appropriately adjusted so that it at all times reflects the proportion
which the rentable square footage of the Premises bears to the total
rentable square footage of the Building.
<p> 17.30 "Term" means the term of this Lease, including any permitted
extensions or renewals thereof.
<p><strong>18. MISCELLANEOUS PROVISIONS</strong></p>
<p> 18.1 Estoppel Certificates. Within ten (10) days following any
written request Landlord may make from time to time, Tenant without any
charge therefor, shall execute, acknowledge and deliver a statement
certifying: (a) the Commencement bate of this Lease; (b) the fact that
this Lease is unmodified and in full force and effect (or, if there have
been modifications hereto, that this Lease is in full force and effect,
as modified, and stating the date and nature of such modifications); (c)
the date to which the rent and other sums payable under this Lease have
been paid; (d) the fact that there are no current defaults under this
Lease by either Landlord or Tenant except as specified in the statement;
and (e) such other matters as may be reasonably requested by Landlord.
Landlord and Tenant intend that any statement delivered pursuant to this
paragraph may be relied upon by a mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein. Tenant's
failure to deliver any such statement within said ten (10) day period
shall constitute a material default, arid Tenant shall indemnify and hold
Landlord harmless from and against any and all liability, loss, cost,
damage and expense which Landlord may sustain or incur as a result of or
in connection with Tenant's failure or delay in delivering such
statement. If Landlord elects to sell the Building or to obtain loans
secured by a lien on the Building, Tenant, promptly after demand, shall
provide to any such purchaser or lender financial statements of Tenant
reasonably required by the purchaser or lender, The financial statements
so provided shall be kept confidential as to any parties other than the
purchaser or lender.
<p> 18.2 Surrender of Premises. A voluntary or other surrender of this
Lease by Tenant or the mutual cancellation of this Lease shall not work a
merger and shall, at the option of Landlord, terminate all or any
existing subleases or subtenancies, or may, at the option of Landlord,
operate as an assignment to it of any or all such subleases or
subtenancies.
<p> 18.3 Light and Air. No diminution of light, air or view by any
structure which may hereafter be erected (whether or not by Landlord)
shall entitle Tenant to any reduction of rent under this Lease, result in
any liability of Landlord to Tenant, or in any other way affect this
Lease.
<p> 18.4 Waiver. If either Landlord or Tenant waives the performance of
any term, covenant or condition contained in this Lease, such waiver
shall not be deemed to be a waiver of the term, covenant or condition
itself or a waiver of any subsequent breach of the same or any other
term, covenant or condition contained herein. Furthermore, the acceptance
of rent by Landlord shall not constitute a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time Landlord
accepts such rent. Failure by Landlord or Tenant to enforce any of the
terms, covenants or conditions of this Lease for any length of time shall
not be deemed to waive or to decrease the right of Landlord or Tenant, as
the case may be, to insist thereafter upon strict performance by Tenant
the other party, Waiver by Landlord or Tenant of any term, covenant or
condition contained in this Lease may only be made by a written document
signed by the party being bound.
<p> 18.5 Attorneys' Fees, In the event that any action or proceeding
(including arbitration) is brought to enforce or interpret any term,
covenant or condition of this Lease on the part of Landlord or Tenant,
the prevailing party in such action or proceeding (whether after trial or
appeal) shall be entitled to recover from the party not prevailing its
expenses therein, including reasonable attorneys' fees and all allowable
costs. If Landlord is made a party to any action or proceeding commenced
by a third party due to any actual or alleged act or omission of Tenant
or Tenant's agents, employees, contractors, invitees or subtenants,
Tenant shall indemnify and hold Landlord harmless from all costs incurred
in such action or proceeding, including reasonable attorneys' fees.
Subject to the foregoing obligation of Tenant, if Tenant is made a party
to any action or proceeding commenced by a third party due to any actual
or alleged act or omission of Landlord or Landlord's agents, employees,
contractors or invitees, Landlord shall indemnify and hold Tenant
harmless from all costs incurred in such action or proceeding, including
reasonable attorneys' fees. If Tenant requests Landlord's consent to,
approval of or signature on any instrument or agreement which would alter
or affect Landlord's legal rights and duties, Tenant shall reimburse
Landlord upon demand for Landlord's reasonable attorneys' fees incurred
in connection with the review and evaluation of the requested action.
<p> 18.6 Notices. Any notice required or permitted under this Lease
shall be in writing and shall be delivered either personally or by
depositing same in the United States Mail, postage prepaid, registered or
certified, return receipt requested, addressed to the intended recipient
at such party's address set forth in the Basic Lease Provisions or at
such other address as such party has theretofore specified by written
notice delivered in accordance with this paragraph. Any notice delivered
by mail in the manner specified in this paragraph shall be deemed
delivered on the earlier of the third day following deposit thereof in
the United States Mail or on the delivery date shown on the return
receipt prepared in connection therewith; and any such notice specifying
a default by Tenant shall be deemed sufficient for all purposes under
California Code of Civil Procedure Sections 1161 and 1162,
notwithstanding the fact that such notice is not personally served on
Tenant or that such notice does not demand possession of the Premises as
an alternative to Tenant's curing of such default.
<p> 18.7 Merger. Notwithstanding the acquisition (if same should occur)
by the same party of the title and interests of both Landlord and Tenant
under this Lease, there shall never be a merger of the estates of
Landlord and Tenant under this Lease, but instead the separate estates,
rights, duties and obligations of Landlord and Tenant, as existing
hereunder, shall remain unextinguished and continue, separately, in full
force and effect until this Lease expires or otherwise terminates in
accordance with the express provisions herein contained.
<p> 18.8 Substituted Premises. [Intentionally deleted.]
<p> 18.9 Headings. Words used in neuter gender include the feminine and
masculine, where applicable. If there is more than one Tenant, the
obligations imposed under this Lease upon Tenant shall be joint and
several. The headings and titles to the sections and paragraphs of this
Lease are used for convenience only and shall have no effect upon the
construction or interpretation of this Lease.
<p> 18.10 Time And Applicable Law. Time is of the essence of this Lease
and all of its provisions. This Lease shall in all respects be governed
by and interpreted in accordance with the laws of the State of
California.
<p> 18.11 Successors And Assigns. Each conveyance by Landlord or its
successors in interest of Landlord's interest in the Building or the
Premises prior to the expiration or termination of this Lease shall be
subject to this Lease and shall relieve the grantor of all further
liability or obligations as Landlord, except for such liability or
obligations accruing prior to the date of such conveyance. If any
Security Deposit has been given to Landlord, Landlord shall deliver such
Security Deposit to Landlord's successors in interest, whether such
interest is acquired by sale, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Subject to the foregoing and to the provisions
of Section 16, the terms, covenants and conditions contained herein shall
be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto.
<p> 18.12 Entry by Landlord. Landlord and its authorized representative
shall have the right to enter the Premises: (a) to inspect the Premises;
(b) to supply any service provided to Tenant hereunder: (c) to show the
Premises to prospective brokers, agents, purchasers, lenders or tenants;
(d) to post notices of non-responsibility, (e) to alter, improve or
repair the Premises and any other portion of the Building; and (f) to
erect scaffolding and other necessary structures, where required by the
work to be performed, all without reduction or abatement of rent. Tenant
hereby waives any claim for damages for any injury to or interference
with Tenant's business or quiet enjoyment of the Premises or any other
loss occasioned by such entry. Landlord shall at all times have a key to
unlock all doors in and about the Premises, excluding Tenant's vaults and
safes, and Landlord shall have the right to use any means which Landlord
deems proper to open said doors in an emergency, and any such entry to
the Premises shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into the Premises or a detainer of the
Premises or an eviction of Tenant from any portion of the Premises.
<p> 18.13 Entire Agreement. This Lease, together with its exhibits,
contains all the agreements of the parties hereto and supersedes any
previous negotiations. There have been no representations made by the
Landlord or understandings made between the parties other than those set
forth in this Lease and its exhibits. This Lease may not be modified
except by a written instrument duly executed by the parties hereto.
<p> 18.14 Severability. If any provision of this Lease or the
application of such provision to other persons or circumstances shall not
be affected thereby and shall be enforced to the greatest extent
permitted by law.
<p> 18.15 Signs. Tenant shall not place or permit to be placed in or
upon the Premises where visible from outside the Premises or any part of
the Building, any signs, notices, drapes, shutters, blinds or window
coatings, or displays of any type without the prior written consent of
Landlord. Landlord shall consent to the location at the cost of Tenant of
a building standard sign on or near the entrance of the Premises and
shall include Tenant in the Building directories located in the Building.
Landlord reserves the right in Landlord's sole discretion to place and
locate on the roof and exterior of the Building and in any area of the
Building not leased to Tenant, such signs, notices, displays and similar
items as Landlord deems appropriate in the proper operation of the
Building,
<p> 18.16 Execution By Landlord. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises. This document becomes
effective and binding only upon execution and delivery hereof by Tenant
and by Landlord, No act or omission of any employee or agent of Landlord
or of Landlord's broker shall alter, change or modify any of the
provisions hereof.
<p> 18.17 Brokers. Tenant shall hold Landlord harmless from all damages
(including attorneys' fees and costs) resulting from any claims that may
be asserted against Landlord by any broker, finder, or other person with
whom Tenant has or purportedly has dealt, except the leasing agent for
the Building duly appointed by Landlord.
<p> 18.18 Name of Building. Tenant shall not use the name of the
Building for any purpose other than the address of the business to be
conducted by Tenant in the Premises. Tenant shall not use any picture of
the Building in its advertising, stationery or in any other manner, so as
to imply that the entire Building is leased by Tenant. Landlord expressly
reserves the right at any time to change the name or street address of
the Building without in any manner being liable to Tenant therefor.
<p> 18.19 Nonrecordability of Lease. Tenant agrees that in no event
shall this Lease or a memorandum hereof be recorded without Landlord's
express prior written consent, which consent Landlord may withhold in its
sole discretion.
<p> 18.20 Construction. All provisions hereof, whether covenants or
conditions, shall be deemed to be both covenants and conditions, The
definitions contained in this Lease shall be used to interpret the Lease.
All rights and remedies of Landlord and Tenant shall, except as otherwise
expressly provided, be cumulative and non-exclusive of any other remedy
at law or in equity.
<p> 18.21 Inability To Perform. This Lease and the obligations of
Tenant hereunder shall not be affected or impaired because Landlord is
unable to fulfill any of its obligations hereunder or is delayed in doing
so, if such inability or delay is caused by reason of force majeure,
strike, labor troubles, acts of God, acts of government, unavailability
of materials or labor, or any other cause beyond the control of Landlord.
<p> 18.22 Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of Tenant represents and warrants that
Tenant is qualified to do business in California and that he is duly
authorized to execute and deliver this Lease on behalf of Tenant and
shall deliver appropriate certification to that effect if requested. If
Tenant is a partnership, joint venture, or other unincorporated
association, each individual executing this Lease on behalf of Tenant
represents and warrants that he is duly authorized to execute and deliver
this Lease on behalf of Tenant and that this Lease is binding on Tenant.
Furthermore, Tenant agrees that the execution of any written consent
hereunder, or any written modification or termination of this Lease, by
any general partner of Tenant or any other authorized agent of Tenant,
shall be binding on Tenant.
<p> 18.23 Quiet Enjoyment. So long as Tenant is not in default under
this Lease, Tenant shall have quiet enjoyment of the Premises for the
Term, subject to all the terms and conditions of this Lease and all liens
and encumbrances prior to this Lease.
<p><strong>19. EXTRA PARKING PERMITS</strong></p>
<p> Tenant, provided Tenant is not in default under this Lease, shall
have the right to utilize sixteen (1 fit extra parking permits at the
then current rate for monthly parking in the parking structure so long as
there is sufficient monthly parking available to reasonably provide for
the proportionate parking requirements of all the tenants within the
Building. If, in Landlord's opinion, there is insufficient parking, then
Landlord reserves the right to revoke the extra parking permits issued.
<p><strong>20. LETTER OF CREDIT/SECURITY DEPOSIT</strong></p>
<p> Within ten (10) days after execution of this Lease, Tenant shall
deposit with Landlord cash in the amount of $1,780.35 to increase the
cash portion of the Security Deposit held by Landlord to $13,233. 60, In
addition, Tenant shall deliver to Landlord a clean, irrevocable letter of
credit issued by a bank reasonably acceptable to Landlord in the amount
of $19,209.65. Such letter of credit shall have an expiration date not
less than one (1) year from the date of issuance and, should Tenant fail
to deliver to Landlord a renewal thereof or a new letter of credit within
thirty (30) days prior to such expiration date, Landlord shall have the
right to draw down the entire letter of credit and retain the proceeds
thereof as a cash Security Deposit. The letter of credit shall permit
partial drawings thereunder and shall be payable upon presentation of a
sight draft and a certificate from Landlord under the terms of the Lease
to draw down the funds requested in such sight draft.
<p><strong>21. RIGHT TO NEGOTIATE LEASE OF ADDITIONAL SPACE</strong></p>
<p> 21.1 Grant of Right. During the Term of this Lease and provided
Tenant is not in material default under this Lease, Tenant shall have the
right to negotiate (the "Negotiation Right") to lease additional office
space in the Building as such space becomes available. This Negotiation
Right shall arise and may be exercised only in accordance with the terms
of this section.
<p> 21.2 Notice of Space Requirement. As Tenant requires additional
space, Tenant shall notify Landlord in writing of its additional space
requirements, which notice shall state the number of square feet required
by Tenant (the "Requirement Notice"). Tenant's Negotiation Right shall
become operative upon Landlord's receipt of Tenant's Requirement Notice;
provided, however, that such Negotiation Right shell be subject to any
preexisting options, rights of refusal or rights to negotiate contained
in leases with other tenants. For purposes hereof, a right of refusal or
right to negotiate in another lease shall be deemed to preexist Tenant's
Negotiation Right where the same became operative prior to the date
Tenant delivered its Requirement Notice for additional space as set forth
in a previously delivered Requirement Notice; and such subsequent Notice
shall serve to terminate any previous Requirement Notice and Tenant's
Negotiation Right.
<p> 27.3 Exercise of Negotiation Right. Where Tenant's Negotiation Right
is operative and not subject to any preexisting options, rights of
refusal or rights to negotiate in other leases, the following procedure
shall apply:
<p> (a) At such time as office space in the Building encompassing
a square footage equal to or greater than that specified in Tenant's
Requirement Notice is available for lease, Landlord shall give Tenant
notice thereof and shall specify in such notice the additional office
space which is available and the rent and other basic economic terms on
which Landlord is willing to lease such additional office space to Tenant
(the "Offer Notice"), The rent specified in the Offer Notice will be
equal to the then fair market rental value for comparable premises in the
Building.
<p> (b) Tenant shall have a period of five (5) business days
after receipt of the Offer Notice within which to notify Landlord in
writing of Tenant's exercise of the Negotiation Right. Should Tenant fail
to so notify Landlord within said five (5) business day period, Tenant's
Negotiation Right shall lapse and Landlord shall be free to deal with the
office space described in the Offer Notice without regard thereto.
<p> (c) if Tenant gives Landlord timely notice of Tenant's
exercise of the Negotiation Right (the "Exercise Notice"), Tenant shall
specify in its Exercise Notice (i) the amount of additional office space
Tenant desires to lease (which shall not be less than the amount stated
in Tenant's Requirement Notice), (ii) whether the rent and other basic
economic terms described in the Offer Notice are acceptable to Tenant
and, if not, the rent or other basic economic terms Tenant proposes in
their place, and (iii) any additional terms or conditions Tenant desires
with respect to the lease of such additional office space. Promptly
following Landlord's receipt of Tenant's Exercise Notice, the parties
shall meet to negotiate an amendment to this Lease to expand the Premises
to include the additional office space specified therein (the "Expansion
Amendment"). The Expansion Amendment shall incorporate the terms and
provisions of this Lease except insofar as the same are inconsistent with
the rent and other basic economic terms the parties have negotiated
pursuant to this section or are not reasonably applicable to such
expansion.
<p> (d) if the parties fail to mutually agree upon and execute a
definitive Expansion Amendment with in twenty (20) business days after
Tenant's delivery of the Exercise Notice, Tenant's Negotiation Right
shall lapse and Landlord shall be free to deal with the office space
described in Landlord's Offer Notice without regard thereto.
<p> 21.4 Limitation of Right. Nothing in this section shall be
construed to require Landlord to lease to Tenant any portion of any floor
in the Building which would leave Landlord with a remainder of such floor
that was not commercially and economically rentable to third parties.
<p><strong>22. TERMINATION OF EXISTING LEASE</strong></p>
<p>As of the Commencement Date, Landlord shall terminate the entire
existing direct lease between Landlord and Tenant for a portion of
Tenant's premises on the ninth (9th) floor of the Building dated December
15, 1992, the Amendment to Lease dated April 30, 1993, the Second
Amendment to Lease dated December 21, 1993, and the Third Amendment to
Lease dated February 16, 1994 (collectively, "Existing Lease"),
<P>
<TABLE COLS=2 WIDTH="90%">
<TR vAlign=bottom>
<TD>
<font size="3"><strong>
TENANT:
</font></strong>
</TD>
<TD>
<font size="3"><strong>
TENANT:
</font></strong>
</TD>
</TR>
<TR vAlign=bottom>
<TD>
<font size="3"><strong>
WATERGATE TOWER ASSOCIATES,
</font></strong>
</TD>
<TD>
<font size="3"><strong>
SCOPUS TECHNOLOGY, INC.,
</font></strong>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
a California limited
partnership
</font>
</TD>
<TD>
<font size="3">
a California
corporation
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
By: /s/ F.P. Lathrop, by Sandra L. Hyde
</font>
</TD>
<TD>
<font size="3">
By: /s/ S. Sasson
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
Its: General Partner/Attorney-in-Fact
</font>
</TD>
<TD>
<font size="3">
Its: Vice President, Operations
</font>
</TD>
</TR>
</TABLE>
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<p align="center"><strong> Exhibit A</strong></p>
<p align="center"><strong> Drawing of Floor Plan</strong></p>
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<p align="center"><strong> Exhibit B </strong></p>
<p align="center"><strong> Scope of Work</strong></p>
<p>1. Landlord shall be responsible, at its sole cost and expense, for
constructing certain tenant improvements ("Landlord's Work") in
accordance with the final plans and specifications ("Final Plans")
prepared by Carl Mehler & Associates dated as of August 9. 1994, with
general revisions dated August 15, 1994.
<p>2. Any Changes to Landlord's Work from the Final Plans ("Change Orders")
may be made only at Tenant's written request, approved by Landlord.
Tenant shall be responsible for any delay in the Substantial Completion
of Landlord's Work and any increase in the cost of Landlord's Work as a
result of such Change Orders.
<p>3. Tenant shall be responsible, at its sole cost and expense, for any
telephone and computer installation, including wiring, and for any other
tenant improvements not included in the Final Plans.
<P>
<TABLE COLS=2 WIDTH="90%">
<TR vAlign=bottom>
<TD>
<font size="3"><strong>
WATERGATE TOWER ASSOCIATES,
</font></strong>
</TD>
<TD>
<font size="3"><strong>
SCOPUS TECHNOLOGY, INC.,
</font></strong>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
a California limited
partnership
</font>
</TD>
<TD>
<font size="3">
a California
corporation
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
By: /s/ F.P. Lathrop, by Sandra L. Hyde
</font>
</TD>
<TD>
<font size="3">
By: /s/ S. Sasson
</font>
</TD>
</TR>
<TR vAlign=top>
<TD>
<font size="3">
Its: General Partner/Attorney-in-Fact
</font>
</TD>
<TD>
<font size="3">
Its: Vice President, Operations
</font>
</TD>
</TR>
</TABLE>
<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
</body>
</HTML>
Exhibit 10.12
<HTML>
<head>
<TITLE>Sobrato 2215</TITLE>
</head>
<body bgcolor=white>
<font FACE="Courier New" SIZE="2">
</font>
<B><FONT SIZE=4><P ALIGN="CENTER">BASIC LEASE INFORMATION</P>
<P ALIGN="CENTER">OFFICE GROSS</P>
</B></FONT><FONT SIZE=1><P ALIGN="CENTER"></P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=638>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>LEASE DATE:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>August 16, 1999</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>TENANT:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>SIEBEL SYSTEMS, INC., a Delaware corporation</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>TENANT'S NOTICE ADDRESS:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>1855 South Grant Street</P>
<P>San Mateo, California 94402</P>
<P>Attention: Ms. Linda Jansen,</P>
<P>Director of Facilities, Real Estate</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P> With a copy to:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>1855 South Grant Street</P>
<P>San Mateo, California 94402</P>
<P>Attention: Vice President, Legal Affairs</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>TENANT'S BILLING ADDRESS:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>1855 South Grant Street</P>
<P>San Mateo, California 94402</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=1><P>TENANT CONTACT:</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<FONT SIZE=1><P>Ms. Linda Jansen</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<B><FONT SIZE=1><P>PHONE NUMBER:</P>
<P>FAX NUMBER:</B></FONT></TD>
<TD WIDTH="35%" VALIGN="TOP">
<FONT SIZE=1><P>(650) 295-5511</P>
<P>(650) 295-5512</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>LANDLORD:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>Spieker Properties, L.P., a California limited
partnership</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>LANDLORD'S NOTICE ADDRESS:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>2200 Powell Street, Suite 325</P>
<P>Emeryville, California 94608</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>LANDLORD'S REMITTANCE ADDRESS:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>Spieker Properties</P>
<P>P.O. Box 45587</P>
<P>Department 11479</P>
<P>San Francisco, California 94145-0587</P>
<B></B></FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Project Description:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>Watergate Office Towers</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Building Description:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>2100 Powell Street, Emeryville, California, comprised of one 16-
story office building with approximately 328,000 rentable square feet and a 4-
level above-grade parking garage for approximately 915 vehicles, subject to
adjustment pursuant to Paragraph 39.I hereof</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Premises:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>Approximately two hundred twenty-five thousand (225,000)
rentable square feet (subject to adjustment pursuant to Paragraph 39.I hereof)
which shall include all of Floors 1-8, 14-16 and a portion of Floor 13, each as
described on <U>Exhibit B</U> attached hereto.</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Permitted Use:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>General office use and training and call center uses</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Occupancy Density:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>One occupant per 250 rentable square feet</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Parking Density and Parking Charge:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>Three (3) non-exclusive spaces per every 1,000 square feet of
useable area leased at initially $55.00 per space / per month. Parking permit
rate shall increase per Paragraph 37.</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Scheduled Term Commencement Date:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>March 1, 2001</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Scheduled Length of Term:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>144 months</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Scheduled Term Expiration Date:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>February 28, 2013</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Rent:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2><DIR>
<B><FONT SIZE=1><P>Monthly Base Rent:</DIR>
</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>See Paragraph 39.A hereof and subject to adjustment pursuant to
Paragraphs 39.H(7) and 39.I hereof</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2><DIR>
<B><FONT SIZE=1><P>Base Year for Operating Expenses:</DIR>
</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>2001</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Security Deposit:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>$3,000,000 Letter of Credit (subject to adjustment as provided
in Paragraph 39.H and Paragraph 19 hereof)</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P>Tenant's Proportionate Share:</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2><DIR>
<B><FONT SIZE=1><P>Of Building:</DIR>
</B></FONT></TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=1><P>Approximately 68.6%, subject to adjustment pursuant to Paragraph
39.I hereof</P>
</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="55%" VALIGN="TOP" COLSPAN=2> </TD>
</TR>
</TABLE>
<FONT SIZE=1><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">The foregoing Basic Lease Information is incorporated into
and made a part of this Lease. Each reference in this Lease to any of the Basic
Lease Information shall mean the respective information above and shall be
construed to incorporate all of the terms provided under the particular Lease
paragraph pertaining to such information. In the event of any conflict between
the Basic Lease Information and the Lease, the latter shall control.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=633>
<TR><TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=1><P>LANDLORD</B></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=1><P>TENANT</B></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"> </TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=1><P>Spieker Properties, L.P.,</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=1><P>Siebel Systems, Inc., a Delaware corporation</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=1><P>a California limited partnership</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"> </TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=1><P>By: Spieker Properties, Inc., </FONT></TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"><DIR>
<FONT SIZE=1><P>a Maryland corporation,</DIR>
</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=1><P>By: <U> </U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"><DIR>
<FONT SIZE=1><P>its general partner</DIR>
</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP"><DIR>
<FONT SIZE=1><P>Name:________________________________</DIR>
</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"> </TD>
<TD WIDTH="50%" VALIGN="TOP"><DIR>
<FONT SIZE=1><P>Its: __________________________________</DIR>
</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"> </TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"><DIR>
<FONT SIZE=1><P>By: <U> </DIR>
</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"><DIR>
<DIR>
<FONT SIZE=1><P>John R. Winther</DIR>
</DIR>
</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"><DIR>
<DIR>
<FONT SIZE=1><P>Its: Senior Vice President</DIR>
</DIR>
</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP"> </TD>
</TR>
</TABLE>
<B><FONT SIZE=4><P ALIGN="CENTER">TABLE OF CONTENTS</P>
<P ALIGN="CENTER"></P>
</B></FONT><FONT SIZE=1><P> <B>Page</P><DIR>
</B><P>Basic Lease Information 1</P>
<P>Table of Contents 2</P></DIR>
<OL>
<LI>Premises </FONT><A HREF="#Premises">*</A></LI>
<FONT SIZE=1><LI VALUE=2>Possession and Lease Commencement 4</LI>
<LI VALUE=3>Term </FONT><A HREF="#Term">*</A></LI>
<FONT SIZE=1><LI VALUE=4>Use </FONT><A HREF="#Use">*</A></LI>
<FONT SIZE=1><LI VALUE=5>Rules and Regulations </FONT><A
HREF="#Rules">*</A></LI>
<FONT SIZE=1><LI VALUE=6>Rent </FONT><A HREF="#Rent">*</A></LI>
<FONT SIZE=1><LI VALUE=7>Operating Expenses </FONT><A
HREF="#OperatingExpenses">*</A></LI>
<FONT SIZE=1><LI VALUE=8>Insurance and Indemnification </FONT><A
HREF="#Insurance">*</A></LI>
<FONT SIZE=1><LI VALUE=9>Waiver of Subrogation </FONT><A
HREF="#Waiver">*</A></LI>
<FONT SIZE=1><LI VALUE=10>Landlord's Repairs and Maintenance </FONT><A
HREF="#LandlordsRepairs">*</A></LI>
<FONT SIZE=1><LI VALUE=11>Tenant's Repairs and Maintenance </FONT><A
HREF="#TenantsRepairs">*</A></LI>
<FONT SIZE=1><LI VALUE=12>Alterations </FONT><A
HREF="#Alterations">*</A></LI>
<FONT SIZE=1><LI VALUE=13>Signs </FONT><A HREF="#Signs">*</A></LI>
<FONT SIZE=1><LI VALUE=14>Inspection/Posting Notices </FONT><A
HREF="#Inspection">*</A></LI>
<FONT SIZE=1><LI VALUE=15>Services and Utilities </FONT><A
HREF="#Utilities">*</A></LI>
<FONT SIZE=1><LI VALUE=16>Subordination </FONT><A
HREF="#Subordination">*</A></LI>
<FONT SIZE=1><LI VALUE=17>Financial Statements </FONT><A
HREF="#FinancialStatements">*</A></LI>
<FONT SIZE=1><LI VALUE=18>Estoppel Certificate </FONT><A
HREF="#Estoppel">*</A></LI>
<FONT SIZE=1><LI VALUE=19>Security Deposit </FONT><A
HREF="#SecurityDeposit">*</A></LI>
<FONT SIZE=1><LI VALUE=20>Limitation of Tenant's Remedies </FONT><A
HREF="#TenantsRemedies">*</A></LI>
<FONT SIZE=1><LI VALUE=21>Assignment and Subletting </FONT><A
HREF="#Assignment">*</A></LI>
<FONT SIZE=1><LI VALUE=22>Authority of Tenant </FONT><A
HREF="#Authority">*</A></LI>
<FONT SIZE=1><LI VALUE=23>Condemnation </FONT><A
HREF="#Condemnation">*</A></LI>
<FONT SIZE=1><LI VALUE=24>Casualty Damage </FONT><A
HREF="#Casualty">*</A></LI>
<FONT SIZE=1><LI VALUE=25>Holding Over </FONT><A
HREF="#HoldingOver">*</A></LI>
<FONT SIZE=1><LI VALUE=26>Default </FONT><A HREF="#Default">*</A></LI>
<FONT SIZE=1><LI VALUE=27>Liens </FONT><A HREF="#Liens">*</A></LI>
<FONT SIZE=1><LI VALUE=28>Substitution </FONT><A
HREF="#Substitution">*</A></LI>
<FONT SIZE=1><LI VALUE=29>Transfers by Landlord </FONT><A
HREF="#Transfers">*</A></LI>
<FONT SIZE=1><LI VALUE=30>Right of Landlord to Perform Tenant's
Covenants </FONT><A HREF="#RightOfLandlord">*</A></LI>
<FONT SIZE=1><LI VALUE=31>Waiver </FONT><A HREF="#Waiver2">*</A></LI>
<FONT SIZE=1><LI VALUE=32>Notices </FONT><A HREF="#Notices">*</A></LI>
<FONT SIZE=1><LI VALUE=33>Attorney's Fees </FONT><A
HREF="#AttorneysFees">*</A></LI>
<FONT SIZE=1><LI VALUE=34>Successors and Assigns </FONT><A
HREF="#Successors">*</A></LI>
<FONT SIZE=1><LI VALUE=35>Force Majeure </FONT><A
HREF="#ForceMajeure">*</A></LI>
<FONT SIZE=1><LI VALUE=36>Surrender of Premises </FONT><A
HREF="#Surrender">*</A></LI>
<FONT SIZE=1><LI VALUE=37>Parking </FONT><A HREF="#parknig">*</A></LI>
<FONT SIZE=1><LI VALUE=38>Miscellaneous </FONT><A
HREF="#Miscellaneous">*</A></LI>
<FONT SIZE=1><LI VALUE=39>Additional Provisions </FONT><A
HREF="#Additional">*</A></LI>
<FONT SIZE=1><LI VALUE=40>Jury Trial Waiver </FONT><A
HREF="#Jury">*</A></LI></OL>
<DIR>
<FONT SIZE=1><P>Signatures </FONT><A HREF="#Signatures">*</A></P>
<FONT SIZE=1>
<P> </P></DIR>
<P>Exhibits:</P><DIR>
<P>Exhibit A Rules and Regulations</P>
<P>Exhibit B Site Plan, Property Description</P>
<P>Exhibit C Lease Improvement Agreement</P>
<P>Exhibit D Signage</P>
<P> </P>
<P>Additional Exhibits as Required</P>
<P> </P>
<P> </P></DIR>
</FONT><B><FONT SIZE=5><P ALIGN="CENTER">LEASE</P>
</B></FONT><FONT SIZE=1><P ALIGN="JUSTIFY">THIS LEASE is made as of the
<U>____</U> day of August, 1999, by and between Spieker Properties, L.P., a
California limited partnership (hereinafter called "<B>Landlord</B>"),
and Siebel Systems, Inc., a Delaware corporation (hereinafter called
"<B>Tenant</B>").</P>
<B><P ALIGN="CENTER">1. PREMISES<A NAME="Premises"></A></P>
</B><P ALIGN="JUSTIFY">Landlord leases to Tenant and Tenant leases from
Landlord, upon the terms and conditions hereinafter set forth, those premises
(the "<B>Premises</B>") <U>as depicted</U> on <B>Exhibit B</B> and
described in the Basic Lease Information. The Premises shall<B> </B>be all or
part of a building (the "<B>Building</B>") and of a project (the
"<B>Project</B>"), which may consist of more than one building and
additional facilities, as described in the Basic Lease Information. The
Building and Project are <U>each depicted</U> on <B>Exhibit B.</B> Landlord and
Tenant acknowledge that physical changes may occur from time to time in the
Premises, Building or Project, and that the number of buildings and additional
facilities which constitute the Project may change from time to time, which may
result in an adjustment in Tenant's Proportionate Share, as defined in the Basic
Lease Information, as provided in Paragraph 7.A. <A NAME="Possession"></A></P>
<B><P ALIGN="CENTER">2. POSSESSION AND LEASE COMMENCEMENT</P>
<P ALIGN="JUSTIFY">A. <U>Intentionally Omitted.</P>
</U><P ALIGN="JUSTIFY">B. Construction of Improvements. </B>If this Lease
pertains to a Building to be constructed or improvements to be constructed
within a Building, the provisions of this Paragraph 2.B. shall apply in lieu of
the provisions of Paragraph 2.A. above and the term commencement date
("<B>Term Commencement Date</B>") shall be the <U>date on which
</U>the improvements to be constructed or performed in the Premises by Landlord
(if any) shall have been substantially completed in accordance with the plans
and specifications, if any, described on <B>Exhibit C</B> and Tenant's taking of
possession of the Premises or any part thereof shall constitute Tenant's
confirmation of substantial completion for all purposes hereof, whether or not
substantial completion of the Building or Project shall have occurred. If for
any reason Landlord cannot deliver possession of the Premises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder nor shall such failure
affect the validity of this Lease, and Tenant agrees to accept possession of the
Premises at such time as such improvements have been substantially completed,
which date shall then be deemed the Term Commencement Date. Tenant shall not be
liable for any Rent for any period prior to the Term Commencement Date (but
without affecting any obligations of Tenant under any improvement agreement
appended to this Lease). In the event of any dispute as to substantial
completion of work performed or required to be performed by Landlord, the
certificate of Landlord's architect shall be conclusive. Substantial completion
shall have occurred notwithstanding Tenant's submission of a punchlist to
Landlord, which Tenant shall submit, if at all, within <U>ten (10)</U> business
days after the Term Commencement Date or otherwise in accordance with any
improvement agreement appended to this Lease. Upon Landlord's request, Tenant
shall promptly execute and return to Landlord a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease, but Tenant's failure or refusal to do so shall not negate
Tenant's acceptance of the Premises or affect determination of the Term
Commencement Date.<U> Subject to Paragraph 35 hereof, Landlord shall use
commercially reasonable efforts to cause the Base Building Work (described in
Schedule 1 to <B>Exhibit C</B></U> <U>hereto) to be constructed in a first-class
and good and workmanlike manner and be substantially complete (as defined in
Schedule 1 to <B>Exhibit C</B>) on or before January 15, 2001. Provided that
the Base Building Work is substantially complete, Tenant shall have the right to
occupy the Premises on the date of such substantial completion with all terms
and conditions of this Lease in full force and effect, excluding payment of Base
Rent and Operating Expenses. In the event Tenant takes possession and occupies
the Premises in accordance with the previous sentence, Tenant's obligation to
pay Base Rent and Operating expenses shall not commence until forty-five (45)
following the date of substantial completion of the Base Building Work.
