SUPPORTSOFT INC (Form: 10-K405, Received: 03/29/2002 16:57:15)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 2001

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

For The Transition Period From _______________ To _______________

Commission File No. 000-30901

SUPPORTSOFT, INC.

(formerly Support.com, Inc.)

(Exact Name of Registrant as Specified in Its Charter)

Delaware		94-3282005
State or Other Jurisdiction of Incorporation or Organization		(I.R.S. Employer Identification No.)

575 Broadway, Redwood City, CA		94063
(Address of Registrant’s principal executive offices)		(Zip Code)

Registrant’s telephone number including area code (650) 556-9440

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

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

Common Stock, $.0001 par value

(Title & Class)

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

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

The aggregate market value of the Registrant’s common stock, $.0001 par value, held by non-affiliates of the Registrant was approximately $48,741,853 based upon the average high, low and close price, as of March 15, 2002. As of March 15, 2002, there were 33,494,459 shares of Registrant’s common stock outstanding. Shares of Common Stock held by each executive officer, director, and 10% stockholder based on Schedule 13G filings, have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant’s definitive proxy statement (the “Proxy Statement”) to be mailed to stockholders in connection with its 2002 annual meeting of stockholders scheduled to be held on May 28, 2002 are incorporated by reference into Part III of this report. Except as expressly incorporated by reference, the Registrant’s Proxy Statement shall not be deemed to be part of this report.

SUPPORTSOFT, INC.

FORM 10-K

FOR FISCAL YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

		Page
PART I		3

ITEM 1.	Business	3

ITEM 2.	Properties	13

ITEM 3.	Legal Proceedings	13

ITEM 4.	Submission of Matters to a Vote of Security Holders	14

	Executive Officers of the Registrant	14

PART II		16

ITEM 5.	Market for the Registrant’s Common Stock and Related Stockholder Matters	16

ITEM 6.	Selected Consolidated Financial Data	17

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

ITEM 7A.	Qualitative and Quantitative Disclosures About Market Risk	31

ITEM 8.	Consolidated Financial Statements and Supplementary Data	32

ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosures	50

PART III		51

ITEM 10.	Directors and Executive Officers of the Registrant	51

ITEM 11.	Executive Compensation	51

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51

ITEM 13.	Certain Relationships and Related Transactions	52

PART IV		52

ITEM 14.	Exhibits, Financial Statements Schedule and Reports on Form 8-K	52

The statements contained in this Report on Form 10-K that are not purely 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. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. These are statements that relate to future periods and include statements relating to anticipated features and benefits of our products and services, statements by independent research firms relating to industry statistics and projections and statements by independent research firms relating to anticipated increases in the number of people using the web, the number of programs on the average personal computer, the amount of business to business infrastructure spending, the market for software support, the integration services industry and customer trends, statements relating to our strategy and components of our strategy, including our intentions to expand our market reach to large software application vendors, to continue to develop advanced support and service technologies, to expand our presence in corporate enterprises to create new sales entry points, to increase our share of the broadband service provider market, to expand our sales and distribution capabilities, to continue to increase customer return on investment, and to meet support requirements around the globe, our expectations as to benefits we may derive from our strategic alliances, as to expected net losses, expected cash flows, expected expenses including those related to sales and marketing, research and development and general and administrative, expected revenue and sources of revenue, expected impact, if any, of legal proceedings, expected increases in headcount, the adequacy of liquidity and capital resources, growth in business and operations and the effect of recent accounting pronouncements. Factors that could cause actual results to differ materially from those predicted, include but are not limited to, the Company’s dependence on a small number of relatively large orders, the Company’s ability to attract and retain customers for existing and new services and to achieve adoption and acceptance of our products and services, the Company’s ability to recruit and retain employees particularly in the areas of sales, engineering and support services, the ability of our products to achieve market penetration, the ability to use or integrate third-party technologies and to expand infrastructure to meet the demand for the Company’s services, the Company’s ability to expand internationally, the Company’s ability to control expenses, the economy and the strength of competitive offerings. Additional factors, which could cause actual results to differ materially, include those set forth in the following discussion, and, in particular, the risks discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Factors Affecting our Business and Operating Results.” These forward-looking statements speak only as of the date hereof. Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements.

PART I

ITEM 1. BUSINESS

Overview

Effective on March 28, 2002, the company changed its name from Support.com, Inc. to SupportSoft, Inc.

We are a leading provider of support automation software. Our Web-based family of software solutions is designed to help corporations automate and personalize the service and support they provide to their employees, customer and partners. Our software helps reduce manual steps in the service and support process and specializes in automated problem resolution. We believe that as a result, our software accelerates business growth, reduces operational costs and contributes to improved user satisfaction through faster, more precise resolution of problems associated with the use of operating systems, networks, software applications, business processes and other technologies.

support outsourcers license our software to support their respective products or services used by their customers. Broadband service providers utilize our software to help service their subscribers by streamlining the provisioning and installation of high-speed Internet connections, as well as help provide ongoing service throughout the subscriber’s lifecycle.

The common denominator in all cases is our software’s ability to solve problems. Our products offer automated, personalized support designed to resolve problems through system self-healing, mass healing, user self-service, and intelligent assisted support—delivered through the Internet. As the diversity of technology increases, the number and types of applications proliferate, and the reliance on technology of all kinds intensifies, we believe that support automation software will play an increasingly essential role in helping enterprises function and compete effectively.

Customers using our products and services include corporate enterprises such as General Electric, Cisco Systems, Bank of America, and Procter & Gamble; broadband service providers such as Comcast Online Communications, SBC Communications, Cox Communications, and Charter Communications; personal computer manufacturers such as IBM and Sony; and support outsourcers such as Computer Sciences Corporation, IBM, and Perot Systems.

Industry Background and Customer Markets

We believe that as technology continues to advance into all aspects of professional and personal life, service and support problems increase proportionately. For example, Gartner research indicates that in 1995 the typical internal help desk analyst supported 20 applications and received 0.8 user calls per month. By 2000 these figures climbed to 200 applications supported by each analyst, while user calls increased to 1.3 user calls per month. Historical approaches to resolving service and support issues are difficult to scale in meeting the growing enterprise and user requirements of tomorrow.

We believe service and support automation can help drive significant cost efficiencies in addressing both employee and customer needs — plus increase the satisfaction associated with each. Moreover, it can help deliver a clear and measurable return on an enterprise’s investment in automating their service and support operations. This can provide a significant competitive advantage to companies during a time of tight technology spending and management pressure to demonstrate immediate return on technology investments.

We market and sell our support automation software primarily to corporate enterprises, broadband service providers, support outsourcers, computing device manufacturers and businesses that seek to extend their support or service solutions to their supplier and partner networks. The primary audience for our software is corporate information technology departments that are seeking to improve the productivity of their company’s employees and reduce operational expenses associated with providing technical support. Companies license our Resolution Suite to provide a global, scalable support solution with the ability to provide support for a full spectrum of simple to complex technical issues to employees, even if working remotely. A representative sample of our corporate enterprise customers include: Bank of America, Bear Stearns, Belgacom, British Telecom, China American Petroleum, Cisco Systems, Clorox, CompuCom, Computer Sciences Corporation, General Electric, JCPenney, McKesson HBOC, Procter & Gamble, Siebel Systems, Schlumberger Omnes, and Telewest.

Corporations may extend their support capabilities outside their enterprise because suppliers, partners, and customers can also benefit from a company’s more efficient support processes. Our new Satisfaction Suite software is designed to help enterprises service their customers over the Internet for questions related to basic technical support issues or simple non-technical “how to” or “how do” questions, such as “what is the status of my insurance claim.” In December 2001, we licensed our new Satisfaction Suite software to our first customer, Health Care Service Corporation of America, an insurance provider.

Certain corporate enterprises prefer to outsource their support or service department. Support outsourcers license our products to provide a full range of support to another enterprise’s employees or customers. An

example of support outsourcers utilizing our software include: Computer Sciences Corporation, IBM, Perot Systems, and CompuCom.

Broadband service providers such as cable companies and telecommunications firms address technical issues facing corporate customers and consumers who are seeking high speed Internet connectivity. Such issues start from the time the subscriber makes the decision to purchase a broadband connection for their household or business and continue through the subscriber’s ongoing use of the Internet connection including issues such as accessing email and clearing a browser cache. The Broadband Resolution Suite software can help broadband service providers, such as cable companies and telecommunications firms, resolve problems associated with the installation and provisioning of broadband service and facilitate customer service throughout the subscriber’s lifecycle. The following customers have licensed our software: BellSouth, Charter Communications, Comcast Cable Communications, Cox Communications, Globo Cabo, Road Runner, a division of AOL/Time Warner, and SBC Communications.

Computing device manufacturers traditionally answered a customer’s questions with a telephone call. Support automation software allows them to move users from telephone support to Web-based support, and can reduce costs associated with providing customer service. In addition to supporting personal computers, our Resolution Suite can support hand-held devices running the RIM Blackberry, Microsoft PocketPC, or Palm OS platforms. The following personal computer manufacturers are customers of SupportSoft: IBM, Samsung Electronics, Sony Electronics and Toshiba.

Strategy

SupportSoft’s mission is to deliver the premier software platform for technology problem resolution ranging across systems and networks, personal computers, servers, devices and instruments, security, software applications and business processes. Key components of our strategy include:

Continue to Develop Advanced Support and Service Technologies. Our product offerings contain leading technologies that have been awarded with five patents while four additional patents are pending. Our products are designed to solve difficult service and support problems, primarily those revolving around technical issues. We intend to continue investing substantial resources in developing and potentially acquiring innovative Web-based technologies that enhance the personalization, automation and overall effectiveness of our solutions. We plan to continue developing technologies to support additional platforms and applications. Our goal is to understand the customers’ problems and provide the underlying technology that resolves them. We will continue to foster an environment to obtain feedback from our customers, including ongoing meetings of our Customer Advisory Council, on which several customers from our Fortunate 100 customer base serve to provide us with valuable feedback that we can integrate into future generations of our products.

Expand our Presence in Corporate Enterprises. We intend to deepen our presence within corporate enterprises based on our experience in understanding the solution needs of corporate environments. In addition, we plan to develop new or add-on products to strengthen our customer relationships and generate new revenue opportunities for the company, while allowing existing customers the ability to leverage the investment already made in our underlying software. Potential new product opportunities include those with features addressing asset management, security attack recovery and infrastructure management.

Create New Sales Entry Points. In evolving our product offering, we believe we can create new opportunities to cross-sell our products. For example, a current customer using our Resolution Suite software to provide internal employee support is a candidate customer for our Satisfaction Suite software for external customer support. Similarly, a customer using the Broadband Resolution Suite software is a candidate to purchase our Resolution Suite software for employee support. Offering multiple service and support applications provides more opportunity to sell not just inside to internal information technology departments but to a company’s line of business managers as well.

Increase our Share of the Broadband Service Provider Market. We currently count six of the eight largest broadband service providers in the United States as our customers. We intend to further assert our market leadership for support of high-speed connectivity both in the United States and abroad. We believe that the international marketplace is virtually untapped for automated service software in the broadband service provider market.

Extend our Sales and Distribution Reach. We plan to continue developing both our direct sales force and our relationships with indirect sales channels, notably support outsourcers. We work with some of the world’s largest, most successful support outsourcing companies, including IBM, Computer Sciences Corporation and Compaq. We believe that our indirect sales channel will add cost efficiencies, extend our reach into current and new market segments, and complement our direct sales efforts. For example, IBM Global Services has adapted our software as an outsourced support solution under their own brand termed the Virtual Help Desk. We believe that a combination of direct and indirect sales channels is the best method of growing our customer base.

Continue to Increase Customer Return on Investment. Automated problem resolution starts with effective technology, however, people and process are critical to ensuring that the technology is deployed correctly and that the customer realizes its full benefits. Our Global Services organization works closely with our customers to develop an in-depth understanding of their businesses, and to help the customers effectively deploy our support solution to increase their return on investment. We plan to continue working with our customers as they use support and service automation, to improve the depth of our product offerings and, to identify new support challenges to address.

Meet Customer Requirements Around the Globe. The demands for better, more efficient user support are understood by leading corporations throughout the world. Accordingly, global deployment has been an essential part of our product development strategy since our inception as a company. Today, many of our products are localized in 10 languages. Sales and marketing of these localized solutions is managed through the company’s Pacific Rim offices in Hong Kong, Singapore, Australia and Japan and our European operations in the United Kingdom and Germany.

Products

SupportSoft’s products are organized into three software application suites to address the unique needs of different market requirements. These suites include the Resolution Suite, the Broadband Resolution Suite, and the Satisfaction Suite.

The Resolution Suite

The Resolution Suite is our principal product offering for corporate enterprises interested in providing support automation to their employees. In addition, the Resolution Suite is also purchased by support outsourcers and personal computer manufacturers, as well as manufacturers of devices such as the RIM Blackberry, Microsoft PocketPC, or Palm OS platforms, to provide technical support to their customers. The Resolution Suite consists of four key products that provide a modular approach to building comprehensive support solutions.

User Center

The User Center provides users with self-healing and automated self-service capabilities to resolve problems and questions that normally require a call to the call center or help desk. The User Center acts as the user’s personalized, context-sensitive support assistant, identifying and automatically solving problems before they cause users to experience problems. The User Center provides a single source of information for addressing software and system malfunctions and responding to users’ queries.

Support Center

The Support Center provides a centralized support infrastructure and software components for analysts to provide remote assisted service, enterprise-wide problem resolution and management and administration of the

overall support environment. This product provides support analysts with the ability to deliver context-sensitive diagnosis and resolution of user problems. The Support Center builds on the User Center’s support capabilities in an effort to rapidly resolve support requests that are escalated to the call center or help desk. The Support Center provides support for a comprehensive range of call types, including solving problems, answering questions and resolving requests for system modifications.

The Support Center enables support analysts to provide enhanced assisted service with a set of tools for diagnosing and resolving problems from remote locations. By integrating the User Center’s knowledge and user history with remote assisted service, the Support Center provides support analysts with appropriate information that they would normally need to gather manually. The Support Center allows support analysts to identify the fundamental causes of problems and enable users and support staff to systematically and rapidly resolve them without desktop visits or lengthy interactions between the user and the analyst. The result is a significant reduction in call times, which can lead to improved service to users and lower support costs.

The enterprise healing capabilities of the Support Center enable the support organization to solve problems for a large number of users across the organization before user productivity becomes impaired. We term this “mass healing.” Mass healing allows the IT organization to identify problems, such as a virus outbreak, that could affect large numbers of users and repair them before users suffer downtime.

The administration and management capabilities of the Support Center provide centralized user management, usage and status reporting, storage maintenance, security administration and instructions for the User Center. The Support Center manages characteristics and privileges for users and support analysts and reports on support activities. For instance, periodic maintenance can be performed from the Support Center to manage security parameters and storage requirements.

Support Portal Hub

The Support Portal Hub is the centerpiece of the Resolution Suite. The Support Portal Hub works with the Internet-enabled Support Center and User Center to provide support organizations with the components and infrastructure they need to build interactive, full-service, context-sensitive and personalized online support. Through our SmartIssue technology, information about the user, the user’s computing environment and the user’s question or problem is provided to the Support Portal Hub. The Hub then analyzes this information for resolution by either self-service or optimized self-service. When appropriate, it can feed the information into call-tracking systems in order to populate trouble tickets or into knowledge bases to automatically enable better solution matching and problem resolution. The Support Portal Hub also provides mechanisms to protect the user’s privacy and security. Lastly, the Support Portal Hub acts as a repository in recording the history of all support transactions and information and helps create Scorecard reports, which provide real-time insight into day-to-day operations.

Foundry

The Foundry is a development environment for authoring automated solutions and managing support content that can be utilized by the User Center, Support Center and Support Portal Hub. The Foundry’s authoring capabilities enable support organizations to create automated solutions, or SupportActions, that support user applications and operating system components, automate common support activities and schedule jobs to manage user systems. SupportActions can be created for a complete range of support requests.

The Broadband Resolution Suite

The Broadband Resolution Suite has been designed specifically to address the unique needs of broadband service providers, whether the broadband delivery is via digital subscriber line (DSL) or high speed cable. The Broadband Resolution Suite has been developed using SupportSoft’s core support automation infrastructure. It is

a fully integrated, end-to-end solution that automates all aspects of subscriber assistance, from connection through the ongoing support during the customer lifecycle. SupportSoft developed and markets the connection management module of the Broadband Resolution Suite along with BroadJump, Inc. The SmartConnect module can be made available only as a joint offering from SupportSoft and BroadJump. The connection management module, namely “SmartConnect,” enables the broadband subscribers to easily diagnose and solve their own connection problems.

The Broadband Resolution Suite consists of four modules that together can be used to build a comprehensive, scalable and dynamic support infrastructure for subscriber service and support. The Support Portal Hub, SmartConnect, Support Center and Foundry are the building blocks of a customizable solution that can meet service provider’s specific needs.

The Broadband Resolution Suite was designed to provide the following benefits:

•

Diagnoses both PC and network/service problems including customer premises equipment (Cable/DSL modems)

•

Personalizes the repair and assisted service solutions for the subscriber’s personal computing environment

•

Offers the subscriber easy access to solutions so that they can solve problems themselves

•

Provides targeted solutions based on service status

•

Protects subscriber privacy and security by putting the subscriber in control of what information is passed to the service provider. All information gathering is permission-based and initiated by the subscriber.

The Satisfaction Suite

The Satisfaction Suite enables companies to provide service to its customers over the Internet, related to basic technical support issues or simple “how to” or “how do” questions. The Satisfaction Suite offers customers the ability to help themselves and, if the customer’s question is still not resolved via self-service, it provides the ability for the customer to automatically escalate to a customer service representative. In doing so, it rewards the customer for their self-service efforts by arming the customer service representative with the self-service steps already taken. The Satisfaction Suite consists of two key components that provide a modular approach to building comprehensive service solutions that make the Internet integral to a customer contact center.

CustomerAdvisor

The CustomerAdvisor provides users with automated self-service help to questions related to the products or services provided by a company, thereby reducing the number of calls into the customer service department and increasing customer satisfaction.

ServiceAdvisor

The ServiceAdvisor provides the customer service representative with information helpful to answer the customer’s question, without requesting information already supplied by the customer during the self-service session. In addition, the ServiceAdvisor can be integrated with a third party Customer Relationship Management (CRM) application and automatically populate trouble tickets, shortening the length and reducing the cost of each call.

Add-On Modules

Integration Toolkit

The Integration Toolkit enables customers to integrate our software Suites into a customer’s existing website. In addition, the Integration Toolkit allows the customer to customize and brand the user-facing portion of the Suites.

Activators

The Activators enable customers to integrate the Suites with a variety of call tracking systems, including Peregrine Remedy, Siebel Systems, Tivoli, Amdocs (formally Clarify), and PeopleSoft. The Activators enable the call tracking systems to be populated with the user information obtained during the support or service session.

Additional Products

We currently market and sell complementary add-on products from third party vendors for password management, content, and e-learning authoring tools.

Technology

Our core technologies enable our products to easily adapt to varying environments and to reduce the manual labor in the support process. We have five patents related to our SmartIssue, DNA Probe, and Software Vault Technologies. We have four additional patents pending. The following is a summary of our core technologies:

SmartIssue Technology

When a user has a problem or question, our patented SmartIssue technology automatically collects personalized information about the user, the system and the problem. Such information is delivered to the support professional only upon the user’s consent to help the user’s privacy remain intact. Based on a just-in-time analysis of this information, SmartIssue technology automatically and intelligently connects users to the support tools, personnel and communication channels that best address the support issue.

SmartResult System

The SmartResult system combines SmartIssue information with advanced search technology, to automate problem resolution for “how-to” questions to help deliver the best, most precise answer to a user’s inquiry. The SmartResult system can target users based upon defined characteristics such as which department the user is in or whether the user is a mobile user, or whether the user speaks a foreign language.

DNA Probe—Personalized Support

Our patented DNA Probe provides detailed data about users, their system and their software. DNA Probe technology automatically identifies the characteristics of each user’s software applications and operating system components and tracks them over time. This personalized data can be used to quickly sift through large amounts of information, compare historical data and highlight potential fundamental causes of problems. For example, the DNA Probe technology automatically identifies all of the network settings for each individual user, including the network address, machine name, Internet configuration and the specific drivers for their network card. The DNA Probe can dynamically learn about an individual computing environment to efficiently provide a user with personalized support solutions.

SupportAction—Point-and-Click Development and Delivery

Many custom support solutions can be packaged as SupportActions, which enable the automation of common support requirements such as solving problems or answering questions. Support analysts use the Foundry to create custom SupportActions using a point-and-click interface. Support organizations can program existing applications, commands and content into SupportActions to turn static information into automated knowledge. For example, the support organization could integrate a diagnostic program into a SupportAction so that the user can automatically perform the steps described by the diagnostics program. SupportActions can accommodate many scripting languages and a wide range of content.

DNA Infrastructure

Our DNA Infrastructure provides a common mechanism for the distribution and application of changes to one or more machines. This infrastructure is used across our products so that changes made to a user’s machine are consistent, reversible and recorded. Repair to a user’s machine, comparison of one machine to another, installation, modification and distribution can all be achieved using our DNA Infrastructure. Support solutions are easier to develop with this infrastructure because steps that are done manually and are potentially error-prone are replaced by automatic and consistent mechanisms. This can facilitate rapid development and reduce the cost of on-going maintenance.

Nexus—Enhanced Communication Infrastructure

Our products communicate directly with each other using secure protocols, but firewalls and other network components often restrict direct communication across the Internet. If a firewall or other device prevents direct communication between remote parties, our products are designed to communicate indirectly using our Nexus technology as an intermediary. Our Nexus technology allows communication to take place between parties in circumstances where direct communication is unreliable or impossible.

Software Vaults—Efficient Storage Management

Once a user’s problem is diagnosed, the solution is delivered to the user from the Software Vault. Support solutions generally require access to a large amount of support content, in the form of files, programs and other information, which must be available locally or across a network. Our patented Software Vault provides efficient and redundant storage, retrieval and management of this support content. Files and programs for supported applications, operating system components and all SupportActions are stored in the Software Vault.

Sales and Distribution

We sell our software through a combination of direct and indirect sales channels. Our direct sales efforts to corporate customers are focused on several industries, including financial services, telecommunications, technology and manufacturing. Our indirect sales channel consists of support outsourcers, live support providers, system integrators, and resellers. We sell to corporate enterprises, service providers and device manufacturers primarily through our direct sales channel. Currently, we manage direct and indirect sales channels from the United States, covering North America, from the United Kingdom and Germany covering Europe, the Middle East and Africa, and from Singapore, Australia, Japan and Hong Kong covering the Asia Pacific region.

We have established sales and distribution alliances with specialized technology and services firms that deliver our solutions to multiple market segments. We believe these distribution relationships allow us to benefit from the marketing and lead generation capabilities of these firms, and are intended to increase geographic sales coverage and to address various customer segments ranging from mid-market businesses to government to large corporate customers complementary to our direct sales efforts.

Included within these distribution alliances are support outsourcers. Support outsourcers seek ways to provide new value and increase service levels to current customers, as well as prospects. SupportSoft’s software can help outsourcers increase customer satisfaction and provide ongoing value in the relationship by reducing the time and expense it takes to resolve technical problems for a customer’s software applications. For example, IBM Global Services has adapted our software as an outsourced support solution under their own brand termed the Virtual Help Desk.

Technology Alliances

We employ technology alliances to help ensure that our support automation software can be integrated with the applications, software and network solutions of our customers. We also enter into alliances with partners that we believe can enhance our solution or can assist customers in gaining more value from SupportSoft software. These may include companies marketing Internet infrastructure software, operating systems, software tool providers and applications developers. Examples of such alliances include Contrado, with which we partner in selling an integrated solution for deployment and support of software solutions for large enterprises, and BroadJump, with which we have partnered in selling a robust solution to broadband service providers.

We work with our customers to understand where technology alliances can provide the greatest benefit to them, whether their requirements are for ease of integration with legacy applications, providing a complementary solution to their existing user support applications or leveraging a fully developed knowledge base. Through this customer dialogue, we have created technical and other forms of alliances with companies such as Tivoli, Amdocs, and Peregrine Remedy, to complement their call tracking applications, with companies like Serviceware and Primus to add value to their knowledge management solutions, and with software companies like Siebel, MicroMuse, and PeopleSoft which offer software complementary to ours. Our alliances can allow the customer to realize a higher return on a SupportSoft investment, because we work with solutions that they already have in place, or are actively considering for deployment.

Global Services

Our Global Services organization provides professional service offerings to our customers ranging from architectural design to ongoing support. Our Global Services group customizes solutions for our customers that can be used across all or parts of their organizations. Its capabilities are principally divided into five areas:

Implementation . Provides architectural design, transformation, product integration and deployment services.

Education. Trains customers and those parties with whom we have alliances in the design, implementation and use of our products.

Technical Support. Responds to design, feature, implementation and deployment questions.

Customer Care. Provides ongoing assistance to optimize customer communication and feedback for smooth technology deployment, including using our own software to provide an Internet support portal, entitled ExpertExchange, as well as regular user group forums by which customers can assist each other in discussing product issues and opportunities.

Strategic Services. Educates customers on “best practices” for supporting and servicing users and encouraging users to move from traditional support processes, such as a phone call to the help desk, to an automated approach, in order to accelerate the customer’s return on investment.

Under a maintenance contract, our customers receive generally available new releases, corrections, enhancements, and updates to the products they have licensed.

Research and Development

We devote a substantial portion of our resources to developing new and enhanced versions of our support automation software, conducting product testing and quality assurance testing and improving our core technologies. Fundamental to our research and development strategy is rapid product develop cycles, continuous improvement, and customer feedback. We believe that customers serve as an extension of our research and

development process by providing us with valuable feedback from their hands-on usage to assist with our product improvements, implementation services and new market opportunities and strategy. We have created a Customer Advisory Council with a representative sample of our customers to formalize this input.

Our research and development expenditures were approximately $12.6 million in 2001, $10.9 million in 2000, and $2.3 million in 1999. We expect to continue to devote significant resources to research and development for the next several years.

Intellectual Property

Patents

We have five patents in the general areas of automated discovery of dynamic configurations, our SmartIssue technology and our software vault technology. We have four patent applications pending in the United States, and we may seek additional patents in the future. We do not know if our patent applications or any future patent application will result in a patent being issued with the scope of the claims we seek, if at all. Also, we do not know whether any patents we have or may receive will be challenged or invalidated. It is difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, and our competitors may independently develop technology similar to ours.

Copyright, Trademark and other Proprietary Rights

Our trademarks and service marks include SupportSoft and related designs, Support.com and related designs the “support man” logo, ContextResponse Technology, CustomerAdvisor, DNA, DNA Probe, Mobile Support Suite, Nexus, RapidReset, Resolution Suite, Resolution Suite Integration Toolkit, Satisfaction Suite, ServiceAdvisor, SmartIssue, SupportAction, and SupportTrigger. We claim common law rights for other marks in certain additional markets as well. The adoption of the new trademark and corporate name SupportSoft increases the risk that a prior user could view the mark or name to be confusingly similar to the prior user’s mark or name. Although the Company has conducted limited trademark and trade name searches, and does not believe the SupportSoft trademark and corporate name will infringe any known party’s trademark rights, it is possible that a third party will claim our use of SupportSoft infringes its trademark. Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights. We rely on a combination of copyright, trade secret, trademark and contractual protection to establish and protect our proprietary rights that are not protected by patent. We also enter into confidentiality agreements with our employees and consultants involved in product development. We routinely require our employees, customers and potential business partners to enter into confidentiality agreements before we will disclose any sensitive aspects of our business. Also, we require employees to agree to surrender to us any proprietary information, inventions or other intellectual property they generate or come to possess while employed by us. Despite these efforts, unauthorized parties may attempt to copy or obtain and use our products or technology. These precautions may not prevent misappropriation or infringement of our intellectual property.

Our Infringement of Others’ Intellectual Property

We may be involved in legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties. Also, patent applications may have been filed which relate to our software products. Intellectual property litigation is expensive and time-consuming and could divert management’s attention away from running our business. This litigation could also require us to develop non-infringing technologies or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable terms, if at all. Our failure or inability to develop non-infringing technologies or license the proprietary rights on a timely basis would harm our business. In March of 2001, Previo, Inc. filed a patent infringement lawsuit against us. In February of 2002, the parties agreed to an amicable business resolution and the claims of both parties have been dismissed. As of March 15, 2002, SupportSoft is not involved in any infringement lawsuits.

Competition

Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Our potential competitors may have longer operating histories, significantly greater

financial, technical and other resources or greater name recognition than we do. We encounter competition from a number of different sources, including internal development, point application vendors and other competitors. Competition could seriously harm our ability to sell additional software, maintenance renewals and services on terms favorable to us. Competitive pressures could also reduce our market share or require us to reduce the price of products and services, which could harm our business, financial condition and operating results.

Internal Development

Our customers and potential customers have developed or may develop support automation software systems in-house. We expect that internally-developed applications will continue to be a principal source of competition in the foreseeable future. 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, and costs less than the result of an internal development effort.

Point Application Vendors

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. Although we do not believe there is one dominant competitor in the market for all aspects of our support automation solution, there are vendors who offer products and services with features that compete with specific elements of our solution.

Other Competition

We may encounter competition from other software companies to the extent that we enter each other’s market. These companies may include, customer relationship management, or CRM, solutions companies, including Kana Communications, eGain, Motive Communications and Oracle Corporation; consolidated service desk solution vendors, including Amdocs, and Peregrine Corporation; and software release management companies, such as Novadigm.

We believe that the principal competitive factors in our market include quality of client base, timing of return-on-investment, product functionality, quality and performance, responsiveness of new products to the market in a timely manner, customer service and support; and pricing. Our continued success will depend on our ability to maintain our technological advantage, introduce timely enhanced products to meet the growing support needs, deliver on-going value to our customers and scale our business.

Employees

As of December 31, 2001, we had 155 full-time employees. None of our employees are covered by collective bargaining agreements. We believe our relations with our employees are good.

ITEM 2. PROPERTIES

Our corporate headquarters are located in Redwood City, California, where we lease approximately 23,600 square feet under a lease that expires in May 2003, with an option to extend for an additional two years. As of December 31, 2001, we also leased office space in 14 other cities for our sales and support personnel. The terms of these leases expire beginning in August 2002 and ending in February 2006, and automatically renew unless earlier terminated. We may require additional space to meet our needs within the next 12 months.

ITEM 3. LEGAL PROCEEDINGS

In March of 2001, Previo, Inc. filed a patent infringement lawsuit against us. In February of 2002, the parties agreed to an amicable resolution and the claims of both parties have been dismissed. As of March 15, 2002, SupportSoft is not involved in any infringement lawsuits.

On or about November 30, 2001, Dana [sic] Risley, on behalf of herself [sic] and other similarly situated, filed a lawsuit, styled as a class action, against us in the United States District Court for the Southern District of New York. The complaint alleges, inter alia, that our Registration Statement and Prospectus dated July 18, 2000 for the issuance and initial public offering of 4,250,000 shares of the Company’s common stock contained material misrepresentations and/or omissions, related to alleged inflated commissions received by the underwriters of the offering. The lawsuit seeks unspecified damages as well as interest, fees and costs. The defendants named in the lawsuit are the Company, Radha Basu, Brian Beattie, Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., and FleetBoston Robertson Stephens Inc. While it is too early to predict with certainty the outcome of the litigation, we believe that the claims against the Company and its directors are without merit and we intend to defend the lawsuit vigorously.

We are not currently a party to any other material legal proceedings. We are involved, and may from time to time become involved, in legal proceedings arising in the ordinary course of business or incidental to our business.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2001.

Executive Officers of the Registrant

Our executive officers and their ages as of March 15, 2002, are:

Name	Age	Position
Radha R. Basu	51	Chief Executive Officer, President and Chairman of the Board
Brian M. Beattie	48	Chief Financial Officer, Executive VP of Finance and Administration
Scott W. Dale	32	Chief Technical Officer and Vice President of Engineering
Cadir B. Lee	30	Chief Software Officer
Lucille K. Hoger	48	Vice President of Operations
Bruce Mowery	56	Vice President of Marketing
David Duckwitz	39	Senior Vice President of Sales

Radha R. Basu . Ms. Basu has served as President, Chief Executive Officer and as a director of SupportSoft since July 1999 and became Chairman of the Company’s Board of Directors in January 2001. Ms. Basu worked at Hewlett-Packard Company, a computing and imaging solutions provider company, from November 1978 to January 1999, and held various general management positions, most recently the general manager of the electronic business software organization. Ms. Basu also serves as a director of Seec, Inc., an eBusiness solutions company. Ms. Basu holds a B.S. in engineering from the University of Madras, a masters degree in electrical engineering and computer science from the University of Southern California and is a graduate of the Stanford University executive management program.

Brian M. Beattie . Mr. Beattie has served as Executive Vice President of Finance and Administration and Chief Financial Officer of SupportSoft since October 1999. From May 1998 to May 1999, he served as Vice President of Finance, Mergers and Acquisitions of Nortel Networks Corporation, a voice and data networking company. From July 1996 to April 1998, Mr. Beattie served as Group Vice President of Meridian Solutions of Nortel Networks Corporation. From February 1993 to June 1996, Mr. Beattie served as Vice President of Finance, Enterprise Networks, for Nortel Networks Corporation. Mr. Beattie holds a bachelor of commerce and an MBA from Concordia University in Montreal.

