10-K

================================================================================
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ------------------
                                    FORM 10-K
                               ------------------
        (Mark One)

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

                    For the fiscal year ended March 31, 2002

                                       OR

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

             For the transition period from _________ to __________.

                             Commission File Number:

                               DIGITALTHINK, INC.
             (Exact name of registrant as specified in its charter)

                     Delaware                            94-3244366
          (State or other jurisdiction of             (I.R.S. Employer
           Incorporation or organization)            Identification No.)

  601 Brannan Street, San Francisco, California             94107
     (Address of principal executive offices)             (Zip code)

                                 (415) 625-4000
              (Registrant's telephone number, including area code)

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

             Title of each class           Name of Exchange on which registered
                     None                                   None

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

                          Common Stock, $.001 par value
                                (Title of 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 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. [ ]

     The aggregate market value of registrant's voting stock held by
non-affiliates of registrant, based upon the closing sale price of the common
stock on May 23, 2002, as reported on the Nasdaq National Market, was
approximately $55.7 million. Shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

     Outstanding shares of registrant's common stock, $.001 par value, as of
May 23, 2002: 40,987,547

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts of certain sections of the Proxy Statement to be filed in connection
with the 2002 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K Report where indicated.
================================================================================


                                    PART I

Item 1. Business

     This document contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "forecasts,"
"predicts," "intend," "potential" or "continue" or the negative of such terms
or other comparable terminology. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following: (1) our
ability to compete effectively in the e-learning market, (2) our plans to
develop new solutions and products, (3) our business strategies and plans, and
(4) our strategic relationships with Electronic Data System, Incorporated
("EDS") and others. Many of the statements we make regarding the future are
only predictions. Although we believe that the expectations reflected in the
forward-looking statements are reasonable based on our current beliefs, we
cannot guarantee future results, levels of activity, performance or
achievements. The risks set forth in the "Factors Affecting Future Results"
section and elsewhere in this document could cause our future operating results
to differ materially from those contemplated by our forward-looking statements.
In addition, factors that we are not currently aware of could harm our future
operating results.

DigitalThink Overview

     We provide custom e-learning solutions designed to address the strategic
business objectives of our customers by helping them to improve workforce
development, sales force effectiveness and customer acquisition and retention.
We can host and centrally manage software and content, significantly reducing
our customers' learning infrastructure costs and enabling us to rapidly update
or customize our courses. Our Web-based solutions deliver content on new
initiatives, and products or processes to large, geographically dispersed
groups who can access courses from anywhere, at anytime through a standard Web
browser. Our instructional design approach encourages participants to interact
with tutors through e-mail and the Internet. In addition, our solutions allow
customers to generate revenue opportunities by offering branded e-learning
solutions to their customers. We also offer Web-based tracking and reporting
tools that our customers use to measure and evaluate participants' progress and
the effectiveness of our learning programs. In addition, DigitalThink's
deployed delivery option is targeted at companies that need an e-learning
solution that resides within their own corporate environment.

     As of March 31, 2002, we had delivered courses to over 450 customers on
more than 700 subjects in a variety of industries including technology, retail,
healthcare, financial services and telecommunications. Our customers either pay
us to develop custom courses for their specific requirements or select courses
from our catalog, or both. Customers that have purchased solutions from us over
the past fiscal year include Adobe Systems, the American Bankers' Association,
Aspect Telecommunications, Automatic Data Processing, Charles Schwab, Circuit
City, Cisco Systems, EDS, The Gallup Organization, Lincoln Financial, Kinko's,
KPMG Consulting, Marsh, McDonald's, and Sun Microsystems.

Industry Background

     Today's businesses face rapidly changing environments characterized by
increasing competition, economic globalization and technological change. To
compete effectively, businesses must improve business processes, reduce
operating costs, extend barriers to entry and shorten product development
cycles. The emergence of the Internet as a business platform has accelerated
these trends and presented new opportunities in many industries for leading
companies to create a competitive advantage.