Notwithstanding the foregoing, Landlord shall not deliver, and Tenant shall not
be obligated to accept, possession of the Premises prior to January 15, 2001,
unless substantial completion of the Base Building Work has occurred and Tenant
takes possession and occupies the Premises for Tenant's ordinary business use,
in which event the terms of this Paragraph 2.B shall apply with respect to the
determination of the Term Commencement Date.</P>
</U><B><P ALIGN="CENTER">3. <A NAME="Term"></A>TERM</P>
</B><P ALIGN="JUSTIFY">The term of this Lease (the "<B>Term</B>")
shall commence on the Term Commencement Date and continue in full force and
effect for the number of months specified as the Length of Term in the Basic
Lease Information or until this Lease is terminated as otherwise provided
herein. If the Term Commencement Date is a date other than the first day of the
calendar month, the Term shall be the number of months of the Length of Term in
addition to the remainder of the calendar month following the Term Commencement
Date.<U> Tenant may terminate this Lease by delivering written notice to
Landlord on or before February 14, 2002 if (i) Landlord has not substantially
completed the Base Building Work (as defined in Schedule 1 to <B>Exhibit C</B>)
to be constructed by Landlord as described in <B>Exhibit C </B>to this
Lease by January 14, 2002; (ii) Tenant has given Landlord at least twenty (20)
days' prior written notice ("<B>Tenant's Termination Notice
Period</B>") of Landlord's failure to do so, except for punchlist items,
and except for delays caused by Tenant or Tenant's Parties (including delays
caused by the contractor or anyone else performing services on behalf of Tenant)
or by events beyond Landlord's control and other force majeure events,
including, but not limited to, strikes, material shortages, delays of
governmental agencies and Acts of God, which delays will not be cause for
termination hereunder; and (iii) Landlord has not, as of the expiration of
Tenant's Termination Notice Period, substantially completed the Base Building
Work and delivered possession of the Premises to Tenant. Tenant may terminate
this Lease by delivering written notice to Landlord on or before August 1, 2000
if (a) Landlord has not commenced construction of the Building by July 1, 2000,
(b) Tenant has given Landlord at least twenty (20) days' prior written notice of
Landlord's failure to do so, except for delays caused by Tenant or Tenant's
Parties (including delays caused by the contractor or anyone else performing
services on behalf of Tenant) or by events beyond Landlord's control and other
force majeure events, including, but not limited to, strikes, material
shortages, delays of governmental agencies and Acts of God, which delays will
not be cause for termination hereunder; and (c) Landlord has not, as of the
expiration of the aforementioned twenty (20) day period, commenced construction
of the Building. In the event of either such termination, Landlord shall return
any Security Deposit to Tenant as well as any other sums paid hereunder by
Tenant to Landlord. All obligations of Tenant and Landlord under this Lease
shall thereafter terminate and no party shall have any further obligations under
this Lease. Landlord and Tenant are parties to an existing lease (the
"<B>1900 Powell Street Lease</B>") covering certain premises in the
building located at 1900 Powell Street, Emeryville, California. In the event
that Landlord fails to deliver the Premises as provided in Paragraph 2 above
prior to the expiration of the 1900 Powell Street Lease due to a delay caused by
Landlord or Landlord's agents, invitees or employees, the 1900 Powell Street
Lease shall be extended on a month-to-month basis under the same terms and
conditions contained in the 1900 Powell Street Lease until Landlord delivers
possession of the Premises in accordance with this Lease, but in no event shall
the 1900 Powell Street Lease be extended beyond the termination of this
Lease.</P>
</U><B><P ALIGN="CENTER">4. <A NAME="Use"></A>USE</P>
<P ALIGN="JUSTIFY">A. General. </B>Tenant shall use the Premises for the
permitted use specified in the Basic Lease Information ("<B>Permitted
Use</B>") and for no other use or purpose. Tenant shall control Tenant's
employees, agents, customers, visitors, invitees, licensees, contractors,
assignees and subtenants (collectively, "<B>Tenant's Parties</B>") in
such a manner that Tenant and Tenant's Parties cumulatively do not exceed the
occupant density (the "<B>Occupancy Density</B>") or the parking
density (the "<B>Parking Density</B>") specified in the Basic Lease
Information at any time. Tenant shall pay the Parking Charge specified in the
Basic Lease Information as Additional Rent (as hereinafter defined) hereunder.
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall
have the nonexclusive right to use, in common with other parties occupying the
Building or Project, the parking areas, driveways and other common areas of the
Building and Project, subject to the terms of this Lease and such rules and
regulations as Landlord may from time to time prescribe. Landlord reserves the
right, without notice or liability to Tenant, and without the same constituting
an actual or constructive eviction, to alter or modify the common areas from
time to time, including the location and configuration thereof, and the
amenities and facilities which Landlord may determine to provide from time to
time<U>, provided that any such alteration or modification of the common areas
shall not materially and adversely interfere with Tenant's Permitted Use
hereunder</U>.</P>
<B><P ALIGN="JUSTIFY">B. Limitations. </B>Tenant shall not permit any odors,
smoke, dust, gas, substances, noise or vibrations to emanate from the Premises
or from any portion of the common areas as a result of Tenant's or any Tenant's
Party's use thereof, nor take any action which would constitute a nuisance or
would disturb, obstruct or endanger any other tenants or occupants of the
Building or Project or elsewhere, or interfere with their use of their
respective premises or common areas. Storage outside the Premises of materials,
vehicles or any other items is prohibited. Tenant shall not use or allow the
Premises to be used for any immoral, improper or unlawful purpose, nor shall
Tenant cause or maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer the commission of any waste in, on or about
the Premises. Tenant shall not allow any sale by auction upon the Premises, or
place any loads upon the floors, walls or ceilings which could endanger the
structure, or place any harmful substances in the drainage system of the
Building or Project. No waste, materials or refuse shall be dumped upon or
permitted to remain outside the Premises. Landlord shall not be responsible to
Tenant for the non-compliance by any other tenant or occupant of the Building or
Project with any of the above-referenced rules or any other terms or provisions
of such tenant's or occupant's lease or other contract.</P>
<B><P ALIGN="JUSTIFY">C. Compliance with Regulations. </B>By entering the
Premises <U>following substantial completion of the Base Building Work</U>,
Tenant accepts the Premises in the condition existing as of the date of such
entry<U>, subject to the correction of any punchlist items</U>. Tenant shall at
its sole cost and expense strictly comply with all existing or future applicable
municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenant's use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) <U>by Tenant or any of Tenant's Parties</U>
(collectively "<B>Regulations</B>"). Tenant shall at its sole cost
and expense obtain any and all licenses or permits necessary for Tenant's use of
the Premises. Tenant shall at its sole cost and expense promptly comply with
the requirements of any board of fire underwriters or other similar body now or
hereafter constituted. Tenant shall not do or permit anything to be done in,
on, under or about the Project or bring or keep anything which will in any way
increase the rate of any insurance upon the Premises, Building or Project or
upon any contents therein or cause a cancellation of said insurance or otherwise
affect said insurance in any manner. Tenant shall indemnify, defend (by counsel
reasonably acceptable to Landlord), protect and hold Landlord harmless from and
against any loss, cost, expense, damage, attorneys' fees or liability arising
out of the failure of Tenant to comply with any Regulation. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease.<U> Landlord shall be responsible for
complying with Regulations (other than the ADA) pertaining to the common areas
of the Project prior to and except to the extent arising out of (1) Tenant's
occupancy or use of the Premises or common areas, or (2) construction of any
Tenant Improvements or Alterations made by or on behalf of Tenant, whether by
Landlord or otherwise, and performed after the Term Commencement Date, or (3)
installation of any equipment, fixtures, furniture or other personal property in
or about the Premises. Tenant shall have the sole responsibility for complying,
at Tenant's cost, with any and all provisions of the Americans with Disabilities
Act of 1990, as it has been and may later be amended ("<B>ADA</B>"),
(i) with respect to the Premises; and (ii) with respect to the common areas of
the Project where in the case of this clause (ii) such compliance has been
brought about by: (A) any Tenant Improvements or Alterations to the Premises or
to the common areas made by or on behalf of Tenant, whether by Landlord or
otherwise, and performed after the Term Commencement Date; (B) requirements of
Tenant's employees, or any changes to Tenant's use of the Premises; or (C) any
architectural barriers caused by Tenant's installation of any equipment,
fixtures, furniture, or other personal property in or about the Premises (items
(i) and (ii) collectively, "<B>Tenant's ADA Responsibilities</B>").
Tenant shall indemnify, defend and hold Landlord, its agents and employees
harmless from and against any and all claims, damages, or liabilities
(including, without limitation, reasonable attorneys' fees and costs) arising
directly or indirectly from Tenant's failure to satisfy any of Tenant's ADA
Responsibilities. Landlord shall indemnify, defend and hold Tenant, its agents
and employees harmless from and against any and all claims, damages or
liabilities arising directly or indirectly from Landlord's failure to comply
with any obligations of a landlord under the ADA, other than such claims,
damages or liabilities arising from Tenant's failure to satisfy any of Tenant's
ADA Responsibilities; provided, however, that Landlord may treat costs of ADA
compliance with respect to the common areas of the Project to the extent
incurred after the Term Commencement Date as an Operating Expense in accordance
with Paragraph 7 hereof. Landlord represents that, as of the date Landlord
delivers possession of the Premises to Tenant, to the best of Landlord's actual
knowledge, the Base Building Work shall comply in all material respects with
each of: (x) the ADA, and (y) Regulations, as the ADA and Regulations have each
been interpreted in Alameda County and as each of the ADA and Regulations
pertain to the Base Building Work. Any costs incurred by Landlord to comply
with ADA and Regulations solely as described in the foregoing sentence shall not
be an Operating Expense as defined herein.</U> </P>
<B><P ALIGN="JUSTIFY">D. Hazardous Materials. </B>As used in this Lease,
"<B>Hazardous Materials</B>" shall include, but not be limited to,
hazardous, toxic and radioactive materials and those substances defined as
"hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar
designations in any Regulation. Tenant shall not cause, or allow any of
Tenant's Parties to cause, any Hazardous Materials to be handled, used,
generated, stored, released or disposed of in, on, under or about the Premises,
the Building or the Project or surrounding land or environment in violation of
any Regulations. Tenant must obtain Landlord's written consent prior to the
introduction of any Hazardous Materials onto the Project. Notwithstanding the
foregoing, Tenant may handle, store, use and dispose of products containing
small quantities of Hazardous Materials for "general office purposes"
(such as toner for copiers) to the extent customary and necessary for the
Permitted Use of the Premises; provided that Tenant shall always handle, store,
use, and dispose of any such Hazardous Materials in a safe and lawful manner and
never allow such Hazardous Materials to contaminate the Premises, Building, or
Project or surrounding land or environment. Tenant <U>and Landlord</U> shall
<U>each</U> immediately notify <U>the other</U> in writing of any Hazardous
Materials' contamination of any portion of the Project of which <U>the notifying
party</U> becomes aware, whether or not caused by <U>such party</U>. Landlord
shall have the right at all reasonable times to inspect the Premises and to
conduct tests and investigations to determine whether Tenant is in compliance
with the foregoing provisions, the costs of all such inspections, tests and
investigations to be borne by <U>Landlord, unless Landlord reasonably believes
Tenant or any of Tenant's Parties has violated this Paragraph 4.D. or any
Regulation, in which event such costs shall be borne solely by</U> Tenant.
Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord),
protect and hold Landlord harmless from and against any and all claims,
liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses
(including attorneys' and consultants' fees and court costs), demands, causes of
action, or judgments directly or indirectly arising out of or related to the
use, generation, storage, release, or disposal of Hazardous Materials by Tenant
or any of Tenant's Parties in, on, under or about the Premises, the Building or
the Project or surrounding land or environment, which indemnity shall include,
without limitation, damages for personal or bodily injury, property damage,
damage to the environment or natural resources occurring on or off the Premises,
losses attributable to diminution in value or adverse effects on marketability,
the cost of any investigation, monitoring, government oversight, repair,
removal, remediation, restoration, abatement, and disposal, and the preparation
of any closure or other required plans, whether such action is required or
necessary prior to or following the expiration or earlier termination of this
Lease. Neither the consent by Landlord to the use, generation, storage, release
or disposal of Hazardous Materials nor the strict compliance by Tenant with all
laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's
obligation of indemnification pursuant to this Paragraph 4.D. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease.<U> Landlord shall indemnify, defend and hold
Tenant harmless from and against any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses, including without limitation
reasonable attorneys' fees and costs arising out of any Hazardous Material in,
on or about the Project or the Premises which was created, handled, placed,
stored, used, transported or disposed of by Landlord or by Landlord's agents,
employees or representatives, excluding, however, any Hazardous Material, whose
presence was caused by Tenant or any Tenant's Parties. In the event Tenant or
any Tenant Party violates this Paragraph 4.D, or in any way is not compliant
with any Regulation concerning Hazardous Materials, and Tenant fails to
immediately and adequately, as determined by Landlord, commence and prosecute a
cure, Landlord has the option, but not the obligation, to immediately commence a
cure on Tenant's behalf. Landlord may take such actions without any obligation
and without releasing Tenant from any of Tenant's obligations. All sums so paid
by Landlord and all incidental costs incurred by Landlord and interest thereon
at the Applicable Interest Rate, from the date of payment by Landlord, shall be
paid to Landlord on demand as Additional Rent.</P>
</U><B><P ALIGN="CENTER">5. <A NAME="Rules"></A>RULES AND REGULATIONS</P>
</B><P ALIGN="JUSTIFY">Tenant shall faithfully observe and comply with the
building rules and regulations attached hereto as <B>Exhibit A</B> and any other
<U>reasonable</U> rules and regulations and any modifications or additions
thereto which Landlord may from time to time prescribe in writing for the
purpose of maintaining the proper care, cleanliness, safety, traffic flow and
general order of the Premises or the Building or Project<U>, and provided that
such reasonable rules and regulations shall not materially adversely affect
Tenant's use of the Premises as provided hereunder. Landlord shall apply such
rules and regulations in a nondiscriminatory manner</U>. Tenant shall cause
Tenant's Parties to comply with such rules and regulations. Landlord shall not
be responsible to Tenant for the non-compliance by any other tenant or occupant
of the Building or Project with any of such rules and regulations, any other
tenant's or occupant's lease or any Regulations.<U> In the event that a
conflict exists between this Lease and Exhibit A, the terms of this Lease shall
control.</P>
</U><B><P ALIGN="CENTER">6. <A NAME="Rent"></A>RENT</P>
<P ALIGN="JUSTIFY">A. Base Rent. </B>Tenant shall pay to Landlord and
Landlord shall receive, without notice or demand throughout the Term, Base Rent
as specified in the Basic Lease Information, payable in monthly installments in
advance on or before the first day of each calendar month, in lawful money of
the United States, without deduction or offset whatsoever, at the Remittance
Address specified in the Basic Lease Information or to such other place as
Landlord may from time to time designate in writing. Base Rent for the first
full month of the Term <U>for which Base Rent is due and payable pursuant to the
terms of this Lease</U> shall be paid by Tenant upon Tenant's execution of this
Lease. If the obligation for payment of Base Rent commences on a day other than
the first day of a month, then Base Rent shall be prorated and the prorated
installment shall be paid on the first day of the calendar month next succeeding
the Term Commencement Date. The Base Rent payable by Tenant hereunder is
subject to adjustment as provided elsewhere in this Lease, as applicable. As
used herein, the term "Base Rent" shall mean the Base Rent specified
in the Basic Lease Information as it may be so adjusted from time to time.</P>
<B><P ALIGN="JUSTIFY">B. Additional Rent. </B>All monies other than Base
Rent required to be paid by Tenant hereunder, including, but not limited to,
Tenant's Proportionate Share of Operating Expenses, as specified in Paragraph 7
of this Lease, charges to be paid by Tenant under Paragraph 15, the interest and
late charge described in Paragraphs 26.C. and D., and any monies spent by
Landlord pursuant to Paragraph <STRIKE>30</STRIKE> <U>29</U>, shall be
considered additional rent ("<B>Additional Rent</B>").
"<B>Rent</B>" shall mean Base Rent and Additional Rent.</P>
<B><P ALIGN="CENTER">7. <A NAME="OperatingExpenses"></A>OPERATING
EXPENSES</P>
<P ALIGN="JUSTIFY">A. Operating Expenses. </B>In addition to the Base Rent
required to be paid hereunder, beginning with the expiration of the Base Year
specified in the Basic Lease Information (the "<B>Base Year</B>"),
Tenant shall pay as Additional Rent, Tenant's Proportionate Share of the
Building and/or Project (as applicable), as defined in the Basic Lease
Information, of increases in Operating Expenses (defined below) over the
Operating Expenses incurred by Landlord during the Base Year (the "<B>Base
Year Operating Expenses</B>"), in the manner set forth below. Tenant shall
pay the applicable Tenant's Proportionate Share of each such Operating Expenses.
Landlord and Tenant acknowledge that if the number of buildings which constitute
the Project increases or decreases, or if physical changes are made to the
Premises, Building or Project or the configuration of any thereof, Landlord may
at its discretion reasonably adjust Tenant's Proportionate Share of the Building
or Project to reflect the change. Landlord's determination of Tenant's
Proportionate Share of the Building and of the Project shall be conclusive so
long as it is reasonably and consistently applied.<U> Operating Expenses shall
be reasonably allocated by Landlord to the tenants of the Building and the
Project.</U> "<B>Operating Expenses</B>" shall mean all expenses and
costs of every kind and nature which Landlord shall pay or become obligated to
pay, because of or in connection with the ownership, management, maintenance,
repair, preservation, replacement and operation of the Building or Project and
its supporting facilities and such additional facilities now and in subsequent
years as may be determined by Landlord to be necessary or desirable to the
Building and/or Project (as determined in a reasonable manner) other than those
expenses and costs which are specifically attributable to Tenant or which are
expressly made the financial responsibility of Landlord or specific tenants of
the Building or Project pursuant to this Lease. Operating Expenses shall
include, but are not limited to, the following:</P><DIR>
<DIR>
<B><P ALIGN="JUSTIFY">(1) Taxes. </B>All real property taxes and
assessments, possessory interest taxes, sales taxes, personal property taxes,
business or license taxes or fees, gross receipts taxes, service payments in
lieu of such taxes or fees, annual or periodic license or use fees, excises,
transit charges, and other impositions, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind (including fees
"in-lieu" of any such tax or assessment) which are now or hereafter
assessed, levied, charged, confirmed, or imposed by any public authority upon
the Building or Project, its operations or the Rent (or any portion or component
thereof), or any tax, assessment or fee imposed in substitution, partially or
totally, of any of the above. Operating Expenses shall also include any taxes,
assessments, reassessments, or other fees or impositions with respect to the
development, leasing, management, maintenance, alteration, repair, use or
occupancy of the Premises, Building or Project or any portion thereof,
including, without limitation, by or for Tenant, and all increases therein or
reassessments thereof whether the increases or reassessments result from
increased rate and/or valuation (whether upon a transfer of the Building or
Project or any portion thereof or any interest therein or for any other reason).
Operating Expenses shall not include inheritance or estate taxes imposed upon or
assessed against the interest of any person in the Project, or taxes computed
upon the basis of the net income of any owners of any interest in the Project.