Scott W. Dale . Mr. Dale co-founded SupportSoft and has served as the Chief Technical Officer of SupportSoft since its incorporation in December 1997, and assumed the role of Vice President of Engineering in April 2000. From January 1997 to December 1997, Mr. Dale served as a software consultant for M&I Data

Services, a financial transaction software company. From July 1992 to January 1997, Mr. Dale served as a software consultant to Hewlett-Packard Company, a computing and imaging solutions provider company. Mr. Dale holds a B.S. in computer science from Stanford University.

Cadir B. Lee . Mr. Lee co-founded SupportSoft and has served as the Chief Software Officer of SupportSoft since its incorporation in December 1997. From 1995 to 1997, Mr. Lee served as a software consultant to Hewlett-Packard Company, a computing and imaging solutions provider company. Mr. Lee holds a B.S. in biological sciences and a B.A. in music from Stanford University.

Lucille K. Hoger . Ms. Hoger has served as the Vice President of Operations of SupportSoft since February 2000. From 1996 to 2000, Ms. Hoger served as the Chief Operating Officer at ConnectInc.com, an e-commerce software company. From 1992 to 1995, she served as a principal for Gemini Consulting, an affiliate of Cap Gemini, a consulting company. Ms. Hoger holds a B.A. in accounting from Southwest Texas State University.

Bruce Mowery. Mr. Mowery has served as the Vice President of Marketing at SupportSoft since January 2001. From 1999 to 2000, Mr. Mowery served as Executive Vice President for More.com, an eCommerce company. From 1995 to 1997, Mr. Mowery served as Vice President of Marketing for Visioneer, a leading manufacturer of computer imaging systems. From 1994 to 1995, Mr. Mowery served as Vice President of Marketing for MusicNet, an online music company. From 1984 to 1993, Mr. Mowery held various senior marketing positions at Apple Computer, most recently as Senior Director of Marketing for its personal computing products. Mr. Mowery holds a B.S. from Ohio State University, a masters in management from the American Graduate School of International Management, and a diploma from INSEAD, Europe’s leading business management school.

David Duckwitz. Mr. Duckwitz has served as Senior Vice President of Sales since March 2001. From May 2000 to March 2001, he served as a Senior Vice President and General Manager of Stamps.com, an online provider of shipping and mailing solutions. From April of 1996 until March of 2000, Mr. Duckwitz served as a Senior Vice President of Sales for enterprise business applications solutions at Computer Associates International, a software company. Mr. Duckwitz holds a B.S. in computer information systems from California State Polytechnic University.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Market of Common Stock

Our common stock has been traded publicly on the Nasdaq National Market under the symbol “SPRT” since July 19, 2000. Before July 19, 2000, there was no public market for the common stock. The following table sets forth for the periods indicated the highest and lowest sale price of the common stock during each quarter since July 19, 2000:

	High		Low
Fiscal Year 2000:
Third Quarter	$	39.1875	$	22.625
Fourth Quarter	$	32.50	$	8.625

Fiscal Year 2001:
First Quarter	$	20.1875	$	4.00
Second Quarter	$	7.65	$	2.50
Third Quarter	$	6.41	$	2.04
Fourth Quarter	$	6.50	$	2.00

Holders of Record

As of March 15, 2002, there were approximately 467 holders of record (not including beneficial holders of stock held in street name) of the common stock.

Dividend Policy

We did not declare or pay any cash dividends on our capital stock since our inception and do not expect to do so in the foreseeable future. We anticipate that all future earnings, if any, generated from operations will be retained by us to develop and expand our business. Any future determination with respect to the payment of dividends will be at the discretion of the Board of Directors and will depend upon, among other things, our operating results, financial condition and capital requirements, the terms of then-existing indebtedness, general business conditions and such other factors as the Board of Directors deems relevant.

ITEM 6.

SELECTED CONSOLIDATED FINANCIAL DATA

The information set forth below is not necessarily indicative of results of future operations and should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included in Items 7 and 8 of Part II of this Form 10-K.

	Year Ended December 31,									Period from Incorporation on December 3, 1997 to December 31, 1998
	2001			2000			1999
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue:
License fees	$	22,534		$	13,732		$	2,642		$	18
Services		7,896			4,934			569			—

Total revenue		30,430			18,666			3,211			18
Costs and expenses:
Cost of license fees		621			1,405			4			—
Cost of services		6,234			5,910			965			—
Amortization of purchased technology		2,812			1,158			—			—
Research and development		12,637			10,913			2,348			1,132
Sales and marketing		27,482			22,754			7,924			1,197
General and administrative		6,131			4,325			1,845			451
Amortization of deferred compensation		4,271			10,787			3,809			42

Total costs and expenses		60,188			57,252			16,895			2,822

Loss from operations		(29,758	)		(38,586	)		(13,684	)		(2,804	)
Interest income, net		1,578			1,718			170			54

Net loss		(28,180	)		(36,868	)		(13,514	)		(2,750	)
Accretion on redeemable convertible preferred stock		—			(885	)		(1,072	)		(214	)

Net loss attributable to common stockholders	$	(28,180	)	$	(37,753	)	$	(14,586	)	$	(2,964	)

Basic and diluted net loss per share attributable to common stockholders	$	(0.91	)	$	(2.09	)	$	(2.20	)	$	(0.57	)

Weighted average shares of common stock outstanding used in computing basic and diluted net loss per share		31,078			18,102			6,643			5,227


	December 31,
	2001			2000			1999			1998
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	26,272		$	51,513		$	12,489		$	2,807
Working capital		22,945			41,853			10,478			2,979
Total assets		46,363			70,572			17,692			3,672
Long-term obligations		1,590			3,385			2,277			449
Redeemable convertible preferred stock		—			—			21,449			5,237
Accumulated deficit		(81,312	)		(53,132	)		(16,264	)		(2,750	)
Total stockholders’ equity (deficit)		24,297			46,159			(12,473	)		(2,423	)

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read with “Selected Consolidated Financial Data” and our Consolidated Financial Statements and the related notes included elsewhere in this Form 10-K. The statements contained in this Report on Form 10-K that are not purely 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. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. These are statements that relate to future periods and include statements relating to anticipated features and benefits of our products and services, statements by independent research firms relating to industry statistics and projections and statements by independent research firms relating to anticipated increases in the number of people using the web, the number of programs on the average personal computer, the amount of business to business infrastructure spending, the market for software support, the integration services industry and customer trends, statements relating to our strategy and components of our strategy, including our intentions to expand our market reach to large software application vendors, to continue to develop advanced support and service technologies, to expand our presence in corporate enterprises to create new sales entry points, to increase our share of the broadband service provider market, to expand our sales and distribution capabilities, to continue to increase customer return on investment, and to meet support requirements around the globe, our expectations as to benefits we may derive from our strategic alliances, as to expected net losses, expected cash flows, expected expenses including those related to sales and marketing, research and development and general and administrative, expected revenue and sources of revenue, expected impact, if any, of legal proceedings, expected increases in headcount, the adequacy of liquidity and capital resources, growth in business and operations and the effect of recent accounting pronouncements. Factors that could cause actual results to differ materially from those predicted, include but are not limited to, the Company’s dependence on a small number of relatively large orders, the Company’s ability to attract and retain customers for existing and new services and to achieve adoption and acceptance of our products and services, the Company’s ability to recruit and retain employees particularly in the areas of sales, engineering and support services, the ability of our products to achieve market penetration, the ability to use or integrate third-party technologies and to expand infrastructure to meet the demand for the Company’s services, the Company’s ability to expand internationally, the Company’s ability to control expenses, the economy and the strength of competitive offerings. Additional factors, which could cause actual results to differ materially, include those set forth in the following discussion, and, in particular, the risks discussed in “Other Factors Affecting our Business and Operating Results” and elsewhere in this Form 10-K. These forward-looking statements speak only as of the date hereof. Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements.

Overview

General

SupportSoft, Inc. (“SupportSoft”), formerly known as Support.com, Inc. and Tioga Systems, Inc., was incorporated in the state of Delaware on December 3, 1997. We are a leading provider of support automation software. Our Web-based family of software solutions is designed to help corporations automate and personalize the support they provide to their employees, customers and partners. Our software helps reduce manual steps in the service and support process.

Corporations utilize our software in different ways. Corporate information technology departments use our software to provide technical support to their company’s employees. Hardware and software manufacturers and support outsourcers license our software to support their respective products or services used by their customers. Broadband service providers utilize our software to help service their subscribers by streamlining the provisioning and installation of high-speed Internet connections, as well as help provide ongoing service throughout the subscriber’s lifecycle.

Results of Operations

The following table presents certain consolidated statement of operations data for the periods indicated as a percentage of total net revenue.

	Years Ended December 31,
	2001		2000		1999
Revenue:
License fees	74	%	74	%	82	%
Services	26		26		18

Total revenue	100		100		100

Costs and expenses:
Cost of license fees	2		8		—
Cost of services	21		32		30
Amortization of purchased intangibles	9		6		—
Research and development	42		58		73
Sales and marketing	90		122		247
General and administrative	20		23		57
Amortization of deferred compensation	14		58		119

Total costs and expenses	198		307		526

Loss from operations	(98	)	(207	)	(426	)
Interest income, net	5		9		5

Net loss	(93	)%	(198	)%	(421	)%

Years ended December 31, 2001, 2000 and 1999

Revenue

We generate revenue primarily from software licenses and related professional services. We market our products through a combination of direct sales, resellers and service providers. Through 2001, most of our revenue was derived from direct sales. Although we believe direct sales will continue to account for most of our license revenue for the foreseeable future, our strategy is to continue to increase the level of indirect sales activities. Revenue from customers outside the United States accounted for approximately 19% of our total revenue in 2001, 15% of our total revenue in 2000 and 1% of our total revenue in 1999.

Total revenue was $30.4 million in 2001, $18.7 million in 2000 and $3.2 million in 1999. Total revenue increased by approximately $11.8 million or 63%, in fiscal 2001 from fiscal 2000 and increased approximately $15.5 million or 481%, in fiscal 2000 from fiscal 1999. These increases were primarily because of greater market acceptance of our software products, expansion of our product line, a full year of term-based license revenue in 2001 and 2000 for arrangements entered into in the previous year and the increase in maintenance revenue and professional services performed.

License revenue

License revenue was $22.5 million in 2001, $13.7 million in 2000 and $2.6 million in 1999. License revenue increased by approximately $8.8 million or 64%, in fiscal 2001 from fiscal 2000 and increased approximately $11.1 million or 420%, in fiscal 2000 from fiscal 1999. These increases were primarily due to greater market acceptance of our software products, a full year of term based license revenue in 2001 and 2000 for arrangements entered into in the previous year and expansion of our product line. For the years ended December 31, 2001, 2000, and 1999, revenue from perpetual licenses as a percentage of total revenue was 20%, 24% and 65% and as a percentage of license fees was 27%, 33% and 79%, respectively.

Services revenue

Services revenue was $7.9 million in 2001, $4.9 million in 2000 and $569,000 in 1999. Services revenue increased by approximately $3.0 million or 60%, in fiscal 2001 from fiscal 2000 and increased approximately $4.4 million or 767%, in fiscal 2000 from fiscal 1999. These increases were primarily due to increased maintenance revenue and increased implementation, training and consulting services performed.

Cost of revenue

Total cost of revenue was $6.9 million in 2001, $7.3 million in 2000 and $969,000 in 1999. Cost of revenue decreased approximately $460,000 or 6%, in fiscal 2001 from fiscal 2000 and increased approximately $6.3 million or 655%, in fiscal 2000 from fiscal 1999. The decrease in cost of revenue in fiscal 2001 from fiscal 2000 was primarily due to a license fee payment of $1.0 million paid to ePeople in the third quarter of fiscal 2000. Since our purchase of the technology which we were previously licensing from ePeople, our consolidated statement of operations includes amortization of purchased technology. The increase in cost of revenue in fiscal 2000 from fiscal 1999 was primarily due to increased costs associated with growth in our professional services organization and royalties paid to third party software vendors including the one-time payment of $1.0 million mentioned above.

Cost of license revenue

Cost of license revenue consists primarily of fees paid to third parties under technology license arrangements. Cost of license revenue was $621,000 in 2001, $1.4 million in 2000 and $4,000 in 1999. Cost of license revenue decreased approximately $784,000 in fiscal 2001 from fiscal 2000 and increased $1.4 million in fiscal 2000 from fiscal 1999. The decrease in cost of license revenue in fiscal 2001 from fiscal 2000 and the increase in cost of license revenue in fiscal 2000 from fiscal 1999 were primarily due to a one-time license fee payment of $1.0 million paid to a third party in fiscal 2000. For the years ended December 31, 2001, 2000 and 1999, we incurred minimal shipping, packaging and documentation costs, as our product was delivered electronically over the Internet.

Cost of services revenue

Cost of services revenue includes salaries, travel costs net of reimbursements, related overhead expenses and payments made to third parties for consulting services. Cost of services revenue was $6.2 million in 2001, $5.9 million in 2000 and $965,000 in 1999. Cost of services revenue increased $324,000 in fiscal 2001 from fiscal 2000 and increased $4.9 million in fiscal 2000 from fiscal 1999. The increase in cost of services revenue in fiscal 2001 from fiscal 2000 was primarily due to an increase in salary expenses offset by a reduction in travel, consulting and recruiting expenses. The increase in cost of services revenue in fiscal 2000 from fiscal 1999 was primarily due to the growth in the number of employees in our professional services organization and to consulting and other fees paid to third parties.

Amortization of purchased technology

Amortization of purchased technology was $2.8 million in 2001, $1.2 million in 2000 and zero in 1999. These increases were attributable to the amortization of purchased technology from the acquisition of source code and related intellectual property rights from ePeople, Inc. in September 2000. We expect to amortize approximately $598,000 per quarter for the next three quarters related to this technology acquisition.

Operating expense

Research and development. Research and development expense consists primarily of payroll expense and related costs for research and development personnel. Research and development expense is expensed as incurred. Research and development expense was $12.6 million in 2001, $10.9 million in 2000 and $2.3 million in 1999. Research and development expense increased approximately $1.7 million or 16%, in fiscal 2001 from fiscal 2000 and increased approximately $8.6 million or 365%, in fiscal 2000 from fiscal 1999. The increases in research and development expense in fiscal 2001 from fiscal 2000 and in fiscal 2000 from fiscal 1999 were primarily due to an increase in payroll expense, an increase in consulting costs and other costs incurred in connection with the development of new products and the expanded functionality of our support automation software as well as our increased investment in quality assurance. In fiscal 2001, the increases in research and development expense were offset by a reduction in travel and recruiting costs.

Sales and marketing . Sales and marketing expense consists primarily of payroll expense, including salaries and commissions and related costs for sales and marketing personnel and promotional expenses, including public relations, advertising and trade shows. Sales and marketing expense was $27.5 million in 2001, $22.8 million in 2000 and $7.9 million in 1999. Sales and marketing expense increased by approximately $4.7 million or 21%, in fiscal 2001 from fiscal 2000 and increased approximately $14.8 million or 187%, in fiscal 2000 from fiscal 1999. The increases in sales and marketing expense in fiscal 2001 from fiscal 2000 and in fiscal 2000 from fiscal 1999 were due to a number of factors, including an increase in payroll expense, the opening of new sales offices in the United States, Europe and Asia and commission expense associated with increased revenue in both fiscal 2001 and fiscal 2000. In fiscal 2001, the increases in sales and marketing expense were offset by a reduction in travel and recruiting costs.

General and administrative. General and administrative expense consists primarily of payroll expense and related costs of administrative personnel and professional fees for legal, accounting and other professional services. General and administrative expense was $6.1 million in 2001, $4.3 million in 2000 and $1.8 million in 1999. General and administrative expense increased approximately $1.8 million or 42% in fiscal 2001 from 2000 and approximately $2.5 million or 134% in fiscal 2000 from fiscal 1999. The increases in general and administrative expense in fiscal 2001 from fiscal 2000 and in fiscal 2000 from fiscal 1999 were primarily because of an increase in payroll expense and from additional legal, accounting and other professional services costs incurred in connection with supporting business activities.

Amortization of deferred compensation. Deferred stock compensation represents the difference between the exercise price of options granted to employees and board of directors and the deemed fair value for financial statement reporting purposes of our common stock on their respective grant dates. Deferred stock compensation also includes the fair value of options and restricted stock granted to non-employees as determined under the Black Scholes model. We amortized deferred compensation expense related to employee and board of director option grants of approximately $4.3 million during the year ended December 31, 2001, $10.3 million during the year ended December 31, 2000 and $3.6 million for the year ended December 31, 1999. We reduced deferred stock compensation by $2.0 million in 2001 and $4.3 million in 2000 to reflect the cancellation of unvested stock options.

We also recorded variable accounting expense related to the amortization of deferred compensation for options to non-employees and the acceleration of vesting of certain restricted stock arrangements of zero for the

year ended December 31, 2001, $501,000 for the year ended December 31, 2000 and $255,000 for the year ended December 31, 1999.

Interest income, net. Interest income, net was $1.6 million in 2001, $1.7 million in 2000 and $170,000 in 1999. Interest and other income decreased approximately $140,000 or 8%, in fiscal 2001 from fiscal 2000 and increased approximately $1.5 million or 911%, in fiscal 2000 from fiscal 1999. The decrease in interest income, net in fiscal 2001 from fiscal 2000 was primarily attributable to the reduction in interest income earned on our cash, cash equivalents and investments due to lower cash, cash equivalents and short-term investment balances. The increase in interest income, net in fiscal 2000 from fiscal 1999 was primarily because of increased average cash balances resulting from our initial public offering in July 2000.

Provision for income taxes . For the years ended December 31, 2001 and December 31, 2000, we incurred net losses for federal and state tax purposes and have not recognized any tax provision or benefit. As of December 31, 2001, we had federal and state net operating loss carryforwards of $34.4 million and $12.8 million, respectively. The net operating loss carryforwards expire on various dates beginning in 2005 through 2021. Given our limited operating history, our losses incurred to date and the difficulty in accurately forecasting our future results, management does not believe that the realization of the related deferred income tax asset meets the criteria required by generally accepted accounting principles. Therefore, we have recorded a 100% valuation allowance against the deferred income tax asset.

Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $24.3 million in 2001, $16.5 million in 2000 and $8.0 million for 1999. Amortization of deferred stock compensation and amortization of purchased intangibles, which is included in the net loss, but does not require the use of cash, amounted to $7.1 million for the year ended December, 31, 2001 compared to $11.9 million and $3.8 million for 2000 and 1999. Net cash used in operations during 2001 was primarily the result of $28.2 million in net losses and a $5.0 million increase in accounts receivable and a combined decrease in accrued compensation and other accrued liabilities of $2.2 million, offset by a $1.4 million increase in deferred revenue. The increase in accounts receivable and deferred revenue for 2001 is primarily the result of increased sales at the end of the year and to a lesser extent anniversary billings from term deals closed in previous years.

Investing Activities

Net cash provided by investing activities was $28.9 million in 2001 and net cash used in investing activities was $35.8 million in 2000 and $8.7 million in 1999. Net cash provided by investing activities for the year ended December 31, 2001, was primarily due to the sale and maturity of $65.5 million in short-term investments offset by the purchase of $34.2 million in short-term investments.

Financing Activities

Net cash provided by financing activities was $1.3 million for 2001, $60.1 million in 2000 and $17.9 million in 1999. For fiscal 2001, cash provided by financing activities was attributable primarily to the purchase of common stock under the Employee Stock Purchase Plan and to a lesser extent the repayment of notes receivable from stockholders. For fiscal 2000, cash provided by financing activities was primarily attributable to the $61.8 million from the issuance of our common stock in our initial public offering in July 2000. In 1999, cash provided by financing activities included $15.4 million in proceeds from the issuance of preferred stock. In 1999, we borrowed $2.0 million from one financial institution which was repaid with the proceeds from our initial public offering.

Commitments

The following summarizes our contractual obligations at December 31, 2001 and the effect these contractual obligations are expected to have on our liquidity and cash flows in future periods (in thousands).

	Payments Due By Period
	Total		1 Year or Less		1–3 Years		After 3 Years
Purchased technology	$	2,376	$	1,449	$	927	$	—
Capital lease obligations		1,314		673		641		—
Operating leases		1,663		611		668		384

Total	$	5,353	$	2,733	$	2,236	$	384

Subsequent to December 31, 2001, we signed a new lease for our corporate headquarters in Redwood City, California. In conjunction with the new lease, we have future lease commitments of $720,000 in 2002 and $300,000 in 2003.

Working Capital and Capital Expenditure Requirements

We believe that our existing cash balances will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. We have no present understandings, commitments or agreements for any material acquisition of other businesses, products and technologies. We continually evaluate potential acquisitions of other businesses, products and technologies and may in the future require additional equity or debt financings to accomplish any potential acquisition.

If we require additional capital resources to grow our business internally or to acquire complementary technologies and businesses at any time in the future, we may seek to sell additional equity or debt securities. The sale of additional equity or convertible debt securities could result in more dilution to our stockholders. Financing arrangements may not be available to us, or may not be available in amounts or on terms acceptable to us.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Our significant accounting policies are described in Note 1 to the consolidated financial statements. The items in our financial statements requiring significant estimates and judgments include revenue recognition and allowance for bad debt.

Revenue Recognition

We license our software under term and perpetual licenses. License revenue is generally recognized when a customer agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed or determinable, and collection is considered probable. If any of these criteria are not met, revenue recognition is deferred until all of the criteria are met. We sell our term licenses with maintenance for which we do not have vendor specific objective evidence to determine fair value. As a result, license revenue for term licenses is recognized ratably over the service period of the agreement, and license revenue includes maintenance for term licenses. We do not allocate maintenance revenue from term licenses to services revenue as we do not believe there is an allocation methodology that provides a meaningful and supportable allocation between license and maintenance revenues. SupportSoft considers all arrangements with payment terms extending beyond 12 months and other arrangements with payment terms longer than normal not to be fixed or determinable. If the fee is determined not to be fixed or determinable, revenue is recognized as

payments become due from the customer. License revenue from arrangements with resellers is recognized ratably over the term of the arrangement commencing when payments are made or become due limited by guaranteed minimum amounts due under the arrangement or sell through activity.

Term licenses typically have a duration of 36 months, with pre-payments generally billed to the customer at the beginning of each 12 month period. If we receive an order from a customer for a 36-month term license in December of a year, we would recognize only one month of license fees for that year even if that customer prepaid 12 months of the 36-month term. Pursuant to this agreement, the Company would record one year of contract fees in accounts receivable upon signing a new term license agreement, while recognizing only one month of revenue. As a result, our accounts receivable balance could represent a significant portion of our total revenue and increase our days sales outstanding (DSO) calculation. We began licensing software under term arrangements in June 1999. A majority of the licenses executed to date have been term-based.

Term and perpetual licensing arrangements may include service elements. Services revenue is primarily comprised of revenue from professional services, such as consulting services, training, maintenance and support. Arrangements that include software services are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. When software services are considered essential, revenue under the arrangement is recognized using contract accounting. When software services are not considered essential, the revenue related to the software services is recognized as the services are performed.

Allowance for Bad Debt

SupportSoft maintains reserves for estimated credit losses resulting from the inability of its customers to make required payments. A considerable amount of judgment is required when we assess the realization of receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of SupportSoft’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional reserves may be required.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS 141, “Business Combinations.” SFAS 141 supersedes APB 16, “Business Combinations,” and SFAS 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises.” SFAS 141 requires the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not expect the adoption of SFAS 141 to have a material effect on its financial condition or results of operations.

In July 2001, the FASB issued SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 supersedes APB 17, “Intangible Assets,” and requires the discontinuance of goodwill amortization. In addition, SFAS 142 includes provisions regarding the reclassification of certain existing recognized intangibles as goodwill, reassessment of useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001, with certain early adoption permitted. The Company does not expect the adoption of SFAS 142 to have a material effect on its financial condition or results of operations.

In August 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The Company is in the process of assessing the effect of adopting SFAS 143, which will be effective for the Company’s fiscal year ending December 31, 2002.

Assets to be Disposed Of.” SFAS 144 addresses financial accounting and reporting for the impairment of long- lived assets and for long-lived assets to be disposed of. However, SFAS 144 retains the fundamental provisions of SFAS 121 for: 1) recognition and measurement of the impairment of long-lived assets to be held and used: and 2) measurement of long-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS 144 to have a material effect on its financial condition or results of operations.

Other Factors Affecting our Business and Operating Results

We have a history of losses and if we do not become profitable, we may not be able to continue to operate.

We incurred net losses of approximately $81.3 million for the period from December 3, 1997 through December 31, 2001. Although we anticipate that we will reach quarterly profitability during third quarter of 2002, if we do not become profitable within the timeframe we predicted or expected by securities analysts or investors, the market price of our stock will likely decline. If we continue to incur net losses, we may not be able to increase our number of employees or our investment in capital equipment, sales, marketing and research and development programs. We do not know when or if we will become profitable. If we do achieve profitability, we may not sustain or increase profitability in the future and therefore may not be able to continue to operate. However, we believe that our existing cash balances will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Our quarterly results are difficult to predict and may fluctuate. If we do not meet quarterly financial expectations, our stock price would likely decline.

Because of our limited operating history, our quarterly revenue and operating results are difficult to predict and may fluctuate from quarter to quarter. Our operating results in some quarters may fall below our predictions or the expectations of securities analysts or investors, which would likely cause the market price of our common stock to decline.

Several factors are likely to cause fluctuations in our operating results, including:

•

demand for our support automation software;

•

the price and mix of products and services we or our competitors offer;

•

our ability to retain customers; and

•

the amount and timing of operating costs and capital expenditures relating to expansion of our business, infrastructure and marketing activities.

Our quarterly results depend on the size of a small number of orders, so the delay or loss of any single large order during a quarterly period, and especially an order for a perpetual license rather than a term license, could harm that quarter’s results and cause our stock price to decline.

Our operating results could suffer if any large orders are delayed or cancelled in any future period. Each quarter, we derive a significant portion of our license revenue from a small number of relatively large orders for the licensing of our support automation software. We license our support automation software under perpetual and term licenses. Perpetual licenses typically result in our recognition of a larger amount of revenue in the quarter in which the license is granted as compared with term licenses. Revenue from a perpetual license is generally recognized upon delivery of a product. Revenue from a term license is recognized on a monthly basis over the agreement term, which is typically three years. We expect that we will continue to depend upon a small number of large orders for a significant portion of our license revenue.

Because a small number of customers has historically accounted for and may in future periods account for substantial portions of our revenue, our revenue could decline because of delays of customer orders or the failure of existing customers to renew licenses.

For the year ended December 31, 2001, no single customer accounted for 10% or more of our total revenue. Because we have a small number of customers and a few customers are likely to continue to account for a significant portion of our revenue, our revenue could decline because of the loss or delay of a single customer order or the failure of an existing customer to renew its term license. We may not obtain additional customers. The failure to obtain additional customers, the loss or delay of customer orders and the failure of existing customers to renew licenses will harm our operating results.

We must achieve broad adoption and acceptance of our support automation products and services or we will not increase our market share or grow our business.

We must achieve broad market acceptance and adoption of our products and services or our business and operating results will suffer. Specifically, we must encourage our customers to transition from using traditional support methods. To accomplish this, we must:

•

continually improve the performance, features and reliability of our products and services to address changing industry standards and customer needs; and

•

develop integration with other support-related technologies.

Our product innovations may not achieve the market penetration or price stability necessary for profitability.

If we fail to develop, in a timely manner, new or enhanced versions of our support automation software or to provide new products and services that achieve rapid and broad market acceptance or price stability, we may not become profitable. We may fail to identify new product and service opportunities successfully. Our existing products will become obsolete if we fail to introduce new products or product enhancements that meet new customer demands, support new standards or integrate with new or upgraded versions of packaged applications. We may have little or no control over the factors that might influence market acceptance of our products and services. These factors include:

•

the willingness of enterprises to transition to automated support and

•

acceptance of competitors’ automated support solutions.

Our software may not operate with the hardware and software platforms that are used by our customers now or in the future, and as a result our business and operating results may suffer.

We currently serve a customer base with a wide variety of constantly changing hardware, packaged software applications and networking platforms. If there is widespread adoption of other operating system environments, and if we fail to release versions of our support automation software that are compatible with these other operating systems, our business and operating results will suffer. Our future success also depends on:

•

our ability to integrate our product with multiple platforms and to modify our product as new versions of packaged applications are introduced;

•

the number of different operating systems and databases that our product can work with; and

•

our management of software being developed by third parties for our customers or for use with our product.

We rely on third-party technologies and our inability to use or integrate third-party technologies could delay product or service development.

We intend to continue to license technologies from third parties, including applications used in our research and development activities and technologies, which are integrated into our products and services. Our inability to obtain or integrate any of these licenses could delay product and service development until equivalent technology can be identified, licensed and integrated. These technologies may not continue to be available to us on commercially reasonable terms or at all. We may fail to successfully integrate any licensed technology into our products or services. This would harm our business and operating results. Third-party licenses also expose us to increased risks that include:

•

risks of product malfunction after new technology is integrated;

•

the diversion of resources from the development of our own proprietary technology; and

•

our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs.

We may engage in future acquisitions or investments that could dilute our existing stockholders, or cause us to incur significant expenses.

We may acquire or invest in complementary businesses, technologies or products. If we are unable to use or integrate any newly acquired entities or technologies effectively or profitably, our operating results could suffer. Acquisitions by us could also result in large and immediate write-offs, incurrence of debt and contingent liabilities or amortization of expenses related to goodwill and other intangibles, which could harm our operating results. Additional funds to finance any acquisitions may not be available on terms that are favorable to us, or at all, and, in the case of equity financings, may dilute our stockholders.

We may lose the services of our key personnel, which in turn would harm the market’s perception of our business and our ability to achieve our business goals.

Our success will depend on the skills, experience and performance of our senior management, engineering, sales, marketing and other key personnel. The loss of the services of any of our senior management or other key personnel, including our chief executive officer, Radha R. Basu, our chief financial officer, Brian Beattie, our chief technical officer, Scott W. Dale, and our chief software officer, Cadir B. Lee, could harm the market’s perception of our business and our ability to achieve our business goals.

Our failure to establish and expand strategic alliances would harm our ability to achieve market acceptance of our support automation software.

If we fail to maintain, establish or successfully implement strategic alliances, our ability to achieve market acceptance of our automation software will suffer and our business and operating results will be harmed. Specifically, we must establish and extend existing distribution alliances with specialized technology and services firms such as support outsourcers. We must also establish and extend existing solutions alliances with leading providers of complementary support technologies, including call center or help desk management companies, knowledge management companies and systems management firms.

Our products depend on and work with products containing complex software and if our products fail to perform properly due to errors or similar problems in the software, we may need to spend resources to correct the errors or compensate for losses from these errors and our reputation could be harmed.

Our products depend on complex software, both internally developed and licensed from third parties. Also, our customers may use our products with other companies’ products which also contain complex software. Complex software often contains errors. These errors could result in:

•

delays in product shipments;

•

unexpected expenses and diversion of resources to identify the source of errors or to correct errors;

•

damage to our reputation;

•

lost sales;

•

product liability claims; and

•

product returns.

Our system security is important to our customers and we may need to spend significant resources to protect against or correct problems caused by security breaches.

A fundamental requirement for online communications, transactions and support is the secure transmission of confidential information. Third parties may attempt to breach our security or that of our customers. We may be liable to our customers for any breach in security and any breach could harm our business and reputation. Also, computers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data. We may be required to expend significant capital and other resources to further protect against security breaches or to correct problems caused by any breach.

We may face claims of invasion of privacy or inappropriate disclosure, use or loss of our customers’ information and any liability imposed could harm our reputation and cause us to lose customers.

Our software contains features which may allow us or our customers to control, monitor or collect information from computers running the software without notice to the computing users. Therefore we may face claims about invasion of privacy or inappropriate disclosure, use or loss of this information. Any imposition of liability could harm our operating results.

Our sales cycle can be lengthy and if revenue forecasted for a particular quarter is not realized in that quarter, significant expenses incurred may not be offset by corresponding sales.

Our sales cycle for our support automation software can range from one week to nine months or more and may vary substantially from customer to customer. While our customers are evaluating our products and services, we may incur substantial sales and marketing expenses and spend significant management effort. Any delay in completing sales in a particular quarter could cause our operating results to be below expectations.

We have limited experience in international operations and if our revenue from international operations does not exceed the expense of establishing and maintaining our international operations, our business could suffer.

We intend to expand further into international markets. We have limited experience in international operations and may not be able to compete effectively in international markets. If we do not generate enough revenue from international operations to offset the expense of these operations, our business could suffer. Risks we face in conducting business internationally include:

•

difficulties and costs of staffing and managing international operations;

•

differing technology standards;

•

longer sales cycles and collection periods;

•

changes in currency exchange rates and controls;

•

dependence on local vendors; and

•

the effects of the terrorist attacks in the United States and the effects of the war on terrorism and any related conflicts or similar events worldwide.