     Senior executives at these leading companies realize that a fundamental
source of competitive advantage is the depth, consistency and currency of
knowledge possessed by their employees, distributors, suppliers and customers.
Employees who know more about a company's business are generally able to
perform more effectively. Sales professionals and distributors who understand
the benefits of a company's services achieve better results. Customers who
learn the benefits of a product's features tend to be more loyal, less
expensive to support and more likely to purchase again. Driving knowledge to
the extended enterprise effectively reduces the time-to-market of new products
and services, improves sales channel productivity and reduces customer support
costs. The result is a demonstrable increase in operating efficiency and
profitability.

                                       1


     In an attempt to address today's competitive business challenges,
businesses are investing increasing amounts on learning and skills development.
Based on annual industry report by Training Magazine in 2001, businesses spend
nearly $56.8 billion annually on learning programs in the United States. As the
Internet and e-learning continue to demonstrate measurable results for
businesses, we believe investments will be dedicated to e-learning programs. To
date most investment in corporate learning has been in in-person,
instructor-led training programs. We have found that these traditional learning
methodologies are less effective than e-learning for certain types of business
purposes because they are:

     o    Difficult to deploy across an organization and its extended
          enterprise. Many businesses find it difficult to effectively deliver
          up-to-date content in a timely and consistent manner to large,
          geographically-dispersed groups. The traditional solution of
          scheduling corporate education programs at specific times in single
          locations results in logistical challenges and opportunity costs that
          often lower participation rates and limit a company's ability to
          extend knowledge to its extended enterprise.

     o    Difficult to customize and update. Instructor-led content is often
          prepared in advance to provide for the production and distribution of
          printed or videotaped materials, which are then updated at fixed
          intervals and delivered using an instructor-led, standardized
          curriculum of pre-scheduled meetings in set physical locations. As a
          result, print-based content cannot be updated and distributed to
          learners as rapidly as Web- based content, and instructor-led sessions
          using these materials may fail to incorporate the latest information
          on new products, strategies and processes for specific uses or
          customers.

     o    Difficult to personalize on a large scale. Instructor-led learning
          programs are typically designed to address the needs of large groups,
          which can impair the effectiveness of the individual learning
          experience. If a participant cannot have his or her individual
          question answered or cannot access supplemental tutoring after the
          course sessions have concluded, learning may not actually occur. The
          cost of assembling a large group in a central location is often
          justified because of the economics of presenting material to a mass
          audience. Actual learning, by contrast, occurs on an individual level.
          The mass approach rarely provides sufficient time for individuals to
          ask questions, much less to be tutored and critiqued.

     o    Unable to track and monitor learning effectiveness. Tracking student
          performance in traditional corporate classroom programs is avoided as
          it typically requires additional expenses for manual test
          administration, grading and recording.

     o    Costly and slow. Traditional learning initiatives require prolonged
          absences of valuable employees due to travel to course locations and
          attendance at scheduled course meetings, resulting in significant
          opportunity costs due to lost work. In addition, course materials must
          be printed and delivered using traditional means. As a result,
          businesses are unable to continuously educate their extended
          enterprises on new products, strategies and processes in a timely
          manner. With e-learning, participants can learn at anytime from a
          computer, without having to schedule classrooms or meetings, and
          without having to travel to a classroom facility.

     In response to these limitations, many businesses are seeking more
effective learning solutions. The Internet is transforming the corporate
learning marketplace by offering innovative ways to design and deliver
knowledge. According to International Data Corporation, the corporate
e-learning market is projected to grow from $2.3 billion in 2000 to more than
$18 billion in 2005. By leveraging the Internet, businesses can instantly and
simultaneously deploy content to a broad, global audience. This content can be
easily and continuously accessed, modified and refreshed and learning programs
can be enhanced as participants use e-mail and chat rooms to establish
interactive relationships with instructors and peers. Web-based technologies
can also offer real-time tracking of participant performance.

     Internal training organizations and external corporate learning providers
are geared to instructor-led training and their set of skills is limited to
classroom scheduling and instruction. To compete effectively in the e-learning
market, these organizations would need to develop a broad range of
competencies, including technology development, content creation, Web-hosting
and online community management. Companies are seeking outsourced and
integrated e-learning solutions as a means of more effectively educating their
extended enterprise.