If it shall not be lawful for Tenant to reimburse Landlord for all or any part
of such taxes, the monthly rental payable to Landlord under this Lease shall be
revised to net Landlord the same net rental after imposition of any such taxes
by Landlord as would have been payable to Landlord prior to the payment of any
such taxes.</P>
<B><P ALIGN="JUSTIFY">(2) Insurance. </B>All insurance premiums and costs,
including, but not limited to, any deductible amounts, premiums and other costs
of insurance incurred by Landlord, including for the insurance coverage set
forth in Paragraph 8.A. herein.</P>
<B><P ALIGN="JUSTIFY">(3) Common Area Maintenance.</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">(a) </B>Repairs, replacements, and general maintenance of
and for the Building and Project and public and common areas and facilities of
and comprising the Building and Project, including, but not limited to, the roof
and roof membrane, windows, elevators, restrooms, conference rooms, health club
facilities, lobbies, mezzanines, balconies, mechanical rooms, building
exteriors, alarm systems, pest extermination, landscaped areas, parking and
service areas, driveways, sidewalks, loading areas, fire sprinkler systems,
sanitary and storm sewer lines, utility services, heating/ventilation/air
conditioning systems, electrical, mechanical or other systems, telephone
equipment and wiring servicing, plumbing, lighting, and any other items or areas
which affect the operation or appearance of the Building or Project, which
determination shall be at Landlord's discretion, except for: those items to the
extent paid for by the proceeds of insurance; and those items attributable
solely or jointly to specific tenants of the Building or Project.</P>
<B><P ALIGN="JUSTIFY">(b) </B>Repairs, replacements, and general maintenance
shall include the cost of any improvements made to or <U>capital</U> assets
acquired for the Project or Building that in Landlord's discretion may reduce
any other Operating Expenses, including present or future repair work, are
reasonably necessary for the health and safety of the occupants of the Building
or Project, or to ensure continuing operation of the Building systems, services
and equipment, or are required to comply with any Regulation, such costs or
allocable portions thereof to be amortized <U>substantially in accordance with
generally accepted accounting principles and</U> over such reasonable period as
Landlord shall determine, together with interest on the unamortized balance at
the publicly announced "prime rate" charged by Wells Fargo Bank, N.A.
(San Francisco) or its successor at the time such improvements or capital assets
are constructed or acquired, plus two (2) percentage points, or in the absence
of such prime rate, then at the U.S. Treasury six-month market note (or bond, if
so designated) rate as published by any national financial publication selected
by Landlord, plus four (4) percentage points, but in no event more than the
maximum rate permitted by law, plus reasonable financing charges.</P>
<B><P ALIGN="JUSTIFY">(c) </B>Payment under or for any easement, license,
permit, operating agreement, declaration, restrictive covenant or instrument
relating to the Building or Project.</P>
<B><P ALIGN="JUSTIFY">(d) </B>All expenses and rental related to services and
costs of supplies, materials and equipment used in operating, managing and
maintaining the Premises, Building and Project, the equipment therein and the
adjacent sidewalks, driveways, parking and service areas, including, without
limitation, expenses related to service agreements regarding security, fire and
other alarm systems, janitorial services, window cleaning, elevator maintenance,
Building exterior maintenance, landscaping and expenses related to the
administration, management and operation of the Project, including without
limitation salaries, wages and benefits and management office rent.</P>
<B><P ALIGN="JUSTIFY">(e) </B>The cost of supplying any services and
utilities which benefit all or a portion of the Premises, Building or Project,
including without limitation services and utilities provided pursuant to
Paragraph 15 hereof.</P>
<B><P ALIGN="JUSTIFY">(f) </B>Legal expenses and the cost of audits by
certified public accountants; provided, however, that legal expenses chargeable
as Operating Expenses shall not include the cost of negotiating leases,
collecting rents, evicting tenants nor shall it include costs incurred in legal
proceedings with or against any tenant or to enforce the provisions of any
lease.</P>
<B><P ALIGN="JUSTIFY">(g) </B>A management and accounting cost recovery fee
<STRIKE>equal</STRIKE> <U>not</U> to <U>exceed</U> five percent (5%) of the sum
of the Project's base rents and Operating Expenses to the extent not included in
such base rents (other than such management and accounting fee).</P></DIR>
</DIR>
</DIR>
</DIR>
<P ALIGN="JUSTIFY">If the rentable area of the Building and/or Project is not
fully occupied during any fiscal year of the Term <U>(including any calendar
year(s) falling within the Base Year), then an adjustment shall be made </U>in
computing the Operating Expenses for such year so that Tenant pays an equitable
portion of all variable items (e.g., utilities, janitorial services and other
component expenses that are affected by variations in occupancy levels) of
Operating Expenses, as reasonably determined by Landlord<U>, as if one hundred
percent (100%) of the rentable area of the Building and/or Project had been one
hundred percent (100%) occupied for the entirety of such calendar year</U>;
provided, however, that in no event shall Landlord be entitled to collect in
excess of one hundred percent (100%) of the total Operating Expenses from all of
the tenants in the Building or Project, as the case may be.</FONT><FONT SIZE=2>
</P>
</FONT><FONT SIZE=1><P ALIGN="JUSTIFY">Operating Expenses shall not include the
cost of providing tenant improvements or other specific costs incurred for the
account of, separately billed to and paid by specific tenants of the Building or
Project, the initial construction cost of the Building, or debt service on any
mortgage or deed of trust recorded with respect to the Project other than
pursuant to Paragraph 7.A.(3)(b) above. Notwithstanding anything herein to the
contrary, in any instance wherein Landlord, in Landlord's <U>reasonable</U>
discretion, deems Tenant to be responsible for any amounts greater than Tenant's
Proportionate Share, Landlord shall have the right to allocate costs in any
<U>equitable</U> manner Landlord <U>reasonably</U> deems appropriate.</P>
<P ALIGN="JUSTIFY">The above enumeration of services and facilities shall not be
deemed to impose an obligation on Landlord to make available or provide such
services or facilities except to the extent if any that Landlord has
specifically agreed elsewhere in this Lease to make the same available or
provide the same. Without limiting the generality of the foregoing, Tenant
acknowledges and agrees that it shall be responsible for providing adequate
security for its use of the Premises, the Building and the Project and that
Landlord shall have no obligation or liability with respect thereto, except to
the extent if any that Landlord has specifically agreed elsewhere in this Lease
to provide the same.</P>
<U><P>Notwithstanding anything in the definition of Operating Expenses in this
Lease to the contrary, Operating Expenses shall not include the following,
except to the extent specifically provided:</P>
<OL TYPE="i">
<DIR>
<DIR>
<OL TYPE="i">
<LI>Any ground lease rental;</LI>
<LI VALUE=2>Costs of capital improvements, replacements or equipment and any
depreciation or amortization expenses thereon, except as specifically set forth
in the definition of Operating Expenses in Paragraph 7.A of the Lease;</LI>
<LI VALUE=3>Rentals for items (except when needed in connection with normal
repairs and maintenance of permanent systems) which if purchased, rather than
rented, would constitute a capital improvement which is specifically excluded in
Subsection (ii) above (excluding, however, equipment not affixed to the Building
or Project which is used in providing janitorial or similar services);</LI>
<LI VALUE=4>Costs incurred by Landlord for the repair of damage to the Building
or Project, to the extent that Landlord is reimbursed by insurance
proceeds;</LI>
<LI VALUE=5>Costs, including permit, license and inspection costs, incurred with
respect to the installation of tenant or other occupant improvements made for
tenants or other occupants in the Building or the Project or incurred in
renovating or otherwise improving, decorating, painting or redecorating vacant
space for or the premises of other tenants or other occupants of the
Building;</LI>
<LI VALUE=6>Marketing costs, including leasing commissions, attorneys' fees in
connection with the negotiation and preparation of letters, deal memos, letters
of intent, leases, subleases and/or assignments, space planning costs, and other
costs and expenses incurred in connection with lease, sublease and/or assignment
negotiations and transactions with present or prospective tenants or other
occupants of the Building or the Project;</LI>
<LI VALUE=7>Costs incurred by Landlord due to the violation by Landlord of the
terms and conditions of any lease of space in the Building or the Project;</LI>
<LI VALUE=8>Interest, principal, points and fees on debt or amortization
payments on any mortgage or deed of trust or any other debt instrument
encumbering the Building or Project or the land on which the Building or Project
is situated;</LI>
<LI VALUE=9>Except for making repairs or keeping permanent systems in operation
while repairs are being made, rentals and other related expenses incurred in
leasing air conditioning systems, elevators or other equipment ordinarily
considered to be of a capital nature, except equipment not affixed to the
Building or Project which is used in providing janitorial or similar
services;</LI>
<LI VALUE=10>Advertising and promotional expenditures (except for retail
property promotions);</LI>
<LI VALUE=11>Costs incurred in connection with upgrading the Building or Project
to comply with disability, life, fire and safety codes in effect prior to the
issuance of the temporary certificate of occupancy for the Building;</LI>
<LI VALUE=12>Interest, fines or penalties incurred as a result of Landlord's
failure to make payments when due unless such failure is commercially reasonable
under the circumstances;</LI>
<LI VALUE=13>Costs arising from Landlord's charitable or political
contributions; </LI>
<LI VALUE=14>Costs for acquisition of sculpture, paintings or other objects of
art in common areas;</LI>
<LI VALUE=15>The depreciation of the Building and other real property structures
in the Project;</LI>
<LI VALUE=16>Landlord's general corporate overhead and general administrative
expenses not related to the operation of the Building or the Project, except as
specifically set forth in Paragraph 7.A of this lease; </LI>
<LI VALUE=17>Any bad debt loss, rent loss or reserves for bad debts or rent
loss, or reserves for equipment or capital replacement; </LI>
<LI VALUE=18>Costs to correct defects in construction and design materials or
workmanship in the Building or Project during the term of this Lease; </LI>
<LI VALUE=19>Costs in connection with Landlord's express financial obligation to
comply with Regulations (other than ADA) described in Paragraph 4 of this Lease;
</LI>
<LI VALUE=20>Costs of the premiums for earthquake insurance in excess of costs
which are commercially reasonable; </LI>
<LI VALUE=21>Costs for senior executive wages, salaries or other
compensation;</LI>
<LI VALUE=22>Costs of capital improvements made to specific buildings in the
Project which buildings are not occupied by Tenant; </LI>
<LI VALUE=23>Costs of capital improvements made to the parking structure (the
"<B>West Parking Structure</B>") existing prior to the date of this
Lease and located on the western portion of the Project adjacent to 2200 Powell
Street, but only to the extent Tenant does not utilize the West Parking
Structure; and</LI>
<LI VALUE=24>Costs incurred by Landlord in connection with compliance with ADA
and Regulations but only to the extent expressly excluded from Operating
Expenses in Paragraph 4.C of this Lease.</LI></OL>
</DIR>
</DIR>
</OL>
</U><B><P ALIGN="JUSTIFY">B. Payment of Estimated Operating Expenses.
</B>"<B>Estimated Operating Expenses</B>" for any particular year
shall mean Landlord's estimate of the Operating Expenses for such fiscal year
made with respect to such fiscal year as hereinafter provided. Landlord shall
have the right from time to time to revise its fiscal year and interim
accounting periods so long as the periods as so revised are reconciled with
prior periods in a reasonable manner. During the last month of each fiscal year
during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the difference between
Estimated Operating Expenses and Base Year Operating Expenses with installments
of Base Rent for the fiscal year to which the Estimated Operating Expenses
applies in monthly installments on the first day of each calendar month during
such year, in advance. Such payment shall be construed to be Additional Rent
for all purposes hereunder. If at any time during the course of the fiscal
year, Landlord determines that Operating Expenses are projected to vary from the
then Estimated Operating Expenses by more than five percent (5%), Landlord may,
by written notice to Tenant, revise the Estimated Operating Expenses for the
balance of such fiscal year, and Tenant's monthly installments for the remainder
of such year shall be adjusted so that by the end of such fiscal year Tenant has
paid to Landlord Tenant's Proportionate Share of the revised difference between
Estimated Operating Expenses and Base Year Operating Expenses for such year,
such revised installment amounts to be Additional Rent for all purposes
hereunder.<U> Within a reasonable time following Tenant's written request, but
in no event more than one (1) time during a twelve (12) month period, Landlord
shall deliver to Tenant a reasonably detailed summary statement which itemizes
Landlord's calculation of Operating Expenses.</P>
</U><B><P ALIGN="JUSTIFY">C. Computation of Operating Expense Adjustment.
</B>"<B>Operating Expense Adjustment</B>" shall mean the difference
between Estimated Operating Expenses and actual Operating Expenses for any
fiscal year, over Base Year Operating Expenses, determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each fiscal
year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a
statement of actual Operating Expenses for the fiscal year just ended,
accompanied by a computation of Operating Expense Adjustment. If such statement
shows that Tenant's payment based upon Estimated Operating Expenses is less than
Tenant's Proportionate Share of actual increases in Operating Expenses over the
Base Year Operating Expenses, then Tenant shall pay to Landlord the difference
within t<U>hirty (30)</U> days after receipt of such statement, such payment to
constitute Additional Rent for all purposes hereunder. If such statement shows
that Tenant's payments of Estimated Operating Expenses exceed Tenant's
Proportionate Share of actual increases in Operating Expenses over the Base Year
Operating Expenses, then (provided that Tenant is not in default under this
Lease) Landlord shall pay to Tenant the difference within <U>thirty (30)</U>
days after delivery of such statement to Tenant. If this Lease has been
terminated or the Term hereof has expired prior to the date of such statement,
then the Operating Expense Adjustment shall be paid by the appropriate party
within <U>thirty (30)</U> days after the date of delivery of the statement.
Tenant's obligation to pay increases in Operating Expenses over the Base Year
Operating Expenses shall commence on January 1 of the year succeeding the Base
Year. Should this Lease terminate at any time other than the last day of the
fiscal year, Tenant's Proportionate Share of the Operating Expense Adjustment
shall be prorated based on a month of 30 days and the number of calendar months
during such fiscal year that this Lease is in effect. Tenant shall in no event
be entitled to any credit if Operating Expenses in any year are less than Base
Year Operating Expenses. Notwithstanding anything to the contrary contained in
Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements
within the time periods specified in those paragraphs shall in no way excuse
Tenant from its obligation to pay Tenant's Proportionate Share of increases in
Operating Expenses.</P>
<B><P ALIGN="JUSTIFY">D. Gross Lease. </B>This shall be a gross Lease;
however, it is intended that Base Rent shall be paid to Landlord absolutely net
of all costs and expenses other than Operating Expenses each year equal to
Tenant's Proportionate Share of Base Year Operating Expenses, except as
otherwise specifically provided to the contrary in this Lease. The provisions
for payment of increases in Operating Expenses and the Operating Expense
Adjustment are intended to pass on to Tenant and reimburse Landlord for all
costs and expenses of the nature described in Paragraph 7.A. incurred in
connection with the ownership, management, maintenance, repair, preservation,
replacement and operation of the Building and/or Project and its supporting
facilities and such additional facilities, in excess of the Base Year Operating
Expenses, now and in subsequent years as may be determined by Landlord to be
necessary or desirable to the Building and/or Project.</P>
<B><P ALIGN="JUSTIFY">E. Tenant Audit. </B>If Tenant shall dispute the
amount set forth in any statement provided by Landlord under Paragraph 7.B. or
7.C. above, Tenant shall have the right, not later than <STRIKE>twenty
(20)</STRIKE> <U>sixty (60)</U> days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full amount
in dispute, to cause Landlord's books and records with respect to Operating
Expenses for such fiscal year to be audited by certified public accountants
selected by Tenant and subject to Landlord's reasonable right of approval. The
Operating Expense Adjustment shall be appropriately adjusted on the basis of
such audit. If such audit discloses a liability for a refund in excess of
<STRIKE>ten</STRIKE> <U>five</U> percent <STRIKE>(10%)</STRIKE><U>(5%)</U> of
Tenant's Proportionate Share of the Operating Expenses previously reported, the
cost of such audit shall be borne by Landlord; otherwise the cost of such audit
shall be paid by Tenant <U>within thirty (30) days following completion of the
audit</U>. If Tenant shall not request an audit in accordance with the
provisions of this Paragraph 7.E. within <STRIKE>twenty (20)</STRIKE> <U>sixty
(60)</U> days after receipt of Landlord's statement provided pursuant to
Paragraph 7.B. or 7.C., such statement shall be final and binding for all
purposes hereof. Tenant acknowledges and agrees that any information revealed
in the above described audit may contain proprietary and sensitive information
and that significant damage could result to Landlord if such information were
disclosed to any party other than Tenant's auditors. Tenant shall not in any
manner disclose, provide or make available any information revealed by the audit
to any person or entity without Landlord's prior written consent, which consent
may be withheld by Landlord in its sole and absolute discretion. The
information disclosed by the audit will be used by Tenant solely for the purpose
of evaluating Landlord's books and records in connection with this Paragraph
7.E.</P>
<B><P ALIGN="CENTER">8. <A NAME="Insurance"></A>INSURANCE AND
INDEMNIFICATION</P>
<P ALIGN="JUSTIFY">A. Landlord's Insurance. </B>All insurance maintained by
Landlord shall be for the sole benefit of Landlord and under Landlord's sole
control.</P><DIR>
<DIR>
<B><P ALIGN="JUSTIFY">(1) Property Insurance.</B> Landlord agrees to
maintain property insurance insuring the Building against damage or destruction
due to risk including fire, vandalism, and malicious mischief in an amount not
less than the replacement cost thereof, in the form and with deductibles and
endorsements as selected by Landlord. At its election, Landlord may instead
(but shall have no obligation to) obtain "All Risk" coverage, and may
also obtain earthquake, pollution, and/or flood insurance in amounts selected by
Landlord<U>, so long as such coverage is available at commercially reasonable
rates</U>.</P>
<B><P ALIGN="JUSTIFY">(2) Optional Insurance.</B> Landlord, at Landlord's
option, may also (but shall have no obligation to) carry insurance against loss
of rent, in an amount equal to the amount of Base Rent and Additional Rent that
Landlord could be required to abate to all Building tenants in the event of
condemnation or casualty damage for a period of twelve (12) months. Landlord
may also (but shall have no obligation to) carry such other insurance as
Landlord may deem prudent or advisable, including, without limitation, liability
insurance in such amounts and on such terms as Landlord shall determine<U>, so
long as such coverage is available at commercially reasonable rates</U>.
Landlord shall not be obligated to insure, and shall have no responsibility
whatsoever for any damage to, any furniture, machinery, goods, inventory or
supplies, or other personal property or fixtures which Tenant may keep or
maintain in the Premises, or any leasehold improvements, additions or
alterations within the Premises.</P></DIR>
</DIR>
<B><P ALIGN="JUSTIFY">B. Tenant's Insurance.</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">(1) Property Insurance. </B>Tenant shall procure at
Tenant's sole cost and expense and keep in effect from the date of this Lease
and at all times until the end of the Term, insurance on all personal property
and fixtures of Tenant and all improvements, additions or alterations made by or
for Tenant to the Premises on an "All Risk" basis, insuring such
property for the full replacement value of such property.</P>
<B><P ALIGN="JUSTIFY">(2) Liability Insurance. </B>Tenant shall procure at
Tenant's sole cost and expense and keep in effect from the date of this Lease
and at all times until the end of the Term Commercial General Liability
insurance covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the Premises and
the Project, and any part of either, and any areas adjacent thereto, and the
business operated by Tenant or by any other occupant of the Premises. Such
insurance shall include contractual liability insurance coverage insuring all of
Tenant's indemnity obligations under this Lease. Such coverage shall have a
minimum combined single limit of liability of at least Two Million Dollars
($2,000,000.00), and a minimum general aggregate limit of Three Million Dollars
($3,000,000.00), with an "Additional Insured - Managers or Lessors of
Premises Endorsement." All such policies shall be written to apply to all
bodily injury (including death), property damage or loss, personal and
advertising injury and other covered loss, however occasioned, occurring during
the policy term, shall be endorsed to add Landlord and any party holding an
interest to which this Lease may be subordinated as an additional insured, and
shall provide that such coverage shall be "<B>primary</B>" and non-
contributing with any insurance maintained by Landlord, which shall be excess
insurance only. Such coverage shall also contain endorsements including
employees as additional insureds if not covered by Tenant's Commercial General
Liability Insurance. All such insurance shall provide for the severability of
interests of insureds; and shall be written on an "<B>occurrence</B>"
basis, which shall afford coverage for all claims based on acts, omissions,
injury and damage, which occurred or arose (or the onset of which occurred or
arose) in whole or in part during the policy period.</P>
<B><P ALIGN="JUSTIFY">(3) Workers' Compensation and Employers' Liability
Insurance.</B> Tenant shall carry Workers' Compensation Insurance as required
by any Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not less than
One Million Dollars ($1,000,000) each accident for bodily injury by accident;
One Million Dollars ($1,000,000) policy limit for bodily injury by disease; and
One Million Dollars ($1,000,000) each employee for bodily injury by disease,
throughout the Term at Tenant's sole cost and expense.</P>
<B><P ALIGN="JUSTIFY">(4) General Insurance Requirements. </B>All coverages
described in this Paragraph 8.B. shall be endorsed to (i) provide Landlord with
thirty (30) days' notice of cancellation or change in terms; and (ii) waive all
rights of subrogation by the insurance carrier against Landlord. If at any time
during the Term the amount or coverage of insurance which Tenant is required to
carry under this Paragraph 8.B. is, in Landlord's reasonable judgment,
materially less than the amount or type of insurance coverage typically carried
by owners or tenants of properties located in the general area in which the
Premises are located which are similar to and operated for similar purposes as
the Premises or if Tenant's use of the Premises should change with or without
Landlord's consent, Landlord shall have the right to require Tenant to increase
the amount or change the types of insurance coverage required under this
Paragraph 8.B. All insurance policies required to be carried by Tenant under
this Lease shall be written by companies rated A X or better in "Best's
Insurance Guide" and authorized to do business in the State of California.
In any event deductible amounts under all insurance policies required to be
carried by Tenant under this Lease shall not exceed <U>One Hundred Thousand
Dollars ($100,000.00) per occurrence, provided that Tenant maintains a net worth
of at least Two Hundred Fifty Million Dollars ($250,000,000.00) as reasonably
determined by Landlord, or, if Tenant's net worth is less than Two Hundred Fifty
Million Dollars ($250,000,000.00), such deductible amounts shall not exceed</U>
Five Thousand Dollars ($5,000.00) <STRIKE>per occurrence</STRIKE>. Tenant shall
deliver to Landlord on or before the Term Commencement Date, and thereafter at
least thirty (30) days before the expiration dates of the expired policies,
certified copies of Tenant's insurance policies, or a certificate evidencing the
same issued by the insurer thereunder; and, if Tenant shall fail to procure such
insurance, or to deliver such policies or certificates, Landlord may, at
Landlord's option and in addition to Landlord's other remedies in the event of a
default by Tenant hereunder, procure the same for the account of Tenant, and the
cost thereof shall be paid to Landlord as Additional Rent.</P>
<B><U><P ALIGN="JUSTIFY">(5)</U> <U>Self-insurance; Deductibles.</B></U>
<U>All or any portion of the coverages Tenant is required to maintain under this
Lease may be maintained under a program of Tenant self-insurance or under
policies that include self-insured retentions or deductibles larger than those
typically carried by similarly situated tenants. Before the Term Commencement
Date, Tenant shall advise Landlord of the self-insurance program, specifying
limits and amounts of umbrella coverage and self-insured retentions, or
deductibles. Landlord is considered to consent to such self-insurance program
as long as it is effective and Tenant's net worth and current net assets (as
reported to Landlord on a quarterly basis and confirmed by audited financial
statements prepared in accordance with generally accepted accounting principles)
exceed Two Hundred Fifty Million Dollars ($250,000,000.00) and Fifty Million
Dollars ($50,000,000.00), respectively. </P></DIR>
</DIR>
<B><P ALIGN="JUSTIFY">C.</U> <U>Tenant's</U> <STRIKE>C. </STRIKE>
Indemnification. </B>Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use or
occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or
from activities or failures to act of Tenant or Tenant's Parties; (2) claims
arising from work or labor performed, or for materials or supplies furnished to
or at the request or for the account of Tenant in connection with performance of
any work done for the account of Tenant within the Premises or Project; (3)
claims arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease; and (4) claims arising from
the negligence or intentional acts or omissions of Tenant or Tenant's Parties.
The foregoing indemnity by Tenant shall not be applicable to claims to the
extent arising from the gross negligence or willful misconduct of Landlord.