Any system failure that causes an interruption in our customers’ ability to use our products or services or a decrease in their performance could harm our relationships with our customers and result in reduced revenue.

Our software may depend on the uninterrupted operation of our internal and outsourced communications and computer systems. These systems are vulnerable to damage or interruption from computer viruses, human error, natural disasters and intentional acts of vandalism and similar events. We have no formal disaster recovery plan and business interruption insurance may not be enough to compensate us for losses that occur. These problems could interrupt our customers’ ability to use our support automation products or services which could harm our reputation and cause us to lose customers and revenue.

We may not obtain sufficient patent protection, and this could harm our competitive position and increase our expenses which would harm our business.

Our success and ability to compete depend to a significant degree upon the protection of our software and other proprietary technology. It is possible that:

•

our pending patent applications may not be issued;

•

competitors may independently develop similar technologies or design around any of our patents;

•

patents issued to us may not be broad enough to protect our proprietary rights; and

•

our issued patents could be successfully challenged.

We rely upon trademarks, copyrights and trade secrets to protect our proprietary rights and if these rights are not sufficiently protected, it could harm our ability to compete and to generate revenue.

We also rely on a combination of laws, such as copyright, trademark and trade secret laws, and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. Our ability to compete and grow our business could suffer if these rights are not adequately protected. Our proprietary rights may not be adequately protected because:

•

laws and contractual restrictions may not prevent misappropriation of our technologies or deter others from developing similar technologies; and

•

policing unauthorized use of our products and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the extent of this unauthorized use.

Also, the laws of other countries in which we market our products may offer little or no protection of our proprietary technologies. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for them, which would harm our competitive position and market share.

We may face intellectual property infringement claims that could be costly to defend and result in our loss of significant rights.

Other parties may assert intellectual property infringement claims against us and our products may infringe the intellectual property rights of third parties. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our business. If there is a successful claim of infringement, we may be required to develop non-infringing technology or enter into royalty or license agreements which may not be available on acceptable terms, if at all. Our failure to develop non-infringing technologies or license the proprietary rights on a timely basis would harm our business. Our products may infringe issued patents that may relate to our products. Also, patent applications may have been filed by third parties which relate to our software products. The adoption of the new trademark and corporate name SupportSoft increases the risk that a prior user

could view the mark or name to be confusingly similar to the prior user’s mark or name. Although the Company has conducted limited trademark and trade name searches, and does not believe the SupportSoft trademark and corporate name will infringe any known party’s trademark rights, it is possible that a third party will claim our use of SupportSoft infringes its trademark.

We must compete successfully in the support automation market or we will lose market share and our business will fail.

The market for our products is intensely competitive, rapidly changing and significantly affected by new product introductions and other market activities of industry participants. Competitive pressures could reduce our market share or require us to reduce the price of products and services and therefore our gross margin, which could harm our business and operating results. Our integrated software solution competes against various vendors’ software products designed to accomplish specific elements of a complete support automation solution. For example,in the market for automated delivery of support solutions, we compete with Motive Communications, Inc.

We may encounter competition from companies such as:

•

customer communications software companies;

•

question and answer companies;

•

customer relationship management solution providers;

•

consolidated service desk solution vendors;

•

Internet infrastructure companies; and

•

operating systems providers.

Our potential competitors may have longer operating histories, significantly greater financial, technical, and other resources or greater name recognition than we do. Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements. If we fail to compete effectively, we may lose or be unable to expand our market share and our business and operating results would suffer.

Because our support automation software is designed to support businesses operating over the Internet, our success depends on the continued growth and levels of performance of Internet usage.

Because a majority of our products are designed to support businesses operating over the Internet, the success of our business will depend on the continued improvement of the Internet as a convenient means of consumer interaction and commerce, as well as an efficient medium for the delivery and distribution of information by enterprises to their employees and extended enterprise. Because global commerce on the Internet and the online exchange of information is evolving, we cannot predict whether the Internet will continue to be a viable commercial marketplace.

We may experience a decrease in market demand due to the slowing economy in the United States which has been further stymied by the recent outbreak of terrorism, war and social and political instability.

Economic growth has slowed significantly, and some analysts believe the United States economy will experience a recession. In addition, the recent terrorists attacks in the United States may further add to the decline in the United States economy. The war on terrorism, along with the effects of the terrorist attack and other similar events, could have contributed to the further slowdown of the already slumping market demand for goods and services, including support automation software. If the economy continues to decline as a result of the recent economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, we may experience decreases in the demand for our products and services, which may harm our operating results.

Governmental regulation and legal changes could impair the growth of the Internet and decrease demand for our products or increase our cost of doing business.

The laws and regulations that govern our business change rapidly. Any change in laws and regulations could impair the growth of the Internet and could reduce demand for our products, subject us to liability or increase our cost of doing business. The United States government and the governments of states and foreign countries have attempted to regulate activities on the Internet and the distribution of software. Also, in 1998, Congress passed the Internet Freedom Act, which imposes a three-year moratorium on state and local taxes on Internet-based transactions. Failure to renew this moratorium would allow states to impose taxes on e-commerce. This might harm our business directly and indirectly by harming the businesses of our customers, potential customers and the parties to our business alliances. The applicability to the Internet of existing laws governing issues is uncertain and may take years to resolve. Evolving areas of law that are relevant to our business include privacy laws, intellectual property laws, proposed encryption laws, content regulation and sales and use tax laws and regulations.

We may experience power blackouts and higher electricity prices if there is a recurrence of California’s recent energy crisis, which could disrupt our operations and increase our expenses.

California recently experienced an energy crisis. If this were to occur again, it could disrupt our operations and increase our expenses. We rely on the major Northern California public utility, Pacific Gas & Electric Company, or PG&E, to supply electric power to our headquarters in Northern California. Due to problems associated with the de-regulation of the power industry in California and shortages in wholesale electricity supplies, customers of PG&E have been faced with increased electricity prices, power shortages and, in some cases, rolling blackouts. If blackouts interrupt our power supply, we may be temporarily unable to continue to operate our central computer, hardware and support systems. Any interruption in our ability to continue our operations could delay our ability to develop or provide our products and support services, which could damage our reputation and result in lost revenue, either of which could substantially harm our business and results of operations.

ITEM 7A.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We develop products in the United States and market and sell in North America, South America, Asia and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Because of the nature of our short-term investments, we have concluded that there is no material market risk exposure.

Our investment policy requires us to invest funds in excess of operating requirements in:

•

obligations of the U.S. government and its agencies;

•

investment grade state and local government obligations;

•

money market funds or deposits issued or guaranteed by U.S. and non-U.S. commercial banks, meeting credit rating and net worth requirements with maturities or reset dates of less than two years.

At December 31, 2001, our cash and cash equivalents consisted primarily of money market funds held by large institutions in the U.S. and our short-term investments consisted of government debt securities maturing in less than eighteen months.

ITEM 8.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SUPPORTSOFT, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Ernst & Young LLP, Independent Auditors		33

Consolidated Balance Sheets		34

Consolidated Statements of Operations		35

Consolidated Statements of Stockholders’ Equity (Deficit)		36

Consolidated Statements of Cash Flows		37

Notes to Consolidated Financial Statements		38

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders

SupportSoft, Inc.

We have audited the accompanying consolidated balance sheets of SupportSoft, Inc. (formerly Support.com, Inc.), as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SupportSoft, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

Palo Alto, California

January 17, 2002

SUPPORTSOFT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)

	December 31,
	2001			2000
ASSETS
Current assets:
Cash and cash equivalents	$	17,757		$	11,756
Short-term investments		8,515			39,757
Accounts receivable, less allowance of $828 and $469		12,509			7,872
Prepaids and other current assets		3,708			3,255

Total current assets		42,489			62,640
Property and equipment, net		1,932			2,420
Purchased intangibles, net		1,794			5,230
Other assets		148			282

	$	46,363		$	70,572

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,331		$	957
Accrued compensation		1,867			2,250
Other accrued liabilities		1,793			3,645
Purchased technology obligation, current portion		1,449			1,449
Capital lease obligations, current portion		569			620
Deferred revenue		12,535			11,866

Total current liabilities		19,544			20,787
Capital lease obligations, net of current portion		663			1,221
Purchased technology obligation, net of current portion		927			2,164
Deferred revenue—long-term portion		932			241

Commitments and contingencies

Stockholders’ equity:
Preferred stock; par value $0.0001, 5,000,000 shares authorized, no shares issued or outstanding at December 31, 2001 and December 31, 2000		—			—
Common stock; par value $0.0001, 150,000,000 shares authorized, 33,371,370 shares issued and outstanding at December 31, 2001 and 33,150,857 shares issued and outstanding at December 31, 2000		3			3
Additional paid-in capital		108,031			108,558
Notes receivable from stockholders		(1,523	)		(2,051	)
Deferred compensation		(997	)		(7,219	)
Accumulated other comprehensive income		95			—
Accumulated deficit		(81,312	)		(53,132	)

Total stockholders’ equity		24,297			46,159

Total liabilities and stockholders’ equity	$	46,363		$	70,572

See accompanying notes.

SUPPORTSOFT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data)

	Years Ended December 31,
	2001			2000			1999
Revenue:
License fees	$	22,534		$	13,732		$	2,642
Services		7,896			4,934			569

Total revenue		30,430			18,666			3,211

Costs and expenses:
Cost of license fees		621			1,405			4
Cost of services		6,234			5,910			965
Amortization of purchased technology		2,812			1,158			—
Research and development		12,637			10,913			2,348
Sales and marketing		27,482			22,754			7,924
General and administrative		6,131			4,325			1,845
Amortization of deferred compensation(1)		4,271			10,787			3,809

Total costs and expenses		60,188			57,252			16,895

Loss from operations		(29,758	)		(38,586	)		(13,684	)
Interest income		1,804			2,048			501
Interest expense		(226	)		(330	)		(331	)

Net loss		(28,180	)		(36,868	)		(13,514	)
Accretion on redeemable convertible preferred stock		—			(885	)		(1,072	)

Net loss attributable to common stockholders	$	(28,180	)	$	(37,753	)	$	(14,586	)

Basic and diluted net loss per share attributable to common stockholders	$	(0.91	)	$	(2.09	)	$	(2.20	)

Shares used in computing basic and diluted net loss per common share		31,078			18,102			6,643

(1)

Amortization of deferred compensation relates to the following:

	Years Ended December 31,
	2001		2000		1999
Cost of services	$	187	$	475	$	53
Research and development		844		2,136		795
Sales and marketing		1,541		3,894		1,288
General and administrative		1,699		4,282		1,673

Total	$	4,271	$	10,787	$	3,809

See accompanying notes.

SUPPORTSOFT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands except share and per share data)

	Convertible Preferred Stock					Common Stock			Additional Paid-In Capital			Notes Receivable from Stockholders			Deferred Stock Compensation			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares		Amount			Shares	Amount		Additional Paid-In Capital			Notes Receivable from Stockholders			Deferred Stock Compensation			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balances at December 31, 1998	3,571,600		$	1		6,468,880	$	1	$	559		$	—		$	(234	)	$	—	$	(2,750	)	$	(2,423	)
Issuance of common and restricted stock upon exercise of options to employees and non-employees for cash, promissory notes and services	—			—		4,405,494		—		2,083			(1,450	)		—			—		—			633
Issuance of warrants	—			—		—		—		94			—			—			—		—			94
Accretion on redeemable convertible preferred stock	—			—		—		—		(1,072	)		—			—			—		—			(1,072	)
Deferred compensation related to grant of stock options and restricted stock	—			—		—		—		18,352			—			(18,352	)		—		—			—
Amortization of deferred compensation	—			—		—		—		—			—			3,554			—		—			3,554
Variable accounting expense associated with options and restricted stock to non-employees	—			—		—		—		—			—			255			—		—			255
Net loss	—			—		—		—		—			—			—			—		(13,514	)		(13,514	)

Balances at December 31, 1999	3,571,600			1		10,874,374		1		20,016			(1,450	)		(14,777	)		—		(16,264	)		(12,473	)
Issuance of common and restricted stock upon exercise of options and warrants for cash and promissory notes, net of repurchases	—			—		1,832,657		—		1,862			(601	)		—			—		—			1,261
Accretion on redeemable convertible preferred stock	—			—		—		—		(885	)		—			—			—		—			(885	)
Conversion of preferred stock into common stock (see Note 5)	(3,571,600	)		(1	)	15,556,326		2		22,333			—			—			—		—			22,334
Issuance of common stock in initial public offering, net of issuance costs	—			—		4,887,500		—		61,777			—			—			—		—			61,777
Deferred compensation related to grant of stock options and restricted stock, net of $4.3 million in cancellations	—			—		—		—		3,229			—			(3,229	)		—		—			—
Amortization of deferred compensation	—			—		—		—		—			—			10,286					—			10,286
Variable accounting expense associated with options, warrants and restricted stock issued to non-employees	—			—		—		—		226			—			501			—		—			727
Net loss	—			—		—		—		—			—						—		(36,868	)		(36,868	)
Balances at December 31, 2000	—			—		33,150,857		3		108,558			(2,051	)		(7,219	)		—		(53,132	)		46,159

Components of comprehensive loss:
Net loss	—			—		—		—		—			—			—			—		(28,180	)		(28,180	)
Unrealized gain on investments	—			—		—		—		—			—			—			62		—			62
Foreign currency translation adjustment	—			—		—		—		—			—			—			33		—			33
Comprehensive loss																								(28,085	)
Issuance of common stock upon exercise of stock options for cash, net of repurchases	—			—		29,266		—		235			—			—			—		—			235
Issuance of common stock under employee stock purchase plan	—			—		191,247		—		1,189			—			—			—		—			1,189
Amortization of deferred compensation	—			—		—		—		—			—			4,271			—					4,271
Reduction in deferred compensation related to cancellation of stock options	—			—		—		—		(1,951	)		—			1,951			—		—			—
Repayment of note receivables from stockholders	—			—		—		—		—			528			—			—		—			528

Balances at December 31, 2001	—			—		33,371,370	$	3	$	108,031		$	(1,523	)	$	(997	)	$	95	$	(81,312	)	$	24,297

See accompanying notes.

SUPPORTSOFT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2001			2000			1999
Operating activities:
Net loss	$	(28,180	)	$	(36,868	)	$	(13,514	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,416			1,497			294
Amortization of deferred compensation		4,271			10,787			3,809
Amortization of purchased intangibles		2,812			1,158			—
Provision for bad debts		359			429			30
Other		95			226			170
Changes in assets and liabilities:
Accounts receivable		(4,996	)		(4,851	)		(3,415	)
Prepaids and other current assets		(453	)		(2,637	)		(296	)
Accounts payable		374			(270	)		1,129
Accrued compensation		(383	)		1,799			391
Other accrued liabilities		(1,852	)		3,151			335
Deferred revenue		1,360			9,035			3,030

Net cash used in operating activities		(24,177	)		(16,544	)		(8,037	)

Investing activities:
Purchases of property and equipment		(1,928	)		(1,718	)		(89	)
Proceeds from sale of equipment		—			—			99
Other assets		134			(28	)		(226	)
Purchases of technology		(613	)		(2,775	)		—
Purchases of short-term investments		(34,205	)		(45,223	)		(12,266	)
Sales and maturities of short-term investments		65,447			13,932			3,800

Net cash provided by (used in) investing activities		28,835			(35,812	)		(8,682	)

Financing activities:
Proceeds from notes payable		—			—			2,000
Proceeds from sale-leaseback		—			—			183
Proceeds from issuance of preferred stock, net		—			—			15,390
Proceeds from initial public offering, net of issuance costs		—			61,777			—
Proceeds from other issuances of common stock, net of repurchases		1,424			1,261			501
Repayment of notes receivable from stockholders		528			—			—
Principal payments under capital lease obligations		(609	)		(550	)		(39	)
Repayment of notes payable		—			(2,399	)		(100	)

Net cash provided by financing activities		1,343			60,089			17,935

Net increase in cash and cash equivalents		6,001			7,733			1,216
Cash and cash equivalents at beginning of period		11,756			4,023			2,807

Cash and cash equivalents at end of period	$	17,757		$	11,756		$	4,023

Supplemental disclosure of noncash financing activities:
Notes receivable from stockholders in exchange for common stock, net of cancellations	$	—		$	601		$	1,450

Equipment acquired under capital lease obligation	$	—		$	1,318		$	1,112

Supplemental schedule of cash flow information:
Interest paid	$	105		$	307		$	249

See accompanying notes.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Nature of Operations

SupportSoft, Inc. (“SupportSoft,” “the Company,” “We” or “Our”), formerly known as Support.com, Inc. and Tioga Systems, Inc., was incorporated in the state of Delaware on December 3, 1997. SupportSoft is a leading provider of support automation software. SupportSoft sells to corporate enterprises, service providers and personal computer and device manufacturers that utilize its software platform to increase the efficiency and effectiveness of their support operations, while improving user responsiveness and satisfaction. Our headquarters are in Redwood City, California.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has export sales from the United States and has operations in Asia Pacific and Europe. All significant intercompany transactions and balances have been eliminated.

Foreign Currency Translation

Assets and liabilities of the Company’s wholly owned foreign subsidiaries are translated from their respective functional currencies at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates prevailing during the year. Any material resulting translation adjustments are reflected as a separate component of stockholders’ equity. The translation adjustment for the year ended December 31, 2001 was $33,000. For the year ended December 31, 2000, the translation adjustment was immaterial.

Use of Estimates and Reclassifications

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. In addition, certain amounts that were previously reported have been reclassified to conform to the current period presentation.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject SupportSoft to concentration of credit risk consist principally of cash equivalents, short term investments and trade receivables. SupportSoft invests cash which is not required for immediate operating needs principally in money market funds, municipal bonds and notes and bills issued by the United States government and its agencies. SupportSoft’s customers are currently concentrated in the United States. SupportSoft performs ongoing evaluations of its customers’ financial condition and generally does not require collateral. SupportSoft maintains reserves for credit losses, and such losses have been within management’s expectations. If the financial condition of SupportSoft’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional reserves may be required. The Company had reserves for credit losses in the years ended December 31, 2001, 2000 and 1999 of $828,000, $469,000 and $40,000, respectively. Credit losses for the years ended December 31, 2001, 2000 and 1999 were $438,000, $163,000 and zero, respectively.

For the years ended December 31, 2001, no single customer accounted for 10% or more of total revenue. For the year ended December 31, 2000, one customer accounted for 13% of total revenue.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Debt Obligations

The fair value of short-term and long-term obligations is estimated based on current interest rates available to SupportSoft for debt instruments with similar terms, degrees of risk and remaining maturities. The carrying values of these obligations approximate their fair values.

Cash, Cash Equivalents and Short-Term Investments

SupportSoft considers all liquid instruments with an original maturity at the date of purchase of three months or less to be cash equivalents. At December 31, 2001, cash equivalents and short-term investments consist primarily of money market funds and notes and bills issued by the United States government and its agencies. All short-term investments mature within 18 months. SupportSoft’s cash equivalents and short-term investments are classified as available-for-sale in accordance with the provisions of Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

For the year ended December 31, 2001, SupportSoft reported its securities at fair market value and for the year ended December 31, 2000, SupportSoft reported its securities at amortized cost which approximated fair value. Material unrealized gains and losses, if any, are reported in stockholders’ equity and included in other comprehensive income. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, both of which are included in interest income. Realized gains and losses are recorded using the specific identification method. For the year ended December 31, 2001, the Company recorded unrealized gains on available-for-sale securities of $62,000 and for the year ended December 31, 2000, gross unrealized gains and losses on available-for-sale securities were immaterial.

The following is a summary of available-for-sale securities (in thousands):

	December 31,
	2001		2000
Cash and cash equivalents:
Cash	$	2,623	$	2,441
Money market funds		15,134		5,526
Commercial paper		—		3,789
Municipal bonds		—		—

	$	17,757	$	11,756

Short-term investments:
Municipal bonds	$	—	$	3,977
Auction backed securities		—		14,125
Commercial paper		—		2,958
Corporate bonds		—		7,015
Federal agencies		8,453		11,682

Total short-term investments at cost	$	8,453	$	39,757
Gross unrealized gains		62		—

Total short-term investments at fair market value	$	8,515	$	39,757

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation which is provided using the straight-line method over the estimated useful lives of 2 to 3 years.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Purchased Intangible Assets

SupportSoft records purchased intangible assets at fair value as determined by amortized costs. The original cost is amortized on a straight-line basis over the estimated life of each asset as determined by management. SupportSoft regularly performs reviews to determine if the carrying value of the intangible asset is impaired. The reviews look for the existence of facts or circumstances, either internal or external, which indicate that the carrying value of the asset cannot be recovered. If and when indicators of impairment exist, the Company assesses the need to record an impairment loss.

Purchased intangible assets were generated from the purchase of the source code and other intellectual property rights from a third party and are being amortized on a straight-line basis over 2 years. As of December 31, 2001, the Company noted no impairment indicators related to this asset.

Revenue Recognition

SupportSoft has applied Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, since its inception. License revenue is generally recognized when a customer agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed or determinable, and collection is considered probable. License revenue is comprised of fees for term and perpetual licenses of SupportSoft’s software by corporate customers and resellers. Term licenses are sold with maintenance for which SupportSoft does not have vendor specific objective evidence (VSOE) to determine fair value. As a result, license revenue for term licenses is recognized ratably over the service period of the agreement and license revenue includes maintenance for term licenses. We do not allocate maintenance revenue from term licenses to services revenue as we do not believe there is an allocation methodology that provides a meaningful and supportable allocation between license and maintenance revenues. SupportSoft considers all arrangements with payment terms extending beyond twelve months and other arrangements with payment terms longer than normal not to be fixed or determinable. If the fee is determined not to be fixed or determinable, revenue is recognized as payments become due from the customer. License revenue from arrangements with resellers is recognized ratably over the term of the arrangement commencing when payments are made or become due limited by guaranteed minimum amounts due under the arrangement or sell through activity.

Services revenue is primarily comprised of revenue from professional services, such as consulting services, training, maintenance and support. Arrangements that include software services are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. When software services are considered essential, revenue under the arrangement is recognized using contract accounting. When software services are not considered essential, the revenue related to the software services is recognized as the services are performed.

Perpetual license revenues are recognized using the residual method described in SOP 98-9 for arrangements in which licenses are sold with multiple elements. For perpetual licensing arrangements, maintenance revenue is deferred and recognized over the service period of the arrangement, which is typically one year. Fees related to contracts that require the Company to deliver unspecified additional products are deferred and recognized ratably over the contract term.

Research and Development

Research and development expenditures are generally charged to operations as incurred. Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased or

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Otherwise Marketed,” requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on SupportSoft’s product development process, technological feasibility is established upon the completion of a working model. Costs incurred by SupportSoft between the completion of the working model and the point at which the product is ready for general release have been insignificant. Accordingly, SupportSoft has charged all such costs to research and development expense in the accompanying statement of operations. SupportSoft did not incur any cost related to software developed or for software obtained for internal use as defined in SOP 98-1.

Sales Commissions

Commission expense is recognized over the period that the related revenue is recognized. Commissions are paid to sales agents at the time amounts become billable to the customer or when payment is received regardless of the timing of revenue recognition. Commissions paid to sales agents in advance of the recognition of commission expense is recorded as a prepaid asset. All commission payments made to sales agents are non-refundable unless amounts due from a customer are determined to be uncollectible in which case commissions paid are recoverable by SupportSoft.

Advertising Costs

Advertising costs are recorded as sales and marketing expense in the period in which they are incurred. Advertising expense was $253,000 for the year ended December 31, 2001, $556,000 for the year ended December 31, 2000 and $71,000 for the year ended December 31, 1999.

Stock-Based Compensation

SupportSoft accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and has adopted the disclosure only alternative of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”). Any deferred stock compensation calculated according to APB 25 is amortized over the vesting period of the individual options, generally four years, using the graded vesting method. The graded vesting method provides for vesting of portions of the overall awards at interim dates and results in greater vesting in earlier years than straight-line.

All stock-based awards to non-employees, are accounted for at their fair value, as calculated using the Black Scholes model, in accordance with FAS 123 and Emerging Issues Task Forces Consensus No. 96-18 (“EITF 96-18”). The options and restricted stock purchase arrangements are subject to periodic re-valuation over their vesting terms.

Net Loss Per Share

Basic and diluted net loss per share are presented in conformity with the FASB’s Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“FAS 128”), for all periods presented. In accordance with FAS 128, basic and diluted net loss per share had been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):

	Years Ended December 31,
	2001			2000			1999
Net loss attributable to common stockholders	$	(28,180	)	$	(37,753	)	$	(14,586	)

Basic and diluted:
Weighted average shares of common stock outstanding		33,356			22,556			7,166
Less weighted average shares subject to repurchase		(2,278	)		(4,454	)		(523	)

Shares used in computing basic and diluted net loss per share		31,078			18,102			6,643

Basic and diluted net loss per share attributable to common stockholders	$	(0.91	)	$	(2.09	)	$	(2.20	)

Had SupportSoft been in a net income position, diluted earnings per share would include outstanding shares subject to repurchase, the conversion of outstanding preferred stock into shares of SupportSoft’s common stock and the dilutive impact of outstanding options and warrants to purchase common stock. Excluded from the computation of basic and diluted net loss per share attributable to common stockholders are approximately 8,885,000, 6,915,000 and 19,666,000 shares related to preferred stock and options and warrants to purchase common stock at December 31, 2001, 2000 and 1999, prior to the application of the treasury stock method. Such shares have been excluded because they are anti-dilutive for all periods presented.

Comprehensive Loss

Comprehensive loss includes net loss, unrealized gains on available-for-sale securities and foreign currency translation adjustments. Unrealized gains on available-for-sale securities and foreign currency translation adjustments were $62,000 and $33,000 respectively for the year ended December 31, 2001, and was not material for any other period.

Segment Information

SupportSoft operates in one segment, the development and marketing of support automation software and related services. SupportSoft’s foreign offices are primarily sales and marketing offices and also support the Company’s overseas reseller network. Operating losses generated by the foreign operations of SupportSoft and their corresponding identifiable assets were not material in any period presented. Revenue from customers located outside the United States was approximately $5,730,000 for the year ended December 31, 2001, $2,819,000 for the year ended December 31, 2000, and $46,000 for the year ended December 31, 1999.

Sales by the Company to customers in different geographic areas, expressed as a percentage of revenue, for the periods ended were:

	Years Ended December 31,
	2001		2000		1999
Americas	85	%	87	%	99	%
Asia Pacific	10		10		—
Europe	5		3		1

Total	100	%	100	%	100	%

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent Accounting Pronouncements

In October 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS 144 retains the fundamental provisions of SFAS 121 for: 1) recognition and measurement of the impairment of long-lived assets to be held and used: and 2) measurement of long-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS 144 to have a material effect on its financial condition or results of operations.

2. Property and Equipment

Property and equipment are stated at cost and consist of the following (in thousands):

	December 31,
	2001			2000
Computer and software equipment	$	5,637		$	3,949
Furniture and equipment		525			285

		6,162			4,234
Accumulated depreciation and amortization		(4,230	)		(1,814	)

	$	1,932		$	2,420

As of December 31, 2001 and 2000, property and equipment included amounts acquired under capital leases of approximately $2,500,000 and approximately $1,112,000 as of December 31, 1999. Depreciation expense on fixed assets was $2,416,000, $1,497,000 and $294,000, which includes amortization of fixed assets acquired under capital lease obligations of $976,000, $1,108,000 and $267,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. Purchased Intangibles

On September 20, 2000, SupportSoft purchased source code and other related intellectual property rights from ePeople, Inc. for $6.8 million. The purchase price was recorded as purchased intangibles and included as an other asset in the Company’s consolidated balance sheet. The Company paid approximately $1.2 million and $3.4 million during the years ended December 31, 2001 and December 31, 2000, respectively, and will be required to pay approximately $1.4 million and $927,000 in 2002 and 2003, respectively. Total amortization for the period ended December 31, 2001 was $2.8 million.

4. Capital Leases, Borrowings, Commitments and Contingencies

In October 1999, SupportSoft entered into loan and lease agreements with a financial institution. The loan agreement allowed SupportSoft to borrow up to $2,500,000 in aggregate. During the year ending December 31, 2000, the amounts borrowed under this agreement were fully repaid. The lease agreement allowed SupportSoft to borrow up to $2,500,000 to finance purchases of equipment, software and tenant improvements. Amounts available under this lease line were fully utilized at December 31, 2000. Advances are secured by the assets acquired and each equipment advance is payable in 48 monthly installments of principal and interest, computed at the monthly rate of 2.9% of the principal balance.

SupportSoft leases its facilities under noncancelable operating lease agreements which expire at various dates through 2002. In conjunction with the signing of two office building lease agreements, we signed two letters of credit for security deposits for an aggregate amount of $340,000. Total facility rent expense was approximately $2,510,000 for the year ended December 31, 2001, $1,764,000 for the year ended December 31, 2000 and $783,000 for the year ended December 31, 1999. SupportSoft received sublease rental income of zero for the year ended December 31, 2001, $217,000 for the year ended December 31, 2000 and $162,000 for the year ended December 31, 1999.

As of December 31, 2001, minimum payments due under noncancelable lease agreements were as follows (in thousands):

Years ending December 31,	Capital Leases			Operating Leases
2002	$	673		$	611
2003		559			342
2004		82			326
2005		—			326
2006		—			58

Total minimum lease and principal payments		1,314		$	1,663

Amount representing interest		(82	)

Present value of future payments		1,232
Current portion of capital lease obligations		569

Noncurrent portion	$	663

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In March of 2001, Previo, Inc. filed a patent infringement lawsuit against us. In February of 2002, the parties agreed to an amicable resolution and the claims of both parties have been dismissed.

5. Stockholders’ Equity

Initial Public Offering

On July 19, 2000, SupportSoft completed an initial public offering of its common stock. All 4.9 million shares covered by SupportSoft’s Registration Statement on Form S-1, including shares covered by an over-allotment option that was exercised, were sold by SupportSoft at a price of $14.00 per share. Net proceeds to the Company from the issuance of common stock in the initial public offering were $61.8 million.

Common Stock

SupportSoft has reserved shares of common stock for issuance at December 31, 2001 as follows:

Stock Plans		11,986,289
Warrants		119,167

		12,105,456

Through December 31, 2001, certain option holders have exercised options to purchase 2,638,730 shares of common stock at prices ranging from $0.40 to $9.00, with a weighted-average exercise price of $0.78 per share in exchange for full recourse promissory notes bearing interest at 6.5%. SupportSoft has the right to repurchase all unvested shares purchased by the option holders at the original exercise price in the event of the option holders termination. The number of shares subject to this repurchase right decreases as the shares vest under the original option terms, generally over four years. As of December 31, 2001, $528,000 has been repaid (see also Note 7. Related Party Transactions).

Stock Warrants

In February 2000, SupportSoft issued a warrant to a customer in conjunction with a software license agreement which allows the customer to purchase 119,167 shares of SupportSoft’s common stock at an exercise price of $18.00 per share. The warrant is immediately exercisable, non-forfeitable and expires in August 2002. The value of the warrant, which was less than amounts due under the license agreement, was recorded as additional paid-in capital and a reduction to revenue.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock Option Plans

During fiscal 1998, SupportSoft adopted the 1998 Stock Option Plan (the “Plan”). Under the Plan, up to 9,424,434 shares of SupportSoft’s common stock may be granted as options or sold to eligible participants. Under the Plan, options to purchase common stock may be granted at no less than 85% of the fair value on the date of the grant (110% of fair value in certain instances), as determined by the board of directors. Options under the Plan are immediately exercisable; however, shares issued are subject to SupportSoft’s right to repurchase such shares at the original issuance price, which lapses in a series of installments measured from the vesting commencement date of the option.

In February 2000, the board of directors approved the adoption of SupportSoft’s 2000 Omnibus Equity Incentive Plan (the “2000 Incentive Plan”). A total of 4,000,000 shares of common stock were initially reserved for issuance to eligible participants under the 2000 Incentive Plan. On January 1 of each year, the number of shares reserved automatically increases by the lesser of 2,000,000 shares, 5% of outstanding shares, or an amount determined by the board of directors. All shares that had not yet been issued under SupportSoft’s 1998 Stock Option Plan as of July 19, 2000, the date of SupportSoft’s IPO, were made available for grant under the 2000 Incentive Plan. The exercise price for incentive stock options may not be less than 100% of the fair market value of SupportSoft’s common stock on the date of grant (85% for nonstatutory options). Under both of SupportSoft’s option plans, options generally vest over a 48-month period from the date of grant and have a maximum term of 10 years.