                                       2


The DigitalThink Solution

     We provide custom e-learning business solutions that produce measurable
results for large enterprises, addressing the strategic imperative of knowledge
as a driver of business performance. Executives of leading companies use our
solutions to achieve business results that they can correlate to the learning.
DigitalThink e-learning solutions combine customized and catalog content with
tutors, a standards-based content delivery system, management and analysis
technologies, and content development and editing tools. Our learning solutions
are highly scalable, empowering companies to reach hundreds of thousands of
globally dispersed people instantly.

     The key components of our solutions include:

     Award-Winning Content. DigitalThink works with organizations to create
customized courseware and we develop courses of popular topics for our
award-winning off-the-shelf catalog. Our learning strategists and instructional
designers work with subject matter experts to build high quality courses that
leverage adult learning theory and e-learning best practices, to create a
learning experience and content that is consistently praised by learners,
corporate customers, and independent evaluators. We create courses using a
variety of different learning frameworks including problem-based,
scenario-based and discovery-based learning. DigitalThink's focus is on
creating learning that improves the knowledge, skills and performance of
individuals, which in turn accelerates business performance.

     Interoperability. The DigitalThink Enterprise Gateway is a standards-based
and secure protocol that facilitates seamless and reliable integration between
a DigitalThink e-learning solution and a company's enterprise business
applications, including enterprise resource planning (ERP), learning management
(LMS), human resource management (HRMS), e-commerce, and customer relationship
management (CRM) systems. Enterprise Gateway employs industry-standard
protocols (XML, SOAP) and best-of-breed security technologies.

     DigitalThink's commitment to interoperability and openness extends to
learning delivery as well. Our Shareable Content Object Reference Model or
SCORM-native learning delivery system enables companies to use DigitalThink to
deliver any standards-based content, whether developed by their own resources,
DigitalThink, or a third-party.

     World-Class Learning Environment. DigitalThink is focused on delivering
learning to globally dispersed organizations in a fast, effective and
convenient way--providing an entire enterprise with a single source for e-
learning. In addition to delivering e-learning content, and tracking student
progress at a detailed level, the DigitalThink learning delivery system creates
a highly engaging learning experience, with a comprehensive learning community
(discussion boards, tutor support, instant messaging), personalized learning
paths, dynamic content navigation and many other performance-enhancing
features. Unlike other systems that have added SCORM support as a surface
feature, DigitalThink's learning delivery system was designed from the ground
up to deliver SCORM- based content, making it the only SCORM-native delivery
system available in e-learning today. The native implementation gives
DigitalThink unique advantages in interoperability and scalability, and the
ability to enhance standards-based content authored by customers, partners or
other providers with the high-value learning environment capabilities available
in DigitalThink-authored content.

     Interactive Tutor Support. Our courses are interactive, self-paced and can
be accessed at any time. Most of our catalog courses and many of our custom
courses are supported by online tutors who respond to student queries and grade
submitted exercises, providing personalized feedback on their work. This
worldwide network of tutors adds a highly valued human element to the learning
experience. Our Platform enables us and our customers to accurately track
response times and ensure that our tutors are achieving their response time
targets.

     Delivery flexibility. Because DigitalThink recognizes that organizations
have diverse needs and require multiple delivery methods for e-learning, we
offer a variety of options:

     o    DigitalThink's hosted delivery solution provides 24x7 access to
          e-learning and administrative tools from any Internet-connected
          computer in the world. Our hosted solution gives customers the lowest
          total cost of ownership, very short implementation cycles, the highest
          availability in the industry and virtually unlimited scalability to
          reach wide audiences.

     o    DigitalThink's desktop delivery option is ideal for organizations with
          employee groups--or entire locations--that are not wired for the
          Internet.

                                       3


     o    DigitalThink's deployed delivery option is targeted at companies that
          need an e-learning solution that resides within their own corporate
          environment.

     All content developed for the DigitalThink platform can be available in
one or more of these delivery modalities.