Landlord shall not be liable to Tenant and Tenant hereby waives all claims
against Landlord for any injury or damage to any person or property in or about
the Premises, Building or Project by or from any cause whatsoever (other than
Landlord's gross negligence or willful misconduct) and, without limiting the
generality of the foregoing, whether caused by water leakage of any character
from the roof, walls, basement or other portion of the Premises, Building or
Project, or caused by gas, fire, oil or electricity in, on or about the
Premises, Building or Project. The provisions of this Paragraph shall survive
the expiration or earlier termination of this Lease.</P>
<B><U><P ALIGN="JUSTIFY">D.</U> <U>Landlord's Indemnification</B>. Landlord
shall indemnify, defend by counsel reasonably acceptable to Tenant, protect and
hold Tenant harmless from and against any and all claims, liabilities, losses,
costs, damages, injuries or expenses, including reasonable attorneys' and
consultants' fees and court costs, demands, causes of action, or judgments
arising out of or relating to the gross negligence or willful misconduct of
Landlord or Landlord's agents, employees or invitees. Notwithstanding the
foregoing or anything to the contrary contained in this Lease, Landlord shall in
no event be liable to Tenant and Tenant hereby waives all claims against
Landlord for any injury or damage to any person or property in or about the
Premises, Building or Project, including without limitation the common areas,
whether caused by theft, fire, rain or water leakage of any character from the
roof, walls, plumbing, sprinklers, pipes, basement or any other portion of the
Premises, Building or Project, or caused by gas, fire, oil or electricity in, on
or about the Premises, Building or Project, or from any other systems except in
each case to the extent caused by the gross negligence or willful misconduct of
Landlord, or by acts of God (including without limitation flood or earthquake),
acts of a public enemy, riot, strike, insurrection, war, court order,
requisition or order of governmental body or authority, or for any damage or
inconvenience which may arise through repair, subject to and except as expressly
otherwise provided in Paragraph 9 or 10 of this Lease. In addition, Landlord
shall in no event be liable for (i) injury to Tenant's business or any loss of
income or profit therefrom or from consequential damages, or (ii) sums up to the
amount of insurance proceeds received by Tenant. The foregoing indemnity by
Landlord shall not be applicable to claims to the extent arising from the
negligence or willful misconduct of Tenant or Tenant's Parties. The foregoing
indemnity by Landlord shall survive the expiration or earlier termination of
this Lease.</P>
</U><B><P ALIGN="CENTER">9. <A NAME="Waiver"></A>WAIVER OF SUBROGATION</P>
</B><P ALIGN="JUSTIFY">To the extent permitted by law and without affecting the
coverage provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the other
for: (a) damages for injury to or death of persons; (b) damages to property,
including personal property; (c) damages to the Premises or any part thereof;
and (d) claims arising by reason of the foregoing due to hazards covered by
insurance maintained or required to be maintained pursuant to this Lease to the
extent of proceeds recovered therefrom, or proceeds which would have been
recoverable therefrom in the case of the failure of any party to maintain any
insurance coverage required to be maintained by such party pursuant to this
Lease. This provision is intended to waive fully, any rights and/or claims
arising by reason of the foregoing, but only to the extent that any of the
foregoing damages and/or claims referred to above are covered or would be
covered, and only to the extent of such coverage, by insurance actually carried
or required to be maintained pursuant to this Lease by either Landlord or
Tenant. This provision is also intended to waive fully, and for the benefit of
each party, any rights and/or claims which might give rise to a right of
subrogation on any insurance carrier. Subject to all qualifications of this
Paragraph 9, Landlord waives its rights as specified in this Paragraph 9 with
respect to any subtenant that it has approved pursuant to Paragraph 21 but only
in exchange for the written waiver of such rights to be given by such subtenant
to Landlord upon such subtenant taking possession of the Premises or a portion
thereof. Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any policy.</P>
<B><P ALIGN="CENTER">10. <A NAME="LandlordsRepairs"></A>LANDLORD'S REPAIRS
AND MAINTENANCE</P>
</B><P ALIGN="JUSTIFY">Landlord<U>, at its sole cost and expense and not as an
Operating Expense,</U> shall maintain in good repair, reasonable wear and tear
excepted, the structural soundness of the roof, foundations, and exterior walls
of the Building <U>and the common areas</U>. The term "exterior
walls" as used herein shall not include windows, glass or plate glass,
doors, special store fronts or office entries<U>; provided, however that Tenant
shall in no event be liable for damage to exterior walls to the extent caused by
structural defects of the Building</U>. Any damage caused by or repairs
necessitated by any negligence or act of Tenant or Tenant's Parties may be
repaired by Landlord at Landlord's option and Tenant's expense. Tenant shall
immediately give Landlord written notice of any defect or need of repairs in
such components of the Building for which Landlord is responsible, after which
Landlord shall have a reasonable opportunity and the right to enter the Premises
at all reasonable times to repair same. Landlord's liability with respect to
any defects, repairs, or maintenance for which Landlord is responsible under any
of the provisions of this Lease shall be limited to the cost of such repairs or
maintenance, and there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of repairs, alterations or improvements in or to any
portion of the Premises, the Building or the Project or to fixtures,
appurtenances or equipment in the Building, except as provided in Paragraph 24
<U>or as expressly provided in this Paragraph 10. In the event that Tenant's
Permitted Use of the Premises is materially and adversely impaired as a result
in defects in design or construction, Tenant's Rent shall abate but only to the
extent Landlord receives rental abatement insurance proceeds</U>. By taking
possession of the Premises, Tenant accepts them "as is," as being in
good order, condition and repair and the condition in which Landlord is
obligated to deliver them and suitable for the Permitted Use and Tenant's
intended operations in the Premises, whether or not any notice of acceptance is
given.</P>
<B><P ALIGN="CENTER">11. <A NAME="TenantsRepairs"></A>TENANT'S REPAIRS AND
MAINTENANCE</P>
</B><P ALIGN="JUSTIFY">Tenant shall at all times during the Term at Tenant's
expense maintain all parts of the Premises and such portions of the Building as
are within the exclusive control of Tenant in a first-class, good, clean and
secure condition and promptly make all necessary repairs and replacements, as
determined by Landlord, with materials and workmanship of the same <U>or
similar</U> character, kind and <U>as high a</U> quality as the original<U>,
each as reasonably acceptable to Landlord</U>. Notwithstanding anything to the
contrary contained herein, Tenant shall, at its expense, promptly repair any
damage to the Premises or the Building or Project resulting from or caused by
any negligence or act of Tenant or Tenant's Parties.</P>
<B><P ALIGN="CENTER">12. <A NAME="Alterations"></A>ALTERATIONS</P>
<P ALIGN="JUSTIFY">A. </B>Tenant shall not make, or allow to be made, any
alterations, physical additions, improvements or partitions, including without
limitation the attachment of any fixtures or equipment, in, about or to the
Premises ("<B>Alterations</B>") without obtaining the prior written
consent of Landlord, which consent shall not be unreasonably withheld with
respect to proposed Alterations which: (a) comply with all applicable
Regulations; (b) are, in Landlord's <U>reasonable</U> opinion, compatible with
the Building or the Project and its mechanical, plumbing, electrical,
heating/ventilation/air conditioning systems, and will not cause the Building or
Project or such systems to be required to be modified to comply with any
Regulations (including, without limitation, the Americans With Disabilities
Act); and (c) will not interfere with the use and occupancy of any other portion
of the Building or Project by any other tenant or its invitees.<U> The initial
Tenant Improvements as defined in Exhibit C hereto shall not be considered an
"Alteration," as that term is defined above.</U> Specifically, but
without limiting the generality of the foregoing, Landlord shall have the right
of written consent for all plans and specifications for the proposed
Alterations, construction means and methods, all appropriate permits and
licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules and
regulations for contractors and subcontractors performing such work. Tenant
shall also supply to Landlord any documents and information reasonably requested
by Landlord in connection with Landlord's consideration of a request for
approval hereunder. <U>Notwithstanding the foregoing, Tenant shall have the
right, without consent of, but upon at least ten (10) business days' prior
written notice (as provided under Paragraph 12.B below) to, Landlord, to
make non-structural, cosmetic Alterations within the interior of the Premises
(and which are not visible from the outside of the Premises), which do not
impair the value of the Building, and which cost, in the aggregate, less than
Twenty Five Thousand Dollars ($25,000.00) in any twelve (12) month period during
the Term of this Lease, provided that such Alterations shall nevertheless be
subject to all of the remaining requirements of this Paragraph 12,
including without limitation, subparagraphs (a) through (c) above and
payment of the administration fee referred to in this Paragraph 12.A, other
than the requirement of Landlord's prior consent. In addition unless Landlord
elects in accordance with this Paragraph 12.A to have Landlord's contractor
perform the proposed Alterations, all Alterations shall be performed by duly
licensed contractors or subcontractors reasonably acceptable to Landlord, proof
of insurance shall be submitted to Landlord as required under Paragraph 8.B
above, and Landlord reserves the right to impose reasonable rules and
regulations for contractors and subcontractors. Tenant shall, if requested by
Landlord, promptly furnish Landlord with complete as-built plans and
specifications for any Alterations performed by Tenant to the Premises, at
Tenant's sole cost and expense.</P>
<B><P ALIGN="JUSTIFY">B.</U> </B>Tenant shall cause all Alterations to be
accomplished in a first-class, good and workmanlike manner, and to comply with
all applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's
sole expense, perform any additional work required under applicable Regulations
due to the Alterations hereunder. No review or consent by Landlord of or to any
proposed Alteration or additional work shall constitute a waiver of Tenant's
obligations under this Paragraph 12, nor constitute any warranty or
representation that the same complies with all applicable Regulations, for which
Tenant shall at all times be solely responsible. Tenant shall reimburse
Landlord for all <U>reasonable</U> costs which Landlord may incur in connection
with granting approval to Tenant for any such Alterations, including any
<U>reasonable</U> costs or expenses which Landlord may incur in electing to have
outside architects and engineers review said plans and specifications, and shall
pay Landlord an administration fee of <STRIKE>fifteen</STRIKE> <U>ten</U>
percent <STRIKE>(15%)</STRIKE><U>(10%)</U> of the cost of the Alterations as
Additional Rent hereunder. All such Alterations shall remain the property of
Tenant until the expiration or earlier termination of this Lease, at which time
they shall be and become the property of Landlord; provided, however, that
Landlord may, at Landlord's option, require that Tenant, at Tenant's expense,
remove any or all Alterations made by Tenant and restore the Premises by the
expiration or earlier termination of this Lease, to their condition existing
prior to the construction of any such Alterations. All such removals and
restoration shall be accomplished in a first-class and good and workmanlike
manner so as not to cause any damage to the Premises or Project whatsoever. If
Tenant fails to remove such Alterations or Tenant's trade fixtures or furniture
or other personal property, Landlord may keep and use them or remove any of them
and cause them to be stored or sold in accordance with applicable law, at
Tenant's sole expense.<U> Notwithstanding the foregoing, Tenant shall not be
liable for the removal of the initial Tenant Improvements upon the expiration or
earlier termination of this Lease.</U> In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses,
Tenant shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the value
of Alterations within the Premises, and on Tenant's interest pursuant to this
Lease, or any increase in any of the foregoing based on such Alterations. To
the extent that any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.</P>
<B><U><P ALIGN="JUSTIFY">C</U>. </B>In compliance with Paragraph 27 hereof,
at least ten (10) business days before beginning construction of any Alteration,
Tenant shall give Landlord written notice of the expected commencement date of
that construction to permit Landlord to post and record a notice of non-
responsibility. Upon substantial completion of construction, if the law so
provides, Tenant shall cause a timely notice of completion to be recorded in the
office of the recorder of the county in which the Building is located. Within
thirty (30) days following substantial completion of any Alteration, Tenant
shall deliver two (2) complete sets of as-built drawings certified by Tenant and
Tenant's contractor as being true and correct, which certification shall survive
the expiration or termination of this Lease.</P>
<B><U><P ALIGN="JUSTIFY">D.</U> </B><U>Notwithstanding anything to the
contrary contained in Paragraph 12.A, at the time Landlord gives its
consent for any Alterations, Tenant shall also be notified whether or not
Landlord will require that such Alterations be removed upon the expiration or
earlier termination of this Lease. If Landlord fails to so notify Tenant, it
shall be assumed that Landlord will require their removal.</P>
</U><B><P ALIGN="CENTER">13. <A NAME="Signs"></A>SIGNS</P>
</B><P ALIGN="JUSTIFY">Tenant shall not place, install, affix, paint or maintain
any signs, notices, graphics or banners whatsoever or any window decor which is
visible in or from public view or corridors, the common areas or the exterior of
the Premises or the Building, in or on any exterior window or window fronting
upon any common areas or service area without Landlord's prior written approval
which Landlord shall have the right to withhold in its absolute and sole
discretion; provided that Tenant's name shall be included in any Building-
standard door and directory signage, if any, in accordance with Landlord's
Building signage program, including without limitation, payment by Tenant of any
fee charged by Landlord for maintaining such signage, which fee shall constitute
Additional Rent hereunder. Any installation of signs, notices, graphics or
banners on or about the Premises or Project approved by Landlord shall be
subject to any Regulations and to any other requirements imposed by Landlord.
Tenant shall remove all such signs or graphics by the expiration or any earlier
termination of this Lease. Such installations and removals shall be made in
such manner as to avoid injury to or defacement of the Premises, Building or
Project and any other improvements contained therein, and Tenant shall repair
any injury or defacement including without limitation discoloration caused by
such installation or removal.</P>
<B><P ALIGN="CENTER">14. <A NAME="Inspection"></A>INSPECTION/POSTING
NOTICES</P>
</B><P ALIGN="JUSTIFY">After reasonable notice, except in emergencies where no
such notice shall be required, Landlord and Landlord's agents and
representatives, shall have the right to enter the Premises to inspect the same,
to clean, to perform such work as may be permitted or required hereunder, to
make repairs, improvements or alterations to the Premises, Building or Project
or to other tenant spaces therein, to deal with emergencies, to post such
notices as may be permitted or required by law to prevent the perfection of
liens against Landlord's interest in the Project or to exhibit the Premises to
prospective tenants, purchasers, encumbrancers or to others, or for any other
purpose as Landlord may deem necessary or desirable; provided, however, that
Landlord shall use reasonable efforts not to unreasonably interfere with
Tenant's business operations. Tenant shall not be entitled to any abatement of
Rent by reason of the exercise of any such right of entry. Tenant waives any
claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. Landlord shall at all times have and retain
a key with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem necessary or proper to open said doors in an emergency, in
order to obtain entry to any portion of the Premises, and any entry to the
Premises or portions thereof obtained by Landlord by any of said means, or
otherwise, shall not be construed to be a forcible or unlawful entry into, or a
detainer of, the Premises, or an eviction, actual or constructive, of Tenant
from the Premises or any portions thereof. At any time within six (6) months
prior to the expiration of the Term or following any earlier termination of this
Lease or agreement to terminate this Lease, Landlord shall have the right to
erect on the Premises, Building and/or Project a suitable sign indicating that
the Premises are available for lease.</P>
<B><P ALIGN="CENTER">15. <A NAME="Utilities"></A>SERVICES AND UTILITIES</P>
<P ALIGN="JUSTIFY">A. </B>Provided Tenant shall not be in default hereunder,
and subject to the provisions elsewhere herein contained and to the rules and
regulations of the Building, Landlord shall furnish to the Premises during
generally recognized business days <U>(currently defined as 8 a.m. to 6
p.m.)</U>, to be determined by Landlord (but exclusive, in any event, of
Saturdays, Sundays and legal holidays), water for lavatory and drinking purposes
and electricity, heat and air conditioning as usually furnished or supplied for
use of the Premises for reasonable and normal office use as of the date Tenant
takes possession of the Premises as determined by Landlord (but not including
above-standard or continuous cooling for excessive heat-generating machines,
excess lighting or equipment), janitorial services during the times and in the
manner that such services are, in Landlord's judgment, customarily furnished in
comparable office buildings in the immediate market area, and elevator service,
which shall mean service either by nonattended automatic elevators or elevators
with attendants, or both, at the option of Landlord. <U>Upon Landlord's receipt
of written request by Tenant, Landlord shall make available</U> additional or
after-hours electricity, heating or air conditioning <U>to Tenant, and</U>
Tenant shall pay upon demand to Landlord a reasonable charge for such services
as determined by Landlord <U>and any other extraordinary operating costs that
result from Tenant's use of the Premises</U>. Tenant agrees to keep and cause
to be kept closed all window covering when necessary because of the sun's
position, and Tenant also agrees at all times to cooperate fully with Landlord
and to abide by all of the regulations and requirements which Landlord may
<U>reasonably</U> prescribe for the proper functioning and protection of
electrical, heating, ventilating and air conditioning systems. Wherever heat-
generating machines, excess lighting or equipment are used in the Premises which
affect the temperature otherwise maintained by the air conditioning system,
Landlord reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation and the
cost of operation and maintenance thereof, shall be paid by Tenant to Landlord
upon demand by Landlord.</P>
<P ALIGN="JUSTIFY">Tenant shall not without written consent of Landlord use any
apparatus, equipment or device in the Premises, including without limitation,
computers, electronic data processing machines, copying machines, and other
machines, using excess lighting or using electric current, water, or any other
resource in excess of or which will in any way increase the amount of
electricity, water, or any other resource being furnished or supplied for the
use of the Premises for reasonable and normal office use, in each case as of the
date Tenant takes possession of the Premises and as determined by Landlord, or
which will require additions or alterations to or interfere with the Building
power distribution systems; nor connect with electric current, except through
existing electrical outlets in the Premises or water pipes, any apparatus,
equipment or device for the purpose of using electrical current, water, or any
other resource. If Tenant shall require water or electric current or any other
resource in excess of that being furnished or supplied for the use of the
Premises as of the date Tenant takes possession of the Premises as determined by
Landlord, Tenant shall first procure the written consent of Landlord which
Landlord may refuse, to the use thereof, and Landlord may cause a special meter
to be installed in the Premises so as to measure the amount of water, electric
current or other resource consumed for any such other use. Tenant shall pay
directly to Landlord upon demand as an addition to and separate from payment of
Operating Expenses the cost of all such additional resources, energy, utility
service and meters (and of installation, maintenance and repair thereof and of
any additional circuits or other equipment necessary to furnish such additional
resources, energy, utility or service). Landlord may add to the separate or
metered charge a recovery of additional expense incurred in keeping account of
the excess water, electric current or other resource so consumed. Landlord
shall not be liable for any damages directly or indirectly resulting from nor
shall the Rent or any monies owed Landlord under this Lease herein reserved be
abated by reason of: (a) the installation, use or interruption of use of any
equipment used in connection with the furnishing of any such utilities or
services, or any change in the character or means of supplying or providing any
such utilities or services or any supplier thereof; (b) <U>(1)</U> the failure
to furnish or delay in furnishing any such utilities or services when such
failure or delay is caused by acts of God or the elements, labor disturbances of
any character, or any other accidents or any other reason whatsoever<U>,</U> or
<U>(2)</U> because of any interruption of service due to Tenant's use of water,
electric current or other resource in excess of that being supplied or furnished
for the use of the Premises as of the date Tenant takes possession of the
Premises; (c) the inadequacy, limitation, curtailment, rationing or restriction
on use of water, electricity, gas or any other form of energy or any other
service or utility whatsoever serving the Premises or Project, whether by
Regulation or otherwise; or (d) the partial or total unavailability of any such
utilities or services to the Premises or the Building, whether by Regulation or
otherwise; nor shall any such occurrence constitute an actual or constructive
eviction of Tenant.<U> Notwithstanding the foregoing, if Tenant is prevented
from using, and does not use, all or part of the Premises (the "<B>Affected
Area</B>") as a result of a Essential Services Interruption Event, as
defined below, if this Essential Services Interruption Event continues for three
(3) consecutive business days after Landlord's receipt of notice from Tenant of
the Essential Services Interruption Event (the "<B>Eligibility
Period</B>"), the Rent payable under this Lease shall be abated after the
expiration of the Eligibility Period for such time that Tenant continues to be
prevented from using, and does not use, the Affected Area in the proportion that
the rentable area of the Affected Area bears to the total rentable area of the
Premises, but only to the extent Landlord actually receives insurance proceeds.
If, however, Tenant reoccupies any portion of the Premises during this period,
the Rent allocable to this reoccupied portion (based on the proportion that the
rentable area of the reoccupied portion of the Premises bears to the total
rentable area of the Premises) shall be payable by Tenant from the date on which
Tenant reoccupies this portion of the Premises. An "<B>Essential Services
Interruption Event</B>" shall mean the failure of or interruption in
essential services required to be supplied by Landlord to the Premises during
ordinary business hours of generally recognized business days which occurs
solely as a result of an event described in clause (a), (b), (c) or (d) above.
In the event of a stoppage or interruption of services, Landlord shall
diligently attempt to resume such services as promptly as practicable.</U>
Landlord shall further have no obligation to protect or preserve any apparatus,
equipment or device installed by Tenant in the Premises, including without
limitation by providing additional or after-hours heating or air conditioning.
Landlord shall be entitled to cooperate voluntarily and in a reasonable manner
with the efforts of national, state or local governmental agencies or utility
suppliers in reducing energy or other resource consumption. The obligation to
make services available hereunder shall be subject to the limitations of any
such voluntary, reasonable program. In addition, Landlord reserves the right to
change the supplier or provider of any such utility or service from time to
time<U>, provided that Landlord uses commercially reasonable efforts to avoid an
interruption of services to Tenant</U>. Tenant shall have no right to contract
with or otherwise obtain any electrical or other such service for or with
respect to the Premises or Tenant's operations therein from any supplier or
provider of any such service. Tenant shall cooperate with Landlord and any
supplier or provider of such services designated by Landlord from time to time
to facilitate the delivery of such services to Tenant at the Premises and to the
Building and Project, including without limitation allowing Landlord and
Landlord's suppliers or providers, and their respective agents and contractors,
reasonable access to the Premises for the purpose of installing, maintaining,
repairing, replacing or upgrading such service or any equipment or machinery
associated therewith.</P>
<P ALIGN="JUSTIFY"></P>
<B><U><P ALIGN="JUSTIFY">B</U>. </B>Tenant shall pay, upon demand, for all
utilities furnished to the Premises, or if not separately billed to or metered
to Tenant, Tenant's Proportionate Share of all charges jointly serving the
Project in accordance with Paragraph 7. All sums payable under this Paragraph
15 shall constitute Additional Rent hereunder.</P>
<B><P ALIGN="CENTER">16. <A NAME="Subordination"></A>SUBORDINATION</P>
</B><U><P ALIGN="JUSTIFY">Except as otherwise provided herein, without</U> the
necessity of any additional document being executed by Tenant for the purpose of
effecting a subordination, this Lease shall be and is hereby declared to be
subject and subordinate at all times to: (a) all ground leases or underlying
leases which may now exist or hereafter be executed affecting the Premises
and/or the land upon which the Premises and Project are situated, or both; and
(b) any mortgage or deed of trust which may now exist or be placed upon the
Building, the Project and/or the land upon which the Premises or the Project are
situated, or said ground leases or underlying leases, or Landlord's interest or
estate in any of said items which is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease. If any ground lease or underlying lease terminates for any reason
or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease <U>beyond any applicable cure period</U>. Within ten (10) days
after request by Landlord, Tenant shall execute and deliver any additional
documents evidencing Tenant's attornment or the subordination of this Lease with
respect to any such ground leases or underlying leases or any such mortgage or
deed of trust, in the form requested by Landlord or by any ground landlord,
mortgagee, or beneficiary under a deed of trust, subject to such nondisturbance
requirement. If requested in writing by Tenant, Landlord shall use commercially
reasonable efforts to obtain a subordination, nondisturbance and attornment
agreement for the benefit of Tenant reflecting the foregoing from any ground
landlord, mortgagee or beneficiary, at Tenant's expense, subject to such other
terms and conditions as the ground landlord, mortgagee or beneficiary may
require.<U> Notwithstanding the foregoing, in the event this Lease or the
leasehold estate created hereunder is or becomes subject to the prior rights of
any mortgagee or ground lessor, then Landlord shall secure from such mortgagee
or ground lessor on their form an agreement in writing whereby Tenant, so long
as Tenant is not in default hereunder beyond any applicable cure period, may
remain in possession of the Premises pursuant to the terms hereof and without
any diminution of Tenant's rights should Landlord become in default with respect
to such mortgage or ground lease or should the Premises become the subject of
any action to foreclose any mortgage or to dispossess Landlord. Such agreement
would provide, among other things, that the new owner following any foreclosure,
sale or conveyance shall not be (i) liable for any act or omission of any prior
landlord or with respect to events occurring prior to acquisition of ownership;
(ii) subject to any offsets or defenses which Tenant might have against any
prior landlord; (iii) bound by prepayment of more than one (1) month's Rent; or
(iv) liable to Tenant for any security deposit not actually received by such new
owner. Each ground landlord, mortgagee, or beneficiary under a deed of trust
shall be an express third party beneficiary of the provisions of this Paragraph
16 and any other provisions of this Lease that are for the benefit of such
party.</P>
</U><B><P ALIGN="CENTER">17. <A NAME="FinancialStatements"></A>FINANCIAL
STATEMENTS</P>
</B><P ALIGN="JUSTIFY">At the request of Landlord from time to time <U>and not
more often than one time in any twelve (12) month period</U>, Tenant shall
provide to Landlord Tenant's and any guarantor's current financial statements or
other information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with the
ownership, management, financing and disposition of the Project.<U> Tenant's
publicly available financial information shall satisfy the above requirements
unless Landlord has reasonable belief that Tenant's financial condition or
credit rating have declined to a level which is unacceptable to Landlord.
Landlord shall not in any manner disclose, provide or make available any
information revealed by Tenant's private financial information to any person or
entity without Tenant's prior written consent.</P>
</U><B><P ALIGN="CENTER">18. <A NAME="Estoppel"></A>ESTOPPEL CERTIFICATE</P>
</B><P ALIGN="JUSTIFY">Tenant agrees from time to time, within ten (10) days
after request of Landlord, to deliver to Landlord, or Landlord's designee, an
estoppel certificate stating that this Lease is in full force and effect, that
this Lease has not been modified (or stating all modifications, written or oral,
to this Lease), the date to which Rent has been paid, the unexpired portion of
this Lease, that there are no current defaults by Landlord or Tenant under this
Lease (or specifying any such defaults), that the leasehold estate granted by
this Lease is the sole interest of Tenant in the Premises and/or the land at
which the Premises are situated, and such other matters pertaining to this Lease
as may be reasonably requested by Landlord or any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or Project or any interest
therein. Tenant agrees that if Tenant fails to execute and deliver such
certificate within such ten (10) day period, Landlord may execute and deliver
such certificate on Tenant's behalf and that such certificate shall be binding
on Tenant. Landlord and Tenant intend that any statement delivered pursuant to
this Paragraph may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or Project or any interest therein. The
parties agree that Tenant's obligation to furnish such estoppel certificates in
a timely fashion is a material inducement for Landlord's execution of this
Lease, and shall be an event of default (without any cure period that might be
provided under Paragraph 26.A(3) of this Lease) if Tenant fails to fully comply
or makes any material misstatement in any such certificate.<U> Landlord agrees
from time to time, within ten (10) days after request of Tenant, to deliver to
Tenant, or Tenant's designee, an estoppel certificate stating that this Lease is
in full force and effect, that this Lease has not been modified (or stating all
modifications, written or oral, to this Lease), the date to which Rent has been
paid, the unexpired portion of this Lease, and that, to the best of Landlord's
actual knowledge, there are no current defaults by Tenant under this Lease (or
specifying any such defaults).</P>
</U><B><P ALIGN="CENTER">19. <A NAME="SecurityDeposit"></A>SECURITY
DEPOSIT</P>
</B><U><P ALIGN="JUSTIFY">Subject to Paragraph 39.H below,</U> Tenant agrees to
deposit with Landlord upon execution of this Lease, a security deposit as stated
in the Basic Lease Information (the "<B>Security Deposit</B>"), which
sum shall be held and owned by Landlord, without obligation to pay interest, as
security for the performance of Tenant's covenants and obligations under this
Lease. The Security Deposit is not an advance rental deposit or a measure of
damages incurred by Landlord in case of Tenant's default. Upon the occurrence
of any event of default by Tenant, Landlord may from time to time, without
prejudice to any other remedy provided herein or by law, use such fund as a
credit to the extent necessary to credit against any arrears of Rent or other
payments due to Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default, and Tenant shall pay to Landlord, on
demand, the amount so applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled, reduced by such amounts as may
be required by Landlord to remedy defaults on the part of Tenant in the payment
of Rent or other obligations of Tenant under this Lease, to repair damage to the
Premises, Building or Project caused by Tenant or any Tenant's Parties and to
clean the Premises. Landlord may use and commingle the Security Deposit with
other funds of Landlord.</P>
<B><P ALIGN="CENTER">20. <A NAME="TenantsRemedies"></A>LIMITATION OF TENANT'S
REMEDIES</P>
</B><P ALIGN="JUSTIFY">The obligations and liability of Landlord to Tenant for
any default by Landlord under the terms of this Lease are not personal
obligations of Landlord or of the individual or other partners of Landlord or
its or their partners, directors, officers, or shareholders, and Tenant agrees
to look solely to Landlord's interest in the Project for the recovery of any
amount from Landlord, and shall not look to other assets of Landlord nor seek
recourse against the assets of the individual or other partners of Landlord or
its or their partners, directors, officers or shareholders. Any lien obtained
to enforce any such judgment and any levy of execution thereon shall be subject
and subordinate to any lien, mortgage or deed of trust on the Project. Under no
circumstances shall Tenant have the right to offset against or recoup Rent or
other payments due and to become due to Landlord hereunder except as expressly
provided in this Lease, which Rent and other payments shall be absolutely due
and payable hereunder in accordance with the terms hereof.</P>
<B><P ALIGN="CENTER">21. <A NAME="Assignment"></A>ASSIGNMENT AND
SUBLETTING</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">A. (1) General. </B>This Lease has been negotiated to
be and is granted as an accommodation to Tenant. Accordingly, this Lease is
personal to Tenant <U>and any Permitted Transferee</U>, and Tenant's rights
granted hereunder do not include the right to assign this Lease or sublease the
Premises, or to receive any excess, either in installments or lump sum, over the
Rent which is expressly reserved by Landlord as hereinafter provided, except as
otherwise expressly hereinafter provided. Tenant shall not assign or pledge
this Lease or sublet the Premises or any part thereof, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises or any part
thereof by anyone other than Tenant, or suffer or permit any such assignment,
pledge, subleasing or occupancy, without Landlord's prior written consent except
as provided herein. If Tenant desires to assign this Lease or sublet any or all
of the Premises, Tenant shall give Landlord written notice (the
"<B>Transfer Notice</B>") at least <U>thirty (30)</U> days prior to
the anticipated effective date of the proposed assignment or sublease, which
shall contain all of the information reasonably requested by Landlord to address
Landlord's decision criteria specified hereinafter. Landlord shall then have a
period of <U>ten (10) business</U> days following receipt of the Transfer Notice
to notify Tenant in writing that Landlord elects either: (i) to terminate this
Lease as to the space so affected as of the date so requested by Tenant; or (ii)
to consent to the proposed assignment or sublease, subject, however, to
Landlord's prior written consent of the proposed assignee or subtenant and of
any related documents or agreements associated with the assignment or sublease.