A summary of SupportSoft’s stock option activity under all Stock Plans and related information follows:

	Options Available for Grant		Options Outstanding			Weighted Average Exercise Price
	Options Available for Grant		Number of Shares		Price Per Share	Weighted Average Exercise Price
Balance at December 31, 1998	681,184		2,205,750		$0.10	$	0.10
Shares authorized	5,195,000		—		—		—
Options granted	(6,326,139	)	6,328,639		$0.10-$ 0.99	$	0.57
Options exercised	—		(4,131,994	)	$0.10-$ 0.99	$	0.46
Options canceled	457,500		(457,500	)	$0.10-$ 0.90	$	0.23

Balance at December 31, 1999	7,545		3,944,895		$0.10-$ 0.99	$	0.47
Shares authorized	5,300,000		—		—		—
Options granted	(3,705,622	)	3,705,622		$2.00-$32.50	$	9.99
Options exercised	—		(2,977,745	)	$0.10-$ 9.00	$	0.92
Options canceled	840,908		(840,908	)	$0.10-$ 9.00	$	3.53
Shares repurchased	1,280,040		—		$0.10-$ 9.00	$	0.71

Balance at December 31, 2000	3,722,871		3,831,864		$0.10-$32.50	$	8.65
Shares authorized	1,657,542		—		—		—
Options granted	(4,159,444	)	4,159,444		$2.14-$14.625	$	5.03
Options exercised	—		(194,522	)	$0.10-$ 7.00	$	1.47
Options canceled	1,309,447		(1,309,447	)	$0.40-$31.063	$	9.44
Shares repurchased	165,256		—		$0.10-$ 2.00	$	0.32

Balance at December 31, 2001	2,695,672		6,487,339		$0.10-$32.50	$	6.39

At December 31, 2001, 2000 and 1999, 1,580,679, 2,963,652 and 3,299,905 shares which had been issued upon exercise of options were subject to repurchase, respectively. At December 31, 2001, 2000 and 1999 options to acquire 1,328,749, 331,606, and 444,899 shares were vested but not exercised, respectively.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Exercise prices for options outstanding as of December 31, 2001 and the weighed-average remaining contractual life are as follows:

Range of Exercise Prices	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (In Years)	Weighted Averaged Exercise Price		Number of Shares	Weighted Average Exercise Price
$ 0.10-2.16	1,071,666	8.0	$	1.22	891,999	$	1.03
2.64-2.70	1,105,000	9.8		2.70	23,462		2.70
2.74-4.10	952,087	9.4		3.68	84,688		3.93
4.15-6.52	955,647	9.2		5.07	67,498		5.29
6.55-10.06	940,928	8.5		8.67	886,113		8.61
10.44-12.50	1,014,662	9.0		11.31	196,350		10.89
13.00-32.50	447,349	8.8		20.57	128,895		21.06

	6,487,339	9.0	$	6.39	2,279,005	$	6.21

2001 Employee Stock Purchase Plan

In February 2000, the board of directors approved the adoption of SupportSoft’s 2000 employee stock purchase plan (the “2000 Purchase Plan”). A total of 2,000,000 shares of common stock were initially reserved for issuance under the 2000 Purchase Plan. On January 1 of each year, the number of shares reserved automatically increases by the lesser of 2,000,000 shares, 3% of the outstanding shares, or an amount determined by the board of directors. Accordingly, an additional 994,525 shares were added to the 2000 Purchase Plan on January 1, 2001. The 2000 purchase plan permits eligible employees to acquire shares of SupportSoft’s common stock through periodic payroll deductions of up to 15% of total compensation. Purchases occur on the last day of each July and January following the end of each participation period. The price at which the common stock may be purchased is 85% of the lesser of the fair market value of SupportSoft’s common stock on each employee’s applicable enrollment date or on the last day of the respective participation period. As of December 31, 2001, 191,000 shares have been issued under the 2000 Purchase Plan at prices ranging from $1.88 to $11.90.

Deferred Compensation

SupportSoft recorded deferred stock compensation in connection with the grant of certain stock options and restricted stock to employees, board members and consultants representing the difference between the exercise price and the deemed fair value of SupportSoft’s common stock on the date such stock options were granted (“intrinsic value method”) as prescribed in APB 25. Deferred compensation amounts are included as a reduction of stockholders’ equity. The Company recorded zero, $7.6 million and $18.4 million in deferred compensation associated with these grants during the years ended December 31, 2001, 2000 and 1999, respectively. The rights to purchase restricted stock granted to the board members were valued using the intrinsic value method. The rights to purchase restricted stock and stock options granted to non-employees were valued using the Black Scholes model prescribed in FAS 123 and EITF 96-18. Awards relating to consulting and advisory services have been revalued over the vesting period of the options (“fair value method”). Deferred compensation related to these grants is being amortized by charges to operations on a graded vesting method. At December 31, 2001, SupportSoft had approximately $997,000 remaining to be amortized over the corresponding vesting period of each respective option, generally four years.

SupportSoft recorded amortization of deferred stock compensation expense in connection with the grant of certain stock options to employees and board of directors of approximately $4.3 million in 2001, $10.3 million in 2000

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and $3.6 million in 1999. SupportSoft also recorded variable accounting expense associated with the amortization of deferred stock compensation related to non-employee stock option grants, the grant of options to purchase restricted stock to non-employees and the acceleration of vesting of certain stock options to non-employees of zero in 2001, $501,000 in 2000, and $255,000 in 1999.

Pro Forma Disclosure of the Effect of Stock-Based Compensation

SupportSoft has elected to follow APB Opinion No. 25 and related interpretations in accounting for its employee and director stock-based awards, because, as discussed below, the alternative fair value accounting provided under FAS 123 requires use of option valuation models that were not developed for use in valuing employee stock-based awards. Under APB Opinion No. 25, SupportSoft does not recognize compensation expense with respect to such awards if the exercise price equals or exceeds the fair value of the underlying security on the date of grant and other terms are fixed.

Prior to December 31, 1999, the fair value for these awards was estimated at the date of grant using the minimum value method. Subsequent to this date, SupportSoft estimated fair value based on the Black-Scholes valuation model. The following weighted average assumptions were used:

	December 31,
	2001		2000		1999
Risk-free interest rate	5.0	%	6.0	%	6.5	%
Expected life (years)	4.0		4.0		4.5
Volatility	75.0	%	75.0	%	—
Dividend Yield	0.0	%	0.0	%	0.0	%

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options using a graded vesting method. The effects of applying FAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net loss for future years.

SupportSoft’s pro forma information follows (in thousands, except per share amounts):

	Year Ended December 31, 2001			Year Ended December 31, 2000			Year Ended December 31, 1999
Net loss attributable to common stockholders:
As reported	$	(28,180	)	$	(37,753	)	$	(14,586	)
Pro forma		(29,700	)		(40,268	)		(14,688	)
Basic and diluted net loss per share attributable to common stockholders:
As reported	$	(0.91	)	$	(2.09	)	$	(2.20	)
Pro forma		(0.96	)		(2.22	)		(2.21	)

The weighted-average fair value of options granted was $2.97 during 2001, $5.48 during 2000 and $0.12 during 1999.

6. Income Taxes

The difference between the amount of income tax benefit recorded and the amount of income tax benefit calculated using the U.S. federal statutory rate of 35% is primarily due to net operating losses not being

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

benefited. Accordingly there is no provision for income taxes for the years ended December 31, 2001, December 31, 2000, and December 31, 1999.

Significant components of SupportSoft’s deferred tax assets are as follows (in thousands):

	December 31,
	2001			2000
Deferred tax assets:
Net operating loss carryforwards	$	12,668		$	8,484
Deferred compensation		5,174			4,314
Research credit carryforwards		1,349			794
Capitalized research and development		805			—
Deferred Revenue		5,772			4,843
Accruals and reserves not currently deductible		4,024			1,721

Total deferred tax assets	$	29,792		$	20,156
Valuation allowance		(29,792	)		(20,156	)

Net deferred tax assets		—			—

The Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes,” provides for the recognition of deferred tax asserts if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes SupportSoft’s historical operating performance and reported cumulative net losses in all periods, the Company provided a full valuation allowance against its net deferred tax assets.

The valuation allowance increased by approximately $9.6 million and $13.7 milllion for the years ended December 31, 2001 and December 31, 2000, respectively.

Approximately $849,000 of the valuation allowance resulted from tax deductions under the stock option plans and will be credited to Common Stock when recognized.

As of December 31, 2001, the Company had federal and state net operating loss carryforwards of approximately $34.4 million and $12.8 million, respectively. The Company also had federal and state research and development tax credit carryforwards of approximately $840,000 and $790,000, respectively. The net operating loss and tax credit carryforwards will expire at various dates beginning in 2005 through 2021, if not utilized.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the “change in ownership” provision of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of net operating loss and tax credit carryforwards before utilization.

7. Related Party Transactions

As of December 31, 2001 and 2000, the Company held notes receivable due from officers and a director in the amount of $1.5 million and $2.1 million, respectively, which are classified in stockholders’ equity. All loans are secured by shares of the Company’s common stock and mature in July 2002.

SUPPORTSOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. Quarterly Financial Information (Unaudited)

Summarized quarterly financial information for 2001 and 2000 is as follows:

	Fiscal Year 2001 Quarter Ended
	Mar. 31, 2001			June 30, 2001			Sept. 30, 2001			Dec. 31, 2001
	(in thousands, except per share data)
Statement of Operations Data:
Total revenue	$	8,604		$	6,281		$	7,067		$	8,478
Loss from operations		(8,122	)		(9,724	)		(7,460	)		(4,452	)
Net loss		(8,184	)		(8,550	)		(7,205	)		(4,241	)
Basic and diluted net loss per share attributable to common stockholders	$	(0.27	)	$	(0.28	)	$	(0.23	)	$	(0.13	)

	Fiscal Year 2000 Quarter Ended
	Mar. 31, 2000			June 30, 2000			Sept. 30, 2000			Dec. 31, 2000
	(in thousands, except per share data)
Statement of Operations Data:
Total revenue	$	1,872		$	3,574		$	5,353		$	7,867
Loss from operations		(9,273	)		(9,660	)		(10,312	)		(9,341	)
Net loss		(9,213	)		(9,657	)		(9,557	)		(8,441	)
Basic and diluted net loss per share attributable to common stockholders	$	(1.14	)	$	(1.23	)	$	(0.38	)	$	(0.28	)

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 of Form 10-K with respect to identification of directors is incorporated herein by reference from the information contained in the section entitled “Election of Directors” in the Company’s definitive Proxy Statement for the 2002 Annual Meeting of Stockholders (the “Proxy Statement”), a copy of which will be filed with the Securities and Exchange Commission on or before April 30, 2002. For information with respect to the executive officers of the Company, see “Executive Officers of the Registrant” at the end of Part I of this report.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated herein by reference from the information contained in the section entitled “Executive Compensation and Related Information” in the Proxy Statement.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 of Form 10-K with respect to Item 403 of Regulation S-K regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the information contained in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

As of December 31, 2001

	Number of Securities to be issued upon exercise of outstanding options, warrants, and rights.	Weighted Average exercise Price of outstanding options, warrants, and rights.		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)).
Plan Category	(a)	(b)		(c)
Equity Compensation Plans Approved by security holders (1)	6,487,339	$	6.39	2,695,672	(2)
Equity Compensation Plans not approved by security holders (3)	—		—	—

Totals	6,487,339	$	6.39	2,695,672

(1)

Includes:

1998 Stock Option Plan

2000 Omnibus Equity Incentive Plan

Does not include an outstanding warrant to purchase 119,167 shares of SupportSoft issued to a customer on February 17, 2000.

(2)

The number of shares reserved for issuance under the 2000 Omnibus Equity Incentive Plan is subject to an annual increase as follows:

The aggregate number of Options, SARs, Stock Units and Restricted Shares that may be awarded under the Plan shall automatically increase by a number equal to the lesser of (i) 2,000,000 Shares, (ii) 5% of the

outstanding shares on such date or (iii) a lesser amount determined by the Board. The aggregate number of Shares which may be issued under the Plan shall at all times be subject to adjustment pursuant to Section 16. The number of Shares which are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.

(3)

None.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 of Form 10-K is incorporated herein by reference from the information contained in the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.

PART IV

ITEM 14.

EXHIBITS, FINANCIAL STATEMENTS SCHEDULE AND REPORTS ON FORM 8-K

(a)

The following documents are filed as part of this Report:

(1)

Financial Statements—See Index to the Consolidated Financials Statements and Supplementary Data in Item 8 of this Report.

(2)

Financial Statement Schedules—No schedules have been filed because the information required to be set forth therein is not applicable or is shown in the financial statements or related notes included as part of this Report.

(3)

Exhibits—See Exhibit Index in Item 14(c) of this Report.

(b)

Reports on Form 8-K

None.

(c)

See Exhibit Index at page 54 of this Report, which index of exhibits is incorporated herein by reference.

(d)

See the Consolidated Financial Statements and Supplementary Data beginning on page 32 of this Report.

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 29 day of March, 2002.

SUPPORTSOFT, INC.

By:		/s/ R ADHA R. B ASU
		Radha R. Basu President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Radha Basu and Brian Beattie, and each of them individually, as his or her attorney-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute, may do or cause to be done by virtue hereof.

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

Signature	Title	Date

/s/ R ADHA R. B ASU Radha R. Basu	President, Chief Executive Officer and Chairman (Principal Executive Officer)	March 29, 2002

/s/ B RIAN M. B EATTIE Brian M. Beattie	Chief Financial Officer (Principal Financial and Accounting Officer)	March 29, 2002

/s/ M ANUEL D IAZ Manuel Diaz	Director	March 29, 2002

/s/ C LAUDE M. L EGLISE Claude M. Leglise	Director	March 29, 2002

/s/ B RUCE G OLDEN Bruce Golden	Director	March 29, 2002

/s/ R OGER J. S IPPL Roger J. Sippl	Director	March 29, 2002

/s/ E DWARD S. R USSELL Edward S. Russell	Director	March 29, 2002

EXHIBIT INDEX

Exhibit		Description of Document
3.1		Restated Certificate of Incorporation, as amended.

3.2		Amended and Restated Bylaws.

4.1(4)		Form of Common Stock Certificate.

4.2(1)		Registration Rights Agreement, dated June 22, 1999, by and among the registrant and the parties who are signatories thereto.

4.3(5)		Amended and Restated Registration Rights Agreement, dated March 14, 2000, by and among the registrant and the parties who are signatories thereto.

10.1(2)*		Registrant’s Amended and Restated 1998 Stock Option Plan.

10.2(7)*		Registrant’s 2000 Omnibus Equity Incentive Plan.

10.3(6)*		Registrant’s 2000 Employee Stock Purchase Plan.

10.4 (1)*		Form of Directors and Officers’ Indemnification Agreement.

10.5(4)*		Employment Agreement, dated June 24, 1999, by and between the registrant and Anthony C. Rodoni.

10.6(4)*		Employment Agreement, dated July 15, 1999, by and between the registrant and Radha R. Basu.

10.7(1)*		Employment Agreement, dated August 16, 1999, by and between the registrant and Scott Dale.

10.8(1)*		Employment Agreement, dated August 16, 1999, by and between the registrant and Cadir Lee.

10.9(4)*		Employment Agreement, dated September 27, 1999, by and between the registrant and Brian M. Beattie.

10.10(4)*		Employment Agreement, dated January 18, 2000, by and between the registrant and Lucille Hoger.

10.12(6)+		Enterprise License Agreement dated February 17, 2000 by and between the registrant and General Electric Company.

10.13(3)		Form of Proprietary Information and Inventions Agreement.

10.14(6)		Sale and License Agreement, dated March 20, 2000.

10.15(6)+		Amendment One to Sale and License Agreement, dated June 14, 2000.

10.16		Lease agreement, dated October 1, 2001, by and between the registrant and Martin/Campus LLC

23.1		Consent of Ernst & Young LLP, Independent Auditors

24.1		Power of Attorney (see page 53)

(1)

Incorporated by reference from Exhibits 4.2, 10.4, 10.8 and 10.9, respectively, of Registrant’s Registration Statement on Form S-1 (File No. 333- 30674) filed with the Securities and Exchange Commission on February 18, 2000.

(2)

Incorporated by reference from Exhibit 10.1 of Amendment No. 1 to Registrant’s Registration Statement on Form S-1 (File No. 333- 30674) filed with the Securities and Exchange Commission on March 9, 2000.

(3)

Incorporated by reference from Exhibit 10.18 of Amendment No. 2 to Registrant’s Registration Statement on Form S-1 (File No. 333- 30674) filed with the Securities and Exchange Commission on March 31, 2000.

(4)

Incorporated by reference from Exhibits 4.1, 10.5, 10.7, 10.10, 10.12 and 10.14, respectively, of Amendment No. 3 to Registrant’s Registration Statement on Form S-1 (File No. 333- 30674) filed with the Securities and Exchange Commission on April 26, 2000.

(5)

Incorporated by reference from Exhibit 4.3 of Amendment No. 5 to Registrant’s Registration Statement on Form S-1 (File No. 333- 30674) filed with the Securities and Exchange Commission on June 27, 2000.

(6)

Incorporated by reference from Exhibits 10.3, 10.22 and 10.23, respectively, of Amendment No. 7 to Registrant’s Registration Statement on Form S-1 (File No. 333- 30674) filed with the Securities and Exchange Commission on July 11, 2000.

(7)

Incorporated by reference from Exhibit 10.2 of Amendment No. 8 to Registrant’s Registration Statement on Form S-1 (File No. 333- 30674) filed with the Securities and Exchange Commission on July 13, 2000.

Denotes an executive or director compensation plan or arrangement.

Confidential Treatment Requested. Confidential portions of the exhibit have been omitted and filed separately with the Commission.

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

SUPPORTSOFT, INC.

SUPPORTSOFT, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY:

FIRST: The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Delaware on December 3, 1997 under the name Replicase, Inc.

SECOND: The Restated Certificate of Incorporation of the Corporation in the form attached hereto as Exhibit A has been duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Sections 245 of the General Corporation Law of the State of Delaware. This Restated Certificate of Incorporation of the Corporation only restates and integrates and does not further amend the provisions of the Corporation's Amended and Restated Certificate of Incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and provisions of this Restated Certificate of Incorporation.

THIRD: The Restated Certificate of Incorporation so adopted reads in full as set forth in Exhibit A attached hereto and is hereby incorporated herein by this reference.

FOURTH: This Restated Certificate of Incorporation shall be effective at 4:30 p.m. on March 28, 2002.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the President of the Corporation this 26th day of March, 2002.

SUPPORTSOFT, INC.

By:          /s/ Radha R. Basu
    ---------------------------------------
                 Radha R. Basu
     President and Chief Executive Officer

-1-

Exhibit A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

SUPPORTSOFT, INC.

ARTICLE I

The name of this Corporation is SUPPORTSOFT, INC.

ARTICLE II

The registered office of the Corporation within the State of Delaware is located at 30 Old Rudnick Lane, in the City of Dover, County of Kent, 19901. The name of its registered agent at such address is CorpAmerica, Inc.

ARTICLE III

The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.

ARTICLE IV

A. Authorized Stock. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is one hundred fifty-five million (155,000,000), of which one hundred fifty million (150,000,000) shares of the par value of one hundredth of one cent ($.0001) each shall be Common Stock (the "Common Stock") and five million (5,000,000) shares of the par value of one hundredth of one cent ($.0001) each shall be Preferred Stock (the "Preferred Stock"). The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such Preferred Stock holders is required pursuant to the provisions established by the Board of Directors of this Corporation (the "Board of Directors") in the resolution or resolutions providing for the issue of such Preferred Stock, and if such holders of such Preferred Stock are so entitled to vote thereon, then, except as may otherwise be set forth in this Amended and Restated Certificate of Incorporation, the only stockholder approval required shall be the affirmative vote of a majority of the combined voting power of the Common Stock and the Preferred Stock so entitled to vote.

-2-

B. Preferred Stock. The Preferred Stock may be issued in any number of series, as determined by the Board of Directors. The Board of Directors may by resolution fix the designation and number of shares of any such series, and may determine, alter, or revoke the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series. The Board of Directors may thereafter in the same manner, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, increase or decrease the number of shares of any such series (but not below the number of shares of that series then outstanding). In case the number of shares of any series shall be decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

ARTICLE V

The Corporation is to have perpetual existence.

ARTICLE VI

A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

B. Changes. The Board of Directors of this Corporation, by amendment to the Corporation's bylaws, is expressly authorized to change the number of directors of the Corporation without the consent of the stockholders.

C. Elections. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

ARTICLE VII

A. Power of Stockholder to Act by Written Consent. No action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

B. Special Meetings of Stockholders. Special meetings of the stockholders of the Corporation may be called for any purpose or purposes, unless otherwise prescribed by statute or by this Amended and Restated Certificate of Incorporation, only at the request of the Chief Executive Officer of the Corporation or by a resolution duly adopted by the affirmative vote of a majority of the Board of Directors.

-3-

C. Cumulative Voting. The stockholders of Corporation shall not have cumulative voting.

ARTICLE VIII

The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of at least sixty-six and two-thirds percent (66 2/3%) of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board of Directors). The stockholders shall also have the power to adopt, amend or repeal the Bylaws of the Corporation, provided, however, that in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for such adoption, amendment or repeal by the stockholders of any provisions of the Bylaws of the Corporation.

ARTICLE IX

The books of the Corporation may be kept at such place within or without the State of Delaware as the bylaws of the Corporation may provide or as may be designated from time to time by the board of directors of the Corporation.

ARTICLE X

Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receivers appointed for the Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority, in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

-4-

ARTICLE XI

A. Limitation on Liability. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to the Corporation or its stockholders;
(2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) under Section 174 of the Delaware General Corporation Law; or (4) for any transaction from which the director derived an improper personal benefit.

If the Delaware General Corporation Law hereafter is amended to further eliminate or limit the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Delaware General Corporation Law.

B. Indemnification. Each person who is or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in the second paragraph hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this section shall be a contract right and shall include the right to be paid by the Corporation for any expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to

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employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.

If a claim under the first paragraph of this section is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Amended and Restated Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise.

C. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

D. Repeal and Modification. Any repeal or modification of the foregoing provisions of this Article XI shall not adversely affect any right or protection of any director, officer, employee or agent of the Corporation existing at the time of such repeal or modification.

ARTICLE XII

The Corporation reserves the right to amend or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation.

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ARTICLE XIII

Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend in any respect or repeal this Article XIII, or Articles VI, VII, VIII and XI.

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EXHIBIT 3.2

AMENDED AND RESTATED

B Y L A W S

SUPPORTSOFT, INC.

(a Delaware corporation)

Adopted effective March 28, 2002

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE I Offices ............................................................ 1

     Section 1.   Registered Office .......................................... 1
     Section 2.   Other Offices .............................................. 1

ARTICLE II Meetings of Stockholders .......................................... 1

     Section 1.   Annual Meetings ............................................ 1
     Section 2.   Special Meetings ........................................... 2
     Section 3.   Notice of Meeting .......................................... 2
     Section 4.   List of Stockholders ....................................... 2
     Section 5.   Quorum ..................................................... 2
     Section 6.   Adjournments ............................................... 3
     Section 7.   Voting ..................................................... 3
     Section 8.   Proxies .................................................... 3
     Section 9.   Judges of Election ......................................... 3
     Section 10.  Written Consent ............................................ 3
     Section 11.  Waiver of Notice ........................................... 3

ARTICLE III Board of Directors ............................................... 4

     Section 1.   Number ..................................................... 4
     Section 2.   Election and Term of Office ................................ 4
     Section 3.   Nominations ................................................ 4
     Section 4.   Vacancies and Additional Directorships ..................... 5
     Section 5.   Powers ....................................................  5
     Section 6.   Resignation and Removal of Directors ....................... 5
     Section 7.   Compensation of Directors .................................. 5
     Section 8.   Chairman of the Board ...................................... 5

ARTICLE IV Meeting of the Board of Directors ................................. 5

     Section 1.   Place ...................................................... 5
     Section 2.   Regular Meetings ........................................... 6
     Section 3.   Special Meetings ........................................... 6
     Section 4.   Quorum ..................................................... 6
     Section 5.   Adjourned Meetings ......................................... 6
     Section 6.   Written Consent ............................................ 6
     Section 7.   Communications Equipment ................................... 6
     Section 8.   Waiver of Notice ........................................... 7

ARTICLE V Committees of the Board ............................................ 7

     Section 1.   Designation, Power, Alternate Members and Term of Office ... 7
     Section 2.   Meetings, Notices and Records .............................. 7
     Section 3.   Quorum and Manner of Acting ................................ 8



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     Section 4.   Resignations ..............................................  8
     Section 5.   Removal ...................................................  8
     Section 6.   Vacancies .................................................  8
     Section 7.   Compensation ..............................................  8

ARTICLE VI Officers .........................................................  8

     Section 1.   Officers ..................................................  8
     Section 2.   Duties ....................................................  9
     Section 3.   Resignations ..............................................  9
     Section 4.   Removal ...................................................  9
     Section 5.   Vacancies .................................................  9
     Section 6.   Chief Executive Officer ...................................  9
     Section 7.   President .................................................  9
     Section 8.   Vice President ............................................  9
     Section 9.   Secretary ................................................. 10
     Section 10.  Assistant Secretaries ..................................... 10
     Section 11.  Chief Financial Officer and Treasurer ..................... 10
     Section 12.  Assistant Treasurers ...................................... 11
     Section 13.  Salaries .................................................. 11

ARTICLE VII Certificates of Stock ........................................... 11

     Section 1.   Stock Certificates ........................................ 11
     Section 2.   Books of Account and Record of Stockholders ............... 11
     Section 3.   Transfers of Shares ....................................... 12
     Section 4.   Regulations ............................................... 12
     Section 5.   Lost, Stolen or Destroyed Certificates .................... 12
     Section 6.   Stockholder's Right of Inspection ......................... 12

ARTICLE VIII Deposit of Corporate Funds ..................................... 13

     Section 1.   Borrowing ................................................. 13
     Section 2.   Deposits .................................................. 13
     Section 3.   Checks, Drafts, Etc. ...................................... 13

ARTICLE IX Record Dates ..................................................... 13

ARTICLE X Dividends ......................................................... 14

ARTICLE XI Fiscal Year ...................................................... 14

ARTICLE XII Indemnification ................................................. 14

     Section 1.   Right to Indemnification .................................. 14
     Section 2.   Right of Claimant to Bring Suit ........................... 15
     Section 3.   Non-Exclusivity of Rights ................................. 15
     Section 4.   Insurance ................................................. 15



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     Section 5.   Severability .............................................. 16
     Section 6.   Intent of Article ......................................... 16

ARTICLE XIII Corporate Seal ................................................. 16

ARTICLE XIV Amendments ...................................................... 16

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B Y L A W S

SUPPORTSOFT, INC.

(a Delaware corporation)

ARTICLE I

Offices

Section 1. Registered Office. The registered office of the Corporation within the State of Delaware is located at 30 Old Rudnick Lane in the City of Dover, County of Kent, in the State of Delaware and CorpAmerica, Inc. is the registered agent.

Section 2. Other Offices. The Corporation may also have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

Section 1. Annual Meetings. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting. At the annual meeting the stockholders shall elect by a plurality vote the number of Directors equal to the number of Directors of the class whose term expires at such meetings (or, if fewer, the number of Directors properly nominated and qualified for election) to hold office until the third succeeding annual meeting of stockholders after their election.

At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be

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brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and record address of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, (d) any material interest of the stockholder in such business.

Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 1 by any stockholder of any business properly brought before the annual meeting in accordance with said procedure.

The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

Section 2. Special Meetings. Special meetings of the stockholders for any proper purpose or purposes may be called only by the Chief Executive Officer of the Corporation or by a resolution adopted by the affirmative vote of a majority of the Board of Directors.

Section 3. Notice of Meeting. Notice, signed by the Chief Executive Officer, the President, any Vice President, the Secretary or an Assistant Secretary, of every annual or special meeting of stockholders stating the purpose or purposes for which the meeting is called, and the date and time when, and the place where it is to be held, shall be prepared in writing and personally delivered or mailed, postage prepaid by first class mail, to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the meeting, except as otherwise provided by statute. If mailed, such notice shall be directed to a stockholder at his or her address as it shall appear on the stock record book of the Corporation, unless the stockholder shall have filed with the Secretary a written request that notices intended for him or her be mailed to some other address, in which case it shall be mailed to the address designated in such request. Notice shall be deemed given when personally delivered or deposited to the United States mail, as the case may be; provided, however, that such notice may also be given by telegram, cablegram, radiogram or other means of electronically transmitted written copy and in such case shall be deemed given when ordered or, if a delayed delivery is ordered, as of such delayed delivery time, or when transmitted, as the case may be.

Section 4. List of Stockholders . A complete list of the stockholders entitled to vote at each meeting of stockholders, arranged in alphabetical order and showing the address of each such stockholder and the number of shares registered in the name of each such stockholder, shall be open to the examination of any stockholder, for any purpose germane to such meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of such meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting and during the whole time thereof, and may be inspected by any stockholder who is present.

Section 5. Quorum. The presence at any meeting, in person or by proxy, of the holders of record of a majority of the shares then issued and outstanding and entitled to vote shall be

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necessary and sufficient to constitute a quorum for the transaction of business, except where otherwise provided by statute.

Section 6. Adjournments. In the absence of a quorum, stockholders representing a majority of the shares then issued and outstanding and entitled to vote, present in person or by proxy, or, if no stockholder entitled to vote is present in person or by proxy, any officer entitled to preside at or act as secretary of such meeting, may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 7. Voting. When a quorum is present at any meeting, the holders of a majority of the shares of the Corporation, present in person or by proxy, shall decide any question brought before the meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required in which case such express provision shall govern and control the decision of such question.

Section 8. Proxies. Any stockholders entitled to vote may vote by proxy, provided that the instrument authorizing such proxy to act shall have been executed in writing (which shall include telegraphing, cabling or other means of electronically transmitted written copy) by the stockholder himself or herself or by his or her duly authorized attorney-in-fact. No proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period.

Section 9. Judges of Election. The Board of Directors may appoint judges of election to serve at any election of directors and at balloting on any other matter that may properly come before a meeting of stockholders. If no such appointment shall be made, or if any of the judges so appointed shall fail to attend, or refuse or be unable to serve, then such appointment may be made by the presiding officer of the meeting at the meeting.

Section 10. Written Consent. No action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting and the power of the stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

Section 11. Waiver of Notice. Notice of any meeting need not be given to any stockholder who shall attend such meeting in person or shall waive notice thereof, before or after such meeting, in writing or by telegram, radiogram, cablegram or other means of electronically transmitted written copy.

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ARTICLE III

Board of Directors

Section 1. Number. The number of directors which shall constitute the whole Board of Directors shall be fixed at seven (7). Thereafter, the number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by resolution of the Board of Directors or stockholders at the annual meeting or any special meeting called for that purpose.

Section 2. Election and Term of Office. Directors shall be elected at the annual meeting of the stockholders except as provided in Section 4 of this Article. Each Director (whether elected at an annual meeting or to fill a vacancy or otherwise) shall continue in office until a successor shall have been elected and qualified or until his or her death, resignation or removal in the manner hereinafter provided, whichever shall first occur.

Section 3. Nominations. Subject to the rights of holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, nominations for election to the Board of Directors of the Corporation at a meeting of stockholders may be made on behalf of the Board by the Nominating Committee appointed by the Board, or by any stockholder of the Corporation entitled to vote for the election of directors at such meeting. Such nominations, other than those made by the Nominating Committee on behalf of the Board, shall be made by notice in writing delivered or mailed by first class United States mail, postage prepaid, to the Secretary or Assistant Secretary of the Corporation, and received by him or her not less than one hundred twenty
(120) days prior to any meeting of stockholders called for the election of directors; provided, however, that if less than one hundred (100) days notice of the meeting is given to stockholders, such nomination shall have been mailed or delivered to the Secretary or the Assistant Secretary of the Corporation not later than the close of business on the seventh (7th) day following the day on which the notice of meeting was mailed. Such notice shall set forth as to each proposed nominee who is not an incumbent director (a) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (b) the principal occupation or employment of each such nominee, (c) the number of shares of stock of the Corporation which are beneficially owned by each such nominee and by the nominating stockholder, and (d) any other information concerning the nominee that must be disclosed of nominees in proxy solicitations regulated by Regulation 14A of the Securities Exchange Act of 1934, as amended.

The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he or

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she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

Section 4. Vacancies and Additional Directorships. If any vacancy shall occur among the directors by reason of death, resignation, or removal, or as the result of an increase in the number of directorships, the directors then in office shall continue to act and may fill any such vacancy by a vote of the majority of directors then in office, though less than a quorum, and each director so chosen shall hold office until the next annual election at which the term of the class to which he or she has been elected expires and until his or her successor shall be duly elected and shall qualify, or until his or her earlier death, resignation or removal.

Section 5. Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all lawful acts and things as are not by law or by the Certificate of Incorporation or these Bylaws reserved to the stockholders.

Section 6. Resignation and Removal of Directors. Any director may resign at any time by giving written notice of such resignation to the Board of Directors or the Chief Executive Officer. Any such resignation shall take effect at the time specified therein or, if no time be specified, upon receipt thereof by the Board of Directors or one of the above named officers; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any director or the entire Board of Directors may be removed, but only for cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the Restated Certificate of Incorporation. Any director or the entire Board of Directors may be removed without cause, by the holders of sixty-six and two-thirds percent (66 2/3%) of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the Restated Certificate of Incorporation.