     Learning Management. Our Platform provides all the tools necessary to
manage even the largest e-learning initiatives by enabling the instant launch
and coordination of global, enterprise-wide e-learning initiatives--all via a
standard Web browser. With the open catalog, standards-compliant content can be
integrated and managed through the e-learning platform. Like other parts of the
platform, learning management is easily configurable, allowing customization of
business rules and look and feel. Batch enrollment and registration
capabilities get an organization up and learning rapidly, and search
functionality helps administrators manage large e-learning catalogs.

     Enterprise Reporting and Analysis Tools. We offer Web-based tools that are
used by customers to track and monitor each participant's progress in order to
measure course completion and knowledge acquisition. Managers can assess the
performance of their employees and correlate this information with business
results to evaluate the effectiveness of any course. The DigitalThink platform
is industry-leading in the depth of usage and performance tracking, and
includes powerful analysis tools to allow our enterprise customers to
understand the usage and effectiveness of their e-learning programs and
correlate learning with business results.

     Powerful E-Business Capability. Our highly scalable, flexible e-learning
platform enables our customers and strategic resellers to develop
revenue-generating businesses around our e-learning solutions. We put many of
our customers into the "e-learning business" by giving them a platform to sell
content and services to their customers or resellers. Customers come to
DigitalThink to get into the e-learning business without installing any
hardware or software because our service can operate entirely on our web-based
platform. We implement these projects by delivering a combination of services
and technologies to help our customer create a custom-hosted enterprise portal,
tools for custom catalog creation, credit card authorization, and customized
business logic and reports to provide a complete solution.

Strategy

     Our objective is to be the leading provider of custom e-learning solutions
to large enterprises. Key elements of our strategy include:

     o    Enhance our custom e-learning solutions. We intend to continually add
          functionality and features to enhance our comprehensive e-learning
          solutions to meet our customers' evolving needs. For example, we plan
          to integrate our services more closely with the internal systems of
          our customers to facilitate our customers' ability to correlate
          learning data, such as course completion rates and student assessment
          scores, with organizational and performance metrics. Examples of these
          performance metrics include sales per employee, customer satisfaction
          and manager evaluations. We also plan to devote significant resources
          to expanding the breadth of our course offerings and improving the
          reporting and tracking features of our solutions. In addition, we will
          partner with existing best of breed technologies to offer our
          customers solutions that will meet their needs quickly and
          effectively.

     o    Develop long-term strategic relationships with our customers. We
          believe that e-learning solutions will become increasingly critical to
          a business' ability to compete successfully. As an existing provider
          of e-learning solutions, we become a strategic resource for our
          customers. We plan to extend our presence within our customers'
          enterprises by helping our customers understand the value and
          applicability of our solutions to a broad range of operational
          initiatives. In addition, we will continue to develop new e-learning
          solutions that are aligned with our customers' evolving business
          objectives.

     o    Expand our course offerings. We intend to continually introduce new
          courses and leverage our existing courses across multiple customers
          and industries. In many instances, we will modify content developed
          for existing customers in order to provide similar courses to
          customers in different industries. This approach allows us to generate
          additional revenue opportunities while leveraging previous course
          development efforts.

                                       4


     o    Leverage development alliances and reseller relationships. We plan to
          grow both our direct and indirect sales channels to better service our
          existing markets and penetrate new markets. Our technology platform
          can be easily adapted to a variety of learning uses and our partners
          are building content to be hosted and delivered by us on behalf of
          their customer.

Customers

     Our customers can use our custom e-learning solutions to compress the
learning cycle, increase knowledge throughout the extended enterprise, enhance
brand equity and customer service and reduce operational costs.

     As of March 31, 2002, we have sold courses to over 450 customers,
including many large corporations. Our customers use our custom e-learning
solutions to address strategic business needs in three broad areas: workforce
development, sales force effectiveness and customer acquisition & retention. A
workforce development customer uses our e-learning solutions to achieve a
particular strategic objective by teaching or reinforcing employee skills.
Sales executives use e-learning to improve the sales performance of their
internal or external sales channels by deploying skills and product education
quickly into the field. Customer retention customers use our products and
services to provide e-learning to their external customers as an attractive
additional service or as a source of goodwill or brand enhancement.