If Landlord should fail to notify Tenant in writing of such election within said
period, Landlord shall be deemed to have waived option (i) above, but written
consent by Landlord of the proposed assignee or subtenant shall still be
required. If Landlord does not exercise option (i) above, Landlord's consent to
a proposed assignment or sublease shall not be unreasonably withheld. Consent
to any assignment or subletting shall not constitute consent to any subsequent
transaction to which this Paragraph 21 applies. <U>Landlord hereby waives its
right to recapture the Premises or a portion thereof pursuant to clause (i)
above only with respect to the first (1<SUP>st</SUP>) request by Tenant (a
"<B>Tenant Transfer Request</B>") to sublease all or a portion of the
Premises or assign this Lease during the Term or any extension thereto and only
if the proposed sublease or assignment is for a term which is equal to less than
50% of the remaining Term of this Lease or any extension thereto, if such
extension option has already been exercised by Tenant in accordance with the
terms of this Lease. In the event that a Tenant Transfer Request pertains only
to a portion of the Premises, Landlord's waiver of its recapture right shall
continue to be in effect as provided above for the remaining portions of the
Premises; provided however, that once a Tenant Transfer Request is submitted to
Landlord for a portion of the Premises, Landlord shall no longer be deemed to
waive its right to recapture with respect to such portion of the
Premises.</P></DIR>
</DIR>
<OL START=2>
</U><B><P ALIGN="JUSTIFY"><LI>Conditions of Landlord's Consent. </B>Without
limiting the other instances in which it may be reasonable for Landlord to
withhold Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold Landlord's
consent in the following instances: if the proposed assignee does not agree to
be bound by and assume the obligations of Tenant under this Lease in form and
substance satisfactory to Landlord;<B> </B>the use of the Premises by such
proposed assignee or subtenant would not be a Permitted Use or would violate any
exclusivity or other arrangement which Landlord has with any other tenant or
occupant or any Regulation or would increase the Occupancy Density or Parking
Density of the Building or Project, or would otherwise result in an undesirable
tenant mix for the Project as <U>reasonably</U> determined by Landlord; the
proposed assignee or subtenant is not of sound financial condition as determined
by Landlord in Landlord's <U>reasonable</U> discretion; the proposed assignee or
subtenant is a governmental agency; the proposed assignee or subtenant does not
have a good reputation as a tenant of property or a good business reputation;
the proposed assignee or subtenant is a person with whom Landlord is negotiating
to lease space in the <U>Building; the proposed assignee or subtenant</U> is a
present tenant of the Project <U>and Landlord has space available or will have
space available in the Building or Project which space satisfies the material
requirements of such present tenant with respect to its needs for additional
space, including the approximate square footage, the approximately timing of the
leasehold estate and the nature of the existing improvements or the ability to
construct such improvements</U>; the assignment or subletting would entail any
Alterations which would lessen the value of the leasehold improvements in the
Premises or use of any Hazardous Materials or other noxious use or use which may
disturb other tenants of the Project; or Tenant is in default of any obligation
of Tenant under this Lease, or Tenant has defaulted under this Lease <U>beyond
any applicable cure period</U> on three (3) or more occasions during
<STRIKE>any</STRIKE> <U>the</U> twelve (12) months preceding the date that
Tenant shall request consent. Failure by or refusal of Landlord to consent to a
proposed assignee or subtenant shall not cause a termination of this Lease.
Upon a termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises
to any party, including parties with whom Tenant has negotiated an assignment or
sublease, without incurring any liability to Tenant. At the option of Landlord,
a surrender and termination of this Lease shall operate as an assignment to
Landlord of some or all subleases or subtenancies. Landlord shall exercise this
option by giving notice of that assignment to such subtenants on or before the
effective date of the surrender and termination. In connection with each
request for assignment or subletting, Tenant shall pay to Landlord Landlord's
standard fee for approving such requests, as well as all costs incurred by
Landlord or any mortgagee or ground lessor in approving each such request and
effecting any such transfer, including, without limitation, reasonable
attorneys' fees.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI VALUE=3>Permitted Transfers</B>. An
"Affiliate" means any entity that (i) controls, is controlled by, or
is under common control with Tenant, (ii) results from the transfer of all
or substantially all of Tenant's assets or stock, or (iii) results from the
merger or consolidation of Tenant with another entity. "Control"
means the direct or indirect ownership of more than fifty percent (50%) of the
voting securities of an entity or possession of the right to vote more than
fifty percent (50%) of the voting interest in the ordinary direction of the
entity's affairs. Notwithstanding anything to the contrary contained in this
Lease, Landlord's consent is not required for and Landlord's recapture rights
shall not apply to any assignment of this Lease or sublease of all or a portion
of the Premises to an Affiliate so long as the following conditions are met:
(a) at least ten (10) business days before any such assignment or sublease,
Landlord receives written notice of such assignment or sublease (as well as any
documents or information reasonably requested by Landlord regarding the proposed
intended transfer and the transferee), unless such disclosure is prohibited by
applicable law, in which event Tenant shall provide notice and such other
documents as soon as is reasonably practicable and to the extent and in
accordance with applicable laws; (b) Tenant is not then and has not been in
default under this Lease; (c) if the transfer is an assignment or any other
transfer to an Affiliate other than a sublease, the intended assignee assumes in
writing all of Tenant's obligations under this Lease relating to the Premises in
form satisfactory to Landlord or, if the transfer is a sublease, the intended
sublessee accepts the sublease in form satisfactory to Landlord; (d) the
intended transferee has a tangible net worth, as evidenced by financial
statements delivered to Landlord and certified by an independent certified
public accountant in accordance with generally accepted accounting principles
that are consistently applied, at least equal to Fifty Million Dollars
($50,000,000.00); (e) the Premises shall continue to be operated solely for
the use specified in the Basic Lease Information; and (f) Tenant shall pay
to Landlord Landlord's standard fee for approving assignments and subleases
(which fee shall not exceed one thousand dollars ($1,000.00)) and all costs
reasonably incurred by Landlord or any mortgagee or ground lessor for such
assignment or subletting, including, without limitation, reasonable attorneys'
fees. No transfer to an Affiliate in accordance with this subparagraph shall
relieve Tenant named herein of any obligation under this Lease or alter the
primary liability of Tenant named herein for the payment of Rent or for the
performance of any other obligation to be performed by Tenant, including the
obligations contained in Paragraph 25 with respect to any Affiliate. Each
such transfer to an Affiliate shall be a "<B>Permitted Transfer</B>"
and the transferee of each Permitted Transfer shall be a "<B>Permitted
Transferee</B>."</LI></P></OL>
</U><B><P ALIGN="JUSTIFY">B. Bonus Rent. </B>Any Rent or other consideration
realized by Tenant under any such sublease or assignment in excess of the Rent
payable hereunder, after amortization of a reasonable brokerage commission
<STRIKE>incurred by Tenant</STRIKE> <U>and reasonable attorneys' fees and
improvement costs incurred by Tenant solely in connection with such sublease or
assignment (and except to the extent paid for or reimbursed by Landlord)</U>,
shall be divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to
Landlord<U>, except in connection with a Permitted Transfer</U>. In any
subletting or assignment undertaken by Tenant, Tenant shall diligently seek to
obtain <STRIKE>the maximum rental amount available in the marketplace</STRIKE>
<U>a sublease reflecting fair market rent</U> for comparable space
<STRIKE>available for primary leasing.</STRIKE><U>(including, but not limited
to, sublease space) available for leasing in the geographical area in which the
Building is located.</P>
</U><B><P ALIGN="JUSTIFY">C. Corporation. </B>If Tenant is a corporation, a
transfer of corporate shares by sale, assignment, bequest, inheritance,
operation of law or other disposition (including such a transfer to or by a
receiver or trustee in federal or state bankruptcy, insolvency or other
proceedings) resulting in a change in the present control of such corporation or
any of its parent corporations by the person or persons owning a majority of
said corporate shares, shall constitute an assignment for purposes of this
Lease.<U> Notwithstanding anything to the contrary in this Lease, the transfer
of outstanding capital stock or other listed equity interests, or the purchase
of outstanding capital stock or other listed equity interests, or the purchase
of equity interests issued in an initial public offering of stock through the
"over-the-counter" market or any recognized national or international
securities exchange shall not be included in determining whether control has
been transferred.</P>
</U><B><P ALIGN="JUSTIFY">D. Unincorporated Entity. </B>If Tenant is a
partnership, joint venture, unincorporated limited liability company or other
unincorporated business form, a transfer of the interest of persons, firms or
entities responsible for managerial control of Tenant by sale, assignment,
bequest, inheritance, operation of law or other disposition, so as to result in
a change in the present control of said entity and/or of the underlying
beneficial interests of said entity and/or a change in the identity of the
persons responsible for the general credit obligations of said entity shall
constitute an assignment for all purposes of this Lease.</P>
<B><P ALIGN="JUSTIFY">E. Liability. </B>No assignment or subletting by
Tenant, permitted or otherwise, shall relieve Tenant of any obligation under
this Lease or any guarantor of this Lease of any liability under its guaranty or
alter the primary liability of the Tenant named herein for the payment of Rent
or for the performance of any other obligations to be performed by Tenant,
including obligations contained in Paragraph 25 with respect to any assignee or
subtenant. Landlord may collect rent or other amounts or any portion thereof
from any assignee, subtenant, or other occupant of the Premises, permitted or
otherwise, and apply the net rent collected to the Rent payable hereunder, but
no such collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease or any guarantor of this Lease of any liability under its guaranty.
Any assignment or subletting which conflicts with the provisions hereof shall be
void.</P>
<B><P ALIGN="CENTER">22. <A NAME="Authority"></A>AUTHORITY</P>
</B><P ALIGN="JUSTIFY">Landlord,<U> and the person or persons, if any, signing
on behalf of Landlord, jointly and severally, represent and warrant that
Landlord</U> has full right and authority to enter into this Lease and to
perform all of Landlord's obligations hereunder and that all persons signing
this Lease on its behalf are authorized to do. Tenant and the person or
persons, if any, signing on behalf of Tenant, jointly and severally represent
and warrant that Tenant has full right and authority to enter into this Lease,
and to perform all of Tenant's obligations hereunder, and that all persons
signing this Lease on its behalf are authorized to do so.</P>
<B><P ALIGN="CENTER">23. <A NAME="Condemnation"></A>CONDEMNATION</P>
<P ALIGN="JUSTIFY">A. Condemnation Resulting in Termination. </B>If the
whole or any substantial part of the Premises should be taken or condemned for
any public use under any Regulation, or by right of eminent domain, or by
private purchase in lieu thereof, and the taking would prevent or materially
interfere with the Permitted Use of the Premises, either party shall have the
right to terminate this Lease at its option. If any material portion of the
Building or Project is taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, Landlord may terminate this Lease at its option. In either of such
events, the Rent shall be abated during the unexpired portion of this Lease,
effective when the physical taking of said Premises shall have occurred.</P>
<B><P ALIGN="JUSTIFY">B. Condemnation Not Resulting in Termination. </B>If a
portion of the Project of which the Premises are a part should be taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and the taking prevents or
materially interferes with the Permitted Use of the Premises, and this Lease is
not terminated as provided in Paragraph 23.A. above, the Rent payable hereunder
during the unexpired portion of this Lease shall be reduced, beginning on the
date when the physical taking shall have occurred, to such amount as may be fair
and reasonable under all of the circumstances, but only after giving Landlord
credit for all sums received or to be received by Tenant by the condemning
authority. Notwithstanding anything to the contrary contained in this
Paragraph, if the temporary use or occupancy of any part of the Premises shall
be taken or appropriated under power of eminent domain during the Term, this
Lease shall be and remain unaffected by such taking or appropriation and Tenant
shall continue to pay in full all Rent payable hereunder by Tenant during the
Term; in the event of any such temporary appropriation or taking, Tenant shall
be entitled to receive that portion of any award which represents compensation
for the use of or occupancy of the Premises during the Term.</P>
<B><P ALIGN="JUSTIFY">C. Award. </B>Landlord shall be entitled to (and
Tenant shall assign to Landlord) any and all payment, income, rent, award or any
interest therein whatsoever which may be paid or made in connection with such
taking or conveyance and Tenant shall have no claim against Landlord or
otherwise for any sums paid by virtue of such proceedings, whether or not
attributable to<B> </B>the value of any unexpired portion of this Lease, except
as expressly provided in this Lease. Notwithstanding the foregoing, any
compensation specifically and separately awarded Tenant for Tenant's personal
property and moving costs, shall be and remain the property of Tenant.</P>
<B><P ALIGN="JUSTIFY">D. Waiver of CCP 1265.130. </B>Each party waives the
provisions of California Civil Code Procedure Section 1265.130 allowing either
party to petition the superior court to terminate this Lease as a result of a
partial taking.</P>
<B><P ALIGN="CENTER">24. <A NAME="Casualty"></A>CASUALTY DAMAGE</P>
<P ALIGN="JUSTIFY">A. General. </B>If the Premises or Building should be
damaged or destroyed by fire, tornado, or other casualty (collectively,
"<B>Casualty</B>"), Tenant shall give immediate written notice thereof
to Landlord. Within thirty (30) days after Landlord's receipt of such notice,
Landlord shall notify Tenant whether in Landlord's estimation material
restoration of the Premises can reasonably be made within one hundred eighty
(180) days from the date of <U>Landlord's written response to such notice</U>.
Landlord's determination shall be binding on Tenant.</P>
<B><P ALIGN="JUSTIFY">B. Within 180 Days. </B>If the Premises or Building
should be damaged by Casualty to such extent that material restoration can in
Landlord's estimation be reasonably completed within one hundred eighty (180)
days <U>from the date of Landlord's written response to the notice of
damage</U>, this Lease shall not terminate. Provided that insurance proceeds
are received by Landlord to fully repair the damage, Landlord shall proceed to
rebuild and repair the Premises diligently and in the manner determined by
Landlord, except that Landlord shall not be required to rebuild, repair or
replace any part of any Alterations which may have been placed on or about the
Premises or paid for by Tenant. If the Premises are untenantable in whole or in
part following such damage, the Rent payable hereunder during the period in
which they are untenantable shall be abated proportionately, but only to the
extent of rental abatement insurance proceeds received by Landlord during the
time and to the extent the Premises are unfit for occupancy.</P>
<B><P ALIGN="JUSTIFY">C. Greater than 180 Days. </B>If the Premises or
Building should be damaged by Casualty to such extent that rebuilding or repairs
cannot in Landlord's estimation be reasonably completed within one hundred
eighty (180) days <U>from the date of Landlord's written response to the notice
of damage</U>, then Landlord shall have the option of either: (1) terminating
this Lease effective upon the date of the occurrence of such damage, in which
event the Rent shall be abated during the unexpired portion of this Lease; or
(2) electing to rebuild or repair the Premises diligently and in the manner
determined by Landlord. Landlord shall notify Tenant of its election within
thirty (30) days after Landlord's receipt of notice of the damage or
destruction. Notwithstanding the above, Landlord shall not be required to
rebuild, repair or replace any part of any Alterations which may have been
placed, on or about the Premises or paid for by Tenant. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be abated
proportionately, but only to the extent of rental abatement insurance proceeds
received by Landlord during the time and to the extent the Premises are unfit
for occupancy. </P>
<B><P ALIGN="JUSTIFY">D<U>.</U> <U>Greater than 270 Days.</B></U> <U>If the
Premises or Building should be damaged by Casualty to such extent that
rebuilding or repairs cannot in Landlord's estimation be reasonably completed
within two hundred seventy (270) days from the date of Landlord's written
response to the notice of damage, and such damage materially and adversely
interferes with the conduct of Tenant's business in the Premises, then either
party shall have the right to cancel this Lease by giving the other party
written notice within ten (10) days from the date of Landlord's notice that
material restoration of the Premises cannot be made within such two hundred
seventy (270) day period or notice that Landlord has elected not to rebuild or
repair the Premises. Said cancellation shall be effective thirty (30) days from
the first day that either party gives its notice to cancel. If neither party
elects to so cancel this Lease, Landlord shall proceed to rebuild and repair the
Premises diligently and in the manner determined by Landlord, except that
Landlord shall not be required to rebuild, repair or replace any part of any
Alterations which may have been placed on or about the Premises by Tenant. If
the Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable shall be
abated proportionately, but only to the extent of rental abatement proceeds
received by Landlord during the time and to the extent the Premises are unfit
for occupancy.</P>
<B><P ALIGN="JUSTIFY">E.</U> <U>Greater than 360 Days.</B></U> <U>If
Landlord and Tenant have not elected to terminate this Lease as provided above,
and the Premises or Building has been damaged by Casualty to such extent that
rebuilding or repairs have not been completed by Landlord within three hundred
sixty (360) days from the date of Landlord's written response to the notice of
damage, and such damage materially and adversely interferes with the conduct of
Tenant's business in the Premises, then either party shall have the right to
cancel this Lease by giving the other party written notice within ten (10) days
from the date of Landlord's notice that material restoration of the Premises
cannot be made within such three hundred sixty (360) day period or notice that
Landlord has elected not to rebuild or repair the Premises. Said cancellation
shall be effective thirty (30) days from the first day that either party gives
its notice to cancel. If neither party elects to so cancel this Lease, Landlord
shall proceed to rebuild and repair the Premises diligently and in the manner
determined by Landlord, except that Landlord shall not be required to rebuild,
repair or replace any part of any Alterations which may have been placed on or
about the Premises by Tenant. If the Premises are untenantable in whole or in
part following such damage, the Rent payable hereunder during the period in
which they are untenantable shall be abated proportionately, but only to the
extent of rental abatement proceeds received by Landlord during the time and to
the extent the Premises are unfit for occupancy.</P>
<B><P ALIGN="JUSTIFY">F</U>. Tenant's Fault. </B>Notwithstanding anything
herein to the contrary, if the Premises or any other portion of the Building are
damaged by Casualty resulting from the fault, negligence, or breach of this
Lease by Tenant or any of Tenant's Parties, Base Rent and Additional Rent shall
not be diminished during the repair of such damage and Tenant shall be liable to
Landlord for the cost and expense of the repair and restoration of the Building
caused thereby to the extent such cost and expense is not covered by insurance
proceeds.</P>
<B><U><P ALIGN="JUSTIFY">G</U>. Insurance Proceeds. </B>Notwithstanding
anything herein to the contrary, if the Premises or Building are damaged or
destroyed and are not fully covered by the insurance proceeds received by
Landlord or if the holder of any indebtedness secured by a mortgage or deed of
trust covering the Premises requires that the insurance proceeds be applied to
such indebtedness, then in either case Landlord shall have the right to
terminate this Lease by delivering written notice of termination to Tenant
within thirty (30) days after the date of notice to Landlord that said damage or
destruction is not fully covered by insurance or such requirement is made by any
such holder, as the case may be, whereupon this Lease shall terminate.</P>
<B><U><P ALIGN="JUSTIFY">H</U>. Waiver. </B>This Paragraph 24 shall be
Tenant's sole and exclusive remedy in the event of damage or destruction to the
Premises or the Building. As a material inducement to Landlord entering into
this Lease, Tenant hereby waives any rights it may have under Sections 1932,
1933(4), 1941 or 1942 of the Civil Code of California with respect to any
destruction of the Premises, Landlord's obligation for tenantability of the
Premises and Tenant's right to make repairs and deduct the expenses of such
repairs, or under any similar law, statute or ordinance now or hereafter in
effect.</P>
<B><U><P ALIGN="JUSTIFY">I</U>. Tenant's Personal Property.</B> In the event
of any damage or destruction of the Premises or the Building, under no
circumstances shall Landlord be required to repair any injury or damage to, or
make any repairs to or replacements of, Tenant's personal property.</P>
<B><P ALIGN="CENTER">25. <A NAME="HoldingOver"></A>HOLDING OVER</P>
</B><P ALIGN="JUSTIFY">Unless Landlord expressly consents in writing to Tenant's
holding over, Tenant shall be unlawfully and illegally in possession of the
Premises, whether or not Landlord accepts any rent from Tenant or any other
person while Tenant remains in possession of the Premises without Landlord's
written consent. If Tenant shall retain possession of the Premises or any
portion thereof without Landlord's consent following the expiration of this
Lease or sooner termination for any reason, then Tenant shall pay to Landlord
for each day of such retention <U>the amount of any damages suffered by Landlord
due to Tenant's holding over, plus the greater of the following: (i) one-hundred
fifty percent (150%) of</U> the amount of daily rental <U>plus Operating
Expenses</U> as of the last month prior to the date of expiration or earlier
termination<U>, or (ii) the fair rental value of the Premises as reasonably
determined by Landlord</U>. Tenant shall also indemnify, defend, protect and
hold Landlord harmless from any loss, liability or cost, including consequential
and incidental damages and reasonable attorneys' fees, incurred by Landlord
resulting from delay by Tenant in surrendering the Premises, including, without
limitation, any claims made by the succeeding tenant founded on such delay.
Acceptance of Rent by Landlord following expiration or earlier termination of
this Lease, or following demand by Landlord for possession of the Premises,
shall not constitute a renewal of this Lease, and nothing contained in this
Paragraph 25 shall waive Landlord's right of reentry or any other right.
Additionally, if upon expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of the Premises or
any other Tenant obligations as set forth in this Lease, then Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of this
Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any
expiration or earlier termination of this Lease.</P>
<B><P ALIGN="CENTER">26. <A NAME="Default"></A>DEFAULT</P>
<P ALIGN="JUSTIFY">A. Events of Default. </B>The occurrence of any of the
following shall constitute an event of default on the part of Tenant:</P><DIR>
<DIR>
<B><P ALIGN="JUSTIFY">(1) Abandonment. </B>Abandonment of the Premises for a
continuous period in excess of five (5) days. Tenant waives any right to notice
Tenant may have under Section 1951.3 of the Civil Code of the State of
California, the terms of this Paragraph 26.A. being deemed such notice to Tenant
as required by said Section 1951.3.</P>
<B><P ALIGN="JUSTIFY">(2) Nonpayment of Rent. </B>Failure to pay any
installment of Rent or any other amount due and payable hereunder upon the date
when said payment is due, <U>such failure continuing for three (3) days after
written notice of such failure,</U> as to which time is of the essence<U>,
provided that Landlord shall not be required to provide such notice more than
once during the twelve (12) month period commencing with the date of such
notice. The second failure to pay any such amount within three (3) days after
said payment is due during such 12-month period shall be an event of default
hereunder without notice. Such notice shall replace rather than supplement any
statutory notice required under Code of Civil Procedure Section 1161 or any
similar or successor statute</U>.</P>
<B><P ALIGN="JUSTIFY">(3) Other Obligations. </B>Failure to perform any
obligation, agreement or covenant under this Lease other than those matters
specified in subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for <U>thirty (30)</U> days after written notice of such failure, as
to which time is of the essence.<U> Notwithstanding anything to the contrary
contained in this Lease, the following shall constitute an event of default
under this Paragraph 26.A.(3) without any such notice or lapse of time:
(i) failure to provide an estoppel certificate when and as required under
Paragraph 18 hereof; (ii) failure to maintain insurance required under
Paragraph 8 hereof; (iii) failure to vacate the Premises upon the
expiration or earlier termination of this Lease; (iv) failure to
immediately alleviate any nuisance described in Paragraph 4.B hereof, and
(v) any other matter provided for in another subparagraph of this Paragraph
26.A or for which another time limit is provided elsewhere in this Lease,
including without limitation, under <B>Exhibit C</B></U> <U>to this
Lease.</P>
</U><B><P ALIGN="JUSTIFY">(4) General Assignment. </B>A general assignment
by Tenant for the benefit of creditors.</P>
<B><P ALIGN="JUSTIFY">(5) Bankruptcy. </B>The filing of any voluntary
petition in bankruptcy by Tenant, or the filing of an involuntary petition by
Tenant's creditors, which involuntary petition remains undischarged for a period
of thirty (30) days. If under applicable law, the trustee in bankruptcy or
Tenant has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the affirmance of
this Lease and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's obligations under
this Lease.</P>
<B><P ALIGN="JUSTIFY">(6) Receivership. </B>The employment of a receiver to
take possession of substantially all of Tenant's assets or Tenant's leasehold of
the Premises, if such appointment remains undismissed or undischarged for a
period of fifteen (15) days after the order therefor.</P>
<B><P ALIGN="JUSTIFY">(7) Attachment. </B>The attachment, execution or other
judicial seizure of all or substantially all of Tenant's assets or Tenant's
leasehold of the Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of fifteen (15) days after the levy
thereof.</P>
<B><P ALIGN="JUSTIFY">(8) Insolvency.</B> The admission by Tenant in writing
of its inability to pay its debts as they become due.</P></DIR>
</DIR>
<B><P ALIGN="JUSTIFY">B. Remedies Upon Default.</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">(1) Termination. </B>In the event of the occurrence of
any event of default, Landlord shall have the right to give a written
termination notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate unless on or
before such date all Rent in arrears and all costs and expenses incurred by or
on behalf of Landlord hereunder shall have been paid by Tenant and all other
events of default of this Lease by Tenant at the time existing shall have been
fully remedied to the satisfaction of Landlord. At any time after such
termination, Landlord may recover possession of the Premises or any part thereof
and expel and remove therefrom Tenant and any other person occupying the same,
including any subtenant or subtenants notwithstanding Landlord's consent to any
sublease, by any lawful means, and again repossess and enjoy the Premises
without prejudice to any of the remedies that Landlord may have under this
Lease, or at law or equity by any reason of Tenant's default or of such
termination. Landlord hereby reserves the right, but shall not have the
obligation, to recognize the continued possession of any subtenant. The
delivery or surrender to Landlord by or on behalf of Tenant of keys, entry
codes, or other means to bypass security at the Premises shall not terminate
this Lease.</P>
<B><P ALIGN="JUSTIFY">(2) Continuation After Default. </B>Even though an
event of default may have occurred, this Lease shall continue in effect for so
long as Landlord does not terminate Tenant's right to possession under Paragraph
26.B.(1) hereof. Landlord shall have the remedy described in California Civil
Code Section 1951.4 ("Landlord may continue this Lease in effect after
Tenant's breach and abandonment and recover Rent as it becomes due, if Tenant
has the right to sublet or assign, subject only to reasonable
limitations"), or any successor code section. Accordingly, if Landlord
does not elect to terminate this Lease on account of any event of default by
Tenant, Landlord may enforce all of Landlord's rights and remedies under this
Lease, including the right to recover Rent as it becomes due. Acts of
maintenance, preservation or efforts to lease the Premises or the appointment of
a receiver under application of Landlord to protect Landlord's interest under
this Lease or other entry by Landlord upon the Premises shall not constitute an
election to terminate Tenant's right to possession.</P>
<B><P ALIGN="JUSTIFY">(3) Increased Security Deposit. </B>If Tenant is in
default under Paragraph 26.A.(2) hereof and such default remains uncured for ten
(10) days after such occurrence or such default occurs more than three times in
any twelve (12) month period, Landlord may require that Tenant increase the
Security Deposit to the amount of three times the current month's Rent at the
time of the most recent default.</P></DIR>
</DIR>
<B><P ALIGN="JUSTIFY">C. Damages After Default. </B>Should Landlord
terminate this Lease pursuant to the provisions of Paragraph 26.B.(1) hereof,
Landlord shall have the rights and remedies of a Landlord provided by Section
1951.2 of the Civil Code of the State of California, or any successor code
sections. Upon such termination, in addition to any other rights and remedies
to which Landlord may be entitled under applicable law or at equity, Landlord
shall be entitled to recover from Tenant: (1) the worth at the time of award of
the unpaid Rent and other amounts which had been earned at the time of
termination, (2) the worth at the time of award of the amount by which the
unpaid Rent and other amounts that would have been earned after the date of
termination until the time of award exceeds the amount of such Rent loss that
Tenant proves could have been reasonably avoided; (3) the worth at the time of
award of the amount by which the unpaid Rent and other amounts for the balance
of the Term after the time of award exceeds the amount of such Rent loss that
the Tenant proves could be reasonably avoided; and (4) any other amount and
court costs necessary to compensate Landlord for all detriment proximately
caused by Tenant's failure to perform Tenant's obligations under this Lease or
which, in the ordinary course of things, would be likely to result therefrom.