Section 7. Compensation of Directors. Directors shall receive such reasonable compensation for their services as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

Section 8. Chairman of the Board. The Chairman of the Board of Directors, if there be one, shall perform such duties as from time to time may be assigned to him or her by the Board of Directors.

ARTICLE IV

Meeting of the Board of Directors

Section 1. Place. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware.

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Section 2. Regular Meetings. The Board of Directors by resolution may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Notice of regular meetings shall not be required to be given, provided that whenever the time or place of regular meetings shall be fixed or changed, notice of such action shall be mailed promptly to each Director who shall not have been present at the meeting at which such action was taken, addressed to him or her at his or her residence or usual place of business, unless he or she shall have filed with the Secretary a written request that notices intended for him or her be mailed to some other address, in which case it shall be mailed to the address designated in such request.

Section 3. Special Meetings. Special meetings of the Board of Directors may be called by the Chief Executive Officer and shall be called by the Chief Executive Officer or Secretary at the written request of any two (2) directors. Except as otherwise required by statute, notice of each special meeting shall be given to each director, if by mail, when addressed to him or her at his or her residence or usual place of business, unless he or she shall have filed with the Secretary a written request that notices intended for him or her be mailed to some other address, in which case it shall be mailed to the address designated in such request, on at least two (2) days' notice prior to the time of the meeting, or shall be sent to him or her at such place by telegram, radiogram or cablegram, or other electronic means, or delivered to him or her personally, not later than four (4) hours before the time the meeting is to be held. Such notice shall state the time and place of such meeting, but need not state the purposes thereof, unless otherwise required by statute, the Certificate of Incorporation of the Corporation or these Bylaws.

Section 4. Quorum. At any meeting of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business, and the act of the majority of those present at any meeting at which a quorum is present shall be sufficient for the act of the Board of Directors, except as may be otherwise specifically provided by law or by the Certificate of Incorporation.

Section 5. Adjourned Meetings. If a quorum shall not be present at a meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, until a quorum shall be present. Four (4) hours notice of any such adjournment shall be given personally to each director who was not present at the meeting at which such adjournment was taken and, unless announced at the meeting, to the other directors; provided, that two (2) days' notice shall be given if notice is given by mail.

Section 6. Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors.

Section 7. Communications Equipment. Any one or more members of the Board of Directors may participate in any meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall be constitute presence in person at such meeting.

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Section 8. Waiver of Notice. Notice of any meeting need not be given to any director who shall attend such meeting in person or shall waive notice thereof, before or after such meeting, in writing or by telegram, radiogram or cablegram or other means of electronically transmitted written copy.

ARTICLE V

Committees of the Board

Section 1. Designation, Power, Alternate Members and Term of Office. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one (1) or more committees. Each such committee shall consist of one (1) or more of the directors of the Corporation. Any such committee, to the extent provided in such resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. The Board of Directors may designate one (1) or more directors as alternate members of any committee who, in the order specified by the Board of Directors, may replace any absent or disqualified member at any meeting of the committee. The term of office of the members of each committee shall be as fixed from time to time by the Board, subject to the term of office of the directors and these Bylaws; provided, however, that any committee member who ceases to be a member of the Board of Directors shall ipso facto cease to be a committee member. Each committee shall appoint a secretary, who may be the Secretary or an Assistant Secretary of the Corporation.

Section 2. Meetings, Notices and Records. Each committee may provide for the holding of regular meetings, with or without notice, and a majority of the members of any such committee may fix the time, place and procedure for any such meeting. Special meetings of each committee shall be held upon call by or at the direction of its chairman or, if there be no chairman, by or at the direction of any one (1) of its members, at the time and place specified in the respective notices or waivers of notice thereof. Notice of each special meeting of a committee shall be mailed to each member of such committee, addressed to him or her at his or her residence or usual place of business, unless he or she shall have filed with the Secretary a written request that notices intended for him or her be mailed to some other address, in which case it shall be mailed to the address designated in such request, at least two (2) days before the day on which the meeting is to be held, or shall be sent by telegram, radiogram or cablegram, or other means of electronically transmitted written copy, addressed to him or her at such place, or telephoned or delivered to him or her personally, not later than four (4) hours before the time the meeting is to be held. Notice of any meeting of a committee need not be given to any member thereof who shall attend the meeting in person or who shall waive notice thereof by telegram, radiogram, cablegram or other means of electronically transmitted written copy. Notice of any adjourned meeting need not be given. Each committee shall keep a record of its proceedings.

Each committee may meet and transact any and all business delegated to that committee by the Board of Directors by means of a conference telephone or similar communications equipment provided that all persons participating in the meeting are able to hear and

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communicate with each other. Participation in a meeting by means of conference telephone or similar communication shall constitute presence in person at such meeting.

Section 3. Quorum and Manner of Acting. At each meeting of any committee the presence of a majority of its members then in office shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of such committee; in the absence of a quorum, a majority of the members present at the time and place of any meeting may adjourn the meeting from time to time until a quorum shall be present. Subject to the foregoing and other provisions of these Bylaws and except as otherwise determined by the Board of Directors, each committee may make rules for the conduct of its business. Any determination made in writing and signed by all the members of such committee shall be as effective as if made by such committee at a meeting.

Section 4. Resignations. Any member of a committee may resign at any time by giving written notice of such resignation to the Board of Directors or the Chief Executive Officer of the Corporation. Unless otherwise specified in such notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer.

Section 5. Removal. Any member of any committee may be removed at any time by the affirmative vote of a majority of the whole Board of Directors with or without cause.

Section 6. Vacancies. If any vacancy shall occur in any committee by reason of death, resignation, disqualification, removal or otherwise, the remaining members of such committee, though less than a quorum, shall continue to act until such vacancy is filled by the Board of Directors.

Section 7. Compensation. Committee members shall receive such reasonable compensation for their services as such, whether in the form of salary or a fixed fee for attendance at meetings, with reasonable expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any committee member from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE VI

Officers

Section 1. Officers. The officers of the Corporation shall be a Chief Executive Officer, a President, a Chief Financial Officer and Treasurer and a Secretary, and may also include one or more Vice Presidents, Assistant Secretaries or Assistant Treasurers, each of whom shall be elected by the directors, and shall hold office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. None of the officers of the Corporation except the Chairman or any Vice Chairman of the Board need be directors. Any number of offices may be held by the same person.

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Section 2. Duties. All officers, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided in these Bylaws, or, to the extent not so provided, as may be provided by resolution of the Board of Directors or, as to all other officers except by the Chief Executive Officer.

Section 3. Resignations. Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, the Chief Executive Officer, the President, a Vice President or the Secretary. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer.

Section 4. Removal. Any officer may be removed at any time, either with or without cause, by the vote of a majority of all the directors then in office.

Section 5. Vacancies. A vacancy in any office by reason of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these Bylaws for regular election or appointment to such office.

Section 6. Chief Executive Officer. Subject to the direction of the Board of Directors, the Chief Executive Officer shall supervise and direct the daily management of the business, affairs and property of the Corporation. In the absence or disability of the Chief Executive Officer, or if there be none, the Chairman of the Board shall preside at all meetings of the stockholders. The Chief Executive Officer shall be charged with seeing that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer may sign, with any other officer thereunto duly authorized, certificates of stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be facsimile signature), and may sign and execute in the name of the Corporation, deeds, mortgages, bonds, contracts, agreements, and other instruments. From time to time he or she shall report to the Board of Directors all matters within his or her knowledge which the interests of the Corporation may require to be brought to its attention. The Chief Executive Officer shall also perform such other duties as are assigned by these Bylaws or as from time to time may be assigned to him or her by the Board of Directors.

Section 7. President. The President, if there be one, shall perform such duties as from time to time may be assigned to him or her by the Board of Directors or the Chief Executive Officer. The President may sign, with any other officer thereunto duly authorized, certificates of stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be facsimile signature), and may sign and execute in the name of the Corporation, deeds, mortgages, bonds, contracts, agreements, and other instruments.

Section 8. Vice President. In the absence or disability of the Chief Executive Officer and President, the Vice President, or if there be more than one, the Vice Presidents in the order of priority determined by the Board of Directors, shall perform all the duties of the Chief Executive Officer or President and, when so acting, shall have all the powers of and be subject to all restrictions upon the Chief Executive Officer or President, as the case may be. Any Vice President may also sign, with any other officer thereunto duly authorized, certificates of stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature), and may sign and execute in the name of the Corporation deeds,

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mortgages, bond and other instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent. Each Vice President shall perform such other duties as are assigned by these Bylaws or as from time may be assigned by the Board of Directors, the Chief Executive Officer or the President.

Section 9. Secretary. The Secretary shall: (i) record all the proceedings of the meetings of the stockholders, the Board of Directors, and all committees of the Board of Directors in a book or books to be kept for that purpose; (ii) cause all notices to be duly given in accordance with the provisions of these Bylaws as required by statute; (iii) whenever any committee shall be appointed in pursuance of a resolution of the Board of Directors, furnish the chairman of such committee with a copy of such resolution; (iv) be custodian of the records and of the seal of the Corporation, and cause such seal to be affixed to all certificates representing capital stock of the Corporation prior to the issuance thereof and to all instruments the execution of which on behalf of the Corporation under its seal shall have been duly authorized; (v) see that the lists, books, reports, statements, certificates and other documents and records required by statute are properly kept and filed; (vi) have charge of the stock record and stock transfer books of the Corporation, and exhibit such stock books at all reasonable times to such persons as are entitled by statute to have access thereto; (vii) sign (unless the Treasurer or an Assistant Secretary or an Assistant Treasurer shall sign) certificates representing capital stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and (viii) in general, perform all duties incident to the office of Secretary and such other duties as are given to him or her by these Bylaws or as from time to time may be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President.

Section 10. Assistant Secretaries. At the request of the Secretary or in his or her absence or disability, the Assistant Secretary designated by him or her (or in the absence of such designation, the Assistant Secretary designated by the Board of Directors or the President) shall perform all the duties of the Secretary, and, when so acting, shall have all the powers of and be subject to all restrictions upon the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them by the Board of Directors, the President, Chief Executive Officer or the Secretary.

Section 11. Chief Financial Officer and Treasurer. The Chief Financial Officer and Treasurer shall: (i) have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation; (ii) cause the monies and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be selected in accordance with Article VIII, Section 2 of these Bylaws or to be otherwise dealt with in such manner as the Board of Directors may direct; (iii) cause the funds of the Corporation to be disbursed by checks or drafts upon the authorized depositaries of the Corporation, and cause to be taken and preserved proper vouchers for all monies disbursed; (iv) render to the Board of Directors or the Chief Executive Officer, whenever required, a statement of the financial condition of the Corporation and of all his or her transactions as Chief Financial Officer and Treasurer; (v) cause to be kept at the Corporation's principal office correct books of account of all its business and transactions and such duplicate books of account as he or she shall determine and upon application cause such books or duplicates thereof to be exhibited to any Director; (vi) be empowered, from time to time, to require from the officers or agents of the Corporation

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reports or statements giving such information as he or she may desire with respect to any and all financial transactions of the Corporation; (vii) sign (unless the Secretary or an Assistant Secretary or Assistant Treasurer shall sign) certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and (viii) in general, perform all duties incident to the office of Treasurer and such other duties as are given to him or her by these Bylaws or as from time to time may be assigned to him or her by the Board of Directors or the Chief Executive Officer.

Section 12. Assistant Treasurers. At the request of the Chief Financial Officer and Treasurer or in his or her absence or disability, the Assistant Treasurer designated by him or her (or in the absence of such designation, the Assistant Treasurer designated by the Board of Directors or the President) shall perform all the duties of the Chief Financial Officer and Treasurer, and, when so acting, shall have all the powers of an be subject to all restrictions upon the Chief Financial Officer and Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer and Treasurer.

Section 13. Salaries. The salaries of the officers of the Corporation shall be fixed from time to time by the Board of Directors. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation.

ARTICLE VII

Certificates of Stock

Section 1. Stock Certificates. Every holder of capital stock of the Corporation shall be entitled to have a certificate or certificates in such form as shall be approved by the Board of Directors, certifying the number of shares of capital stock of the Corporation owned by him or her. The certificates representing shares of capital stock shall be signed in the name of the Corporation by the Chief Executive Officer or the President or any Vice President, and by the Secretary, an Assistant Secretary, the Chief Financial Officer and Treasurer or an Assistant Treasurer (which signatures may be facsimiles) and sealed with the seal of the Corporation (which seal may be a facsimile). In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer, transfer agent or registrar before such certificates are issued, they may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent, or registrar were still such at the date of their issue.

Section 2. Books of Account and Record of Stockholders. The books and records of the Corporation may be kept at such places, within or without the State of Delaware, as the Board of Directors may from time to time determine. The stock record books and the blank stock certificate books shall be kept by the Secretary or by any other officer or by the transfer agent or registrar, if any, designated by the Board of Directors. There shall be entered on the stock books of the Corporation the number of each certificate issued, the number of shares represented

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thereby, the name of the person to whom such certificate was issued and the date of issuance thereof.

Section 3. Transfers of Stock. Transfers of shares of capital stock of the Corporation shall be made on the stock records of the Corporation only upon authorization by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with the transfer agent, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon, if any. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person whether or not the Corporation shall have express or other notice thereof.

Section 4. Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more registrars and may further provide that no stock certificate shall be valid until countersigned by one of such transfer agents and registered by one of such registrars. Nothing herein shall be construed to prohibit the Corporation from acting as its own transfer agent or registrar.

Section 5. Lost, Stolen or Destroyed Certificates. The holder of any certificate representing any share or shares of the capital stock of the Corporation shall immediately notify the Corporation of any loss, theft, or destruction of such certificate. The Board of Directors may direct that a new certificate or certificates be issued in the place of any certificate or certificates theretofore issued by it which the owner thereof shall allege to have been lost, stolen or destroyed upon the furnishing to the Corporation of an affidavit to that effect by the person claiming that the certificate has been lost, stolen or destroyed. When authorizing such issue of a new certificate of certificates, the Board of Directors may, in its discretion, require such owner or his or her legal representatives to give to the Corporation and its transfer agent(s) and registrar(s) a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board of Directors in it absolute discretion shall determine, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate, or the issuance of a new certificate.

Section 6. Stockholder's Right of Inspection. Any stockholder of record of the Corporation, in person or by attorney or other agent, shall upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other

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agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorized the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business.

ARTICLE VIII

Deposit of Corporate Funds

Section 1. Borrowing. No loans or advances shall be obtained or contracted for, by or on behalf of the Corporation and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors. Such authorization may be general or confined to specific instances.

Section 2. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to its credit in such banks or trust companies or with such bankers or other depositaries as the Board of Directors may select, or as may be selected by any officer or officers or agent or agents authorized to do so by the Board of Directors.

Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, and all negotiable and non-negotiable notes or other negotiable or non-negotiable evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers or agent or agents of the Corporation, and in such manner, as from time to time shall be determined by the Board of Directors.

ARTICLE IX

Record Dates

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. Only those stockholders of record on the date so fixed shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the Corporation after any such record date fixed by the Board of Directors.

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ARTICLE X

Dividends

Subject to any agreement to which the Corporation is a party or by which it is bound, the Board of Directors may declare to be payable, in cash, in other property or in stock of the Corporation of any class or series, such dividends in respect of outstanding stock of the Corporation of any class or series as the Board of Directors may at any time deem to be advisable. Before declaring any such dividend, the Board of Directors may cause to be set aside any funds or other property or assets of the Corporation legally available for the payment of dividends.

ARTICLE XI

Fiscal Year

The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.

ARTICLE XII

Indemnification

Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that such person, or another person of whom such person is the legal representative, is or was a director, officer, or employee of the corporation or is or was serving at the request of the corporation as a director, officer, or employee of, or in some other representative capacity for, another corporation or a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, or employee or in any other capacity while serving as a director, officer, or employee, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, or employee and shall inure to the benefit of such person's heirs, executors and administrators; provided, however, that except as provided in
Section 2 hereof with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be

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paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law so requires, the payment of such expenses incurred by a director, officer, employee or representative in such person's capacity as a director, officer, employee or representative (and not in any other capacity in which service was or is rendered by such person while a director, officer, employee or representative, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise.

Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 of this Article is not paid in full by the corporation within ninety (90) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

Section 3. Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 4. Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, or employee of the corporation serving in any capacity on behalf of the corporation or at its request for any other entity to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

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Section 5. Severability. If any word, clause or provision of this Article XII or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby but shall remain in full force and effect.

Section 6. Intent of Article. The intent of this Article XII is to provide for indemnification to the fullest extent permitted by section 145 of the Delaware General Corporation Law. To the extent that such section or any successor section may be amended or supplemented from time to time, this Article XII shall be amended automatically and construed so as to permit indemnification to the fullest extent from time to time permitted by law. Neither an amendment nor repeal of this Article XII, nor the adoption of any provision of these Bylaws inconsistent with this Article XII, shall eliminate or reduce the effect of this Article XII in respect of any matter occurring, or action or proceeding accruing or arising or that, but for this Article XII, would accrue or arise, prior to such amendment repeal or adoption of any inconsistent provision.

ARTICLE XIII

Corporate Seal

The Corporate Seal shall be circular in form and shall bear the name of the Corporation and the words and figures denoting its organization under the laws of the State of Delaware and year thereof and otherwise shall be in such form as shall be approved from time to time by the Board of Directors.

ARTICLE XIV

Amendments

The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation, provided, however, that any adoption, amendment or repeal of Bylaws of the corporation by the Board of Directors shall require the approval of at sixty-six and two-thirds percent (66 2/3%) of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal these Bylaws, provided, however, that in addition to any vote of the holders of any class or series of stock of this corporation required by law or by the Restated Certificate of Incorporation of this corporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for such adoption, amendment or repeal by the stockholders of any provisions of these Bylaws.

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Exhibit 10.16

LEASE

(MULTI-TENANT BUILDING ON MULTI-BUILDING PROJECT)

by and between

MARTIN/CAMPUS LLC
"Landlord"

and

SUPPORT.COM, INC.
"Tenant"

For the approximately 23,660 SF Premises at 575 Broadway, Redwood City, CA 94063

1.       Parties ...........................................................  1

2.       Premises ..........................................................  1

3.       Definitions .......................................................  1

         A. Alterations ....................................................  1
         B. [Intentionally Deleted] ........................................  1
         C. Commencement Date ..............................................  1
         D. Common Area ....................................................  1
         E. Common Area Maintenance Costs ..................................  2
         F. HVAC ...........................................................  3
         G. Impositions ....................................................  3
         H. [Intentionally Deleted] ........................................  3
         I. [Intentionally Deleted] ........................................  4
         J. Interest Rate ..................................................  4
         K. Landlord's Agents ..............................................  4
         L. Monthly Rent ...................................................  4
         M. Parking Area ...................................................  4
         N. Project ........................................................  4
         O. Real Property Taxes ............................................  4
         P. Rent ...........................................................  4
         Q. Rentable Area ..................................................  5
         R. Security Deposit ...............................................  5
         S. Sublet .........................................................  5
         T. Subrent ........................................................  5
         U. Subtenant ......................................................  5
         V. [Intentionally Deleted] ........................................  5
         W. Tenant's Building Share ........................................  5
         X. Tenant's Percentage Share ......................................  5
         Y. Tenant's Personal Property .....................................  6
         Z. Term ...........................................................  6

4.       Lease Term ........................................................  6

         A. Term ...........................................................  6
         B. Option to Extend ...............................................  6

5.       Rent and Additional Charges .......................................  7

         A. Monthly Rent ...................................................  7
         B. [Intentionally Deleted] ........................................  7
         C. [Intentionally Deleted] ........................................  7
         D. Management Fee .................................................  7
         E. Common Area Maintenance Costs ..................................  7
         F. Additional Rent ................................................  8

         G. Prorations .....................................................  8
         H. Interest .......................................................  8

6.       Late Payment Charges ..............................................  9

7.       Security Deposit ..................................................  9

8.       Holding Over ...................................................... 10

9.       [Intentionally Deleted] ........................................... 11

10.      Condition of Premises ............................................. 11

         A. Capital Improvements ........................................... 11
         B. Acceptance of Premises ......................................... 11

11.      Use of the Premises and Common Area ............................... 11

         A. Tenant's Use ................................................... 11
         B. Hazardous Materials ............................................ 12
         C. Special Provisions Relating to The Americans
            With Disabilities Act of 1990 .................................. 16
         D. Use and Maintenance of Common Area ............................. 17

12.      Quiet Enjoyment ................................................... 17

13.      Alterations ....................................................... 18

14.      Surrender of the Premises ......................................... 18

15.      Impositions and Real Property Taxes ............................... 19

         A. Payment by Tenant .............................................. 19
         B. Taxes on Tenant Improvements and Personal Property ............. 20
         C. Proration ...................................................... 20

16.      Utilities and Services ............................................ 20

17.      Repair and Maintenance ............................................ 21

         A. Landlord's Obligations ......................................... 21
         B. Tenant's Obligations ........................................... 22
         C. Conditions Applicable to Repairs ............................... 22
         D. Landlord's Rights .............................................. 22
         E. Compliance with Governmental Regulations ....................... 23

18.      Liens ............................................................. 23

19.      Landlord's Right to Enter the Premises ............................ 24

20.      Signs ............................................................. 24

21.      Insurance ......................................................... 24

         A. Indemnification ................................................ 24
         B. Tenant's Insurance ............................................. 25
         C. Premises Insurance ............................................. 27
         D. Increased Coverage ............................................. 27
         E. Failure to Maintain ............................................ 27
         F. Insurance Requirements ......................................... 27
         G. Landlord's Disclaimer .......................................... 27

22.      Waiver of Subrogation ............................................. 28

23.      Damage or Destruction ............................................. 28

         A. Landlord's Obligation to Rebuild ............................... 28
         B. Right to Terminate ............................................. 28
         C. Limited Obligation to Repair ................................... 29
         D. Abatement of Rent .............................................. 29
         E. Damage Near End of Term ........................................ 29

24.      Condemnation ...................................................... 29

25.      Assignment and Subletting ......................................... 30

         A. Landlord's Consent ............................................. 30
         B. Tenant's Notice ................................................ 30
         C. Information to be Furnished .................................... 31
         D. Landlord's Alternatives ........................................ 31
         E. Proration ...................................................... 31
         F. Parameters of Landlord's Consent ............................... 31
         G. Permitted Transfers ............................................ 31

26.      Default ........................................................... 32

         A. Tenant's Default ............................................... 32
         B. Remedies ....................................................... 33
         C. Landlord's Default ............................................. 34

27.      Subordination ..................................................... 34

28.      Notices ........................................................... 35

iii

29.      Attorneys' Fees ................................................... 35

30.      Estoppel Certificates ............................................. 35

31.      Transfer of the Premises by Landlord .............................. 36

32.      Landlord's Right to Perform Tenant's Covenants .................... 36

33.      Tenant's Remedy ................................................... 36

34.      Mortgagee Protection .............................................. 36

35.      Brokers ........................................................... 37

36.      Acceptance ........................................................ 37

37.      Parking ........................................................... 37

         A.  Captions ...................................................... 38
         B.  Executed Copy ................................................. 38
         C.  Time .......................................................... 38
         D.  Separability .................................................. 38
         E.  Choice of Law ................................................. 38
         F.  Gender; Singular, Plural ...................................... 39
         G.  Binding Effect ................................................ 39
         H.  Waiver ........................................................ 39
         I.  Entire Agreement .............................................. 39
         J.  Authority ..................................................... 39
         K.  Exhibits ...................................................... 39
         L.  Lease Summary ................................................. 39
         M.  Nondisturbance ................................................ 39
         N.  Consent ....................................................... 39

EXHIBITS
--------

EXHIBIT A  -  FLOOR PLAN
EXHIBIT B  -  SITE PLAN OF PROJECT
EXHIBIT C  -  INVENTORY OF EXISTING FURNITURE AND EQUIPMENT
EXHIBIT D  -  SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

LEASE SUMMARY

Lease Date:                                    As of October 1, 2001

Landlord:                                      Martin/Campus LLC

Address of Landlord:                           100 Bush Street,
                                               26th Floor
                                               San Francisco, CA 94104

Tenant:                                        Support.com, Inc.

Address of Tenant:                             575 Broadway
                                               Redwood City, CA 94063

Contact:                                       Lisa Mosher
                                               VP Human Resources

Telephone:                                     (650) 556-9440

Building Addresses:                            575 Broadway
                                               Redwood City, California 94063

Total Premises

Square Footage:                                Approximately 23,660 square feet

Commencement Date:                             October 1, 2001

Term:                                          Twenty (20) months

Monthly Rent:                                  $2.15/square foot/month

Security Deposit:                              $50,869.00


Exhibit A:          Floor Plan of Premises

Exhibit B:          Site Plan of Project

Exhibit C:          Inventory of Existing Furniture and Equipment

Exhibit D:          Subordination, Non-Disturbance and Attornment Agreement

LEASE

(MULTI-TENANT BUILDING ON MULTI-BUILDING PROJECT)

1. Parties.

THIS LEASE (the "Lease"), dated as of October 1, 2001, is entered into by and between MARTIN/CAMPUS LLC, a Delaware limited liability company ("Landlord"), whose address is 100 Bush Street, 24th Floor, San Francisco, California 94104, and SUPPORT.COM, INC., a Delaware corporation ("Tenant"), whose address is 575 Broadway, Redwood City, California 94063.

2. Premises.

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain premises consisting of a total area of approximately Twenty-Three Thousand Six Hundred Sixty (23,660) square feet (the "Premises"), comprising a part of and located in that certain building, commonly known as 555-575 Broadway (the "Building"), in the City of Redwood City, County of San Mateo, State of California, as more particularly shown on Exhibit A, which Tenant currently occupies. The Premises also includes the appurtenant right to use in common with other tenants of the Project (as defined below) the Common Area (as defined below) of the Project.

3. Definitions.

The following terms shall have the following meanings in this Lease:

A. Alterations. Any alterations, additions or improvements made in, on or about the Premises after the Commencement Date, including, but not limited to, lighting, heating, ventilating, air conditioning, electrical, partitioning, drapery and carpentry installations.

B. [Intentionally Deleted].

C. Commencement Date. The Commencement Date of this Lease shall be the

first day of the Term as set forth in Paragraph 4.A.

D. Common Area. All areas and facilities within the Project not appropriated to the exclusive occupancy of tenants, including the Parking Area, sidewalks, pedestrian ways, driveways, signs, service delivery facilities, common storage areas, common utility facilities and all other areas in the Project established by Landlord for non-exclusive use. The Common Area may increase and/or decrease from time to time during the Term, since Landlord may elect in its sole discretion to make changes to the buildings situated in the Project, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Common Area from time to time, so long as Landlord neither unreasonably interferes with ingress to or egress from the Building, nor reduces the number of parking spaces available for Tenant's use below the minimum requirements set forth in Paragraph 37.

E. Common Area Maintenance Costs. The total of all costs and expenses paid or incurred by Landlord in connection with the operation, maintenance, ownership and repair of the Common Area, the Building, and the performance of Landlord's obligations under Paragraph 17.A. Without limiting the generality of the foregoing, Common Area Maintenance Costs include all costs of and expenses for: (i) maintenance and repairs of the Common Area; (ii) resurfacing, resealing, remarking, painting, repainting, striping or restriping the Parking Area; (iii) maintenance and repair of all public or common facilities; (iv) maintenance, repair and replacement of sidewalks, curbs, paving, walkways, Parking Area, Project signs, landscaping, planting and irrigation systems, trash facilities, loading and delivery areas, lighting, drainage and common utility facilities, directional or other signs, markers and bumpers, and any fixtures, equipment and personal property located on the Common Area; (v) wages, salaries, benefits, payroll burden fees and charges of personnel employed by Landlord (excluding personnel having a grade of Vice President or above) and the charges of all independent contractors retained by Landlord (to the extent that such personnel and contractors are utilized by Landlord) for the maintenance, repair, management and/or supervision of the Project, and of any security personnel retained by Landlord in connection with the operation and maintenance of the Common Area (although Landlord shall not be required to obtain security services); (vi) maintenance, repair and replacement of security systems and alarms; (vii) premiums for Comprehensive General Liability Insurance or Commercial General Liability Insurance, casualty insurance, workers compensation insurance or other insurance on the Common Area, the Project, the buildings located at the Project, or any portion thereof or interest therein; (viii) all personal property or real property taxes and assessments levied or assessed on the Project, or any portion thereof or interest therein, including without limitation Tenant's Percentage Share of the Real Property Taxes for the Project, if applicable under Paragraph 15.A; (ix) cleaning, collection, storage and removal of trash, rubbish, dirt and debris, and sweeping and cleaning the Common Area; (x) any alterations, additions or improvements required to be made to the Common Area in order to comply with applicable governmental laws, ordinances, rules, regulations and orders that become effective after the date of this Lease; (xi) legal, accounting and other professional services for the Project, including costs, fees and expenses of contesting the validity or applicability of any law, ordinance, rule, regulation or order relating to the Building, and of contesting, appealing or otherwise attempting to reduce any Real Property Taxes assessed against the Project; (xii) all costs and expenses incurred by Landlord in performing its obligations under Paragraph 17.A, including without limitation all costs and expenses incurred in performing any alterations, additions or improvements required to be made to the Building in order to comply with applicable laws, ordinances, rules, regulations and orders that become effective after the date of this Lease, and all capital improvements required to be made in connection with the operation, maintenance and repair of the Building, provided that the cost of any such alterations, additions, improvements or capital improvements, together with interest at the Interest Rate, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Costs for each year over which such costs are amortized; (xiii) any other cost or expense which this Lease expressly characterizes as a Common Area Maintenance Cost; (xiv) any and all payments due and owing on behalf of the Project or any portion thereof with respect to any covenants, conditions, and restrictions encumbering the Project, including without limitation any and all assessments and association dues; and (xv) all costs and expenses of providing, creating, maintaining, repairing, managing, operating, and supervising an amenity center, including a

health center (except for any initial capital costs to build and equip the health center), servicing the Project, which may include without limitation fair market rent subsidies granted and fair market rent charged by Landlord for the space occupied by such amenity center (such health club or amenity may be located on property adjacent to the Project which together with the Project is commonly referred to as Midpoint Technology Park) However, notwithstanding the foregoing, Common Area Maintenance Costs shall not include the cost of or expenses for the following: (A) leasing commissions, attorneys' fees or other costs or expenses incurred in connection with negotiations or disputes with other tenants of the Project; (B) depreciation of buildings and improvements in the Project; (C) payments of principal, interest, late fees, prepayment fees or other charges on any debt secured by a mortgage covering the Project, or rental payments under any ground lease or underlying lease; (D) any penalties incurred due to Landlord's violation of any governmental rule or authority (but not excluding the cost of compliance therewith, if such cost is chargeable to Tenant pursuant to this Lease); (E) any Real Property Taxes or costs for which Landlord is separately and directly reimbursed by Tenant or any other tenant of the Project which are assessed against the Premises or the premises leased by such other tenant; (F) items for which Landlord is reimbursed by insurance; (G) any Common Area Maintenance Costs representing an amount paid to a related or affiliated person or entity of Landlord which is in excess of the amount which would be paid in the absence of such relationship; (H) costs and expenses incurred by Landlord in performing its obligations under Paragraph 17.A, to the extent but only to the extent that such costs and expenses are incurred in performing any alterations, additions or improvements required to be made to the Building in order to comply with applicable laws, ordinances, rules, regulations and orders that are in effect as of the date of this Lease; (I) costs and expenses arising from any refinancing of the Project; (J) advertising expenses, and (K) political and charitable contributions expenses. In addition, Common Area Maintenance Costs allocable to the Parking Area shall be reduced (but not below zero (O)) by any and all net income received by Landlord during the applicable year from the ownership or operation of the Parking Area.

F. HVAC. Heating, ventilating and air conditioning.

G. Impositions. Taxes, assessments, charges, excises and levies, business taxes, license, permit, inspection and other authorization fees, transit development fees, assessments or charges for housing funds, service payments in lieu of taxes and any other fees or charges of any kind at any time levied, assessed, charged or imposed by any federal, state or local entity, (i) upon, measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures or other personal property located in the Premises, or the cost or value of any Alterations; (ii) upon, or measured by, any Rent payable hereunder, including any gross receipts tax; (iii) upon, with respect to or by reason of the development, possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; or (iv) upon this Lease transaction, or any document to which Tenant is a party creating or transferring any interest or estate in the Premises. Impositions do not include franchise, transfer, inheritance or capital stock taxes, or income taxes measured by the net income of Landlord from all sources, unless any such taxes are levied or assessed against Landlord as a substitute for, in whole or in part, any Imposition.

H. [Intentionally Deleted].

I. [Intentionally Deleted].

J. Interest Rate. The lesser of (i) the reference rate, or succeeding similar index, announced from time to time by the Bank of America's main San Francisco office, plus two percent (2%) per annum, or (ii) the maximum rate of interest permitted by law.

K. Landlord's Agents. Landlord's authorized agents, representatives, members, partners, subsidiaries, directors, officers, and employees.