Content and Courses

     We currently offer our customers more than 700 self-paced courses from our
custom developed and e-learning catalog. Depending on topic area, each course
consists of one to several hours of student work, including lessons, quizzes,
interactive applets, simulations, and hands-on participant exercises which are
graded and commented upon by our tutors before being returned via email to
participants. All of our courses have been designed to take advantage of our
e-learning environment and leverage Internet technologies, such as e-mail and
discussion boards, in order to provide participants with an engaging learning
experience and extensive interaction with our tutors. In addition to
pre-developed courses, we develop customized content for our customers. These
customized courses incorporate the significant domain knowledge of our clients
and can be rapidly redesigned for other customers in the same industry. We
typically retain intellectual rights to our content and can reuse elements of
the courses for other customers.

Products and Technology

     Our e-learning environment consists of technologies that we have designed
and created to function as an integrated solution. By employing standard
Internet technologies and a hosted content delivery model, we are able to
provide our customers with a high quality, efficient means to educate their
extended enterprise.

     Content Delivery System

     We host the e-learning environments of our customers. By centralizing all
infrastructure and hosting requirements, our customers derive the following
significant benefits:

     o    customers do not need to install or manage any software;

     o    content can be updated and infrastructure technology can be improved
          continuously without impacting our clients and at a minimal cost to
          us;

     o    customers avoid the need to make significant investments in technology
          infrastructure such as servers, databases, technical staff or
          technical support; and

     o    participants can access course content at anytime, from anywhere,
          through the use of a standard modem and Web browser.

     Deployed Solution

     DigitalThink's deployed delivery option is targeted at companies that need
an e-learning solution that resides within their own corporate environment.
Companies host their own learning management system and then add our content
from either our catalog or custom courses we design for them, or both. This is
a new feature that we are offering and is not yet significant in terms of
revenue.

                                       5


 System Architecture

     Our e-learning architecture is designed to scale rapidly to provide large
student populations with tutor- supported e-learning content. In addition, we
have developed our content delivery system using standard Internet technologies
such as Java and HTML, facilitating the delivery of our content to our
customers' Web browsers. We utilize a single code base to deliver content. As a
result, any improvement made in our software for one customer automatically
benefits all other customers.

     Our content is stored in a database as structured "learning elements." We
have developed a templating system that automatically controls the graphical
presentation, or "look & feel", of a course, as well as course navigation. This
content storage and delivery approach allows us to personalize the content for
individuals in each course and minimizes content or formatting errors. In
addition, this structure enables the rapid customization of course content for
different customers. Our technology was not ported from a legacy application,
nor was it an adaptation of a previously existing learning delivery system.

     Course Enrollment Options

     Our customers can choose several different methods to allow participants
to access our courses. Enrollments can be managed by authorized personnel using
our corporate administration system. Alternatively, participants can
self-enroll using an intranet or Internet e-commerce option. Our system can
also be integrated with third-party enterprise software applications to allow
automated enrollments using a learning management or other data base
administration system.

     Tracking and Reporting System

     Each participant's learning activities are fully tracked in our database.
This comprehensive tracking ability allows a participant to start a course at
work, and continue at home or while traveling. Regardless of their location,
our system recognizes each participant, tracks their course progress and
records their performance. Using only a standard Web browser, managers can run
both standardized and custom reports on participant enrollments and progress,
gaining visibility into the learning status of their extended enterprise.

     Course Tutoring

     Our technology allows us to increase the efficiency and scalability of our
tutoring resources. The ability of tutors worldwide to interact with
participants through standard Internet communication methodologies
significantly increases the pool of tutor candidates we can recruit. In
addition, our database system allows multiple tutors to support the same course
as grading and exercise submissions can be accessed and responded to by any
tutor. Duplication of tutor work is prevented by our message queuing
technology.

     Collaboration Tools

     We host and make available to our customers proprietary and third-party
collaboration tools, which currently include instant messaging software, e-mail
solutions, chat rooms, discussion boards and real-time communications. These
collaboration tools are designed to create a learning environment that fosters
collaboration between peers and a high degree of interaction between
participants and tutors.