The "worth at the time of award" as used in (1) and (2) above shall be
computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting
such amount at the Federal Discount Rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%). If this Lease provides
for any periods during the Term during which Tenant is not required to pay Base
Rent or if Tenant otherwise receives a Rent concession, then upon the occurrence
of an event of default, Tenant shall owe to Landlord the full amount of such
Base Rent or value of such Rent concession, plus interest at the Applicable
Interest Rate, calculated from the date that such Base Rent or Rent concession
would have been payable.</P>
<B><P ALIGN="JUSTIFY">D. Late Charge. </B>In addition to its other remedies,
and the right to recover all other costs and expenses incurred by Landlord as a
result of any late payment by Tenant, Landlord shall have the right without
notice or demand to add to the amount of any payment required to be made by
Tenant hereunder, and which is not paid and received by Landlord on or before
the first day of each calendar month, an amount equal to ten percent (10%) of
the delinquency for each month or portion thereof that the delinquency remains
outstanding to compensate Landlord for the loss of the use of the amount not
paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord.</P>
<B><P ALIGN="JUSTIFY">E. Interest.</B> Interest shall accrue on all sums not
paid when due hereunder at the lesser of eighteen percent (18%) per annum or the
maximum interest rate allowed by law ("<B>Applicable Interest
Rate</B>") from the due date until paid.</P>
<B><P ALIGN="JUSTIFY">F. Remedies Cumulative. </B>All rights, privileges and
elections or remedies of the parties are cumulative and not alternative, to the
extent permitted by law and except as otherwise provided herein.</P>
<B><P ALIGN="JUSTIFY">G. Replacement of Statutory Notice Requirements.</B>
When this Lease requires service of a notice, that notice shall replace rather
than supplement any equivalent or similar statutory notice, including any notice
required by California Code of Civil Procedure Section 1161 or any similar or
successor statute. When a statute requires service of a notice in a particular
manner, service of that notice (or a similar notice required by this Lease) in
the manner required by this Paragraph 26 shall replace and satisfy the statutory
service-of-notice procedures, including those required by California Code of
Civil Procedure Section 1162 or any similar or successor statute.</P>
<B><P ALIGN="CENTER">27. <A NAME="Liens"></A>LIENS</P>
</B><P ALIGN="JUSTIFY">Tenant shall at all times keep the Premises and the
Project free from liens arising out of or related to work or services performed,
materials or supplies furnished or obligations incurred by or on behalf of
Tenant or in connection with work made, suffered or done by or on behalf of
Tenant in or on the Premises or Project. If Tenant shall not, within <U>fifteen
(15)</U> days following the imposition of any such lien, cause the same to be
released of record by payment or posting of a proper bond, Landlord shall have,
in addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as Landlord shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in
connection therefor shall be payable to Landlord by Tenant on demand with
interest at the Applicable Interest Rate as Additional Rent. Landlord shall
have the right at all times to post and keep posted on the Premises any notices
permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord, the Premises, the Project and any other party having an
interest therein, from mechanics' and materialmen's liens, and Tenant shall give
Landlord not less than ten (10) business days prior written notice of the
commencement of any work in the Premises or Project which could lawfully give
rise to a claim for mechanics' or materialmen's liens to permit Landlord to post
and record a timely notice of non-responsibility, as Landlord may elect to
proceed or as the law may from time to time provide, for which purpose, if
Landlord shall so determine, Landlord may enter the Premises. Tenant shall not
remove any such notice posted by Landlord without Landlord's consent, and in any
event not before completion of the work which could lawfully give rise to a
claim for mechanics' or materialmen's liens. </P>
<B><P ALIGN="CENTER">28. SUBSTITUTION</P>
<U><P ALIGN="CENTER">Omitted.</P>
</U><P ALIGN="CENTER">29. <A NAME="Substitution"><A
NAME="Transfers"></A></A>TRANSFERS BY LANDLORD</P>
</B><P ALIGN="JUSTIFY">In the event of a sale or conveyance by Landlord of the
Building or a foreclosure by any creditor of Landlord, the same shall operate to
release Landlord from any liability upon any of the covenants or conditions,
express or implied, herein contained in favor of Tenant, to the extent required
to be performed after the passing of title to Landlord's successor-in-interest.
In such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed
after the passing of title to Landlord's successor-in-interest. This Lease
shall not be affected by any such sale and Tenant agrees to attorn to the
purchaser or assignee. Landlord's successor(s)-in-interest shall not have
liability to Tenant with respect to the failure to perform any of the
obligations of "Landlord," to the extent required to be performed
prior to the date such successor(s)-in-interest became the owner of the
Building.</P>
<B><P ALIGN="CENTER">30. <A NAME="RightOfLandlord"></A>RIGHT OF LANDLORD TO
PERFORM TENANT'S COVENANTS</P>
</B><P ALIGN="JUSTIFY">All covenants and agreements to be performed by Tenant
under any of the terms of this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any abatement of Rent. If Tenant shall fail
to pay any sum of money, other than Base Rent, required to be paid by Tenant
hereunder or shall fail to perform any other act on Tenant's part to be
performed hereunder, including Tenant's obligations under Paragraph 11 hereof,
and such failure shall continue for fifteen (15) days after notice thereof by
Landlord, in addition to the other rights and remedies of Landlord, Landlord may
make any such payment and perform any such act on Tenant's part. In the case of
an emergency, no prior notification by Landlord shall be required. Landlord may
take such actions without any obligation and without releasing Tenant from any
of Tenant's obligations. All sums so paid by Landlord and all incidental costs
incurred by Landlord and interest thereon at the Applicable Interest Rate, from
the date of payment by Landlord, shall be paid to Landlord on demand as
Additional Rent.</P>
<B><P ALIGN="CENTER">31. <A NAME="Waiver2"></A>WAIVER</P>
</B><P ALIGN="JUSTIFY">If either Landlord or Tenant waives the performance of
any term, covenant or condition contained in this Lease, such waiver shall not
be deemed to be a waiver of any subsequent breach of the same or any other term,
covenant or condition contained herein, or constitute a course of dealing
contrary to the expressed terms of this Lease. The acceptance of Rent by
Landlord shall not constitute a waiver of any preceding breach by Tenant of any
term, covenant or condition of this Lease, regardless of Landlord's knowledge of
such preceding breach at the time Landlord accepted such Rent. Failure by
Landlord to enforce any of the terms, covenants or conditions of this Lease for
any length of time shall not be deemed to waive or decrease the right of
Landlord to insist thereafter upon strict performance by Tenant. Waiver by
Landlord of any term, covenant or condition contained in this Lease may only be
made by a written document signed by Landlord, based upon full knowledge of the
circumstances.</P>
<B><P ALIGN="CENTER">32. <A NAME="Notices"></A>NOTICES</P>
</B><P ALIGN="JUSTIFY">Each provision of this Lease or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to sending, mailing, or delivery of any notice or the making of any payment by
Landlord or Tenant to the other shall be deemed to be complied with when and if
the following steps are taken:</P>
<B><P ALIGN="JUSTIFY">A. Rent. </B>All Rent and other payments required to
be made by Tenant to Landlord hereunder shall be payable to Landlord at
Landlord's Remittance Address set forth in the Basic Lease Information, or at
such other address as Landlord may specify from time to time by written notice
delivered in accordance herewith. Tenant's obligation to pay Rent and any other
amounts to Landlord under the terms of this Lease shall not be deemed satisfied
until such Rent and other amounts have been actually received by Landlord.</P>
<B><P ALIGN="JUSTIFY">B. Other. </B>All notices, demands, consents and
approvals which may or are required to be given by either party to the other
hereunder shall be in writing and either personally delivered, sent by
commercial overnight courier, mailed, certified or registered, postage prepaid
or sent by facsimile with confirmed receipt (and with an original sent by
commercial overnight courier), and in each case addressed to the party to be
notified at the Notice Address for such party as specified in the Basic Lease
Information or to such other place as the party to be notified may from time to
time designate by at least fifteen (15) days notice to the notifying party.
Notices shall be deemed served upon receipt or refusal to accept delivery.
Tenant appoints as its agent to receive the service of all default notices and
notice of commencement of unlawful detainer proceedings the person in charge of
or apparently in charge of occupying the Premises at the time, and, if there is
no such person, then such service may be made by attaching the same on the main
entrance of the Premises.</P>
<B><P ALIGN="JUSTIFY">C. Required Notices.</B> Tenant shall immediately
notify Landlord in writing of any notice of a violation or a potential or
alleged violation of any Regulation that relates to the Premises or the Project,
or of any inquiry, investigation, enforcement or other action that is instituted
or threatened by any governmental or regulatory agency against Tenant or any
other occupant of the Premises, or any claim that is instituted or threatened by
any third party that relates to the Premises or the Project.</P>
<B><P ALIGN="CENTER">33. <A NAME="AttorneysFees"></A>ATTORNEYS' FEES</P>
</B><P ALIGN="JUSTIFY">If Landlord places the enforcement of this Lease, or any
part thereof, or the collection of any Rent due, or to become due hereunder, or
recovery of possession of the Premises in the hands of an attorney, Tenant shall
pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court
costs, whether incurred without trial, at trial, appeal or review. In any
action which Landlord or Tenant brings to enforce its respective rights
hereunder, the unsuccessful party shall pay all costs incurred by the prevailing
party including reasonable attorneys' fees, to be fixed by the court, and said
costs and attorneys' fees shall be a part of the judgment in said action.</P>
<B><P ALIGN="CENTER">34. <A NAME="Successors"></A>SUCCESSORS AND ASSIGNS</P>
</B><P ALIGN="JUSTIFY">This Lease shall be binding upon and inure to the benefit
of Landlord, its successors and assigns, and shall be binding upon and inure to
the benefit of Tenant, its successors, and to the extent assignment is approved
by Landlord as provided hereunder, Tenant's assigns.</P>
<B><P ALIGN="CENTER">35. <A NAME="ForceMajeure"></A>FORCE MAJEURE</P>
</B><P ALIGN="JUSTIFY">If performance by a party of any portion of this Lease is
made impossible by any prevention, delay, or stoppage caused by strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes for those items, government actions, civil
commotions, fire or other casualty, or other causes beyond the reasonable
control of the party obligated to perform, performance by that party for a
period equal to the period of that prevention, delay, or stoppage is excused.
Tenant's obligation to pay Rent, however, is not excused by this Paragraph
35.</P>
<B><P ALIGN="CENTER">36. <A NAME="Surrender"></A>SURRENDER OF PREMISES</P>
</B><P ALIGN="JUSTIFY">Tenant shall, upon expiration or sooner termination of
this Lease, surrender the Premises to Landlord in <U>as good a</U> condition as
existed on the date Tenant originally took possession thereof, <U>ordinary wear
and tear excepted, provided that ordinary wear and tear shall not include repair
and clean up items. Repair and clean up items shall include replacement of
damaged or missing ceiling or floor tiles, window coverings or cover plates,
removal</U> of any Tenant-introduced <U>markings, and repair of all holes and
gaps, as well as the removal requirements contained in this Lease</U>, all to
the reasonable satisfaction of Landlord. Tenant shall remove all of its debris
from the Project. At or before the time of surrender, Tenant shall comply with
the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises
and all other matters addressed in such Paragraph. If the Premises are not so
surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating, but nothing
contained herein shall be construed as an extension of the Term or as a consent
by Landlord to any holding over by Tenant. In the event of Tenant's failure to
participate in such joint inspection, Landlord's inspection at or after Tenant's
vacating the Premises shall conclusively be deemed correct for purposes of
determining Tenant's responsibility for repairs and restoration. </P>
<B><P ALIGN="CENTER">37. <A NAME="parknig"></A>PARKING</P>
</B><P ALIGN="JUSTIFY">So long as Tenant is occupying the Premises, Tenant and
Tenant's Parties shall have the right to use up to the number of parking spaces,
if any, specified in the Basic Lease Information on an unreserved, nonexclusive,
first come, first served basis, for passenger-size automobiles, <U>sports
utility vehicles and pickup trucks (provided that the only requirement with
respect to the size of the parking spaces</U> in the parking areas in the
Project <U>is that such parking spaces meet code requirements) in the parking
areas in the Project</U> designated from time to time by Landlord for use in
common by tenants of the Building. <U>Tenant shall be entitled to receive
reserved parking spaces only in the event that Landlord grants such parking
privileges to other tenants in the Building during the Term of this Lease, and
in a manner provided herein. If Landlord does grant such reserved parking
spaces, Tenant shall be entitled to receive one (1) parking space for every two
(2) parking spaces Landlord grants to other tenants of the Building, up to a
total amount of parking spaces not to exceed fifteen (15) spaces
("<B>Tenant's Reserved Parking Spaces</B>") granted to Tenant.
Notwithstanding anything to the contrary in this Paragraph 37, Landlord shall
not allocate more than a total of fifty (50) parking spaces (the
"<B>Maximum Reserved Parking</B>") in the eastern parking structure
(the "<B>East Parking Structure</B>") constructed contemporaneously
with the Building and located in the eastern portion of the Project and adjacent
to the Building. Landlord may allocate up to fifteen (15) additional reserved
parking spaces in the East Parking Structure for the existing restaurant in the
Project which is currently operated by Chevy's, Inc., which additional fifteen
(15) spaces shall not be included in the calculation of Maximum Reserved Parking
hereunder. That portion of the Maximum Reserved Parking not allocated to Tenant
shall be evenly distributed between the floors of the East Parking Structure, as
reasonably determined by Landlord. In the event that Tenant exercises its
option to expand provided in Paragraph 39.C of this Lease, the total number of
Maximum Reserved Parking shall be decreased by one parking space for each three
thousand (3,000) usable square feet leased by Tenant thereunder.</P>
</U><P ALIGN="JUSTIFY">Tenant may request additional parking spaces from time to
time and if Landlord in its sole discretion agrees to make such additional
spaces available for use by Tenant, such spaces shall be provided on a month-to-
month unreserved and nonexclusive basis (unless otherwise agreed in writing by
Landlord), and subject to such parking charges as Landlord shall determine, and
shall otherwise be subject to such terms and conditions as Landlord may
require.</P>
<P ALIGN="JUSTIFY">Tenant shall at all times comply and shall cause all Tenant's
Parties and visitors to comply with all Regulations and any rules and
regulations established from time to time by Landlord relating to parking at the
Project, including any keycard, sticker or other identification or entrance
system, and hours of operation, as applicable.</P>
<P ALIGN="JUSTIFY"> Landlord shall have no liability for any damage to property
or other items located in the parking areas of the Project, nor for any personal
injuries or death arising out of the use of parking areas in the Project by
Tenant or any Tenant's Parties. Without limiting the foregoing, if Landlord
arranges for the parking areas to be operated by an independent contractor not
affiliated with Landlord, Tenant acknowledges that Landlord shall have no
liability for claims arising through acts or omissions of such independent
contractor. In all events, Tenant agrees to look first to its insurance carrier
and to require that Tenant's Parties look first to their respective insurance
carriers for payment of any losses sustained in connection with any use of the
parking areas.</P>
<P ALIGN="JUSTIFY">Landlord reserves the right to assign specific spaces, and to
reserve spaces for visitors, small cars, disabled persons or for other tenants
or guests, and Tenant shall not park and shall not allow Tenant's Parties to
park in any such assigned or reserved spaces. Tenant may validate visitor
parking by such method as Landlord may approve, at the validation rate from time
to time generally applicable to visitor parking. Landlord also reserves the
right to alter, modify, relocate or close all or any portion of the parking
areas in order to make repairs or perform maintenance service, or to restripe or
renovate the parking areas, or if required by casualty, condemnation, act of
God, Regulations or for any other reason deemed reasonable by Landlord<U>,
provided that Tenant suffers no diminution in the number of parking spaces
granted to Tenant herein</U>.</P>
<P ALIGN="JUSTIFY">Tenant shall pay to Landlord (or Landlord's parking
contractor, if so directed in writing by Landlord), as Additional Rent
hereunder, the monthly charges established from time to time by Landlord for
parking in such parking areas (which shall initially be the charge specified in
the Basic Lease Information, as applicable).<U> During the Term hereof, in no
event shall such monthly parking charges increase more than five percent (5%) in
any twelve (12) month period.</U> Such parking charges shall be payable in
advance with Tenant's payment of Basic Rent. No deductions from the monthly
parking charge shall be made for days on which the Tenant does not use any of
the parking spaces entitled to be used by Tenant.</P>
<B><P ALIGN="CENTER">38. <A NAME="Miscellaneous"></A>MISCELLANEOUS</P>
<P ALIGN="JUSTIFY">A. General. </B>The term "Tenant" or any
pronoun used in place thereof shall indicate and include the masculine or
feminine, the singular or plural number, individuals, firms or corporations, and
their respective successors, executors, administrators and permitted assigns,
according to the context hereof.</P>
<B><P ALIGN="JUSTIFY">B. Time. </B>Time is of the essence regarding this
Lease and all of its provisions.</P>
<B><P ALIGN="JUSTIFY">C. Choice of Law. </B>This Lease shall in all respects
be governed by the laws of the State of California.</P>
<B><P ALIGN="JUSTIFY">D. Entire Agreement. </B>This Lease, together with its
Exhibits, addenda and attachments and the Basic Lease Information, contains all
the agreements of the parties hereto and supersedes any previous negotiations.
There have been no representations made by the Landlord or understandings made
between the parties other than those set forth in this Lease and its Exhibits,
addenda and attachments and the Basic Lease Information.</P>
<B><P ALIGN="JUSTIFY">E. Modification. </B>This Lease may not be modified
except by a written instrument signed by the parties hereto.<U> Subject to
Tenant's one-time right remeasure the Premises as set forth in Paragraph
39.I,</U> Tenant accepts the area of the Premises as specified in the Basic
Lease Information as the approximate area of the Premises for all purposes under
this Lease, and acknowledges and agrees that no other definition of the area
(rentable, usable or otherwise) of the Premises shall apply.<U> Except as
otherwise expressly provided herein,</U> Tenant shall in no event be entitled to
a recalculation of the square footage of the Premises, rentable, usable or
otherwise, and no recalculation, if made, irrespective of its purpose, shall
reduce Tenant's obligations under this Lease in any manner, including without
limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate
Share of the Building and of the Project.</P>
<B><P ALIGN="JUSTIFY">F. Severability. </B>If, for any reason whatsoever,
any of the provisions hereof shall be unenforceable or ineffective, all of the
other provisions shall be and remain in full force and effect.</P>
<B><P ALIGN="JUSTIFY">G. Recordation. </B>Tenant shall not record this Lease
or a short form memorandum hereof.</P>
<B><P ALIGN="JUSTIFY">H. Examination of Lease. </B>Submission of this Lease
to Tenant does not constitute an option or offer to lease and this Lease is not
effective otherwise until execution and delivery by both Landlord and
Tenant.</P>
<B><P ALIGN="JUSTIFY">I. Accord and Satisfaction. </B>No payment by Tenant
of a lesser amount than the total Rent due nor any endorsement on any check or
letter accompanying any check or payment of Rent shall be deemed an accord and
satisfaction of full payment of Rent, and Landlord may accept such payment
without prejudice to Landlord's right to recover the balance of such Rent or to
pursue other remedies. All offers by or on behalf of Tenant of accord and
satisfaction are hereby rejected in advance.</P>
<B><P ALIGN="JUSTIFY">J. Easements. </B>Landlord may grant easements on the
Project and dedicate for public use portions of the Project without Tenant's
consent; provided that no such grant or dedication shall materially interfere
with Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant
shall execute, acknowledge and deliver to Landlord documents, instruments, maps
and plats necessary to effectuate Tenant's covenants hereunder.</P>
<B><P ALIGN="JUSTIFY">K. Drafting and Determination Presumption. </B>The
parties acknowledge that this Lease has been agreed to by both the parties, that
both Landlord and Tenant have consulted with attorneys with respect to the terms
of this Lease and that no presumption shall be created against Landlord because
Landlord drafted this Lease. Except as otherwise specifically set forth in this
Lease, with respect to any consent, determination or estimation of Landlord
required or allowed in this Lease or requested of Landlord, Landlord's consent,
determination or estimation shall be given or made solely by Landlord in
Landlord's good faith opinion, whether or not objectively reasonable. If
Landlord fails to respond to any request for its consent within the time period,
if any, specified in this Lease, Landlord shall be deemed to have disapproved
such request.</P>
<B><P ALIGN="JUSTIFY">L. Exhibits. </B>The Basic Lease Information, and the
Exhibits, addenda and attachments attached hereto are hereby incorporated herein
by this reference and made a part of this Lease as though fully set forth
herein.</P>
<B><P ALIGN="JUSTIFY">M. No Light, Air or View Easement. </B>Any diminution
or shutting off of light, air or view by any structure which may be erected on
lands adjacent to or in the vicinity of the Building shall in no way affect this
Lease or impose any liability on Landlord.</P>
<B><P ALIGN="JUSTIFY">N. No Third Party Benefit. </B>This Lease is a
contract between Landlord and Tenant and nothing herein is intended to create
any third party benefit.</P>
<B><P ALIGN="JUSTIFY">O. Quiet Enjoyment.</B> Upon payment by Tenant of the
Rent, and upon the observance and performance of all of the other covenants,
terms and conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby demised
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under Landlord, subject,
nevertheless, to all of the other terms and conditions of this Lease. Landlord
shall not be liable for any hindrance, interruption, interference or disturbance
by other tenants or third persons, nor shall Tenant be released from any
obligations under this Lease because of such hindrance, interruption,
interference or disturbance<U>, except as expressly set forth herein</U>.</P>
<B><P ALIGN="JUSTIFY">P. Counterparts. </B>This Lease may be executed in any
number of counterparts, each of which shall be deemed an original.</P>
<B><P ALIGN="JUSTIFY">Q. Multiple Parties. </B>If more than one person or
entity is named herein as Tenant, such multiple parties shall have joint and
several responsibility to comply with the terms of this Lease.</P>
<B><P ALIGN="JUSTIFY">R. Prorations</B>. Any Rent or other amounts payable
to Landlord by Tenant hereunder for any fractional month shall be prorated based
on a month of 30 days. As used herein, the term "fiscal year" shall
mean the calendar year or such other fiscal year as Landlord may deem
appropriate.</P>
<B><P ALIGN="CENTER">39. <A NAME="Additional"></A>ADDITIONAL PROVISIONS</P>
<U><P ALIGN="JUSTIFY">A.</U> <U>Base Rent.</P></B></U></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=686>
<TR><TD WIDTH="50%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="JUSTIFY">Month:</B></U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="JUSTIFY">Base Rent (subject to adjustment in
accordance with Paragraph 39.I):</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 1 through Month 12:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$600,750.00 per month, based upon $2.67 per
rentable square foot </P>
<P ALIGN="JUSTIFY"></U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 13 through Month 24:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$612,000.00 per month, based upon $2.72 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 25 through Month 36:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$623,250.00 per month, based upon $2.77 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 37 through Month 48:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$634,500.00 per month, based upon $2.82 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 49 through Month 60:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$645,750.00 per month, based upon $2.87 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 61 through Month 72:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$659,250.00 per month, based upon $2.93 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 73 through Month 84:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$670,500.00 per month, based upon $2.98 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 85 through Month 96:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$684,000.00 per month, based upon $3.04 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 97 through Month 108:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$697,500.00 per month, based upon $3.10 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 109 through Month 120:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$711,000.00 per month, based upon $3.16 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 121 through Month 132:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$724,500.00 per month, based upon $3.22 per
rentable square foot</U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">Month 133 through Month 144:</U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="JUSTIFY">$738,000.00 per month, based upon $3.28 per
rentable square foot</U></FONT></TD>
</TR>
</TABLE>
<U><FONT SIZE=1><DIR>
<DIR>
<B><P ALIGN="JUSTIFY">B.</U> <U>Option to Renew</B>. Tenant shall, provided
this Lease is in full force and effect and Tenant is not and has not been in
default during the previous twenty-four (24) months under any of the terms and
conditions of this Lease beyond any applicable cure period, have one option to
renew this Lease for a term of five (5) years, for the Premises in "as
is" condition and on the same terms and conditions set forth in this Lease,
except as modified by the terms, covenants and conditions set forth
below:</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">(1)</U> <U>If Tenant elects to exercise such option, then
Tenant shall provide Landlord with written notice no later than 5:00 p.m.
(Pacific Standard Time) on the date which is 540 days prior to the expiration of
the then current term of this Lease. If Tenant fails to provide such notice,
Tenant shall have no further or additional right to extend or renew the term of
this Lease.</P></DIR>
</DIR>
</DIR>
</DIR>
<OL START=2>
<OL>
<P ALIGN="JUSTIFY"><LI>The Base Rent in effect at the expiration of the then
current term of this Lease shall be increased to reflect the current fair market
rental for comparable space in the Building or other similar buildings in the
Emeryville rental market as of the date the renewal term is to commence, taking
into account the specific provisions of this Lease which will remain constant,
and the Building amenities, location, identity, quality, age, condition, term of
lease, tenant improvements, services provided, and other pertinent items.
</LI></P></OL>
</OL>
<DIR>
<DIR>
<DIR>
<DIR>
<P ALIGN="JUSTIFY">(3)</U> <U>Landlord shall advise Tenant of the new Base
Rent for the Premises for the renewal term based on Landlord's determination of
fair market rental value, as well as the terms and conditions for the renewal
term, no later than fifteen (15) days after receipt of notice of Tenant's
exercise of its option to renew.</P>
<P ALIGN="JUSTIFY">(4)</U> <U>Landlord and Tenant shall negotiate in good
faith to agree on the fair market rental value of the Premises and terms and
conditions for each renewal term. If Tenant and Landlord are unable to agree on
a mutually acceptable rental rate for any renewal term within thirty (30) days
after notification by Landlord to Tenant of Landlord's determination of the new
Base Rent for the applicable renewal term, but in any event no later than the
date which is ninety (90) days prior to the expiration of the then current term,
then on or before such date Landlord and Tenant shall each appoint a licensed
real estate broker with at least ten (10) year's experience in leasing office
space in the area in which the Building is located to act as arbitrators. The
two (2) arbitrators so appointed shall determine the fair market rental value
for the Premises for the applicable renewal term based on the above criteria and
each shall submit his or her determination of such fair market rental value to
Landlord and Tenant in writing, within sixty (60) days after their
appointment.</P>
<P ALIGN="JUSTIFY">If the two (2) arbitrators so appointed cannot agree on the
fair market rental value for the applicable renewal term within such 60-day
period, the two (2) arbitrators shall within five (5) days thereafter appoint a
third arbitrator who shall be a licensed real estate broker with at least ten
(10) year's experience in leasing office space in the area in which the Building
is located. The third arbitrator so appointed shall independently determine the
fair market rental value for the Premises for the renewal term within thirty
(30) days after appointment, by selecting from the proposals submitted by each
of the first two arbitrators the one that most closely approximates the third
arbitrator's determination of such fair market rental value. The third
arbitrator shall have no right to adopt a compromise or middle ground or any
modification of either of the proposals submitted by the first two arbitrators.