L. Monthly Rent. The rent payable pursuant to Paragraph 5.A.

M. Parking Area. All Common Area (except sidewalks and service delivery facilities) now or hereafter designated by Landlord for the parking or access of motor vehicles, including roads, traffic lanes, vehicular parking spaces, landscaped areas and walkways. The Parking Area may increase and/or decrease from time to time during the Term, since Landlord may elect in its sole discretion to make changes to the buildings situated in the Project, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Parking Area from time to time; provided, however, that Landlord shall not reduce the number of parking spaces available for Tenant's use below the minimum requirements set forth in Paragraph 37.

N. Project. That certain real property described in Exhibit B
consisting of approximately 23.55 acres, upon which are located the Building and four (4) other buildings, consisting of a total building square footage of approximately Four Hundred Twelve Thousand Two Hundred Ninety Seven (412,297) square feet.

O. Real Property Taxes. Any form of assessment, license, fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or tax (other than net income, estate, succession, inheritance, transfer or franchise taxes), imposed by any authority having the direct or indirect power to tax, or by any city, county, state or federal government or any improvement or other district or division thereof, whether such tax is: (i) determined by the area of the Premises or any part thereof or the rent and other sums payable hereunder by Tenant or by other tenants, including, but not limited to, any gross income or excise tax levied by any of the foregoing authorities with respect to receipt of such rent or other sums due under this Lease, (ii) upon any legal or equitable interest of Landlord in the Premises or any part thereof; (iii) upon this transaction or any document to which Tenant is a party creating or transferring any interest in the Premises; (iv) levied or assessed in lieu of, in substitution for, or in addition to, existing or additional taxes against the Premises whether or not now customary or within the contemplation of the parties; or (v) surcharged against the Parking Area. To the extent that Landlord receives during any calendar year any rebate or refund of Real Property Taxes assessed against the Project, the Real Property Taxes for such year shall be reduced by the amount of such rebate or refund received by Landlord. Real Property Taxes shall not include any penalties, interest or late charges caused by Landlord's failure to timely pay any Real Property Taxes so long as Tenant timely pays to its share of Real Property Taxes pursuant to Paragraph 15.

P. Rent. Monthly Rent plus the Additional Rent defined in

Paragraph 5.F.

Q. Rentable Area. The aggregate square footage in any one or more buildings in the Project, as appropriate, as reasonably determined by Landlord from time to time.

R. Security Deposit. That amount paid by Tenant pursuant to Paragraph 7.

S. Sublet. Any transfer, sublet, assignment, license or concession agreement, or hypothecation of this Lease or the Tenant's interest in the Lease or in and to all or a portion of the Premises. As used herein, a Sublet includes the following: (i) if Tenant is a partnership or a limited liability company, a transfer, voluntary or involuntary, of all or any part of any interest in such partnership or limited liability company, or the dissolution of the partnership or limited liability company, whether voluntary or involuntary; (ii) if Tenant is a corporation, any dissolution of Tenant, or the transfer, either by a single transaction or in a series of transactions, of a controlling percentage of the stock of Tenant, unless any such corporate change results from the trading of shares listed on a recognized public stock exchange and such trading is not for the purposes of acquiring effective control of Tenant; (iii) if Tenant is a trust, the transfer, voluntarily or involuntarily, of all or any part of the controlling interest in such trust; and (iv) if Tenant is any other form of entity, a transfer, voluntary or involuntary, of all or any part of any interest in such entity. As used herein, the phrases "controlling percentage" and "controlling interest" mean the ownership of, and/or the right to vote, stock, partnership interests, membership interests, or other indicia of ownership possessing at least fifty-one percent (51%) of either the total combined interests in Tenant, or the voting power of all classes of Tenant's capital stock, partnership interests, membership interests, or other indicia of ownership, that have been issued, outstanding, and (if applicable) are entitled to vote.

T. Subrent. Any consideration of any kind received, or to be received, by Tenant from a Subtenant if such sums are directly related to Tenant's interest in this Lease or in the Premises, including without limitation bonus money and payments (in excess of book value) for Tenant's assets, including without limitation its trade fixtures, equipment and other personal property, goodwill, general intangibles, and any capital stock or other equity ownership of Tenant.

U. Subtenant. The person or entity with whom a Sublet agreement is proposed to be or is made.

V. [Intentionally Deleted].

W. Tenant's Building Share. The ratio (expressed as a percentage) of

the total Rentable Area of the Premises to the total Rentable Area of the Building as determined by Landlord from time to time, which as of the Commencement Date shall equal twenty-eight and 17/100ths percent (28.17%). Tenant's Building Share shall be recalculated any time that the amount of Rentable Area contained in Premises is adjusted, or there is a change in the total Rentable Area of the Building.

X. Tenant's Percentage Share. The ratio (expressed as a percentage) of

the total Rentable Area of the Premises to the total Rentable Area of all of the buildings at the Project, each as of the first (1st) day of the calendar month in question, as reasonably determined by Landlord. The parties acknowledge and agree that the total Rentable Area of all of the

buildings in the Project may increase and/or decrease from time to time during the Term, since Landlord may elect in its sole discretion to make changes to the buildings situated in the Project (so long as Landlord neither unreasonably interferes with ingress to or egress from the Building, nor reduces the number of parking spaces available for Tenant's use below the minimum requirements set forth in Paragraph 37). For the purposes of example only and not by way of limitation, if as of the Commencement Date (x) Landlord determines that the Premises consists of Twenty-Three Thousand Six Hundred Sixty (23,660) square feet of Rentable Area in the Building, and (y) the total Rentable Area of all of the buildings in the Project equals Four Hundred Twelve Thousand Two Hundred Ninety Seven (412,297) square feet of Rentable Area, then Tenant's Percentage Share as of the Commencement Date shall equal Five and 74/100ths percent (5.74%).

Y. Tenant's Personal Property. Tenant's trade fixtures, furniture, equipment and other personal property in the Premises, excluding the furniture and equipment located in the Premises as of the Commencement Date and listed on Exhibit C.

Z. Term. The term of this Lease set forth in Paragraph 4.A. as it may be extended hereunder pursuant to the option set forth in Paragraph 4.B.

4. Lease Term.

A. Term. The Term shall commence on October 1, 2001 (the "Commencement
Date") and shall terminate on May 31, 2003.

B. Option to Extend.

(i) Grant of Option. Landlord hereby grants to Tenant one (1) option (the "Option") to extend the Term of this Lease, for an additional term of two (2) years, which shall commence upon the expiration of the Term. The Option is expressly conditioned upon Tenant's not being in default under any term or condition of this Lease after the expiration of any applicable cure period granted by this Lease, either at the time the option is exercised or at the time the option term would commence. The Option shall be personal to the Tenant originally named in this Lease and to any successor in interest to Tenant pursuant to a "Permitted Transfer" (as defined in Paragraph 25.G), and shall not be assigned, sold, conveyed or otherwise transferred to any other party (including without limitation any assignee or sublessee of such Tenant) without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion; provided, however, that Landlord's decision to grant or withhold its consent shall be made in accordance with the provisions of Paragraph 25.F. Under no circumstances shall Landlord be required to pay any real estate commission to any party with respect to Tenant's exercise of the option.

(ii) Manner of Exercise. Tenant may exercise the Option only by giving Landlord written notice not less than six (6) months prior to the expiration of the Term. If Tenant fails to exercise its Option prior to such six
(6) month period, then the Option automatically shall lapse and thereafter Tenant shall have no right to exercise the Option.

(iii) Terms and Rent. If the Option is exercised, then the Monthly Rent for the Premises for the Option term shall be equal to Two Dollars and 65/100 ($2.65) multiplied

by the Rentable Area of the Premises. If the Security Deposit posted with Landlord at the time the Option is exercised is in the form of cash, Landlord, at its option, may require Tenant as a condition to exercising the Option, to deposit in lieu of the cash Security Deposit an irrevocable standby letter of credit complying with the terms of Paragraph 7 and in the same amount as the Security Deposit required hereunder. Landlord shall thereafter promptly return the cash to Tenant. All other terms and conditions of the Lease, as amended from time to time by the parties in accordance with the provisions of the Lease, shall remain in full force and effect and shall apply during the Option term; provided, however, that notwithstanding the foregoing, the Option shall be of no force or effect during the Option term.

5. Rent and Additional Charges.

A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of the United States, Monthly Rent as follows: commencing on the Commencement Date, and continuing throughout the Term, the Monthly Rent shall equal to Two and 15/100 Dollars ($2.15) multiplied by the Rentable Area of the Premises. The actual commencement date for the payment of Monthly Rent (the "Rent Commencement Date") shall be the Commencement Date.

Monthly Rent shall be paid in advance, on the first day of each calendar month, without abatement, deduction, claim, offset, prior notice or demand. Additionally, Tenant shall pay, as and with the Monthly Rent, the management fee described in Paragraph 5.D, Tenant's share of Common Area Maintenance Costs pursuant to Paragraph 5.E, the Real Property Taxes and Impositions payable by Tenant pursuant to Paragraph 15, and the monthly cost of insurance premiums required pursuant to Paragraph 21.C.

B. [Intentionally Deleted].

C. [Intentionally Deleted].

D. Management Fee. Tenant shall pay to Landlord monthly, as Additional Rent, a management fee equal to three percent (3%) of the Monthly Rent then in effect.

E. Common Area Maintenance Costs.

(i) Estimated Payments. Commencing on the Commencement Date and continuing throughout the entire Term, Tenant shall pay Tenant's Percentage Share of all other Common Area Maintenance Costs paid or payable by Landlord in each year; provided, however, that Tenant shall pay Tenant's Building Share of those Common Area Maintenance Costs arising from Landlord's performance of its obligations under Paragraph 17.A. Before commencement of the Term and during December of each calendar year or as soon thereafter as practicable, Landlord shall give Tenant notice of its estimate of amounts payable under this Paragraph 5.E.(i) for the ensuing calendar year. Such notice shall show in reasonable detail the basis on which the estimate was determined. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of such estimated amounts, provided that if such notice is not given in December, Tenant shall continue to pay on the basis of the prior year's estimate until the month after such notice is given. If at any time or times it appears to Landlord, in its reasonable judgment, that the amounts payable under this Paragraph 5.E.(i) for the current calendar year will vary from its then current estimate by more

than five percent (5%), Landlord shall by notice to Tenant, showing in reasonable detail the basis for such variance, revise its estimate for such year, in which case subsequent payments by Tenant for such year shall be based upon such revised estimate.

(ii) Adjustment. Within ninety (90) days after the close of each calendar year or as soon after such 90-day period as reasonably practicable, Landlord shall deliver to Tenant a reasonably detailed statement of Common Area Maintenance Costs for such calendar year, certified by Landlord or its property manager, subject to Tenant's right to audit as hereinafter provided. At that time, Landlord shall also deliver to Tenant a statement, certified as correct by Landlord, of the adjustments to be made pursuant to Paragraph 5.E.(i) above. If Landlord's statement shows that Tenant owes an amount that is less than the estimated payments for such calendar year previously made by Tenant, Tenant may offset such overpayment against Rent due or remaining due under this Lease, or if no Rent remains due, Landlord shall refund such excess to Tenant within thirty (30) days after delivery of the statement. If such statement shows that Tenant owes an amount that is more than the estimated payments for such calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement.

(iii) Last Year. If this Lease shall terminate on a day other than the last day of a calendar year, the adjustment in Rent applicable to the calendar year in which such termination shall occur shall be prorated on the basis which the number of days from the commencement of such calendar year to and including such termination date bears to three hundred sixty (360). The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to Paragraph 5.E.(ii) to be performed after such termination.

(iv) Audit. Within one hundred eighty (180) days after receipt of Landlord's statement of Common Area Maintenance Costs as provided in Paragraph 5.E.(ii), Tenant or its designee, on not less than five (5) days prior written notice to Landlord, shall have the right to, at Tenant's sole cost and expense, audit, examine and copy Landlord's books and records with respect to the Common Area Maintenance Costs for the calendar year pertaining to the year for which the Landlord's statement pertains. Landlord shall cooperate with Tenant in any such examination of its books and records and shall equitably adjust any discrepancies

F. Additional Rent. All monies required to be paid by Tenant under this Lease, including, without limitation, the management fee described in Paragraph 5.D, Tenant's share of Common Area Maintenance Costs pursuant to Paragraph 5.E, Real Property Taxes and Impositions pursuant to Paragraph 15, and
the monthly cost of insurance premiums required pursuant to Paragraph 21.C shall be deemed Additional Rent.

G. Prorations. If the Rent Commencement Date is not the first (1st)

day of a month, or if the termination date of this Lease is not the last day of a month, a prorated installment of Monthly Rent based on a 30-day month shall be paid for the fractional month during which such date occurs or the Lease terminates.

H. Interest. Any amount of Rent or other charges provided for under this Lease due and payable to Landlord which is not paid when due shall bear interest at the Interest Rate from the date that is (i) five (5) days after the date such Rent is due until such Rent is paid,

or (ii) ten (10) days after Tenant receives written notice from Landlord that any other charge provided for under this Lease (other than Rent) is due and payable, until such other charge is paid.

6. Late Payment Charges.

Tenant acknowledges that late payment by Tenant to Landlord of Rent and other charges provided for under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult or impracticable to fix. Therefore, if any installment of Rent or any other charge due from Tenant is not received by Landlord within five (5) days after the date such Rent or other charge is due, Tenant shall pay to Landlord an additional sum equal to five percent (5%) of the amount overdue as a late charge for every month or portion thereof that the Rent or other charges remain unpaid; provided, however, that the first two (2) late payments during the Term shall not result in any late charge so long as such payment is received within two (2) business days after notice of such late payment by Landlord to Tenant The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of the late payment by Tenant.

Initials:

--------------------------         --------------------------
Landlord                           Tenant

7. Security Deposit.

Tenant shall deposit with Landlord upon the execution of this Lease by Landlord and Tenant, the sum of Fifty Thousand Eight Hundred Sixty Nine and 00/100ths Dollars ($50,869.00) as the "Security Deposit" for the full and faithful performance of every provision of this Lease to be performed by Tenant. At Tenant's option, the Security Deposit may be in the form of an irrevocable standby letter of credit ("L-C").

If Tenant defaults with respect to any provision of this Lease, after the expiration of any applicable cure or grace periods expressly provided for in this Lease, Landlord may use, apply or retain all or any part of this Security Deposit for the payment of any rent or other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to 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. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all other provisions of law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Exercise by Landlord of its rights hereunder shall not constitute a waiver of, or relieve Tenant from any liability for, any default. If any portion of a cash Security Deposit is so applied, or any portion of an L-C posted as the Security Deposit, if applicable, is drawn upon, by Landlord for such purposes, Tenant shall either, within ten
(10) days after written demand

therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount or deposit a replacement L-C with Landlord in the amount of the original L-C. If Tenant is not otherwise in default, the Security Deposit or any balance thereof shall be returned to Tenant within thirty (30) days of termination of the Lease.

Landlord shall not be required to keep this Security Deposit separate from its general fund and Tenant shall not be entitled to interest on such Security Deposit. Landlord's receipt and retention of the Security Deposit shall not create any trust or fiduciary relationship between Landlord and Tenant and Landlord need not keep the Security Deposit separate from its general accounts. Upon termination of the original Landlord's (or any successor owner's) interest in the Premises, the original Landlord (or such successor) shall be released from further liability with respect to the Security Deposit upon the original Landlord's (or such successor's) compliance with California Civil Code Section 1950.7(d), or successor statute.

If at any time Tenant elects to deposit an L-C as the Security Deposit, the L-C shall be issued by a money-center bank (a bank which accepts deposits, which maintains accounts, which has a local Bay Area office which will negotiate a letter of credit and whose deposits are insured by the FDIC) whose financial strength shall be sufficient to meet liquidity demands with respect to issued letters of credit and which is otherwise reasonably acceptable to Landlord. The L-C shall be issued for a term of at least twelve (12) months and shall be in a form and with such content reasonably acceptable to Landlord. Tenant shall either replace the expiring L-C with an L-C in an amount equal to the original L-C or renew the expiring L-C, in any event no later than thirty (30) days prior to the expiration of the term of the L-C then in effect. If Tenant fails to deposit a replacement L-C or renew the expiring L-C, Landlord shall have the right to draw upon the expiring L-C for the full amount thereof. Landlord shall be permitted to require a replacement L-C if the bank that issued an existing L-C no longer satisfies the criteria provided above. Drawing upon the L-C shall be conditioned upon the presentation to the issuer of the L-C of a certified statement executed by a general partner or officer of Landlord that (i) Tenant is in default under the Lease and Landlord is exercising its right to draw upon so much of the L-C as is necessary to cure Tenant's default, or (ii) Tenant has not renewed or replaced an expiring L-C as required by this Lease and Landlord is authorized to draw upon the L-C prior to its expiration. The L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law, it being intended that Landlord shall not first be required to proceed against the L-C, and such use, application or retention shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled.

8. Holding Over.

If Tenant remains in possession of all or any part of the Premises after the expiration of the Term, with the express or implied consent of Landlord, such tenancy shall be month-to-month only and shall not constitute a renewal or extension for any further term. If Tenant remains in possession either with or without Landlord's consent, Monthly Rent shall be increased to an amount equal to one hundred fifty percent (150%) of the Monthly Rent payable during the last month of the Term, and any other sums due under this Lease shall be payable in the amount

and at the times specified in this Lease. Such month-to-month tenancy shall be subject to every other term, condition, and covenant contained herein.

9. [Intentionally Deleted].

10. Condition of Premises.

A. Capital Improvements. Tenant acknowledges that to the best of Tenant's knowledge, all Building systems serving the Premises, including HVAC, plumbing, and electrical, and the Building's roof, are in good operating condition upon the Commencement Date.

B. Acceptance of Premises. Tenant acknowledges that Tenant has inspected the Premises and is relying solely on this inspection and not on any statement made by Landlord or any agent of Landlord regarding the physical condition of the Premises or the Building. Tenant accepts the Premises "as is," in its present condition. Tenant shall be deemed to have accepted the Premises in good, clean and completed condition and repair, subject to all applicable laws, codes and ordinances. Tenant acknowledges that neither Landlord nor Landlord's Agents have made any representations or warranties as to the suitability or fitness of the Premises for the conduct of Tenant's business or for any other purpose, nor has Landlord or Landlord's Agents agreed to undertake any Alterations or construct any improvements to the Premises except as expressly provided in this Lease. Notwithstanding the foregoing, Landlord shall promptly arrange for the reconnection of the existing telecommunication circuits used by Tenant currently located at 555 Broadway to the minimum point of entry ("MPOE") in the premises adjacent to the Premises and commonly known as 585 Broadway (the "585 Broadway Premises") and pay for the associated vendor costs of such reconnection. Landlord shall pay the cost to install 100 pair of copper lines from the MPOE located in the electrical closet within the 585 Broadway Premises to the network room within the Premises (as depicted on Exhibit A). Until such reconnection is accomplished, Landlord shall use reasonable efforts to maintain the availability of the existing telecommunications circuits and lines. Tenant shall in all cases be responsible for all telephone and other data services provided to the Premises by way of such lines pursuant to Paragraph 16.

11. Use of the Premises and Common Area.

A. Tenant's Use. Tenant shall use the Premises only for general office, administration, sales and marketing, research and development, and storage purposes, and such other purposes as shall be specifically and formally approved by the City of Redwood City. Tenant shall not use the Premises or suffer or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, zoning restriction, ordinance or governmental law, rule, regulation or requirement of public authorities now in force or which may hereafter be in force, relating to or affecting the condition, use or occupancy of the Premises. Tenant shall not commit any public or private nuisance or any other act or thing which might or would disturb the quiet enjoyment of any other tenant of Landlord or any occupant of nearby property. Tenant shall place no loads upon the floors, walls or ceilings in excess of the maximum designed load determined by a licensed structural engineer or which endanger the structure; nor place any harmful liquids in the drainage systems; nor dump or store waste

materials or refuse or allow waste materials or refuse to remain outside the Building proper, except in the enclosed trash areas provided. Tenant shall not store or permit to be stored or otherwise placed any other material of any nature whatsoever outside the Building, except on a temporary basis.

B. Hazardous Materials.

(i) Hazardous Materials Defined. As used herein, the term "Hazardous Materials" shall mean any wastes, materials or substances (whether in the form of liquids, solids or gases, and whether or not air-borne), which are or are deemed to be (a) pollutants or contaminants, or which are or are deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or which present a risk to public health or to the environment, or 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, any amendments or successor(s) thereto, replacements thereof or publications promulgated pursuant thereto, including, without limitation, any such items or substances which are or may become regulated by any of the Environmental Laws (as hereinafter defined); (b) listed as a chemical known to the State of California to cause cancer or reproductive toxicity pursuant to Section 25249.8 of the California Health and Safety Code, Division 20, Chapter 6.6 (Safe Drinking Water and Toxic Enforcement Act of 1986); or (c) a pesticide, petroleum, including crude oil or any fraction thereof, asbestos or any asbestos-containing material, a polychlorinated biphenyl, radioactive material, or urea formaldehyde.

(ii) Environmental Laws Defined. In addition to the laws referred to in Paragraph 11.B.(i) above, the term "Environmental Laws" shall be deemed to include, without limitation, 33 U.S.C. Section 1251 et seq., 42-U.S.C. Section

6901 et seq., 42 U.S.C. Section 7401 et seq., 42 U.S.C. Section 9601 et seq.,
and California Health and Safety Code Sections 25100 et seq., and 25300 et seq.,

California Water Code, Section 13020 et seq., or any successor(s) thereto, all

local, state and federal laws, judgments, ordinances, orders, rules, regulations, codes and other governmental restrictions, guidelines and requirements, any amendments and successors thereto, replacements thereof and publications promulgated pursuant thereto, which deal with or otherwise in any manner relate to, air or water quality, air emissions, soil or ground conditions or other environmental matters of any kind.

(iii) Use of Hazardous Materials. Tenant agrees that during the Term of this Lease, Tenant shall not use, or permit the use of, nor store, generate, treat, manufacture or dispose of Hazardous Materials on, from or under the Premises (individually and collectively, "Hazardous Use") except to the extent that, and in accordance with such conditions as, Landlord may have previously approved in writing in its sole and absolute discretion. Notwithstanding the foregoing, Tenant shall be entitled to use and store only those Hazardous Materials which are (a) set forth in a list prepared by Tenant and approved in writing by Landlord, which shall be deemed given with respect to the Approved Hazardous Materials (hereinafter defined), (b) necessary for Tenant's business, but then only in the amounts and for the purposes previously disclosed in writing to and approved in writing by Landlord, and (c) in full compliance with Environmental Laws, and all judicial and administrative decisions pertaining thereto. All Hazardous Materials approved in writing by Landlord as provided in the preceding sentence, along with normal and customary janitorial and office supplies, shall collectively be referred to

as the "Approved Hazardous Materials". Within thirty (30) days after request by Landlord, Tenant shall deliver to Landlord a list of the Approved Hazardous Materials. Tenant shall not be entitled to install any tanks under, on or about the Premises for the storage of Hazardous Materials without the express written consent of Landlord, which may be given or withheld in Landlord's sole discretion. For the purposes of this Paragraph 11.B.(iii), the term "Hazardous Use" shall include Hazardous Use(s) on, from or under the Premises by Tenant,

any Subtenant occupying all or any portion of the Premises during the Term, or any of their directors, officers; employees, shareholders, partners, invitees, agents, contractors or occupants (collectively, "Tenant's Parties"; provided, however, that if Tenant's stock is publicly traded, the term "Tenant's Parties" shall not include any shareholder of Tenant who owns less than ten percent (10%) of Tenant's common stock), whether known or unknown to Tenant, occurring during the Term of this Lease. The term "Tenant's Parties" shall not include any tenants of the Project other than Tenant, except that the term "Tenant's Parties" shall include any Subtenant occupying all or any portion of the Premises during the Term.

(iv) Hazardous Materials Report; When Required. Tenant shall submit to Landlord a written report with respect to Hazardous Materials ("Report") in the form prescribed in Paragraph 11.B.(v) below on the following

  ------                             ------------------
dates:

                    (a) At any time within ten (10) days after written request
by Landlord, and

                    (b) At any time when there has been a violation of any

Environmental Law, or in connection with any proposed request for Landlord's consent to any change in the list of Approved Hazardous Materials or for an increase in the intensity of usage or storage of such Approved Hazardous Materials.

(v) Hazardous Materials Report; Contents. The Report shall contain, without limitation, the following information:

(a) Whether on the date of the Report and (if applicable) during the period since the last Report there has been any Hazardous Use on, from or under the Premises, other than the use of Approved Hazardous Materials.

(b) If there was such Hazardous Use, the exact identity of the Hazardous Materials (other than the Approved Hazardous Materials), the dates upon which such materials were brought upon the Premises, the dates upon which such Hazardous Materials were removed therefrom, and the quantity, location, use and purpose thereof.

(c) If there was such Hazardous Use, any governmental permits maintained by Tenant with respect to such Hazardous Materials, the issuing agency, original date of issue, renewal dates (if any) and expiration date. Copies of any such permits and applications therefor shall be attached.

(d) If there was such Hazardous Use, any governmental reporting or inspection requirements with respect to such Hazardous Materials, the governmental agency to which reports are made and/or which conducts inspections, and the dates of all such

reports and/or inspections (if applicable) since the last Report. Copies of any such Reports shall be attached.

(e) If there was such Hazardous Use, identification of any operation or business plan prepared for any government agency with respect to Hazardous Use.

(f) Any liability insurance carried by Tenant with respect to Hazardous Materials, if any, the insurer, policy number, date of issue, coverage amounts, and date of expiration. Copies of any such policies or certificates of coverage shall be attached.

(g) Any notices of violation of Environmental Laws, written or oral, received by Tenant from any governmental agency since the last Report, the date, name of agency, and description of violation. Copies of any such written notices shall be attached.

(h) Any knowledge, information or communication which Tenant has acquired or received relating to (x) any enforcement, cleanup, removal or other governmental or regulatory action threatened or commenced against Tenant or with respect to the Premises pursuant to any Environmental Laws; (y) any claim made or threatened by any person or entity against Tenant or the Premises on account of any alleged loss or injury claimed to result from any alleged Hazardous Use on or about the Premises; or (z) any report, notice or complaint made to or filed with any governmental agency concerning any Hazardous Use on or about the Premises. The Report shall be accompanied by copies of any such claim, report, complaint, notice, warning or other communication that is in the possession of or is available to Tenant.

(i) Such other pertinent information or documents as are reasonably requested by Landlord in writing.

(vi) Release of Hazardous Materials; Notification and Cleanup.

(a) At any time during the Term, if Tenant knows or believes that any release of any Hazardous Materials has come or will come to be located upon, about or beneath the Premises, then Tenant shall immediately, either prior to the release or following the discovery thereof by Tenant, give verbal and follow-up written notice of that condition to Landlord.

(b) At its sole cost and expense, Tenant covenants to investigate, clean up and otherwise remediate any release of Hazardous Materials which has occurred during the Term to the extent arising from any act or failure to act of Tenant or any of Tenant's Parties. Such investigation, clean-up and remediation shall be performed only after Tenant has obtained, if practicable, Landlord's written consent, which shall not be unreasonably withheld; provided, however, that Tenant shall be entitled to respond immediately to an emergency without first obtaining Landlord's written consent. All clean-up and remediation shall be done in compliance with Environmental Laws and to the reasonable satisfaction of Landlord.

(c) Notwithstanding the foregoing, Landlord shall have the right, but not the obligation, in Landlord's sole and absolute discretion, exercisable by written

notice to Tenant, to undertake within or outside the Premises all or any portion of any reasonable investigation, clean-up or remediation with respect to any Hazardous Use of such Hazardous Materials by Tenant or any of Tenant's Parties (or, once having undertaken any of such work, to cease same, in which case Tenant shall perform the work), all at Tenant's sole cost and expense, which shall be paid by Tenant as Additional Rent within ten (10) days after receipt of written request therefor by Landlord (and which Landlord may require to be paid prior to commencement of any work by Landlord); provided, however, that Tenant's obligation to pay for such work shall only be applicable if Tenant fails to perform its obligations under this Paragraph 11 (including without limitation the obligations described in Paragraph, 11.B.(vi)(b)). No such work by Landlord shall create any liability on the part of Landlord to Tenant or any other party in connection with such Hazardous Use by Tenant or any of Tenant's Parties or constitute an admission by Landlord of any responsibility with respect to such Hazardous Use or Hazardous Materials.

(d) It is the express intention of the parties hereto that Tenant shall be liable under this Paragraph 11.B.(vi) for any and all conditions covered hereby which were or are caused or created by Tenant or any of Tenant's Parties, whether occurring prior to, on, or after the Commencement Date. Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first (x) notifying Landlord of Tenant's intention to do so and affording Landlord the opportunity to participate in any such proceedings, and (y) obtaining Landlord's written consent, which shall not be unreasonably withheld.

(vii) Inspection and Testing by Landlord. Landlord shall have the right at all times during the Term of this Lease to (a) inspect the Premises, as well as such of Tenant's books and records pertaining to the Premises and the conduct of Tenant's business therein, and to (b) conduct tests and investigations to determine whether Tenant is in compliance with the provisions of this Paragraph 11.B. Except in case of emergency, Landlord shall give reasonable notice to Tenant in accordance with Paragraph 19 before conducting any inspections, tests, or investigations, shall provide Tenant with a work plan describing any testing that shall be performed at the Premises, and shall use reasonable efforts to minimize interference with the conduct of Tenant's business at the Premises caused by any such inspections, tests, or investigations. The cost of all such inspections, tests and investigations shall be borne by Tenant. Neither any action nor inaction on the part of Landlord pursuant to this Paragraph 11.B.(vii) shall be deemed in any way to release Tenant from, or in any way modify or alter, Tenant's responsibilities, obligations, and liabilities incurred pursuant to Paragraph 11.B hereof.

(viii) Tenant's Indemnity. Tenant shall indemnify, defend, protect, hold harmless, and, at Landlord's option (with such attorneys as Landlord may approve in advance and in writing), defend Landlord, Landlord's Agents, and Landlord's officers, directors, shareholders, partners, employees, contractors, property managers, agents and mortgagees and other lien holders, from and against any and all Losses (as defined below) whenever such Losses arise, from or related to: (a) any violation or alleged violation by Tenant or any of Tenant's Parties of any of the requirements, ordinances, statutes, regulations or other laws referred to in this Paragraph 11.B, including, without limitation, the Environmental Laws, whether such violation or alleged violation occurred prior to, on, or after the Commencement Date; (b) any breach of the provisions of this Paragraph 11.B by Tenant or any of Tenant's Parties; or (c) any

Hazardous Use on, about or from the Premises by Tenant or any of Tenant's Parties of any Hazardous Materials (whether or not approved by Landlord under this Lease), whether such Hazardous Use occurred prior to, on, or after the Commencement Date. The term "Losses" shall mean all claims, demands, expenses, actions, judgments, damages (whether consequential, direct or indirect, known or unknown, foreseen or unforeseen), penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, diminution in value of Landlord's interest in the Premises, damages for the loss of restriction on use of any space or amenity within the Premises, damages arising from any adverse impact on marketing space in the Premises, sums paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, but not limited to, reasonable attorneys' and consultants' fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity.

(ix) Landlord's Indemnity. Landlord shall indemnify, defend, protect, hold harmless, and, at Tenant's option (with such attorneys as Tenant may approve in advance and in writing), defend Tenant, Tenant's agents, and Tenant's officers, directors, shareholders, partners, employees, contractors, property managers, agents and mortgagees and other lien holders, from and against any and all Tenant Losses (as defined below) arising during the Term from or related to the presence of Hazardous materials brought onto the Project by Landlord or Landlord's Agents. The term "Tenant Losses" shall mean all claims, demands, expenses, actions, judgments, damages (whether consequential, direct or indirect, known or unknown, foreseen or unforeseen), penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, sums paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, but not limited to, reasonable attorneys' and consultants' fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity.

(x) Survival. The provisions of this Paragraph 11.B shall survive the expiration or earlier termination of this Lease.

C. Special Provisions Relating to The Americans With Disabilities Act

of 1990.

(i) Allocation of Responsibility to Landlord. As between Landlord and Tenant, Landlord shall be responsible that the Common Area complies with the requirements of Title III of the Americans with Disabilities Act of 1990 (42 U.S.C. 32181, et seq., The Provisions Governing Public Accommodations

and Services Operated by Private Entities), and all regulations promulgated thereunder, and all amendments, revisions or modifications thereto now or hereafter adopted or in effect in connection therewith (hereinafter collectively referred to as the "ADA"), and to take such actions and make such alterations

and improvements as are necessary for such compliance; provided, however, that to the extent such requirements arise from the construction of any tenant improvements or any Alterations to the Premises made by or on behalf of Tenant, then as between Landlord and Tenant, Tenant shall be responsible that the Common Area complies with the requirements of the ADA, and to take such actions and make such alterations and improvements as are necessary for such compliance.