     Testing and Assessment

     Our system offers comprehensive testing and assessment capabilities, which
can be customized for specific learning solutions and customers. Assessment and
testing capabilities include multiple choice, multiple answer quizzes with
randomized question sets, tutor-scored and commented exercises, and interactive
testing applets and simulations.

     Full Integration with Corporate Infrastructures

     Our custom e-learning solutions can be fully integrated with our
customers' corporate information technology systems, including their Web sites
and intranets. As a result, course participants do not necessarily realize that
they are accessing content hosted from our servers. Our integration layer
provides adapters for learning management

                                       6


systems. We design our course content to be compatible with our customers'
security concerns and bandwidth limitations. As a result, it is highly unusual
for participants at our corporate clients to be unable to access our courses.

     Scalable Architecture

     Our system has been designed to scale rapidly and to consistently deliver
content to large numbers of participants. We use extensive load testing to
measure our system capacity and identify potential bottlenecks. Constant
improvements to our system architecture continue to increase system capacity
well beyond the current demands.

     High-Availability Systems

     Our systems have been designed to maximize availability, with redundancy
in the areas in which we believe failures are most likely to occur. We have
also implemented redundant network connections to the Internet, a load-
balanced redundant Web server and a highly-redundant storage array to safeguard
our information. In addition, locating our Web servers with Exodus, a Cable and
Wireless Service, and a leading Web-hosting firm, provides us with backup
power, constant monitoring, physical security, seismic resistance, fire
suppression and climate control systems. We are vulnerable to certain types of
failures, including catastrophic failure of the Exodus site due to natural
disasters or other events and simultaneous failure of our primary and redundant
systems. We are currently building a redundant site in Sacramento, California,
to mitigate any risk with regards to a catastrophic failure at Exodus. The
redundant site will be completed by the last half of fiscal 2003.

Sales and Marketing

     We sell our custom e-learning solutions primarily through our own direct
sales organization. We also sell indirectly through channel partners and
strategic alliance partners. Our direct sales organization focuses on
developing long-term relationships with large corporate customers. Our channel
partners, including Sun Educational Services, IBM, Red Hat and others, leverage
their unique distribution models to reach differentiated industries,
international markets and customer segments. We also have alliance
relationships with EDS, KPMG and others, who work with us to jointly sell our
custom e-learning solutions and resell our courses as components of their
e-learning offerings targeted at specific industries.

Competition

     The e-learning market is evolving quickly and is subject to rapid
technological change, shifts in customer demands and evolving learning
methodologies. To succeed, we must continue to expand our course offerings,
upgrade our technology and distinguish our solution. As competition continues
to intensify, we expect the e-learning market to undergo significant price
competition and consolidation. We expect to face increasing price pressures
from competitors as our potential customers demand more value for their
education budgets and as our competitors become mature.

     The e-learning market is highly fragmented with no single competitor
accounting for a dominant market share, and competition is intense. In addition
to competing with other suppliers of technology-based learning solutions, we
also compete with third-party suppliers of instructor-led education and
learning and internal education departments.

     Our competitors vary in size and in the scope and breadth of the courses
and services they offer. Several of our competitors have longer operating
histories and significantly greater financial, technical and marketing
resources. In addition, larger companies may enter the e-learning market
through the acquisition of our competitors. We anticipate increased competition
as additional entrants join the e-learning market.

Intellectual Property and Proprietary Rights

     Our success depends, in part, on our ability to protect our proprietary
rights and technology. We rely on a combination of copyrights, trademarks,
service marks, trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. We have registered the trademark
DigitalThink and we own the domain name digitalthink.com. It is possible,
however, that third parties could acquire trademarks or domain names that are
substantially similar or conceptually similar to our trademarks or domain
names. This could decrease the value

                                       7


of our trademarks or domain names and could hurt our business. The regulation
of domain names in the United States and in foreign countries is subject to
change. The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear.