The proposal chosen by the third arbitrator as most closely approximating the
third arbitrator's determination of the fair market rental value shall
constitute the decision and award of the arbitrators and shall be final and
binding on the parties. </P>
<P ALIGN="JUSTIFY">Each party shall pay the fees and expenses of the arbitrator
appointed by such party and one-half (1/2) of the fees and expenses of the third
arbitrator. Notwithstanding the foregoing, in the event the Base Rent is found
to be within ten percent (10%) of the original rate quoted by Landlord, then
Tenant shall bear the full cost of the arbitration process.</P>
<P ALIGN="JUSTIFY">If either party fails to appoint an arbitrator, or if either
of the first two arbitrators fails to submit his or her proposal of fair market
rental value to the other party, in each case within the time periods set forth
above, then the decision of the other party's arbitrator shall be considered
final and binding. </P>
<P ALIGN="JUSTIFY">In the event the third arbitrator fails to present a fair
market rental value within such 30-day period, then by mutual consent of the
Landlord and Tenant :</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">(a)</U> <U>the time period will be extended, or</P>
<P ALIGN="JUSTIFY">(b)</U> <U>If either Landlord or Tenant do not wish to
extend the time period, a fourth arbitrator shall be selected by the first two
arbitrators and a new thirty (30) day period shall begin</P></DIR>
</DIR>
<P ALIGN="JUSTIFY">(5)</U> <U>Notwithstanding anything to the contrary
contained in this Paragraph, in no event shall the Base Rent for any renewal
term be less than the Base Rent in effect at the expiration of the previous
term. In addition, Landlord shall have no obligation to provide or pay for any
tenant improvements or brokerage commissions during any renewal term.</P>
<P ALIGN="JUSTIFY">(6)</U> <U>Tenant's right to exercise any option to renew
under this Paragraph shall be conditioned upon Tenant or a Permitted Transferee
occupying at lease seventy-five percent (75%) of the entire Premises and the
same not being occupied by any assignee, subtenant or licensee other than Tenant
or a Permitted Transferee at the time of exercise of the option and commencement
of the renewal term. Tenant's exercise of the option to renew shall constitute
a representation by Tenant (or a Permitted Transferee, if applicable) to
Landlord that as of the date of exercise of the option, Tenant does not intend
to seek to assign more than twenty-five percent (25%) of this Lease for
substantially the remainder of the Term, or sublet more than twenty-five percent
(25%) of the Premises for substantially the remainder of the Term, except to a
Permitted Transferee. </P></DIR>
</DIR>
</DIR>
</DIR>
<OL START=7>
<OL>
<P ALIGN="JUSTIFY"><LI>Any exercise by Tenant of the option to renew under this
Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to
execute a lease amendment or, at Landlord's option, a new lease agreement on
Landlord's then standard lease form for the Building, reflecting the foregoing
terms and conditions, prior to the commencement of the renewal term. The option
to renew granted under this Paragraph is not transferable; the parties hereto
acknowledge and agree that they intend that the option to renew this Lease under
this Paragraph shall be "personal" to the specific Tenant named in
this Lease and that in no event will any assignee or sublessee have any rights
to exercise such option to renew.</LI></P></OL>
</OL>
<OL START=3 TYPE="A">
<B><P ALIGN="JUSTIFY"><LI>One-Time Option to Expand.</B></U> <U>Provided Tenant
is not in default, and has not been in material default beyond any applicable
cure period of its obligations under this Lease beyond any applicable cure
period, Tenant shall have the one-time option of expanding into all of Floors 9-
12 and the remaining portion of Floor 13 not initially leased by Tenant
hereunder, on the same terms and condition as set forth in this Lease. Tenant
shall exercise its option by giving Landlord written notice prior to May 1,
2000. If Tenant does not exercise this one-time option to expand prior to May
1, 2000, this option shall be null and void and Landlord may enter into leases
for the premises with other third parties. Notwithstanding anything to the
contrary contained herein, Tenant's right to expand by exercise of the foregoing
option shall be conditioned upon the following: (i) at the time of the exercise
of the option to expand and at the time of the commencement of the term for the
expansion premises, Tenant or a Permitted Transferee shall be in possession of
and occupying at lease seventy-five percent (75%) of the Premises for the
conduct of its business therein and, further, that the option to expand shall be
applicable hereunder only if the expansion premises will actually be occupied by
Tenant or a Permitted Transferee and (ii) the notice of exercise shall
constitute a representation by Tenant to Landlord, effective as of the date of
the exercise, that Tenant does not intend to assign this Lease or the lease for
the expansion premises in whole or in part, or sublet all or any portion of the
Premises or the expansion premises, each except with respect to a Permitted
Transferee, the election to expand being for the purpose of utilizing the
expansion premises for Tenant's (or a Permitted Transferee's) purposes in the
conduct of Tenant's (or a Permitted Transferee's) business therein. Such
expansion premises shall be leased to Tenant under the same terms and conditions
contained in this Lease. If Tenant is able to and properly exercises its one-
time option to expand, Landlord shall prepare an amendment to accurately reflect
changes in the Premises, Monthly Base Rent, Proportionate Share, a proportionate
increase in the number of parking spaces and other appropriate terms. A copy of
such amendment shall be sent to Tenant within a reasonable time after exercise
by Tenant and executed by Tenant and returned to Landlord.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=4>Right of First Opportunity.</B></U> <U>After
the initial leasing of the entire Building, and provided Tenant is not, and has
not been, in default of any terms and conditions of this Lease beyond any
applicable cure period, Tenant shall have a one-time right of first offer to
lease any available space in the Building</U></FONT><I><FONT SIZE=1
COLOR="#ff0000"> </I></FONT><U><FONT SIZE=1>at such time as such additional
space is vacated by the prior tenant. Upon notification by Landlord in writing
of the availability of space and the terms and conditions on which Landlord is
willing to lease such additional space to Tenant, Tenant shall have five (5)
days to notify Landlord in writing of Tenant's desire to exercise Tenant's right
of first offer on the terms and conditions. In the event Tenant fails to give
Landlord notice of Tenant's election to lease such additional space within such
time period, Tenant shall have no further right, title or interest in such
additional space other than as expressly provided herein under expansion
options</U></FONT><FONT SIZE=1 COLOR="#ff0000"> </FONT><U><FONT SIZE=1>and this
right of first offer shall terminate with respect to such space. If, on the
other hand, Tenant exercises its right of first offer in the manner prescribed,
Tenant shall immediately deliver to Landlord payment for the first month's rent
for such additional space (in the same manner as provided for in this Lease),
and the lease for such additional space shall be consummated without delay in
accordance with the terms and conditions set forth in Landlord's notice Such
additional space shall be leased to Tenant on an "as is" basis and
Landlord shall have no obligation to improve such additional space or grant
Tenant any improvement allowance thereon. Notwithstanding anything to the
contrary herein contained, Tenant's right to the expansion premises shall be
conditioned upon the following: (i) at the time Tenant agrees to accept the
expansion premises and at the time of the commencement of the term for the
expansion premises, Tenant or a Permitted Transferee shall be in possession of
and occupying at lease seventy-five percent (75%) of the primary Premises for
the conduct of its business therein and, provided further, that the option for
additional space shall be applicable hereunder only if the expansion premises
will actually be occupied by Tenant or a Permitted Transferee and (ii) the
agreement of acceptance shall constitute a representation by Tenant to Landlord,
effective as of the date of the agreement of acceptance and as of the date of
commencement of the lease for the expansion premises, that, except with respect
to a Permitted Transferee, Tenant does not intend to assign the lease for the
expansion premises, in whole or in part or sublet all or any portion of the
Premises, the election to expand being for the purpose of utilizing the
expansion premises for Tenant's purposes in the conduct of Tenant's business
therein. The Base Rent applicable to the expansion premises shall be the then
current fair market rental determined by Landlord for comparable space in the
Building or Project and in other similar buildings in the same rental market as
of the date the expansion term is to commence, taking into account the specific
provisions of this Lease which will remain constant, and the Building amenities,
location, identity, quality, age, condition, term of lease, tenant improvements
(or lack thereof), services provided, and other pertinent items.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=5>One-Time Decrease of Initial Premises</B>.
Landlord agrees that Tenant shall have the one-time option of eliminating from
the Premises leased to Tenant as of the date of this Lease up to twenty two
thousand four hundred sixty two (22,462) rentable square feet located on Floor
13 and a portion of Floor 14 (the "<B>Drop Space</B>") by notifying
Landlord of Tenant's election before May 1, 2000, which notice shall specify (i)
which portion of the Drop Space Tenant wishes to eliminate from this Lease (the
"<B>Selected Drop Space</B>") and (ii) a termination date for the Drop
Space not less than three (3) months or more than nine (9) months following the
date the notice is delivered ("<B>Decrease Date</B>"). The portion of
Floor 14 that constitutes a part of the Drop Space shall be located in the same
physical location as the portion of Floor 13 that was not part of the Premises.
If Tenant is able to and properly exercises its one-time option of eliminating
the Selected Drop Space, Monthly Base Rent for the Premises during the Term of
the Lease and Tenant's Proportionate Share shall be reduced as of the Decrease
Date based on a reduction in the rentable area of the Premises of an amount
equal to the rentable area of the Selected Drop Space. If Tenant is able to and
properly exercises the one-time option of eliminating the Selected Drop Space
from the Premises, Landlord shall prepare an amendment to accurately reflect
changes in the Premises, Monthly Base Rent, Proportionate Share, a proportionate
reduction in the number of parking spaces and other appropriate terms. A copy
of such amendment shall be sent to Tenant within a reasonable time after
exercise by Tenant and executed by Tenant and returned to Landlord. If Tenant
does not exercise this one-time option to decrease the initial Premises before
May 1, 2000, this option shall be null and void.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=6>Intentionally Omitted.</LI></P>
<P ALIGN="JUSTIFY"><LI VALUE=7>Signage. </B>Tenant shall have the exclusive
right to install two (2) internally illuminated pan channel exterior building
signs (collectively, the "<B>Signs</B>") to be located on the glass
penthouse area of two (2) of the northern, southern or eastern exposures of the
Building and approximately as indicated on the attached floor plan (<B>Exhibit
B</B>). Tenant may install only one (1) sign per Building exposure. The Signs
shall: (a) not exceed five (5) feet in height per each Sign, and (b) reflect
Tenant's current logo (subject to minimal modification with respect to the
distance between letters), which logo states only the word "Siebel."
Landlord and Tenant shall mutually agree upon the color of the Signs. Such
Signs will be designed and constructed at Tenant's sole cost and expense. The
Signs shall be subject to Landlord's approval, which shall not be unreasonably
withheld or delayed, and approval of any public authorities having jurisdiction.
In granting its approval, Landlord shall consider, among other things, the size,
aesthetics, precise selected location, design and quality of materials in
granting its approval, which may be withheld in Landlord's sole discretion.
Tenant shall be responsible for electrical energy used in connection with the
Signs, repairs and maintenance necessary to maintain the signs in their original
condition. The Signs shall at all times remain the property of Tenant and
Tenant must remove the Signs at the expiration or earlier termination of this
Lease. Tenant shall repair any damage caused in the removal of its Signs. In
the event Tenant shall be in default under any of the terms of this Lease for a
period of time continuing fifteen (15) days beyond any applicable cure periods,
or if at any time during the Term hereof Tenant does not occupy at least one
hundred thousand (100,000) square feet of the Premises, Landlord may require
Tenant to remove the Signs in accordance with this Paragraph 39G, in which event
Tenant's signage rights pursuant to this Paragraph shall immediately expire and
shall not be reinstated during the Term or any extension thereof except by
written agreement executed by each of the parties hereto and pursuant to the
terms and conditions of such written agreement. Tenant's exclusive right to
install the Signs is expressly conditioned upon the following: (i) Tenant's
exclusive right is personal to Tenant and any Permitted Transferee and shall not
be assigned or otherwise transferred without the express prior written consent
of Landlord which consent may be withheld in Landlord's sole discretion; and
(ii) there is no other tenant in the Building occupying at least one hundred
thousand (100,000) square feet; and (iii) Tenant or a Permitted Transferee shall
occupy at least two hundred thousand (200,000) square feet of the Premises. In
the event that any of clause (i), (ii) or (iii) above are not satisfied,
Tenant's right to install and maintain the Signs shall continue to be in effect
(provided that all other terms and conditions in this Lease with respect to the
Signs are satisfied), but Tenant's right to install and maintain the Signs in an
exclusive manner shall expire. Landlord shall not charge a fee to Tenant for
right to display the Signs in accordance with this Paragraph 39G. Upon
execution of this Lease through the Term Commencement Date, Tenant shall be
entitled to erect one temporary sign onto the building located at 1900 Powell
Street, Emeryville, California, at a location determined by Landlord and
approximately as indicated on the attached <B>Exhibit D</B>. Notwithstanding
anything to the contrary contained in this Lease, during the Term hereof and any
extension thereto, Landlord may, at its election, erect one (1) or more
temporary leasing signs on or about the Building or Project at a location and in
a manner determined by Landlord in its sole discretion.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=8>Letter of Credit.</LI></P></OL>
<OL>
<OL>
<P ALIGN="JUSTIFY"><LI>Delivery of Letter of Credit.</B></U> <U>In lieu of
depositing a security deposit with Landlord, Tenant shall, within ten (10)
business days following execution of this Lease, deliver to Landlord and cause
to be in effect during the Lease Term an unconditional, irrevocable letter of
credit ("<B>LOC</B>") in the amount specified for the Security Deposit
in the Basic Lease Information, as it may be increased or decreased as provided
in this Lease (the "<B>LOC Amount</B>") which LOC shall renew
automatically from year to year. The LOC shall be in a form acceptable to
Landlord and shall be issued by an LOC bank selected by Tenant and acceptable to
Landlord. An LOC bank is a bank that accepts deposits, maintains accounts, has
a local office that will negotiate a letter of credit, and the deposits of which
are insured by the Federal Deposit Insurance Corporation. Tenant shall pay all
expenses, points, or fees incurred by Tenant in obtaining the LOC. The LOC
shall not be mortgaged, assigned or encumbered in any manner whatsoever by
Tenant without the prior written consent of Landlord. Tenant acknowledges that
Landlord has the right to transfer or mortgage its interest in the Project, the
Building and in this Lease and Tenant agrees that in the event of any such
transfer or mortgage, Landlord shall have the right to transfer or assign the
LOC and/or the LOC Security Deposit (as defined below) to the transferee or
mortgagee, and in the event of such transfer, Tenant shall look solely to such
transferee or mortgagee for the return of the LOC and/or the LOC Security
Deposit.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=2>Replacement of Letter of Credit.</B></U>
<U>Tenant may, from time to time, replace any existing LOC with a new LOC if the
new LOC (a) becomes effective at least thirty (30) days before expiration of the
LOC that it replaces; (b) is in the required LOC amount; (c) is issued by an LOC
bank acceptable to Landlord; and (d) otherwise complies with the requirements of
this Paragraph 39.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=3>Landlord's Right to Draw on Letter of
Credit.</B></U> <U>Landlord shall hold the LOC as security for the performance
of Tenant's obligations under this Lease. If, after notice and failure to cure
within any applicable period provided in this Lease, Tenant defaults on any
provision of this Lease, Landlord may, without prejudice to any other remedy it
has, draw on that portion of the LOC necessary to (a) pay Rent or other sum in
default; (b) pay or reimburse Landlord for any amount that Landlord may spend or
become obligated to spend in exercising Landlord's rights under Paragraph 30
(Right of Landlord to Perform Tenant's Covenant); and/or (c) compensate Landlord
for any expense, loss, or damage that Landlord may suffer because of Tenant's
default. If Tenant fails to renew or replace the LOC at least thirty (30) days
before its expiration, Landlord may, without prejudice to any other remedy it
has, draw on the entire amount of the LOC.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=4>LOC Security Deposit.</B></U> <U>Any amount
of the LOC that is drawn on by Landlord but not applied by Landlord shall be
held by Landlord as a security deposit (the "<B>LOC Security
Deposit</B>") in accordance with Paragraph 19 of this Lease.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=5>Restoration of Letter of Credit and LOC
Security Deposit.</B></U> <U>If Landlord draws on any portion of the LOC and/or
applies all or any portion of such draw, Tenant shall, within five (5) business
days after demand by Landlord, either (a) deposit cash with Landlord in an
amount that, when added to the amount remaining under the LOC and the amount of
any LOC Security Deposit, shall equal the LOC Amount then required under this
Paragraph 39; or (b) reinstate the LOC to the full LOC Amount.</LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=6>Reduction of Letter of Credit.</B></U> <U>At
any time after the first thirty-six (36) months of the initial Term hereof, and
only in the event Tenant satisfies all of the following conditions to Landlord's
reasonable satisfaction, the LOC Amount may be reduced to One Million Dollars
($1,000,000.00): (a) Tenant is not and for a period of twelve (12) successive
calendar months, has not been in default under the terms of this Lease beyond
any applicable cure period; and (b) Tenant maintains a tangible net worth in
excess of Seven Hundred Fifty Million Dollars ($750,000,000.00); (c) Tenant
maintains a financial current ratio in excess of two (2); (d) Tenant provides to
Landlord ten (10) days prior notice of any such reduction; and (e) the LOC
provides that the issuing bank shall notify Landlord in writing prior to any
such reduction. In the event that such reduction to the LOC is made and,
subsequently, Tenant fails to meet any of the above conditions for a period of
thirty (30) days following delivery by Landlord of written notice of any such
failure, Tenant shall, within forty-eight (48) hours, increase the face amount
of the LOC to Three Million Dollars ($3,000,000.00). </LI></P>
<B><P ALIGN="JUSTIFY"><LI VALUE=7>Base Rent Adjustment.</B></U> <U>During the
first thirty-six (36) months of the Term hereof, Landlord shall provide a credit
to Tenant against Tenant's obligation to pay Base Rent hereunder an amount equal
to One Thousand Eight Hundred Seventy-Five Dollars ($1,875.00) per month.
During the remaining one hundred eight months of the initial Term of this Lease,
Landlord shall provide a credit to Tenant against Tenant's obligation to pay
Base Rent hereunder an amount equal to Six Hundred Twenty-Five Dollars ($625.00)
per month.</LI></P></OL>
</OL>
</FONT><B><P ALIGN="JUSTIFY">I.</U><FONT SIZE=1> <U>BOMA Method of
Measurement.</U> </B><U>Landlord warrants and represents that the actual
rentable areas of the Premises, the Building and the Project shall be determined
by Landlord's architect in accordance with the rentable standards set forth in
ANSI/BOMA Z65.1-1996, as promulgated by the Building Owners and Managers
Association ("<B>BOMA Standard</B>"), which measurement standard shall include
areas for management and servicing the Building and other areas used in common.
Tenant shall have a one-time right, exercisable within ten (10) business days
after completion of the Base Building Work to remeasure the Premises and the
Building. Tenant shall complete the remeasurement within ten (10) business days
after expiration of the first ten (10) business day period. In the event such
remeasurement of the Premises and the Building by Tenant, within the time period
specified above, demonstrates to Landlord's reasonable satisfaction that the
rentable square footage measurement prepared by Landlord produces a square
footage number in excess of or lower than the square footage number which would
have resulted had the BOMA Standard been properly applied, certain items and
concepts addressed in this Lease with respect to the Premises, Base Rent,
Tenant's Proportionate Share, and all other matters related to the measurement
of the Building and the Premises shall be adjusted effective as of the Term
Commencement Date, to reflect the actual number of rentable square feet, as
properly remeasured under the BOMA Standard. Tenant shall have no further right
to remeasure the Premises or the Building. In the event that Landlord and
Tenant are unable to agree upon the measurement of the Premises or the Building
within a reasonable period of time, the arbitration process described in
Paragraph 39.J below shall apply. Tenant has had an opportunity to review the
Plans and hereby acknowledges that the square footage calculation reflected in
the Basic Lease Information and Exhibit B is in conformance with the BOMA
Standard.</P>
<B><P ALIGN="JUSTIFY">J.</B></U> <B><U>Arbitration Disputes</B>. </P>
<B><P ALIGN="JUSTIFY">(1)</U> </B><U>The parties agree that any and all
disputes, claims or controversies arising out of or relating to Paragraph 39.I
of this Lease, except matters entitled to "fast-track" adjudication,
that are not resolved by their mutual agreement shall be submitted to final and
binding arbitration before JAMS/ENDISPUTE, or its successor, pursuant to the
United States Arbitration Act, 9 U.S.C. Sec. 1 et seq. Either party may
commence the arbitration process called for in this Paragraph 39J by filing a
written demand for arbitration with JAMS/ENDISPUTE with a copy to the other
party. The arbitration will be conducted in the County in which the Premises is
located and in accordance with the provisions of JAMS/ENDISPUTE's Streamlined
Arbitration Rules and Procedures in effect at the time of filing the demand for
arbitration. The parties will cooperate with JAMS/ENDISPUTE and with one
another in selecting an arbitrator from JAMS/ENDISPUTE's panel of neutrals, and
in scheduling the arbitration proceedings. The parties covenant that they will
participate in the proceedings in good faith, and that they will share equally
in its costs, including, without limitation, the arbitrator's fees, provided
that each party shall bear its own attorneys' fees in connection with any
arbitration. The provisions of this Paragraph may be enforced by any Court of
competent jurisdiction, and, in the event that the arbitration process continues
through and including a final determination of liability in accordance with this
provision, the prevailing party shall be entitled to an award of all costs, fees
and expenses, including reasonable attorneys' fees, to be paid by the party
against whom enforcement is ordered.</P>
<B><P ALIGN="JUSTIFY">(2)</U> <U>NOTICE</B>: By initialing the space below
you are agreeing to have all disputes, claims or controversies arising out of or
relating to Paragraph 39.I of the Lease, except matters entitled to "fast-
track" adjudication, decided by neutral arbitration, and you are giving up
any rights you might possess to have those matters litigated in a court or jury
trial. By initialing in the space below you are giving up your judicial rights
to discovery and appeal except to the extent that they are specifically provided
for under this Paragraph 39.J. If you refuse to submit to arbitration after
agreeing to this provision, you may be compelled to arbitrate under federal or
state law. Your agreement to this arbitration provision is voluntary.</P><DIR>
<DIR>
<B><P ALIGN="JUSTIFY">We have read and understand the foregoing and agree to
submission of all disputes, claims or controversies arising out of or related to
Paragraph 39.I of this Lease, except for issues arising in connection with
matters entitled to "fast-track" adjudication, to neutral arbitration
in accordance with this Paragraph 39J.</P>
<P ALIGN="JUSTIFY">___________</U> <U>___________</P>
<P ALIGN="JUSTIFY">Landlord</U> <U>Tenant</P>
</B><P ALIGN="JUSTIFY"></P></DIR>
</DIR>
<OL START=11 TYPE="A">
<B><LI>Early Access</B>. Provided that Tenant does not interfere whatsoever
with the construction of the Base Building Work, and in accordance with this
Paragraph 39.K, Tenant shall have the right to access the Premises upon the
sufficient completion of the Base Building Work (as described below) during
normal business hours after reasonable prior notice to Landlord for purposes of
constructing the Tenant Improvements in accordance with Exhibit C hereto and
installing furniture, fixtures and equipment in the Premises (as the timeline
for such construction and installation is described below), with all terms and
conditions of this Lease in full force and effect, excluding payment of Rent and
Operating Expenses. Any interference by Tenant or any of Tenant's Parties with
the construction of the Base Building Work shall constitute a Tenant Delay as
defined in Exhibit C and shall constitute a delay by Tenant for purposes of
Paragraph 3 hereof. The Base Building Work shall be sufficiently complete to
permit access by Tenant to the Premises and commencement of construction of
Tenant Improvements on a floor of the Premises on or before September 1, 2000
and the last floor of the Premises on or before December 15, 2000. Access to
the interim floors of the Premises shall be based upon the criteria described
below for sufficient completion and shall be provided as follows: (i) On or
before October 6, 2000, a total of four (4) floors of the Premises; (ii) On or
before November 10, 2000, a total of eight (8) floors of the Premises; and
(iii) On or before November 27, 2000, a total of ten (10) floors of the
Premises. Landlord's failure to provide access to the Premises to Tenant as
provided herein shall constitute a Landlord Delay as described in Section 7 of
Exhibit C, attached hereto. The Base Building Work will be completed
simultaneously with the construction of Tenant Improvements. Sufficient
completion of the Base Building Work shall be defined as follows: (i) the
permanent roof, or a watertight temporary roof, complete so that a watertight
condition is continuously maintained; (ii) permanent curtain wall, perimeter
insulation and sheet rock and glass complete or a watertight temporary enclosure
complete so that a watertight condition is continuously maintained; (iii) base
building core walls complete; (iv) elevator door frames and sills in complete;
(v) mechanical, electrical, plumbing and sprinkler riser work sufficiently
complete to permit connection of tenant improvements; (vi) the base building
sprinkler loop and ductwork sufficiently complete to permit connection of
applicable Tenant Improvements; and (vii) floor slab complete and broom
clean.</LI></OL>
</U><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="CENTER">40. Jury Trial Waiver<A NAME="Jury"></A></P>
</B><P ALIGN="JUSTIFY">Each party hereto (which includes any Assignee, successor
heir or personal representative of a party) shall not seek a jury trial, hereby
waives trial by jury, and hereby further waives any objection to venue in the
county in which the Building is located, and agrees and consents to personal
jurisdiction of the courts of the state in which the Property is located, in any
action or proceeding or counterclaim brought by any party hereto against the
other on any matter whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, or any claim of injury or damage, or the enforcement of any remedy
under any statute, emergency or otherwise, WHETHER ANY OF THE FOREGOING IS BASED
ON THIS LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE
OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS
PARAGRAPH 40. THE PROVISIONS OF THIS PARAGRAPH 40 shall survive the expiration
or earlier termination of this Lease.</P>
<P><A NAME="Signatures"></A></P>
<P>IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.</P>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<B><P>LANDLORD</P>
</B>
<P>Spieker Properties, L.P.,</P>
<P>a California limited partnership</P>
<P>By: Spieker Properties, Inc.,</P><DIR>
<P>a Maryland corporation,</P>
<P>its general partner</P>
<P> </P>
<P>By: </P><DIR>
<P>John R. WInther</P>
<P>Its: Senior Vice President</P>
</DIR>
</DIR>
<P>Date: August ___, 1999</P>
<B><P>TENANT</P>
</B>
<P>Siebel Systems, Inc., a Delaware corporation</P>
<P> </P>
<P>By: </P><DIR>
<P>Name: ____________________________________________</P>
<P>Its: ______________________________________________</P>
</DIR>
<P>Date: August ___, 1999</P>
<P> </P>
</FONT><FONT SIZE=2><P> </P>
<P> </P>
<P ALIGN="CENTER"> </P></DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
<B><U><P ALIGN="CENTER">Exhibit A</P>
<P ALIGN="CENTER">Rules and Regulations</P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Exhibit B</P>
<P ALIGN="CENTER">Site Plan, Property Description</P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Exhibit C</P>
<P ALIGN="CENTER">Tenant Improvements and Specifications</P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Exhibit D</P>
<P ALIGN="CENTER">Signage</P>
</B></U><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<B><U><P> </P>
<P> </P></B></U></FONT>
</body>
</HTML>
Exhibit 10.13
<HTML>
<head>
<TITLE>Amendment 10</TITLE>
</head>
<body bgcolor=white>
<font FACE="Courier New" SIZE="2">
</font>
<B><P ALIGN="CENTER">EXTENSION AGREEMENT</P>
</B><P ALIGN="JUSTIFY">EXTENSION AGREEMENT which shall be known as Amendment
Number Ten, and to be attached to and form a part of the lease (which together
with any amendments, modifications and extensions thereof is hereinafter called
the "Lease"), dated March 15, 1999, between Spieker Properties, L.P.,
as Landlord, and Siebel Systems, Inc., as Tenant, covering the premises known as
the Seventh Floor, the Eighth Floor, the Ninth Floor, and a portion of the
10<SUP>th</SUP> Floor, known as Suite 1015, and consisting of approximately
57,969 rentable square feet, at 1900 Powell Street, Emeryville, California, and
as shown on the attached Exhibits "A.1", "A.2",
"A.3", "A.4".</P>
<P ALIGN="JUSTIFY">Landlord and Tenant hereby agree that the term of the Lease
is hereby renewed and extended for an additional term of approximately one (1)
year, to commence on the 16th day of October, 1999 and to end on the last day of
September, 2000, subject to all of the provisions of the covenants and
agreements contained in the Lease, except:</P>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=583>
<TR><TD WIDTH="34%" VALIGN="TOP">
<P ALIGN="JUSTIFY">1) Rental: </TD>
<TD WIDTH="66%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Base Rent for the premises shall be:</TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP"><DIR>
<P ALIGN="JUSTIFY">10/16/99 - 9/30/00:</DIR>
</TD>
<TD WIDTH="66%" VALIGN="TOP">
<P ALIGN="JUSTIFY">$130,430.25 per month plus increases in operating expenses
per Paragraph 4.3 of the Lease over the Calendar Year 1999.</TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<P ALIGN="JUSTIFY">2) Term and Possession:</TD>
<TD WIDTH="66%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Tenant accepts the premises in "as is"
condition.</TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<P ALIGN="JUSTIFY">3) Notices:</TD>
<TD WIDTH="66%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Tenant or Landlord may send any notice as required by the
Lease via Federal Express or similar overnight courier service in lieu of
sending notice via United States certified or registered mail.</TD>
</TR>
</TABLE>
</P>
<B><P>4) <U>Operating Expenses</B></U>. Tenant shall pay its proportionate
share of increases in Operating Expenses over the Calendar Year 1999.</P>
<B><P ALIGN="JUSTIFY">5) <U>Tenant Improvements</B></U>. Provided Tenant is
not in default under the Lease beyond any applicable cure period at the time
Tenant request the Tenant Improvement Allowance, Landlord shall contribute a
one-time allowance equal to $1.00 per rentable square foot ($57,969.00)
("Tenant Improvement Allowance") toward the cost of Tenant
Improvements. Said Tenant Improvement Allowance shall be utilized by December
31, 1999. Provided Tenant is not then in default under the Lease, Landlord
shall disburse the Tenant Improvement Allowance to Tenant upon completion of
construction of the Tenant Improvements and expiration of the time for filing of
any mechanics' liens claimed or which might be filed on account of any work
ordered by Tenant or its contractor or any subcontractor, and upon receipt by
Landlord of a certificate of completion executed by the Space Planner and
Tenant's contractor, and unconditional mechanics' lien releases (which
mechanics' lien releases shall be executed by the subcontractors, labor
suppliers and materialmen in addition to Tenant's contractor), in each case in
form and substance satisfactory to Landlord, and all appropriate bills and
supporting documentation for the work ordered by Tenant or its contractor or any
subcontractor, and reasonably requested by Landlord. </P>
<B><U><P>6) Expansion</B></U>. Provided Tenant is not, and has not been, in
default of any terms and conditions of this Lease beyond any applicable cure
periods, Tenant shall have the right to lease all of the rentable area on the
Eleventh (11th) floor consisting of approximately 18,456 rentable square feet
(the " Expansion Premises"), effective December 1, 1999, and as shown
outlined in green on the attached Exhibit "B". Tenant must notify
Landlord in writing of Tenant's desire to exercise Tenant's right to lease the
Expansion Premises no later than April 15, 1999. In the event Tenant fails to
give Landlord notice of Tenant's election to lease such additional space within
such time period, Tenant shall have no further right, title or interest in such
additional space and this right shall terminate. If, on the other hand, Tenant
exercises its right in the manner prescribed, Tenant shall immediately deliver
to Landlord payment for the first month's rent for such additional space (in the
same manner as provided for in this Lease), and the lease for such additional
space shall be consummated without delay. Notwithstanding anything to the
contrary herein contained, Tenant's right to the Expansion Premises shall be
conditioned upon the following: (i) at the time Tenant agrees to accept the
Expansion Premises and at the time of the commencement of the term for the
Expansion Premises, Tenant and/or Tenant's affiliate(s) shall be in possession
of and occupying the primary premises for the conduct of its business therein
and the same shall not be occupied by any assignee, subtenant or licensee and,
provided further, that the option for additional space shall be applicable
hereunder only if the Expansion Premises will actually be occupied by Tenant and
or Tenant's affiliate(s) and (ii) the agreement of acceptance shall constitute a
representation by Tenant to Landlord, effective as of the date of the agreement
of acceptance and as of the date of commencement of the lease for the Expansion
Premises, that Tenant does not intend to assign the lease for the expansion
premises, in whole or in part or sublet all or any portion of the Premises, the
election to expand being for the purpose of utilizing the Expansion Premises for
Tenant's purposes in the conduct of Tenant's business therein. </P>
<P>The commencement date of the Term with respect to the Expansion Premises
shall be referred to as the "Expansion Premises Commencement Date".