(ii) Allocation of Responsibility to Tenant. As between Landlord and Tenant, Tenant, at its sole cost and expense, shall be responsible that the Premises (and all modifications made by Tenant of access to the Premises from the street), and all alterations and improvements in the Premises, and Tenant's use and occupancy of the Premises, and Tenant's performance of its obligations under this Lease, comply with the requirements of the ADA, and to take such actions and make such alterations and improvements as are necessary for such compliance, to the extent such requirements arise from Tenant's specific use of the Premises, or the construction and use of any tenant improvements or any Alterations to the Premises made by or on behalf of Tenant; provided, however, that Tenant shall not make any such alterations or improvements except upon Landlord's prior written consent (which shall not be unreasonably withheld) pursuant to the terms and conditions of this Lease. If Tenant fails diligently to take such actions or make such alterations or improvements as are necessary for such compliance, Landlord may, but shall not be obligated to, take such actions and make such alterations and improvements and may recover all of the costs and expenses of such actions, alterations and improvements from Tenant as Additional Rent.

(iii) General. Notwithstanding anything in this Lease contained to the contrary, no act or omission of either party, including any approval, consent or acceptance by it or its agents, employees or other representatives, shall be deemed an agreement, acknowledgment, warranty, or other representation by it that the other party has complied with the ADA as provided under Paragraphs 11.C.(i) or 11.C.(ii) or that any action,, alteration or improvement by it complies or will comply with the ADA as provided under Paragraphs 11.C.(i) or 11.C.(ii) or constitutes a waiver by it of the other party's obligations to comply with the ADA under Paragraphs 11.C.(i) or 11.C.(ii) of this Lease or otherwise. Any failure of either party to comply with its obligations of the ADA under Paragraphs 11.C.(i) or 11.C.(ii) shall not relieve such party from any obligations under this Lease or in the case of Landlord's failure to comply under Paragraph 11.C.(i), constitute or be construed as a constructive or other eviction of Tenant or disturbance of Tenant's use and possession of the Premises.

D. Use and Maintenance of Common Area. Tenant and its employees and invitees shall have the non-exclusive right to use the Common Area in common with other persons during the Term of this Lease, subject to such reasonable rules and regulations as may from time to time be deemed necessary or advisable in Landlord's reasonable discretion for the proper and efficient operation and maintenance of the Common Area. Such rules and regulations may include, among other things, the hours during which the Common Area shall be open for use. Landlord shall maintain and operate the Common Area in good condition, provided that any damage thereto, other than normal wear and tear, occasioned by the act of Tenant or its employees or invitees shall be paid by Tenant upon demand by Landlord.

12. Quiet Enjoyment.

Landlord covenants that Tenant, upon performing the terms, conditions and covenants of this Lease, shall have quiet and peaceful possession of the Premises as against any person claiming the same by, through or under Landlord.

13. Alterations.

After the Commencement Date, Tenant shall not make or permit any Alterations in, on or about the Premises, except for network wiring within the Premises or nonstructural Alterations (which shall not include any modifications to the mechanical or electrical systems of the Building, nor any penetration of the Building's roof) not exceeding Twenty-Five Thousand Dollars ($25,000.00) in cost during any period of twelve (12) consecutive months, without the prior written consent of Landlord, and according to plans and specifications approved in writing by Landlord, which consent shall not be unreasonably withheld. Notwithstanding the foregoing Tenant shall not, without the prior written consent of Landlord, make any:

(i) Alterations to the exterior of the Building;

(ii) Alterations to the roof of the Building; and

(iii) Alterations visible from outside the Building, to which Landlord may withhold Landlord's consent on wholly aesthetic grounds.

All Alterations shall be installed at Tenant's sole expense, in compliance with all applicable laws, by a licensed contractor, shall be done in a good and workmanlike manner conforming in quality and design with the Premises existing as of the Commencement Date, and shall not diminish the value of either the Building or the Premises. All Alterations made by Tenant shall be and become the property of Landlord upon installation and shall not be deemed Tenant's Personal Property; provided, however, that Landlord shall notify Tenant upon Landlord's consent to such Alterations by Landlord (or if Landlord's consent is not required, upon written request by Tenant) whether Tenant will be required to remove, at Tenant's expense, such Alterations from the Premises at the expiration or sooner termination of this Lease and to return the Premises to their condition as of the Commencement Date of this Lease, normal wear and tear excepted and subject to the provisions of Paragraph 23. With respect to any Alterations as to which Landlord's consent is not required, Landlord may require Tenant to remove, at Tenant's expense, such Alterations from the Premises at the expiration or earlier termination of this Lease; provided, that upon Tenant's written request prior to making such Alterations, Landlord shall notify Tenant whether Tenant will be so required to remove such Alterations from the Premises. Notwithstanding any other provision of this Lease, Tenant shall be solely responsible for the maintenance and repair of any and all Alterations made by it to the Premises. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility or other notice deemed proper before the commencement of any such work.

14. Surrender of the Premises.

Upon the expiration or earlier termination of the Term, Tenant shall surrender to Landlord the Premises, the security system described in Paragraph 38, the voice and data system described in Paragraph 39 and the furniture and equipment listed on Exhibit C in their condition existing as of the Commencement Date, normal wear and tear and fire or other casualty excepted, with all interior walls of the Premises repaired if damaged, all broken, marred or nonconforming acoustical ceiling tiles of the Premises replaced, all windows washed, the

plumbing and electrical systems, the security system, the voice and data system and lighting in good order and repair, including replacement of any burned out or broken light bulbs or ballasts, the HVAC equipment serviced and repaired by a reputable and licensed service firm, and all floors cleaned, all to the reasonable satisfaction of Landlord; provided, however, that if Landlord elects to demolish the Building at the expiration of the Term, Tenant shall not be required to repair or restore the Premises as otherwise provided herein. Tenant shall remove from the Premises all of Tenant's Alterations required to be removed pursuant to Paragraph 13, and all Tenant's Personal Property, and repair any damage and perform any restoration work caused by such removal. If Tenant fails to remove such Alterations and Tenant's Personal Property, and such failure continues after the expiration or earlier termination of this Lease, Landlord may retain such Alterations and Tenant's Property as provided under applicable law or Landlord may place all or any portion of such Alterations and Tenant's Property in public storage for Tenant's account. Tenant shall be liable to Landlord for costs of removal of any such Alterations and Tenant's Personal Property and storage and transportation costs of same, and the cost of repairing and restoring the Premises, together with interest at the Interest Rate from the date of expenditure by Landlord. If the Premises are not so surrendered at the expiration or earlier termination of this Lease, Tenant shall indemnify Landlord and Landlord's Agents against all loss or liability, including reasonable attorneys' fees and costs, resulting from delay by Tenant in so surrendering the Premises. Normal wear and tear, for the purposes of this Lease, shall be construed to mean wear and tear caused to the Premises by a natural aging process which occurs in spite of prudent application of reasonable standards for maintenance, repair and janitorial practices. It is not intended, nor shall it be construed, to include items of neglected or deferred maintenance which would have or should have been attended to during the Term of the Lease if reasonable standards had been applied to properly maintain and keep the Premises at all times in good condition and repair.

15. Impositions and Real Property Taxes.

A. Payment by Tenant. Tenant shall pay all Impositions prior to

delinquency. If billed directly, Tenant shall pay such Impositions and concurrently present to Landlord satisfactory evidence of such payments. If any Impositions are billed to Landlord or included in bills to Landlord for Real Property Taxes, then Tenant shall pay to Landlord all such amounts within fifteen (15) days after receipt of Landlord's invoice therefor. If applicable law prohibits Tenant from reimbursing Landlord for an Imposition, but Landlord may lawfully increase the Monthly Rent to account for Landlord's payment of such Imposition, the Monthly Rent payable to Landlord shall be increased so that the amount of such increased Monthly Rent, together with any accompanying increases in the Real Property Taxes payable by Tenant with respect to such Imposition, are sufficient to net to Landlord the same return without reimbursement of such Imposition as would have been received by Landlord with reimbursement of such Imposition. In addition, on or before April 10 and December 10 of each year of the Term, Tenant shall pay directly to the San Mateo County assessor the Real Property Taxes for the Premises as set forth on the assessor's tax bill for the Premises. If, however, the Premises are not a separate parcel for tax purposes but constitute a portion of a larger tax parcel or parcels, the Real Property Taxes payable by Tenant under this Lease shall be a percentage of the Real Property Taxes payable for such parcel or parcels, which percentage shall be determined by dividing the Rentable Area of the Premises by the total Rentable Area of all buildings on such parcel or parcels and multiplying the result by 100, which Real Property Taxes shall be payable by Tenant to Landlord monthly as

part of the Common Area Maintenance Costs. Promptly following payment of the Real Property Taxes, Tenant shall provide Landlord with copies of paid receipts or other documentary evidence that the Real Property Taxes have been paid by Tenant. If Tenant fails to pay the Real Property Taxes on or before April 10 and December 10, respectively, or if Tenant fails to pay its share of Real Property Taxes as part of the Common Area Maintenance Costs, Tenant shall pay to Landlord any penalty incurred by such late payment. In addition, Tenant shall pay any Real Property Tax not included within the county tax assessor's tax bill within ten (10) days after being billed for same by Landlord. The foregoing dates are based on the dates established by the county as the dates on which Real Property Taxes become delinquent if not paid. If such delinquency dates change, the dates on which Tenant must pay the Real Property Taxes for the Premises shall be at least ten (10) days prior to the new delinquency dates. Assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such purposes as fire protection, street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services which may formerly have been provided without charge to property owners or occupants. It is the intention of the parties that all new and increased assessments, taxes, fees, levies and charges are to be included within the definition of Real Property Taxes for the purposes of this Lease.

B. Taxes on Tenant Improvements and Personal Property. Tenant shall

pay any increase in Real Property Taxes resulting from any and all Alterations and tenant improvements of any kind whatsoever placed in, on or about the Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay prior to delinquency all taxes assessed or levied against Tenant's Personal Property in, on or about the Premises or elsewhere. When possible, Tenant shall cause its Personal Property to be assessed and billed separately from the Premises and the real property or Personal Property of Landlord.

C. Proration. Tenant's liability to pay Real Property Taxes shall be prorated on the basis of a 360-day year to account for any fractional portion of a fiscal tax year included at the commencement or expiration of the Term. With respect to any assessments which may be levied against or upon the Premises or on all or any portion of the Project, or which under the laws then in force may be evidenced by improvements or other bonds or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and interest due thereon shall be included within the computation of the annual Real Property Taxes levied against the Premises or such portion of the Project, as applicable.

16. Utilities and Services.

Tenant shall be responsible for and shall pay promptly all charges for water, gas, electricity, telephone, refuse pick-up, janitorial service and all other utilities, materials and services furnished directly to or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. If any utility, material or service is not separately charged or metered to any portion of the Premises, Tenant shall pay to Landlord, within ten (10) days after written demand therefor, Tenant's pro rata share of the total cost thereof as may be determined by Landlord. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service or other service furnished to the Premises, except that resulting from the gross negligence or willful misconduct of Landlord.

17. Repair and Maintenance.

A. Landlord's Obligations. Landlord shall keep in good order, condition and repair the structural parts of the Building, which structural parts include only the foundation, subflooring, exterior walls (excluding the interior of all walls and the exterior and interior of all windows, doors, ceilings, and plate glass), and the roof structure of the Building (but not the roof membrane), all unexposed plumbing and electrical facilities, and all gutters and downspouts, except for any damage thereto caused by the negligence or willful acts or omissions of Tenant or of Tenant's agents, employees or invitees, or by reason of the failure of Tenant to perform or comply with any terms of this Lease, or caused by Alterations made by Tenant or by Tenant's agents, employees or contractors. In addition, Landlord shall perform any alterations, additions or improvements required to be made to the Building in order to comply with applicable laws, ordinances, rules, regulations and orders that become effective after the date of this Lease, and all capital improvements required to be made in connection with the operation, maintenance and repair of the Building; provided, however, in accordance with Paragraph 5.E, any and all costs and expenses incurred by Landlord in performing any such alterations, additions, improvements or capital improvements, together with interest at the Interest Rate, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Costs for each year over which such costs are amortized. It is an express condition precedent to all obligations of Landlord to repair and maintain that Tenant shall have notified Landlord of the need for such repairs or maintenance. Tenant waives the provisions of Sections 1941 and 1942 of the California Civil Code and any similar or successor law regarding Tenant's right to make repairs and deduct the expenses of such repairs from the Rent due under this Lease.

Landlord shall keep in good order, condition, repair and maintenance the Building's HVAC system and roof, and shall maintain an HVAC system preventive maintenance service contract from a qualified vendor for the purpose of maintaining the Building's HVAC system, and a roof maintenance service contract from a qualified vendor for the purpose of maintaining the Building's roof. Landlord shall determine in its sole reasonable discretion whether any such vendor is qualified. Any and all costs of any maintenance or minor repair of the HVAC system or the roof (including without limitation the cost of maintaining HVAC system preventative maintenance contracts and roof maintenance service contracts) shall be included in the Common Area Maintenance Costs payable solely by Tenant for the year in which such cost is incurred. Any and all costs of any replacement or major repair of the HVAC system or the roof, together with interest at the Interest Rate, shall be amortized on a straight-line basis over the useful life of the item replaced or repaired (as determined by Landlord in its sole discretion) (collectively, the "Useful Life"), and the entire amount of such amortized costs and interest allocable to each month, multiplied by Tenant's Building Share, shall be included in the monthly Common Area Maintenance Costs payable solely by Tenant during the entire period over which such costs are amortized, until Tenant has paid to Landlord that proportion of the total amount of such amortized costs equal to (a) the number of months remaining during the Term as of the date such replacement or major repair was completed, divided by (b) the number of months of the Useful Life, multiplied by
(c) Tenant's Building Share; provided that in no event shall such proportion exceed one hundred percent (100%). Repairs to the HVAC system or the roof shall be deemed to be "minor" if the total aggregate cost of such repairs is less than or equal to Ten Thousand Dollars ($10,000.00), and shall be deemed to be "major" if the total aggregate cost of such

repairs exceeds Ten Thousand Dollars ($10,000.00). For the purposes of example only and not by way of limitation, if a replacement of part of the HVAC system is completed twenty-five (25) months before the end of the Term, at a cost of Twenty Thousand Dollars ($20,000.00), and the Useful Life of such replaced part of the HVAC system is fifty (50) months, then (a) the cost of such replacement shall be amortized at the rate of Four Hundred Dollars ($400.00) per month, with interest at the Interest Rate, and (b) the amount to be included in the monthly Common Area Maintenance Costs payable solely by Tenant for the balance of the Term shall equal Four Hundred Dollars ($400.00), with interest at the Interest Rate, until Tenant has paid to Landlord a total aggregate amount of Three Thousand Dollars ($3,000.00), together with interest at the Interest Rate, towards such amortized costs (i.e., Twenty Thousand Dollars ($20,000.00) multiplied by [Twenty-Five (25) Months divided by Fifty (50) Months], multiplied by Tenant's Building Share).

It is the express intent of the parties that except as specifically set forth in this Paragraph 17.A, Landlord shall have no obligation whatsoever to incur any costs or expenses whatsoever with respect to the repair, operation, and maintenance of the Building, and that Tenant shall be responsible for all costs and expenses arising from the repair, operation, and maintenance of the Building except those costs and expenses specifically described in this Paragraph 17.A.

B. Tenant's Obligations. Tenant shall at all times and at its sole cost and expense clean, keep and maintain in good order, condition and repair (and replace, if necessary) every part of the Premises which is not within Landlord's obligation pursuant to Paragraph 17.A. Tenant's repair and maintenance obligations shall include without limitation all exposed plumbing and electrical facilities within the Premises, fixtures, interior walls and ceiling, floors, windows, window frames, doors, entrances, plate glass, showcases, skylights, all lighting fixtures, lamps, fans and any exhaust equipment and systems, all mechanical systems (but not the HVAC system), the voice and data system described in Paragraph 39 or successor system, any automatic fire extinguisher equipment within the Building, all security systems and alarms (including the security system described Paragraph 38), all electrical motors and all other appliances and equipment (including the equipment listed on Exhibit C) of every kind and nature located in, upon or about the Building or the Premises. Tenant shall also be responsible for all pest control within the Premises.

C. Conditions Applicable to Repairs. All repairs, replacements and reconstruction made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (i) at Tenant's sole cost and expense, in a good and workmanlike manner and at such time and in such manner as Landlord may reasonably designate, (ii) by contractors approved in advance by Landlord,
(iii) so that the repairs, replacements or reconstruction shall be at least equal in quality, value and utility to the original work or installation, (iv) in accordance with such reasonable requirements as Landlord may impose with respect to insurance and bonds to be obtained by Tenant in connection with the proposed work, and (v) in accordance with any rules and regulations for the Building as may be adopted by Landlord from time to time and in accordance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises.

D. Landlord's Rights. If Tenant fails to perform Tenant's obligations under Paragraph 17.B, Landlord may in its sole discretion give Tenant notice of such work as is

reasonably required to fulfill such obligations. If Tenant fails to commence the work within thirty (30) days after receipt of such notice and diligently prosecute the work to completion, then Landlord shall have the right (but not the obligation) to do such acts or expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant to Landlord promptly after demand with interest at the Interest Rate. Landlord shall have no liability to Tenant for any damage to, or interference with Tenant's use of, the Premises, or inconvenience to Tenant as a result of performing any such work.

E. Compliance with Governmental Regulations. Tenant shall, at its sole cost and expense, comply with, including the making by Tenant of any Alteration to the Premises, all present and future regulations, rules, laws, ordinances, and requirements of all governmental authorities (including, without limitation state, municipal, county and federal governments and their departments, bureaus, boards and officials) arising from Tenant's use or occupancy of, or applicable to, the Premises, or in connection with Tenant's enjoyment of the Premises, or the construction and use of any tenant improvements or any Alterations to the Premises made by or on behalf of Tenant. Notwithstanding the foregoing, Landlord, and not Tenant, shall be obligated to make any Alterations to the structural parts of the Building maintained by Landlord pursuant to Paragraph 17.A that are required to comply with any present and future regulations, rules,

laws, ordinances, and governmental requirements unless such Alterations to the structural parts of the Building are required solely as a result of any other Alterations to the Building made by Tenant during the Term of this Lease, in which case Tenant shall reimburse Landlord for the cost of any such Alterations to the structural parts of the Building that are required to comply with regulations, rules, laws, ordinances and governmental requirements.

F. Furniture. In addition to Tenant's obligations under Paragraph 17.B
with respect to the Premises, Tenant shall also keep and maintain in good order, condition and repair (and replace, if necessary) the furniture listed on Exhibit C which Tenant shall be permitted to use during the Term of the Lease pursuant

to Paragraph 41.

18. Liens.

Tenant shall keep the Building and the Premises free from any liens arising out of any work performed, materials furnished or obligations incurred by or on behalf of Tenant and hereby agrees to indemnify, defend, protect and hold Landlord and Landlord's Agents harmless from and against any and all loss, claim, damage, liability, cost and expense, including attorneys' fees and costs, in connection with or arising out of any such lien or claim of lien. Tenant shall cause any such lien imposed to be released of record by payment or posting of a proper bond acceptable to Landlord within ten (10) days after written request by Landlord. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises which might result in any claim of lien at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility or any such other notice(s) as Landlord may deem appropriate. If Tenant fails to so remove any such lien within the prescribed ten 10-day period, then Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for such amounts upon demand. Such reimbursement shall include all costs incurred by Landlord including Landlord's reasonable attorneys' fees with interest thereon at the Interest Rate.

19. Landlord's Right to Enter the Premises.

Tenant shall permit Landlord and Landlord's Agents to enter the Premises at all reasonable times with reasonable notice, except for emergencies in which case no notice shall be required, to inspect the same, to post Notices of Nonresponsibility and similar notices, and real estate "For Sale" signs, to show the Premises to interested parties such as prospective lenders and purchasers, to make necessary repairs, to discharge Tenant's obligations hereunder when Tenant has failed to do so within a reasonable time after written notice from Landlord, and at any reasonable time within one hundred and eighty (180) days prior to the expiration of the Term, to place upon the Building ordinary "For Lease" signs and to show the Premises to prospective tenants. The above rights are subject to reasonable security regulations of Tenant, and to the requirement that Landlord shall at all times act in a manner to cause the least possible interference with Tenant's business.

20. Signs.

Subject to Tenant obtaining all necessary approvals from the City of Redwood City and subject to Landlord's review and approval of plans and specifications for any proposed signage, which approval may be withheld in Landlord's reasonable discretion, Tenant shall have the right to install identification signage with its corporate name and logo on the exterior of the Building near the entrance to the Premises, so long as such signage complies with Landlord's project sign program. Landlord shall not construct any wing-wall at the end of the Building at which the entrance to the Premises is located. Tenant shall have no right to maintain any Tenant identification sign in any other location in, on or about the Building or the Premises and shall not display or erect any other Tenant identification sign, display or other advertising material that is visible from the exterior of the Building. Any changes to the size, design, color or other physical aspects of Tenant's identification sign(s) shall be subject to the Landlord's prior written approval, which shall not be unreasonably withheld, and any appropriate municipal or other governmental approvals. The cost of Tenant's sign(s) and their installation, maintenance and removal shall be Tenant's sole cost and expense. If Tenant fails to maintain its sign(s), or, if Tenant fails to remove its sign(s) upon termination of this Lease, Landlord may do so at Tenant's expense and the amounts expended by Landlord in doing so shall be payable by Tenant to Landlord as Additional Rent within ten (10) days after Landlord has delivered written notice to Tenant demanding payment of such amount.

21. Insurance.

A. Indemnification.

(i) Tenant hereby agrees to defend, indemnify, protect and hold harmless Landlord and Landlord's Agents from and against any and all damage, loss, cost, claim, liability or expense including reasonable attorneys' fees and legal costs, suffered directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury and property damage sustained by such person or persons which arises out of, is occasioned by or is in any way attributable to the use or occupancy of the Premises or any part thereof and adjacent areas by Tenant, the acts or omissions of the Tenant, its agents, employees or any contractors brought onto the Premises by

Tenant, except to the extent caused by the gross negligence or willful misconduct of Landlord or Landlord's Agents. Tenant agrees that the obligations assumed herein shall survive this Lease. Tenant's obligations under this Paragraph 21.A.(i) are subject to the following conditions: (i) Tenant is promptly notified in writing of any such claim (s); (ii) Tenant shall have the right to control the defense of such claim(s) and any settlement negotiations, provided, however, that no action may be taken by Tenant which may materially and adversely affect Landlord's rights or obligations without Landlord's consent; and (iii) Landlord shall cooperate with Tenant in the defense and/or settlement of such claim(s). Notwithstanding the foregoing, Landlord shall have the right, in its sole discretion, but without being required to do so, to defend, adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment against Landlord arising out of or in connection with the matters covered by the foregoing indemnity and, in such event, Tenant shall reimburse Landlord for all reasonable charges and expenses incurred by Landlord in connection therewith, including reasonable attorneys' fees; provided, however, that Landlord shall not undertake any unilateral action or settlement so long as Tenant or an insurance company, at its or their sole expense, is contesting in good faith, diligently and with continuity such claim, action, obligation, demand or suit, and so long as such claim, action, obligation, demand or suit does not have or threaten to have a material adverse impact on Landlord's assets, reputation or business affairs.

(ii) Landlord hereby agrees to defend, indemnify, protect and hold harmless Tenant from and against any and all damage, loss, cost, claim, liability or expense, including reasonable attorneys' fees and legal costs, suffered directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury and property damage sustained by such person or persons which arises out of, is occasioned by or is in any way attributable to the acts or omissions of Landlord, Landlord's Agents, or any contractors brought onto the Premises by Landlord, except to the extent caused by the gross negligence or willful misconduct of Tenant, its agents, employees or contractors. Landlord agrees that the obligations assumed herein shall survive this Lease. Landlord's obligations under this Paragraph 21.A.(ii) are subject to the following conditions: (i) Landlord is promptly notified in writing of any such claim(s); (ii) Landlord shall have the right to control the defense of such claim(s) and any settlement negotiations, provided, however, that no action may be taken by Landlord which may materially and adversely affect Tenant's rights or obligations without Tenant's consent; and (iii) Tenant shall cooperate with Landlord in the defense and/or settlement of such claim(s). Notwithstanding the foregoing, Tenant shall have the right, in its sole discretion, but without being required to do so, to defend, adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment against Tenant arising out of or in connection with the matters covered by the foregoing indemnity and, in such event, Landlord shall reimburse Tenant for all reasonable charges and expenses incurred by Tenant in connection therewith, including reasonable attorneys' fees; provided, however, that Tenant shall not undertake any unilateral action or settlement so long as Landlord or an insurance company, at its or their sole expense, is contesting in good faith, diligently and with continuity such claim, action, obligation, demand or suit, and so long as such claim, action, obligation, demand or suit does not have or threaten to have a material adverse impact on Tenant's assets, reputation or business affairs.

B. Tenant's Insurance. Tenant agrees to maintain in full force and effect at all times during the Term, at its sole cost and expense, for the protection of Tenant and Landlord, as

their interests may appear, policies of insurance issued by a responsible carrier or carriers acceptable to Landlord which afford the following coverages:

(i) Commercial general liability insurance in an amount not less than Three Million and no/100ths Dollars ($3,000,000.00) combined single limit for both bodily injury and property damage which includes blanket contractual liability broad form property damage, personal injury, completed operations, and products liability, which policy shall name Landlord and Landlord's Agents as additional insureds and shall contain a provision that "the insurance provided Landlord hereunder shall be primary and non-contributing with any other insurance available to Landlord with respect to any damage, loss, liability or expense covered by Tenant's indemnity obligations under Paragraph 21.A.(i) of the Lease."

(ii) Causes of loss special form property insurance (including, without limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler leakage endorsement) on Tenant's Personal Property located on or in the Premises, the security system described in Paragraph 38, the voice and data system described in Paragraph 39 and the furniture and equipment listed on Exhibit C. Such insurance shall be in the full amount of the replacement cost, as the same may from time to time increase as a result of inflation or otherwise. As long as this Lease is in effect, the proceeds of such policy shall be used for the repair and replacement of such items so insured. Landlord shall have no interest in the insurance proceeds on Tenant's Personal Property but shall be entitled to the proceeds on the security system described in Paragraph 38, the voice and data system described in Paragraph 39 and the furniture and equipment listed on Exhibit C. Notwithstanding the foregoing, Tenant shall have the right, at its election, to self-insure with respect to any loss or damage to Tenant's Personal Property.

(iii) Boiler and machinery insurance, including steam pipes, pressure pipes, condensation return pipes and other pressure vessels and HVAC equipment, including miscellaneous electrical apparatus, in an amount satisfactory to Landlord.

C. Premises Insurance. During the Term Landlord shall maintain causes of loss-special form property insurance (including inflation endorsement, sprinkler leakage endorsement, and, at Landlord's option, earthquake and flood coverage) on the Building, excluding coverage of all Tenant's Personal Property located on or in the Premises, the security system described in Paragraph 38, the voice and data system described in Paragraph 39 and the furniture and equipment listed on Exhibit C. Such insurance shall also include insurance against loss of rents, including, at Landlord's option, coverage for earthquake and flood, in an amount equal to the Monthly Rent and Additional Rent, and any other sums payable under the Lease, for a period of at least twelve (12) months commencing on the date of loss. Such insurance shall name Landlord and Landlord's Agents as named insureds and include a lender's loss payable endorsement in favor of Landlord's lender (Form 438 BFU Endorsement). Tenant shall reimburse Landlord monthly, as Additional Rent, for Tenant's Building Share of one-twelfth (12th) of the annual cost of such insurance on the first day of each calendar month of the Term, prorated for any partial month, or on such other periodic basis as Landlord shall elect. If the insurance premiums are increased after the Commencement Date for any reason, including without limitation due to an increase in the value of the Building or its replacement cost, or due to Tenant's use of the Premises or any improvements installed by Tenant, Tenant shall pay for Tenant's Building Share of such increase within ten
(10) days of notice of such increase.

Landlord may, in its sole discretion, maintain the insurance coverage described in this Paragraph 21.C as part of an umbrella insurance policy covering other properties owned by Landlord.

D. Increased Coverage. Upon demand, Tenant shall provide Landlord, at Tenant's expense, with such reasonable increased amount of existing insurance, and such other insurance as Landlord or Landlord's lender may reasonably require to afford Landlord and Landlord's lender adequate protection; provided, however, that Tenant shall not be required under this Paragraph 21.D to increase the amount of its existing insurance more frequently than once during each calendar year, and shall not be required under this Paragraph 21.D to provide additional insurance coverage more frequently than once during each calendar year.

E. Failure to Maintain. If Tenant fails to maintain any insurance coverage that Tenant is required to maintain under this Paragraph 21, and Landlord incurs any liability to its insurance carrier arising out of Tenant's failure to so maintain such insurance coverage, then any and all loss or damage Landlord shall sustain by reason thereof, including attorneys' fees and costs, shall be borne by Tenant and shall be immediately paid by Tenant upon its receipt of a bill therefor and evidence of such loss. Nothing contained in this Paragraph 21.E shall be deemed to limit or affect any other remedies or rights available to Landlord under this Lease that arise from Tenant's failure to so maintain such insurance coverage.

F. Insurance Requirements. All insurance shall be in a form satisfactory to Landlord and shall be carried in companies that have a general policy holder's rating of not less than "A" and a financial rating of not less than Class "X" in the most current edition of Best's Insurance Reports; and shall provide that such policies shall not be subject to material alteration or cancellation except after at least thirty (30) days prior written notice to Landlord. The policy or policies, or duly executed certificates for them, together with satisfactory evidence of payment of the premiums thereon shall be deposited with Landlord prior to the Commencement Date, and upon renewal of such policies, not less than thirty (30) days prior to the expiration of the term of such coverage. If Tenant fails to procure and maintain the insurance it is required to maintain under this Paragraph 21, Landlord may, but shall not be required to, order such insurance at Tenant's expense and Tenant shall reimburse Landlord therefor. Such reimbursement shall include all costs incurred by Landlord in obtaining such insurance including Landlord's reasonable attorneys' fees, with interest thereon at the Interest Rate.

G. Landlord's Disclaimer. Landlord and Landlord's Agents shall not be

liable for any loss or damage to persons or property resulting from fire, explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface, or from any other cause whatsoever, including loss or reduction in utilities, except to the extent caused by the gross negligence or willful misconduct of Landlord. Landlord and Landlord's Agents shall not be liable for any latent defect in the Premises. Tenant shall give prompt written notice to Landlord in case of a casualty or accident occurring, or any repair needed, in the Premises.

22. Waiver of Subrogation.

Landlord and Tenant each hereby waive all rights of recovery against the other on account of loss or damage occasioned by such waiving party to its property or the property of others under its control, to the extent that such loss or damage would be covered by any causes of loss-special form policy of insurance or its equivalent. Tenant and Landlord shall, upon obtaining policies of insurance required hereunder, give notice to the insurance carrier that the foregoing mutual waiver of subrogation is contained in this Lease and Tenant and Landlord shall cause each insurance policy obtained by such party to provide that the insurance company waives all right of recovery by way of subrogation against either Landlord or Tenant in connection with any damage covered by such policy.

23. Damage or Destruction.

A. Landlord's Obligation to Rebuild. If all or any part of the

Building is damaged or destroyed, Landlord shall promptly and diligently repair the same unless it has the right to terminate this Lease as provided herein and it elects to so terminate.

B. Right to Terminate. Landlord shall have the right to terminate this Lease in the event any of the following events occur:

(i) Insurance proceeds from the insurance Landlord is required to carry pursuant to Paragraph 21.C are not available to pay one hundred percent (100%) of the cost of such repair, excluding the deductible for which Tenant shall be responsible;

(ii) The Building cannot, with reasonable diligence, be fully repaired by Landlord within one hundred eighty (180) days after the date of the damage or destruction; or

(iii) The Building cannot be safely repaired because of the presence of hazardous factors, including, but not limited to, earthquake faults, radiation, Hazardous Materials and other similar dangers.

If Landlord elects to terminate this Lease, Landlord may give Tenant written notice of its election to terminate within thirty (30) days after such damage or destruction, and this Lease shall terminate fifteen (15) days after the date Tenant receives such notice and both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). If Landlord elects not to terminate the Lease, subject to Tenant's termination right set forth below, Landlord shall promptly commence the process of obtaining necessary permits and approvals and repair of the Building as soon as practicable, and this Lease will continue in full force and affect. All insurance proceeds from insurance under Paragraph 21, excluding proceeds for Tenant's Personal Property, shall be disbursed and paid to Landlord. Tenant shall be required to pay to Landlord the amount of any deductibles payable in connection with any insured casualties, unless the casualty was caused by the sole negligence or willful misconduct of Landlord.

Tenant shall have the right to terminate this Lease if the Building cannot, with reasonable diligence, be fully repaired within two hundred seventy (270) days from the date of damage or destruction. The determination of the estimated repair periods in this Paragraph 23 shall be made

by an independent, licensed contractor or engineer within thirty (30) days after such damage or destruction. Landlord shall deliver written notice of the repair period to Tenant after such determination has been made and Tenant shall exercise its right to terminate this Lease, if at all, within ten (10) days of receipt of such notice from Landlord. Upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination).

C. Limited Obligation to Repair. Landlord's obligation, should it elect or be obligated to repair or rebuild, shall be limited to the basic Building and shall not include any Alterations made by Tenant.