     We obtain the content for many of our courses from our customers and often
receive the right to resell this content to other customers. It is possible
that the use of this content may subject us to the intellectual property claims
of third parties. Although we generally seek indemnification from our customers
to protect us from these types of claims, we may not be fully protected from
extensive damage claims or claims for injunctive relief. In addition, our
customers may assert that some of the courses we develop for our general
catalog or under contract with other customers may improperly use their
proprietary content. Our involvement in any litigation to resolve intellectual
property ownership matters would require us to incur substantial costs and
divert management's attention and resources. In addition, we cannot predict the
effect of a failure to prevail in any litigation of this kind.

Employees

     As of March 31, 2002, we employed 464 persons. Of these employees, 218
were employed in course development, 114 in sales and marketing, 64 in research
and development, 29 in Web delivery and customer support and 39 in general and
administration. Each of our employees was granted options to purchase shares of
our common stock upon joining us.

     Our success will depend in large part upon our ability to attract and
retain employees. We face competition in this regard from other companies, but
we believe that we maintain good relations with our employees. None of our
employees are members of organized labor groups.

                                       8


                                 Risk Factors

     You should consider the risks described below before making an investment
decision. We believe that the risks and uncertainties described below are the
principal material risks facing our company as of the date of this Form 10-K. In
the future, we may become subject to additional risks that are not currently
known to us. Our business, financial condition or results of operations could be
materially adversely affected by any of the following risks. The trading price
of our common stock could decline due to any of the following risks.

Our limited operating history and the new and emerging e-learning market makes
it difficult to evaluate our business and future prospects.

     We commenced operations in April 1996 and did not begin to generate
significant revenues until fiscal 1999. In fiscal 2002, we had revenues of $43.4
million. We are still in the early stages of our development, which, when
combined with the new and emerging e-learning market, and general economic
factors affecting the technology sector, make it difficult to evaluate our
business or our prospects. Because of our limited operating history, we have a
limited and unproven ability to predict the trends in the e-learning market and
in our business. The uncertainty of our future performance, in particular, and
the uncertainty regarding the acceptance of e-learning, in general, increases
the risk that we will be unable to build a sustainable business and that our
stockholder value will decline.

We have a significant business presence in India, and risks associated with
doing business there could disrupt or harm our business.

     In order to reduce costs associated with course development, we have
established a significant presence in India through two recent acquisitions. As
of March 31, 2002, we had approximately 180 employees in India. Difficulties
that we could encounter with our Indian operation or with other international
operations that we may establish in the future include the following:

     o    difficulties in staffing and managing international operations;

     o    multiple, conflicting and changing governmental laws and regulations;

     o    difficulties in collecting accounts receivable;

     o    fluctuations in currency exchange rates;

     o    political and economic instability, including the potential for more
          terrorist acts;

     o    developments between the nations of India and Pakistan regarding the
          threat of war;

     o    adverse tax consequences;

     o    difficulties in protecting our intellectual property rights;

     o    increases in tariffs, duties, price controls or other restrictions on
          foreign currencies; and

     o    trade barriers imposed by foreign countries.

     In particular, in recent months, the level of hostilities between India and
Pakistan has significantly increased as both nations have increased their troop
strength at the border. In addition, both India and Pakistan are known to
possess nuclear weapons. In the event war between India and Pakistan were to
occur, our operations in India could be materially and adversely effected.
Recently, in light of the continuing escalation of tensions between India and
Pakistan, the United States government has authorized the departure of
non-essential personnel from India and the State Department has issued an
advisory against travel to India.

     If we encounter these problems in connection with our operations in India,
our revenues could fall below expectations, which would harm our business and
operating results. In this event, our stock price could decline.

Our international presence could subject us to new risks because of currency and
political changes, legal and cultural differences or economic instability.

     Our strategy includes international sales. Our current plans include
continued sales overseas, which began during fiscal 2001, as well as the
creation of a partner-based support infrastructure for customers around the
world. In addition to our operations in India, we could be affected by political
and monetary changes, including instability in the Middle East and Central Asia,
European unification and the introduction of the Euro.