The Term with respect to the Expansion Premises shall end concurrently with the
expiration of the term of this Lease as to the original Premises.</P>
<P ALIGN="JUSTIFY"></P>
<P>The Basic Rent payable for the Expansion Premises shall be at the same rental
rate per square foot as the Rent for the original Premises as outlined in
Paragraph 1 of this Extension Agreement ($41,526.00 per month). </P>
<P>The Expansion Premises shall be leased to Tenant "as is" and in its
then existing condition and state of improvement and Landlord shall have no
obligation to make any improvements, repairs or alterations thereof; provided,
however, (i) such space shall be delivered to Tenant broom clean and in a usable
condition and (ii) Landlord shall pay to Tenant an allowance of $.83 per
rentable square foot ($15,393.00) in the Expansion Premises. The allowance set
forth above shall be expended for the design and installation of work which
constitutes permanent improvements to the Expansion Premises (including
carpeting) which becomes Landlord's property upon installation pursuant to this
Lease, and shall not be used for furniture, furnishings or other installations
which do not become Landlord's property pursuant to this Lease. Tenant shall
not be entitled to any payment or rent reduction for any part of said allowance
not used by Tenant. Said allowance shall be utilized by Tenant no later than
December 31, 1999.</P>
<P ALIGN="JUSTIFY">Provided Tenant is not then in default under the Lease beyond
any applicable cure period, Landlord shall disburse the Tenant Improvement
Allowance to Tenant upon completion of construction of the Tenant Improvements
and expiration of the time for filing of any mechanics' liens claimed or which
might be filed on account of any work ordered by Tenant or its contractor or any
subcontractor, and upon receipt by Landlord of a certificate of completion
executed by the Space Planner and Tenant's contractor, and unconditional
mechanics' lien releases (which mechanics' lien releases shall be executed by
the subcontractors, labor suppliers and materialmen in addition to Tenant's
contractor), in each case in form and substance satisfactory to Landlord, and
all appropriate bills and supporting documentation for the work ordered by
Tenant or its contractor or any subcontractor, and reasonably requested by
Landlord. </P>
<P>Landlord shall have no liability to Tenant for any damages resulting from any
delay in delivering possession of the Expansion Premises to Tenant, if said
delay is caused by the holding over of a previous tenant of the Expansion
Premises; provided, however, Landlord, at its expense, shall take all action
reasonably necessary, including required legal proceedings, to secure possession
of the Expansion Premises prior to the Expansion Premises Commencement Date
therefor.</P>
<P>Upon the Expansion Premises Commencement Date, the term "Premises"
shall include the Expansion Premises.</P>
<B><U><P ALIGN="JUSTIFY">7) Option to Renew</B></U>. Tenant shall, provided
this Lease is in full force and effect and Tenant is not and has not been in
default under any of the terms and conditions of this Lease beyond any
applicable cure period, have one (1) option to renew this Lease for a term of
eighteen (18) months, for the Premises in "as is" condition and on the
same terms and conditions set forth in this Lease, except as modified by the
terms, covenants and conditions set forth below:</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">(1) If Tenant elects to exercise such option, then Tenant
shall provide Landlord with written notice no earlier than January 1, 2000, and
no later than 5:00 p.m. (Pacific Standard Time) on April 1, 2000. If Tenant
fails to provide such notice, Tenant shall have no further or additional right
to extend or renew the term of this Lease.</P>
<P ALIGN="JUSTIFY">(2) The Base Rent in effect at the expiration of the then
current term of this Lease shall be increased to reflect the current fair market
rental for comparable space in the Building or Project and in other similar
buildings in the same rental market as of the date the renewal term is to
commence, taking into account the specific provisions of this Lease which will
remain constant, and the Building amenities, location, identity, quality, age,
condition, term of lease, tenant improvements, services provided, and other
pertinent items.</P>
<P ALIGN="JUSTIFY"> (3) Landlord shall advise Tenant of the new Base Rent for
the Premises for the applicable renewal term based on Landlord's determination
of fair market rental value, as well as the terms and conditions for the renewal
term, no later than fifteen (15) days after receipt of notice of Tenant's
exercise of its option to renew.</P>
<P ALIGN="JUSTIFY">(4) Landlord and Tenant shall negotiate in good faith to
agree on the fair market rental value of the Premises and terms and conditions
for each renewal term. If Tenant and Landlord are unable to agree on a mutually
acceptable rental rate for any renewal term within thirty (30) days after
notification by Landlord to Tenant of Landlord's determination of the new Base
Rent for the applicable renewal term, but in any event no later than the date
which is one hundred twenty (120) days prior to the expiration of the then
current term, then on or before such date Landlord and Tenant shall each appoint
a licensed real estate broker with at least ten (10) year's experience in
leasing office space in the area in which the Building is located to act as
arbitrators. The two (2) arbitrators so appointed shall determine the fair
market rental value for the Premises for the applicable renewal term based on
the above criteria and each shall submit his or her determination of such fair
market rental value to Landlord and Tenant in writing, within ten (10) days
after their appointment.</P>
<P ALIGN="JUSTIFY">If the two (2) arbitrators so appointed cannot agree on the
fair market rental value for the applicable renewal term within such 10-day
period, the two (2) arbitrators shall within five (5) days thereafter appoint a
third arbitrator who shall be a licensed real estate broker with at least ten
(10) year's experience in leasing office space in the area in which the Building
is located. The third arbitrator so appointed shall independently determine the
fair market rental value for the Premises for the renewal term within ten (10)
days after appointment, by selecting from the proposals submitted by each of the
first two arbitrators the one that most closely approximates the third
arbitrator's determination of such fair market rental value. The third
arbitrator shall have no right to adopt a compromise or middle ground or any
modification of either of the proposals submitted by the first two arbitrators.
The proposal chosen by the third arbitrator as most closely approximating the
third arbitrator's determination of the fair market rental value shall
constitute the decision and award of the arbitrators and shall be final and
binding on the parties. </P>
<P ALIGN="JUSTIFY">Each party shall pay the fees and expenses of the arbitrator
appointed by such party and one-half (1/2) of the fees and expenses of the third
arbitrator. </P>
<P ALIGN="JUSTIFY">If either party fails to appoint an arbitrator, or if either
of the first two arbitrators fails to submit his or her proposal of fair market
rental value to the other party, in each case within the time periods set forth
above, then the decision of the other party's arbitrator shall be considered
final and binding. </P>
<P ALIGN="JUSTIFY">In the event the third arbitrator fails to present a fair
market rental value within such 10-day period, then by mutual consent of the
Landlord and Tenant, the time period will be extended.</P>
<P ALIGN="JUSTIFY"> (5) Notwithstanding anything to the contrary contained in
this Paragraph, in no event shall the Base Rent for any renewal term be less
than the Base Rent in effect at the expiration of the previous term plus expense
escalations over the previous years In addition, Landlord shall have no
obligation to provide or pay for any tenant improvements or brokerage
commissions during any renewal term.</P>
<P ALIGN="JUSTIFY">(6) Tenant's right to exercise any option(s) to renew
under this Paragraph shall be conditioned upon Tenant occupying the entire
Premises and the same not being occupied by any assignee, subtenant or licensee
other than Tenant or its affiliate at the time of exercise of any option and
commencement of the renewal term. Tenant's exercise of the option to renew
shall constitute a representation by Tenant to Landlord that as of the date of
exercise of the option and the commencement of the renewal term, Tenant does not
intend to seek to assign this Lease in whole or in part, or sublet all or any
portion of the Premises. </P>
<P ALIGN="JUSTIFY">(7) Any exercise by Tenant of any option to renew under
this Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to
execute a lease amendment or, at Landlord's option, a new lease agreement on
Landlord's then standard lease form for the Building, reflecting the foregoing
terms and conditions, prior to the commencement of the renewal term. The
option(s) to renew granted under this Paragraph is/are not transferable; the
parties hereto acknowledge and agree that they intend that each option to renew
this Lease under this Paragraph shall be "personal" to the specific
Tenant named in this Lease and that in no event will any assignee or sublessee
have any rights to exercise such option(s) to renew.</P>
</DIR>
</DIR>
<B><P>8) <U>Signage</B></U>. Upon execution of a lease for premises in 2100
Powell Street in which the square footage is in excess of 200,000 rentable
square feet, Tenant shall be immediately entitled to one sign to be located
above the 12th Floor on the south side of the exterior of the Building known as
1900 Powell Street. Such sign will be designed and constructed at Tenant's sole
cost and expense. Tenant shall pay all installation costs. All signs shall be
subject to Landlord's approval, which shall not be unreasonably withheld or
delayed, and approval of any public authorities having jurisdiction. Tenant
shall be responsible for electrical energy used in connection with its signs,
repairs and maintenance necessary to maintain the signs in their original
condition. All of Tenant's signs shall at all times remain the property of
Tenant and Tenant must remove its signs at the expiration or earlier termination
of this Lease. Tenant shall repair any damage caused in the removal of its
sign. The parties agree that said sign will be relocated by Tenant to 2100
Powell Street upon Tenant's occupancy of 2100 Powell Street.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">IN WITNESS WHEREOF, the parties hereto have executed this
Extension Agreement as of this __________ day of ____________, 199__.</P>
<P>LANDLORD:<BR>
<BR>
SPIEKER PROPERTIES, L.P.<BR>
<BR>
By: Spieker Properties, Inc.</P><DIR>
<DIR>
<P ALIGN="JUSTIFY">By: <U> </U><BR>
<BR>
Its: <U> </P></DIR>
</DIR>
</U><P ALIGN="JUSTIFY">TENANT:</P>
<P ALIGN="JUSTIFY">SIEBEL SYSTEMS, INC.</P>
<P>By: <U> </P>
</U><P><BR>
Its: <U> </P>
</U><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
</body>
</HTML>
Exhibit 10.14
<HTML>
<head>
<TITLE>Amendment 11</TITLE>
</head>
<body bgcolor=white>
<font FACE="Courier New" SIZE="2">
</font>
<B><P ALIGN="CENTER">ELEVENTH AMENDMENT TO LEASE</P>
</B>
<B><P>THIS ELEVENTH AMENDMENT TO LEASE</B> (this "Eleventh Amendment")
is made this 13<SUP>th</SUP> day of August, between <B>Spieker Properties,
L.P.</B>, a California limited partnership, (the "Landlord"), and
Siebel Systems, Inc., (the "<B>Tenant</B>").</P>
<B><P>WHEREAS</B>, Landlord and Tenant entered into a Lease dated August 24,
1994, (as amended, the "Lease"), for those certain premises located at
1900 Powell Street, Emeryville, California (the "Premises"), as more
fully described in the Lease. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Lease; and</P>
<P> <B>WHEREAS</B>, Landlord and Tenant desire to modify the Lease
accordingly.</P>
<P> <B>NOW, THEREFORE</B>, in consideration of the covenants and agreements
contained herein the parties hereby mutually agree as follows:</P>
<OL>
<B><U><P ALIGN="JUSTIFY"><LI>Premises</U>.</B> The Premises shall be increased
to include approximately eighteen thousand four hundred fifty six (16,953)
square feet of rentable area (the "Expansion Premises"), which
Expansion Premises includes a portion of the Building common area and is located
on the eleventh (11th) floor of the Building. The Expansion Premises, are
approximately as shown on the attached <B>Exhibit A</B> and outlined in
red.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI>Term</B></U>. The Term with respect to the
Expansion Premises shall commence upon the date which Landlord delivers the
Premises to Tenant, which is estimated to be November 14, 1999, but shall be no
later than January 21, 2000 (the "<B>Delivery Date</B>") and shall
expire on March 31, 2001. Landlord and Tenant hereby agree that Landlord may
deliver portions of the Expansion Premises to Tenant when said portions of the
Expansion Premises become available. Landlord estimates that it may be able to
deliver approximately 2,110 rentable square feet near September 30, 1999. In
such case where less than the entire Expansion Premises is delivered to Tenant,
the Rent for said portion of the Expansion Premises shall be charged at the same
rate per rentable square foot as stated in Paragraph 4 of this Eleventh
Amendment. Landlord shall have no liability to Tenant for any damages resulting
from any delay in delivering possession of the Expansion Premises to Tenant;
provided, however, that Landlord shall make reasonable efforts deliver
possession of the Expansion Premises to Tenant as provided herein.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI>Occupancy Density</U>.</B> Upon the Delivery Date,
the Occupancy Density for the Expansion Premises shall be 123
people.</LI></P></OL>
<DIR>
<DIR>
<P ALIGN="JUSTIFY">4. <B><U>Rent</U>.</B> Base Rent for the Expansion
Premises shall be as follows:</P></DIR>
</DIR>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=576>
<TR><TD WIDTH="31%" VALIGN="TOP">
<P>Delivery Date<FONT SIZE=1> </FONT> through 3/31/01: </TD>
<TD WIDTH="69%" VALIGN="TOP">
<P>Forty-one thousand five hundred twenty-six dollars and no cents ($38,144.25)
per month plus operating expenses per Paragraph 4.3 of the Lease over the
calendar year 1999. </TD>
</TR>
</TABLE>
</P>
<P ALIGN="JUSTIFY"></P>
<OL START=5>
<B><U><P ALIGN="JUSTIFY"><LI>Tenant's Proportionate Share</U>.</B> Upon the
Delivery Date, Tenant's proportionate share for the Expansion Premises shall be
7.83%. Tenant's Proportionate Share for the Premises, including the Expansion
Premises, shall be 34.60%.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI>Tenant Improvements.</B></U> Tenant agrees to
accept the Expansion Premises "as is" condition; provided, however,
that, pursuant to the terms of Paragraph 6 of Amendment Number Ten to the Lease,
shall provide Tenant with a Tenant Improvement Allowance in the amount of
$14,071.00. Said Tenant Improvement Allowance shall be disbursed pursuant to the
terms and conditions of Paragraph 6 of Amendment Number Ten to the Lease. Upon
execution of this Amendment Eleven, the Expansion Option as provided in
Paragraph 6 of Amendment Number Ten to the Lease is hereby exercised by Tenant
and Tenant shall have no further expansion rights thereunder.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI>Extension</B></U>. Landlord and Tenant hereby
agree that the Term of the Lease for the Premises, including the Expansion
Premises, which Premises consists of approximately fifty seven thousand nine
hundred sixty nine (57,969) square feet of rentable area on the 7<SUP>th</SUP>,
8<SUP>th</SUP>, and 9<SUP>th</SUP> Floors, and a portion of the 10<SUP>th</SUP>
Floor, is hereby renewed and extended for an additional term of approximately
six (6) months, to commence upon the 1<SUP>st</SUP> day of October, 2000, and to
end on the last day of March, 2001, subject to all of the provisions of the
covenants and agreements contained in the Lease.</LI></P></OL>
<P ALIGN="JUSTIFY">All other terms and conditions of the Lease shall remain in
full force and effect and shall apply to the Premises, including the Expansion
Premises.</P>
<P>Except as expressly modified above, all terms and conditions of the Lease
remain in full force and effect and are hereby ratified and confirmed.</P>
<B><P>IN WITNESS WHEREOF</B>, the parties hereto have entered into this Eleventh
Amendment as of the date first written above.</P>
<P> </P>
<P>LANDLORD<B>: </B>TENANT<B>:</P>
</B><P>Spieker Properties, L.P., Siebel Systems, Inc.,</P>
<P>a California limited partnership a Delaware corporation</P>
<P>By: Spieker Properties, Inc. </P>
<P> a Maryland corporation</P>
<P> its General Partner</P>
<P> </P>
<P> By:_____________________________ By:
_____________________ </P>
<P> John Winther ______________________</P>
<P> Its: Senior Vice President
Its: ______________________</P>
<P> </P>
<P> </P>
<P> </P>
<P> </P>
<P> </P>
<P> </P>
<P> </P>
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Exhibit 10.15
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<TITLE>Amendment 12</TITLE>
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<B><P ALIGN="CENTER">TWELFTH AMENDMENT TO LEASE</P>
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<B><P>THIS TWELFTH AMENDMENT TO LEASE</B> (this "Twelfth Amendment")
is made this 28th day of October, between <B>Spieker Properties, L.P.</B>, a
California limited partnership, (the "Landlord"), and Siebel Systems,
Inc., (the "<B>Tenant</B>").</P>
<B><P>WHEREAS</B>, Landlord and Tenant entered into a Lease dated August 24,
1994, (as amended, the "Lease"), for those certain premises located at
1900 Powell Street, Emeryville, California (the "Premises"), as more
fully described in the Lease. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Lease; and</P>
<P> <B>WHEREAS</B>, Landlord and Tenant desire to modify the Lease
accordingly.</P>
<P> <B>NOW, THEREFORE</B>, in consideration of the covenants and agreements
contained herein the parties hereby mutually agree as follows:</P>
<OL>
<B><U><P ALIGN="JUSTIFY"><LI>Premises</U>.</B> The Premises shall be increased
to include approximately three thousand three hundred seventy (3,370) square
feet of rentable area (the "Expansion Premises"), which Expansion
Premises includes a portion of the Building common area and is located on the
tenth (10th) floor of the Building. The Expansion Premises, are approximately
as shown on the attached <B>Exhibit A</B> and outlined in red.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI>Term</B></U>. The Term with respect to the
Expansion Premises shall commence upon the date which Landlord delivers the
Premises to Tenant, which is estimated to be November 1, 1999, (the
"<B>Delivery Date</B>") and shall expire on March 31, 2001. Landlord
shall have no liability to Tenant for any damages resulting from any delay in
delivering possession of the Expansion Premises to Tenant; provided, however,
that Landlord shall make reasonable efforts deliver possession of the Expansion
Premises to Tenant as provided herein.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI>Occupancy Density</U>.</B> Upon the Delivery Date,
the Occupancy Density for the Expansion Premises shall be 60
people.</LI></P></OL>
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<DIR>
<P ALIGN="JUSTIFY">4. <B><U>Rent</U>.</B> Base Rent for the Expansion
Premises shall be as follows:</P></DIR>
</DIR>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=576>
<TR><TD WIDTH="31%" VALIGN="TOP">
<P>Delivery Date<FONT SIZE=1> </FONT> through 3/31/01: </TD>
<TD WIDTH="69%" VALIGN="TOP">
<P>Seven thousand five hundred eighty-two and 50/100ths ($7,582.50) per month
plus operating expenses per Paragraph 4.3 of the Lease over the calendar year
1999. </TD>
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<P ALIGN="JUSTIFY"></P>
<OL START=5>
<B><U><P ALIGN="JUSTIFY"><LI>Tenant's Proportionate Share</U>.</B> Upon the
Delivery Date, Tenant's proportionate share for the Expansion Premises shall be
1.56%. Tenant's Proportionate Share for the Premises, including the Expansion
Premises, shall be 36.16%.</LI></P>
<B><U><P ALIGN="JUSTIFY"><LI>Tenant Improvements.</B></U> Tenant agrees to
accept the Expansion Premises "as is" condition; provided, however,
that, Landlord shall provide Tenant with a Tenant Improvement Allowance in the
amount of $3,370.00. Said Tenant Improvement Allowance shall be disbursed
pursuant to the terms and conditions of Paragraph 6 of Amendment Number Ten to
the Lease. </LI></P></OL>
<P ALIGN="JUSTIFY">All other terms and conditions of the Lease shall remain in
full force and effect and shall apply to the Premises, including the Expansion
Premises.</P>
<P>Except as expressly modified above, all terms and conditions of the Lease
remain in full force and effect and are hereby ratified and confirmed.</P>
<B><P>IN WITNESS WHEREOF</B>, the parties hereto have entered into this Eleventh
Amendment as of the date first written above.</P>
<P> </P>
<P>LANDLORD<B>: </B>TENANT<B>:</P>
</B><P>Spieker Properties, L.P., Siebel Systems, Inc.,</P>
<P>a California limited partnership a Delaware corporation</P>
<P>By: Spieker Properties, Inc. </P>
<P> a Maryland corporation</P>
<P> its General Partner</P>
<P> </P>
<P> By:_____________________________ By:
_____________________ </P>
<P> John Winther ______________________</P>
<P> Its: Senior Vice President
Its: ______________________</P>
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Exhibit 23.1
<p align="center"><strong><p><strong>Report on Financial Statement Schedule and Consent of Independent Auditors</strong></p></strong></p>
<P>The Board of Directors<br>
<P>Siebel Systems, Inc. </P>
<P ALIGN="JUSTIFY">The audits referred to in our report dated January 24, 2000
included the related financial statement schedule as of December 31, 1999, and
for each of the years in the three-year period ended December 31, 1999, as
listed in the Index in Item 14(a)2 herein. The financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits. In
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">We consent to incorporation by reference in the registration
statements (Nos. 333-07983, 333-22763, 333-36967, 333-40259, 333-40437, 333-
53369, 333-68041, 333-72969, 333-85007, 333-91777, 333-94243, 333-94261) on
Forms S-3 and S-8 of Siebel Systems, Inc. of our reports dated January 24, 2000,
relating to the consolidated balance sheets of Siebel Systems, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related statements of
operations and comprehensive income (loss), stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1999, and
related financial statement schedule, which reports appear in the December 31,
1999, annual report on Form 10-K of Siebel Systems, Inc. </P>
<P ALIGN="JUSTIFY"></P>
<P>/s/ KPMG LLP<br>
<P>Mountain View, California<br>
<P>March 24, 2000
<P ALIGN="JUSTIFY"></P></FONT>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<PERIOD-TYPE> 12-MOS
<CASH> 465,810
<SECURITIES> 339,504
<RECEIVABLES> 305,710
<ALLOWANCES> 12,700
<INVENTORY> 0
<CURRENT-ASSETS> 1,129,035
<PP&E> 90,480
<DEPRECIATION> 33,605
<TOTAL-ASSETS> 1,226,962
<CURRENT-LIABILITIES> 250,932
<BONDS> 300,000
0
0
<COMMON> 195
<OTHER-SE> 674,396
<TOTAL-LIABILITY-AND-EQUITY> 1,226,962
<SALES> 499,398
<TOTAL-REVENUES> 790,920
<CGS> 7,640
<TOTAL-COSTS> 180,918
<OTHER-EXPENSES> 427,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 196,922
<INCOME-TAX> 74,830
<INCOME-CONTINUING> 122,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,727
<EPS-BASIC> 0.65 <F1>
<EPS-DILUTED> 0.54
<FN>
<F1>ITEM CONSISTS OF BASIC EARNINGS PER SHARE.
</FN>
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