D. Abatement of Rent. Rent shall be temporarily abated proportionately, during any period when, by reason of such damage or destruction there is substantial interference with Tenant's use of the Premises, having regard to the extent to which Tenant may be required to discontinue Tenant's use of the Premises. Such abatement of Rent shall be proportional to the extent of such interference with Tenant's use of the Premises reasonably attributable to such damage or destruction (with the extent of such interference to be reasonably determined by the mutual agreement of Landlord and Tenant), and shall commence upon such damage or destruction and end upon substantial completion by Landlord of the repair or reconstruction which Landlord is obligated or undertakes to perform. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the Premises, damage to Tenant's Personal Property or any inconvenience occasioned by such damage, repair or restoration. Tenant hereby waives the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil Code, and the provisions of any similar law hereinafter enacted.

E. Damage Near End of Term. Anything herein to the contrary notwithstanding, if the Building is destroyed or materially damaged during the last twelve (12) months of the Term, then either Landlord or Tenant may, at its option, cancel and terminate this Lease as of the date of the occurrence of such damage, by delivery of written notice to the other party and, in such event, upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). If neither Landlord nor Tenant elects to terminate this Lease, the repair of such damage shall be governed by Paragraphs 23.A and 23.B.

24. Condemnation.

If title to all of the Premises is taken for any public or quasi-public use under any statute or by right of eminent domain, or so much thereof is so taken so that reconstruction of the Premises will not, in Landlord's sole discretion, result in the Premises being reasonably suitable for Tenant's continued occupancy for the uses and purposes permitted by this Lease, this Lease shall terminate as of the date that possession of the Premises or part thereof is taken, and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). A sale by Landlord to any authority having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed a taking under the power of eminent domain for all purposes of this Paragraph 24.

If any part of the Premises is taken and the remaining part is reasonably suitable for Tenant's continued occupancy for the purposes and uses permitted by this Lease, this Lease shall, as to the part so taken, terminate as of the date that possession of such part of the Premises is taken, and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease with respect to that portion of the Premises that is taken (except to the extent any provision of this Lease expressly survives termination). The Rent and other sums payable hereunder shall be reduced in the same proportion that Tenant's use and occupancy of the Premises is reduced. If any portion of the Common Area is taken, Tenant's Rent shall be reduced only if such taking materially interferes with Tenant's use of the Common Area and then only to the extent that the fair market rental value of the Premises is diminished by such partial taking. If the parties disagree as to the amount of Rent reduction, the matter shall be resolved by arbitration and such arbitration shall comply with and be governed by the California Arbitration Act, Sections 1280 through 1294.2 of the California Code of Civil Procedure. Each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises.

All compensation or damages awarded or paid for any taking hereunder shall belong to and be the property of Landlord, whether such compensation or damages are awarded or paid as compensation for diminution in value of the leasehold, the fee or otherwise, except that Tenant shall be entitled to any award allowed to Tenant for the taking of Tenant's Personal Property, for the interruption of Tenant's business, for its moving costs, or for the loss of its good will. Except for the foregoing allocation, no award for any partial or entire taking of the Premises shall be apportioned between Landlord and Tenant, and Tenant assigns to Landlord its interest in the balance of any award which may be made for the taking or condemnation of the Premises, together with any and all rights of Tenant arising in or to the same or any part thereof.

25. Assignment and Subletting.

A. Landlord's Consent. Tenant shall not enter into a Sublet without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Any attempted or purported Sublet without Landlord's prior written consent shall be void and confer no rights upon any third person and, at Landlord's election, shall terminate this Lease. Each Subtenant shall agree in writing, for the benefit of Landlord, to assume, to be bound by, and to perform the terms, conditions and covenants of this Lease to be performed by Tenant, as such terms, conditions and covenants apply to the Sublet premises. Notwithstanding anything contained herein, Tenant shall not be released from liability for the performance of each term, condition and covenant of this Lease by reason of Landlord's consent to a Sublet unless Landlord specifically grants such release in writing.

B. Tenant's Notice. If Tenant desires at any time to Sublet all or any portion of the Premises, Tenant shall first notify Landlord in writing of its desire to do so. Within thirty (30) days after Landlord's receipt of Tenant's notice, Landlord may elect to terminate this Lease with respect to that portion of the Premises that Tenant proposes to Sublet. In such event, Landlord and Tenant shall negotiate in good faith the effective date of such termination and Tenant shall be released of all further liability under this Lease with respect to the portion of the

Premises for which this Lease is terminated (except to the extent any provision of this Lease expressly survives termination).

C. Information to be Furnished. If Landlord elects not to terminate this Lease with respect to the portion of the Premises that Tenant desires to Sublet, then Tenant shall submit in writing to Landlord: (i) the name of the proposed Subtenant; (ii) the nature of the proposed Subtenant's business to be carried on in the Premises; (iii) the terms and provisions of the proposed Sublet and a copy of the proposed form of Sublet agreement containing a description of the subject premises; and (iv) such financial information, including financial statements, as Landlord may reasonably request concerning the proposed Subtenant.

D. Landlord's Alternatives. At any time within ten (10) days after Landlord's receipt of the information specified in Paragraph 25.D., Landlord may, by written notice to Tenant, elect: (i) to consent to the Sublet by Tenant; or (ii) to withhold its consent to the Sublease provided that such consent is not unreasonably withheld. If Landlord consents to the Sublet, Tenant may thereafter enter into a valid Sublet of the Premises or applicable portion thereof, upon the terms and conditions and with the proposed Subtenant set forth in the information furnished by Tenant to Landlord, subject, however, at Landlord's election, to the condition that fifty percent (50%) of any excess of the Subrent over the Rent required to be paid by Tenant under this Lease (or, if only a portion of the Premises is Sublet, the pro rata share of the Rent attributable to the portion of the Premises being Sublet) less reasonable attorneys' fees, leasing commissions, and other reasonable subletting costs (but not including the cost of any interior improvements) paid by Tenant on the Sublet, shall be paid to Landlord.

E. Proration. If a portion of the Premises is .Sublet, the pro rata share of the Rent attributable to such partial area of the Premises shall be determined by Landlord by dividing the Rent payable by Tenant hereunder by the total square footage of the Premises and multiplying the resulting quotient (the per square foot rent) by the number of square feet of the Premises which are Sublet.

F. Parameters of Landlord's Consent. Landlord shall have the right to

base its consent to any Sublet hereunder upon such factors and considerations as Landlord reasonably deems relevant or material to the proposed Sublet and the best interest of the Project's operations. Without limiting the generality of the foregoing, Tenant acknowledges that it shall be reasonable for Landlord to withhold its consent to any Sublet hereunder if Tenant has not demonstrated that
(i) the proposed Subtenant is financially responsible, with sufficient net worth and net current assets, properly and successfully to operate its business in the Premises and meet the financial and other obligations of this Lease and (ii) the use of the Premises proposed by such Subtenant conforms to the permitted uses specified under Paragraph 11.A, and involves either no Hazardous Use or only such Hazardous Use as shall be acceptable to Landlord in its sole discretion.

G. Permitted Transfers. Notwithstanding the provisions of Paragraph
25.A above, Tenant shall have the right to assign its entire interest under this

Lease, and Landlord shall not withhold its consent thereto (provided that all of the conditions set forth in clauses (A) and (B) below shall be met), if such assignment is one of the following "Permitted Transfers": (i) an assignment to a corporation that is controlled by, controls, or is under common control

with Tenant; or (ii) an assignment in connection with the non-bankruptcy reorganization or merger of the corporate entity constituting the Tenant under this Lease, where either (x) the shareholders of the Tenant originally named in this Lease control (i.e., own fifty-one percent (51%) or more of the voting stock of) the reorganized or surviving entity, or (y) as of the effective date of such assignment, the reorganized or surviving entity has a net worth equal to or greater than the net worth the Tenant originally named under this Lease had as of the date of this Lease, and the reorganized or surviving entity devotes all or a substantial portion of its business to activities involving the Internet, computer hardware, computer software, media or entertainment. However, the foregoing Permitted Transfers shall be exempt from the requirement of Landlord's consent only if all of the following conditions shall be met: (A) there shall be no change in the use or operation of the Premises; and (B) Tenant shall have provided to Landlord all information to allow Landlord to determine, and Landlord shall have determined, that the proposed transfer is a Permitted Transfer which is exempt from the requirement of Landlord's consent. No transfer of the type described in this Paragraph 25.G, or any other transfer, shall release Tenant of its obligations under this Lease.

26. Default.

A. Tenant's Default. A default under this Lease by Tenant shall exist if any of the following occurs:

(i) If Tenant fails to pay when due any Rent or any other sum required to be paid hereunder within three (3) days from the date of Landlord's written notice to Tenant (which notice shall constitute the notice required under California Code of Civil Procedure Section 1161) that such Rent or other sum is due; or

(ii) If Tenant fails to perform any term, covenant or condition of this Lease except those requiring the payment of money, and Tenant fails to cure such breach within thirty (30) days after written notice from Landlord where such breach could reasonably be cured within such 30-day period; provided, however, that where such failure could not reasonably be cured within the 30-day period, that Tenant shall not be in default if it commences such performance within the 30-day period and diligently thereafter prosecutes the same to completion; or

(iii) If Tenant assigns its assets for the benefit of its creditors; or

(iv) If the sequestration or attachment of or execution on any material part of Tenant's Personal Property essential to the conduct of Tenant's business occurs, and Tenant fails to obtain a return or release of such Tenant's Personal Property within thirty (30) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; or

(v) If Tenant vacates or abandons the Premises; or

(vi) If a court makes or enters any decree or order other than under the bankruptcy laws of the United States adjudging Tenant to be insolvent; or approving as properly filed a petition seeking reorganization of Tenant; or directing the winding up or liquidation of Tenant and such decree or order shall have continued for a period of sixty (60) days.

B. Remedies. Upon a default, Landlord shall have the following remedies, in addition to all other rights and remedies provided by law or otherwise provided in this Lease, to which Landlord may resort cumulatively or in the alternative:

(i) Landlord may continue this Lease in full force and effect, and this Lease shall continue in full force and effect as long as Landlord does not terminate this Lease, and Landlord shall have the right to collect Rent when due.

(ii) Landlord may terminate Tenant's right to possession of the Premises at any time by giving written notice to that effect, and relet the Premises or any part thereof. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises or any part thereof, including, without limitation, broker's commissions, expenses of cleaning and redecorating the Premises required by the reletting and like costs. Reletting may be for a period shorter or longer than the remaining term of this Lease. No act by Landlord other than giving written notice of termination to Tenant shall terminate this Lease. Neither acts of maintenance, nor efforts to relet the Premises, nor the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall constitute a termination of Tenant's right to possession. On termination, Landlord has the right to remove all Tenant's Personal Property and store the same at Tenant's sole cost and expense and to recover from Tenant as damages:

(a) The worth at the time of award of the unpaid Rent and other sums due and payable which had been earned at the time of termination; plus

(b) The worth at the time of award of the amount by which the unpaid Rent and other sums due and payable which would have been payable after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; plus

(c) The worth at the time of award of the amount by which the unpaid rent and other sums due and payable for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant proves could be reasonably avoided; plus

(d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which, in the ordinary course of things, would be likely to result therefrom, including, without limitation, any costs or expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii) in maintaining, repairing, preserving, restoring, replacing, cleaning, altering or rehabilitating the Premises or any portion thereof, including such acts for reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for any other costs necessary or appropriate to relet the Premises; plus

(e) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the laws of the State of California.

The "worth at the time of award" of the amounts referred to in Paragraphs 26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the Interest Rate on the unpaid rent and other

sums due and payable from the termination date through the date of award. The "worth at the time of award" of the amount referred to in Paragraph 26.B.(ii)(c) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Tenant waives redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other present or future law, in the event Tenant is evicted or Landlord takes possession of the Premises by reason of any default of Tenant hereunder.

(iii) Landlord may, with or without terminating this Lease, re-enter the Premises and remove all persons and property from the Premises, so long as Landlord gives Tenant advance written notice of its intent to so re-enter the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No reentry or taking possession of the Premises by Landlord pursuant to this Paragraph 26.B.(iii) shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant.

C. Landlord's Default. Landlord shall not be deemed to be in default in the performance of any obligation required to be performed by it hereunder unless and until it has failed to perform such obligation within thirty (30) days after receipt of written notice by Tenant to Landlord specifying the nature of such default; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it shall commence such performance within such 30-day period and thereafter diligently prosecute the same to completion.

27. Subordination.

This Lease is or may become subject and subordinate to underlying leases, mortgages and deeds of trust (collectively, "Encumbrances") which may now affect the Premises, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance (collectively, "Holder") shall require that this Lease be prior and superior thereto, within fifteen (15) days of written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver any and 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, so long as Tenant is not in default, Holder agrees to recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent and observe and perform all the provisions of this Lease to be observed and performed by Tenant. Within fifteen (15) days after Landlord's written request, Tenant shall execute any and all documents required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance, including without limitation a Subordination, Non-Disturbance and Attornment Agreement substantially in the form attached hereto as Exhibit D. If Tenant fails to do so, it shall be deemed that this Lease is subordinated to such Encumbrance.

Notwithstanding anything to the contrary set forth in this Paragraph 27, 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.

28. Notices.

Any notice or demand required or desired to be given under this Lease shall be in writing and shall be personally served or in lieu of personal service may be given by certified mail, facsimile, or overnight courier service. All notices or demands under this Lease shall be deemed given, received, made or communicated on the date personal delivery is effected; or, if sent by certified mail, on the delivery date or attempted delivery date shown on the return receipt; or, if sent by facsimile, on the date sent by the sender; or, if sent by overnight courier service, on the delivery date or attempted delivery date shown on such service's records. At the date of execution of this Lease, the addresses of Landlord and Tenant are as set forth in Paragraph 1. After the Commencement Date, the address of Tenant shall be the address of the Premises. Either party may change its address by giving notice of same in accordance with this Paragraph 28.

29. Attorneys' Fees.

If either party brings any action or legal proceeding for damages for an alleged breach of any provision of this Lease, to recover Rent, or other sums due, to terminate the tenancy of the Premises or to enforce, protect or establish any term, condition or covenant of this Lease or right of either party, the prevailing party shall be entitled to recover as a part of such action or proceedings, or in a separate action brought for that purpose, reasonable attorneys' fees and costs, including without limitation any and all costs and expenses arising from (i) collection efforts, (ii) any appellate proceedings, and (iii) any bankruptcy, insolvency or arbitration proceedings.

30. Estoppel Certificates.

Tenant shall within fifteen (15) days following written request by Landlord:

(i) Execute and deliver to Landlord any documents, including estoppel certificates, in the form prepared by Landlord (a) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the Rent and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord, or, if there are uncured defaults on the part of the Landlord, stating the nature of such uncured defaults, (c) evidencing the status of the Lease as may be required either by a lender making a loan to Landlord to be secured by deed of trust or mortgage covering the Premises or a purchaser of the Premises from Landlord, and (d) stating such other matters as may be reasonably requested by Landlord. Tenant's failure to deliver an estoppel certificate within fifteen (15) days after delivery of Landlord's written request therefor shall be conclusive upon Tenant
(a) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (b) that there

are now no uncured defaults in Landlord's performance, and (c) that no Rent has been paid in advance.

If Tenant fails to so deliver a requested estoppel certificate within the prescribed time it shall be conclusively presumed that this Lease is unmodified and in full force and effect except as represented by Landlord.

(ii) Deliver to Landlord the current financial statements of Tenant, and financial statements of the two (2) years prior to the current financial statement's year, with an opinion of a certified public accountant, including a balance sheet and profit and loss statement for the most recent prior year, all prepared in accordance with generally accepted accounting principles consistently applied.

31. Transfer of the Premises by Landlord.

In the event of any conveyance of the Premises and assignment by Landlord of this Lease, Landlord shall be and is hereby entirely released from all liability under any and all of its covenants and obligations contained in or derived from this Lease arising from events occurring after the date of such conveyance and assignment, and Tenant agrees to attorn to such transferee provided such transferee assumes Landlord's obligations under this Lease. Following the conveyance of the Premises and assignment of this Lease, Tenant shall be entitled to all rights under applicable law regarding its Security Deposit.

32. Landlord's Right to Perform Tenant's Covenants.

If Tenant shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, and such failure shall continue after the expiration of any applicable grace or cure periods provided in this .Lease, Landlord may, but shall not be obligated to (and without waiving or releasing Tenant from any obligation of Tenant under this Lease), make such payment or perform such other act to the extent Landlord may deem desirable, and in connection therewith, pay expenses and employ counsel. All reasonable sums so paid by Landlord and all penalties, interest, expenses and costs in connection therewith shall be due and payable by Tenant on the next day after any such payment by Landlord, together with interest thereon at the Interest Rate from such date to the date of payment by Tenant to Landlord, plus collection costs and attorneys' fees. Landlord shall have the same rights and remedies for the nonpayment thereof as in the case of default in the payment of Rent.

33. Tenant's Remedy.

If, as a consequence of a default by Landlord under this Lease, Tenant recovers a money judgment against Landlord, such judgment shall be satisfied only against the right, title and interest of Landlord in the Building, and neither Landlord nor Landlord's Agents shall be liable for any deficiency.

34. Mortgagee Protection.

If Landlord defaults under this Lease, Tenant shall give written notice of such default to any beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises, so long as

Tenant has received written notice of the existence of such beneficiary or mortgagee, and offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure.

35. Brokers.

Landlord and Tenant acknowledge and agree that Tenant has utilized the services of Colliers International with respect to the transactions between Landlord and Tenant that are represented by this Lease. Landlord shall pay commissions to such broker pursuant to a separate agreement. Tenant warrants and represents that it has had no dealings with any other real estate broker or agent in connection with the negotiation of this Lease, and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease.

36. Acceptance.

This Lease shall only become effective and binding upon full execution hereof by Landlord and delivery of a signed copy to Tenant. Neither party shall record this Lease nor a short form memorandum thereof.

37. Parking.

Tenant shall have the non-exclusive right, in common with any other tenants or occupants of the Project, to use up to three (3) unassigned parking spaces per each one thousand (1,000) square feet of Rentable Area in the Premises, upon terms and conditions as may from time to time be reasonably established by Landlord. Should parking charges or surcharges of any kind be imposed on the parking facilities by a governmental agency, Tenant shall reimburse Landlord for such charges and/or surcharges or, if possible, shall pay such charges and/or surcharges directly to the governmental agency and, in such event, Tenant shall provide Landlord with proof that such charges and/or surcharges have been paid by Tenant.

38. Security System. Tenant shall have the right to use the existing security system servicing the Premises. Upon Tenant's written request, Landlord shall retain, at its cost, the services of Northland Control Systems to (a) provide one (1) training session to Tenant and its employees concerning the operation of the security system and (b) perform modifications to the existing system to expunge the current legacy data. If Tenant does not request such services and permit scheduling of such services on or before January 30, 2002, Landlord shall have no obligations to provide such training and modifications.

39. Phone System. Tenant shall have access to the telephone and voice mail system listed on Exhibit C within the Premises for use by Tenant and its employees, including the use of the phone switch PBX. Tenant shall be permitted to reconfigure the telephone and voice mail system within the Premises provided that Tenant first obtain Landlord's consent, which consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall contract with providers for its own data and phone service and shall pay all charges for such services pursuant to Paragraph 16. Landlord acknowledges that Tenant has purchased additional equipment that it shall retain.

40. Access to MPOE. Once Landlord has reconnected the circuits and installed the copper lines as described in Paragraph 10, Tenant shall have access to the electrical closet located in the 585 Broadway Premises (which electrical closet is identified on Exhibit B) for the sole purpose of accessing and servicing phone lines from the MPOE located in the electrical closet to the Premises. Landlord shall either provide a key to Tenant to the electrical closet or otherwise provide access to the closet on terms reasonably acceptable to Landlord and Tenant. Tenant shall indemnify, defend, protect and hold Landlord and any tenant or occupant of the 585 Broadway Premises harmless from and against any and all loss, cost, damage, injury, claim (including claims of lien for work or labor performed or materials or supplies furnished), liability or expense (including attorneys' fees) as a result of, arising out of, or in any way connected with the exercise of Tenant's (or its agents', contractors', employees' or authorized representatives') right of entry pursuant to Paragraph 40, except to the extent such loss, cost, damage, injury, claim, liability or expense arises out of the negligence or willful misconduct of Landlord or its other tenants.

41. Existing Furniture and Equipment. As of the Commencement Date, the furniture and equipment list on Exhibit C are located within the Premises. During the Term, Tenant shall have the right to use the existing furniture and equipment located within the Premises, including the right to reconfigure of the furniture systems and partitions provided that Tenant first obtains Landlord's consent to such reconfiguration, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord acknowledges that Tenant has purchased additional furnishings that it shall retain.

42. General.

A. Captions. The captions and headings used in this Lease are for the purpose of convenience only and shall not be construed to limit or extend the meaning of any part of this Lease.

B. Executed Copy. Any fully executed copy of this Lease shall be deemed an original for all purposes.

C. Time. Time is of the essence for the performance of each term,

condition and covenant of this Lease.

D. Separability. If one or more of the provisions contained herein, except for the payment of Rent, is for any reason held invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein.

E. Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.

F. Gender; Singular, Plural. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural.

G. Binding Effect. The covenants and agreement contained in this Lease shall be binding on the parties hereto and on their respective successors and assigns to the extent this Lease is assignable.

H. Waiver. The waiver by Landlord or Tenant of any breach of any term, condition or covenant, of this Lease shall not be deemed to be a waiver of such provision or any subsequent breach of the same or any other term, condition or covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach at the time of acceptance of such payment. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord or Tenant unless such waiver is in writing signed by the other party.

I. Entire Agreement. This Lease is the entire agreement between the parties, and there are no agreements or representations between the parties except as expressed herein. Except as otherwise provided herein, no subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto.

J. Authority. If Tenant is a corporation or a partnership, each individual executing this Lease on behalf of said corporation or partnership, as the case may be, represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said entity in accordance with its corporate bylaws, statement of partnership or certificate of limited partnership, as the case may be, and that this Lease is binding upon said entity in accordance with its terms. Landlord, at its option, may require a copy of such written authorization to enter into this Lease.

K. Exhibits. All exhibits, amendments, riders and addenda attached hereto are hereby incorporated herein and made a part hereof.

L. Lease Summary. The Lease Summary attached to this Lease is intended to provide general information only. In the event of any inconsistency between the Lease Summary and the specific provisions of this Lease, the specific provisions of this Lease shall prevail.

M. Nondisturbance. Within thirty (30) business days after this Lease has been fully executed by Landlord and Tenant, Landlord shall provide Tenant with a non-disturbance and attornment agreement in form reasonably acceptable to Tenant executed by Landlord's lender.

N. Consent. Unless otherwise provided in this Lease, whenever Landlord's approval, consent or satisfaction (collectively, an "approval") is required pursuant to this Lease or an Exhibit hereto, such approval may be withheld in Landlord's sole and absolute discretion.

THIS LEASE is effective as of October 1, 2001.

TENANT:

Dated:                      SUPPORT.COM, INC.
        ---------------
                             a Delaware corporation

                            By:
                                  -------------------------------
                            Its:
                                  -------------------------------


                            By:
                                  -------------------------------
                            Its:
                                  -------------------------------

                            LANDLORD:

Dated:                      MARTIN/CAMPUS LLC,
        ---------------
                            a Delaware limited liability company

                            By:  Martin/Campus Associates L.P.
                                 a California limited partnership
                                 Its: Sole Member

                                 By:  Martin/Redwood Partners, L.P.,
                                      a California limited partnership
                                      Its:  General Partner

                                      By: TMG Redwood LLC,
                                          a California limited liability company
                                          Its:  General Partner

                                          By:   TMG Partners
                                                a California corporation
                                                Its:   Managing Member

                                                By:
                                                      -------------------------
                                                Its:
                                                      -------------------------

EXHIBIT A

FLOOR PLAN

EXHIBIT B

SITE PLAN OF PROJECT

EXHIBIT C

INVENTORY OF EXISTING FURNITURE AND EQUIPMENT

EXHIBIT D

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this

"Agreement"), made as of ___________________, ______, by and between CREDIT LYONNAIS NEW YORK BRANCH, a branch under the laws of the State of New York of a foreign banking corporation organized under the laws of the Republic of France having an address at The Credit Lyonnais Building, 1301 Avenue of the Americas, New York, New York 10019 (together with its successors and assigns, in such capacity, the "Agent"), as agent for the lenders which are party to the Loan Agreement described in the hereinafter defined Deed of Trust (each, together with its successors and assigns, a "Lender", and collectively, the "Lenders") and ______________________________________________, a _________________________________________________________, having an address at

_____________________________________________________(the "Tenant");

W I T N E S S E T H :

WHEREAS, by that certain Lease Agreement (as the same may be amended, supplemented or otherwise modified from time to time, the "Lease") dated ___________________, between ______________________________________, as landlord ("Landlord"), and Tenant, as tenant, the Landlord leased to Tenant a certain portion of the Landlord's property located in _________________________________, as more particularly described on Schedule A attached hereto (the "Land"), said leased portion of the Land being more particularly described in the Lease and herein referred to as the "Premises";

WHEREAS, the Landlord has executed and delivered to the Agent on behalf of itself and other lenders certain mortgage notes in the aggregate original principal amount of $150,000,000, which notes are secured by, among other things, a deed of trust (which deed of trust, and all amendments, renewals, increases, modifications, replacements, substitutions, extensions, spreaders, restatements and consolidations of each and all advances and re-advances under each and additions thereto, is referred to herein as the "Deed

of Trust") encumbering the Land, together with the buildings and other improvements located or to be located thereon (such buildings and other improvements and the Land, collectively, the "Deeded Property") including, without limitation, the Premises.

NOW, THEREFORE, the parties hereto, in consideration of the covenants contained herein, have agreed and hereby agree as follows:

1. The Lease, as the same may hereafter be modified, amended or extended, is and shall be subject and subordinate in each and every respect to the Deed of Trust, to all renewals, modifications, replacements and extensions thereof, to all terms, conditions and

provisions thereof and to each and every advance heretofore made or hereafter made under the Deed of Trust.

2. The Agent agrees that if any action or proceeding is commenced by the Agent for the foreclosure of the Deed of Trust or the sale of the Deeded Property, the Tenant shall not be named as a party therein (unless required by law), and the sale of the Deeded Property in any such action or proceeding and the exercise by the Agent of any of its other rights under the Deed of Trust, or under the note secured by the Deed of Trust, shall be made subject to all rights of the Tenant under the Lease, provided that at the time of the commencement of any such action or proceeding and at the time of any such sale or exercise of any such other rights, the Tenant shall not be in default under any of the terms, covenants or conditions of the Lease or of this Agreement on the Tenant's part to be observed or performed.

3. The Tenant shall concurrently give the Agent copies of all notices and other communications given by the Tenant to the Landlord relating to (i) defaults or alleged defaults on the part of the Landlord or the Tenant under the Lease, (ii) any violations of any ordinances, statutes, laws, rules, codes, regulations or requirements of any governmental agency, and (iii) any assignment or subletting of all or any portion of the Premises.

4. In the event of any act or omission by the Landlord which would give the Tenant the right, either immediately or after the lapse of a period of time, to terminate the Lease, to claim a partial or total eviction, or to cure Landlord's defaults or perform Landlord's obligations under the Lease, the Tenant will not exercise any such right (i) until it has sent written notice of such act or omission to the Agent as provided herein, and (ii) unless the Agent shall have failed within sixty (60) days after receipt of such notice to cure such default or, if such default is not reasonably susceptible of cure within such sixty (60) days, the Agent shall not have commenced the cure of such default within sixty (60) days of receipt of such notice and thereafter diligently pursued such action.

5. In the event that the interest of the Landlord is transferred by reason of, or assigned in lieu of foreclosure or other proceedings for enforcement of the Deed of Trust, then, subject to the provisions of this Agreement, the Lease shall nevertheless continue in full force and effect and, upon the written request of the Agent, the Tenant shall attorn to the Agent and shall recognize the Agent as its landlord. Although the foregoing provision shall be self-operative, in order to confirm such attornment, upon the request of the Agent, the Tenant shall execute and deliver to the Agent (i) an agreement of attornment in form and content reasonably satisfactory to the Agent, confirming the foregoing attornment and agreeing to perform all the terms, covenants and conditions of the Lease on the Tenant's part to be performed for the benefit of such Agent with the same force and effect as if such Agent were the Landlord originally named in this Lease or (ii) a new lease with the Agent, as landlord, for the remaining term of the Lease and otherwise on the same terms and conditions and with the same options, if any, then remaining.

6. Nothing herein contained shall be construed however, to obligate the Agent or any Lender to cure any default by the Landlord under the Lease occurring prior to any date on which the Agent shall succeed to the rights of the Landlord, it being expressly agreed

that under no circumstances shall the Agent or any Lender be obligated to remedy any such default.

7. If the Agent shall succeed to the interest of the Landlord, the Agent nor any Lender shall have no personal liability as successor to the Landlord, and the Tenant shall look only to the estate and property of the Agent and the Lenders in the Deeded Property or the proceeds thereof for the satisfaction of the Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by the Agent as landlord under the Lease. In addition, the Agent as holder of the Deed of Trust or as landlord under the Lease if it succeeds to that position, and each Lender, shall in no event (i) be liable to the Tenant for any act or omission of any prior landlord, (ii) be subject to any offset or defense which the Tenant might have against any prior landlord, (iii) be liable to the Tenant for any liability or obligation of any prior landlord occurring prior to the date that the Agent or any subsequent owner acquires title to the Premises, or
(iv) be liable to the Tenant for any security or other deposits given to secure the performance of the Tenant's obligations under the Lease, except to the extent that the Agent shall have acknowledged actual receipt of such security or other deposits in writing. No other property or assets of the Agent or any Lender shall be subject to levy, execution or other enforcement procedure for the satisfaction of the Tenant's remedies under or with respect to the Lease, the relationship of the landlord and the tenant thereunder or the Tenant's use or occupancy of the Premises.

8. All notices and other communications hereunder shall be sent by certified or registered mail (postage prepaid, return receipt requested) to the Agent at the address set forth above, Attention: Allen Nuber, with an additional copy to Kaye, Scholer, Fierman, Hays & Handler, LLP, 1999 Avenue of the Stars, Los Angeles, California 90067, Attention: Michael A. Santoro, Esq., or to the Tenant at the address set forth in the Lease, or to such other address or person as may be specified in a notice sent in accordance with the provisions of this
Section 8, and shall be deemed given when received at the addresses specified above.

9. No prepayment of rent or additional rent due under the Lease of more than one month in advance shall be binding upon the Agent, as holder of the Deed of Trust or as landlord under the Lease if the Agent succeeds to that position, or any Lender, unless consented to by the Agent, and from and after the date hereof, no amendment, modification, surrender or cancellation of the Lease shall be binding upon the Agent, as holder of the Deed of Trust or as landlord under the Lease if the Agent succeeds to that position, or any Lender, unless Agent has consented in writing to such amendment, modification, surrender or cancellation.

10. This Agreement shall apply to, bind and inure to the benefit of the parties hereto and their respective successors and assigns. As used herein, the term "Tenant" shall mean and include the present tenant under the Lease, any permitted subtenant under the Lease, any permitted assignee of the Lease and any successor of any of them. The term "Agent" as used herein shall include the beneficiary of the Deed of Trust, the successors, replacements and assigns of the Agent, and any person, party or entity which shall become the owner of the Deeded Property by reason of a foreclosure of the Deed of Trust or the acceptance of a deed or assignment in lieu of foreclosure or other proceedings for enforcement of the Deed of Trust or otherwise. The term "Landlord" as used herein shall mean and include the present landlord

under the Lease and such landlord's predecessors and successors in interest under the Lease (other than the Agent).

11. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto.

12. This Agreement satisfies the condition, if any, to the subordination of the Lease to the Deed of Trust set forth in the Lease with respect to the execution and delivery of a non-disturbance agreement.

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

14. Both the Tenant and the Agent hereby irrevocably waive all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to the Lease or this Agreement.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

CREDIT LYONNAIS NEW YORK BRANCH,
as Agent

By:

Name:

Title:

[TENANT]

By:

Name:

Title:

Agreed and acknowledged:

[LANDLORD/BORROWER]

STATE OF                            )
                                    )
COUNTY OF                     )

On __________________ before me, __________________, a Notary Public in and for said State, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature

STATE OF                            )
                                    )
COUNTY OF                     )

On __________________ before me, __________________ , a Notary Public in and for said State, personally appeared __________________ , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature

STATE OF                            )
                                    )
COUNTY OF                     )

On __________________ before me, __________________ , a Notary Public in and for said State, personally appeared __________________ , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the

instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature

SCHEDULE A

The Land

Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-48726 and 333-65964) pertaining to the Amended and Restated 1998 Stock Option Plan, the 2000 Omnibus Equity Incentive Plan and the 2000 Employee Stock Purchase Plan of our report dated January 17, 2002, with respect to the consolidated financial statements of SupportSoft, Inc. (formerly Support.com, Inc.) included in the Annual Report (Form 10-K) for the year ended December 31, 2001.

/s/ ERNST & YOUNG LLP

Palo Alto, California

March 26, 2002