                                       9


     This international presence will require significant management attention
and financial resources and could harm our financial performance by increasing
our costs. We have very limited experience in marketing, selling and
distributing courses internationally. We could become subject to additional
risks as we grow internationally, including:

     o    difficulties in staffing and managing international operations;

     o    inability to develop content localized for international
          jurisdictions;

     o    protectionist laws and business practices that favor local
          competition;

     o    multiple, conflicting and changing governmental laws and regulations;

     o    slower adoption of e-learning solutions;

     o    different learning styles;

     o    longer sales and payment cycles;

     o    difficulties in collecting accounts receivable;

     o    fluctuations in currency exchange rates;

     o    political and economic instability;

     o    adverse tax consequences;

     o    little or no protection of our intellectual property rights in certain
          foreign countries;

     o    increases in tariffs, duties, price controls or other restrictions on
          foreign currencies; and

     o    trade barriers imposed by foreign countries.

     If we encounter these problems in connection with our current and future
sales growth internationally, our revenues could fall below expectations, which
would harm our business and operating results. In this event, our stock price
could decline.

We have a history of losses and a large accumulated deficit of $157.2 million
at March 31, 2002. We expect future losses over the next three quarters and we
may not achieve profitability within the timeframes public stockholders
anticipate.

     We have experienced losses in each quarter since our inception and expect
that our quarterly losses will continue at least through the next three
quarters. Our accumulated deficit as of March 31, 2002 was $157.2 million. We
have never achieved a profitable quarter and we expect to continue to incur
quarterly losses as we expand our operations, invest in our technology, fund
the development of new content and support our growth. In addition, we plan to
continue to invest to develop and acquire new course offerings with new areas
of expertise, which will increase operating expenses.

     We will need to increase our quarterly revenues to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.

Demand for our products and services has been and may continue to be effected
by adverse economic conditions affecting the information technology industry.

     The information technology industry has been in a period of economic
decline during 2001 and 2002. This decline may be attributable in part to
general weakness in the overall economy, which has led to reduced levels of
investment by businesses in information technology products and systems. When
businesses are reducing investment in technologies or slowing the rate of
adoption of new technologies and systems, they have a reduced need for training
of their employees, customers and others in the use of these systems. In
addition, many of our current and potential customers have experienced adverse
changes in their financial performance, whether as a result of the general
weakening of the economy or other factors. Some companies may delay training
initiatives or, if these companies continue to experience disappointing
operating results, whether as a result of adverse economic conditions,
competitive issues or other factors, they may decrease or forego education and
training expenditures

                                       10


overall before limiting other expenditures. As a result of these factors, and
possibly also due to aftermath of the September 11 terrorist attacks, our new
contract signings in the second half of fiscal 2002 were materially and
adversely affected. Therefore, continuation of the economic downturn in the
United States as well as continuation of the current adverse economic
conditions in the information technology industry would harm our results of
operations.

We may not be able to secure necessary funding in the future; additional
funding may result in dilution to our stockholders

     We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We expect to
use our available cash resources and credit facility primarily to fund sales
and marketing activities, research and development, and continued operations,
and possibly make future acquisitions. We believe that our existing capital
resources will be sufficient to meet our capital requirements for the next
twelve months. However, if our capital requirements increase materially from
those currently planned or if revenues fall below our expectations, we may
require additional financing sooner than anticipated. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our stockholders will be reduced, stockholders may experience dilution, or such
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or
enhance our products and services, take advantage of future opportunities or
respond to competitive pressures.

Our quarterly operating results are subject to fluctuations, which could cause
our stock price to decline.

     Our revenue and operating results are volatile and difficult to predict
and may be susceptible to declines in future periods. Our quarterly results of
operations may fluctuate significantly in the future due to shortfalls in
revenues or orders or the timing of orders. We therefore believe that
quarter-to-quarter comparisons of our operating results may not be a good
indication of our future performance. In the event of a revenue or order
shortfall or unanticipated expenses in some future quarter or quarters, our
operating results may be below the expectations of public market analysts or
investors. In such an event, the price of our common stock may decline
significantly. Our operating expenses are largely fixed in the short term and
based, to a significant degree, on our estimates of future revenue. We will
likely be unable to, or may elect not to, reduce spending quickly enough to
offset any unexpected revenue shortfall. Therefore, any significant shortfall
in revenue in relation to our expectations would cause our quarterly results
for a particular period to decline.

In recognizing revenue we depend on the timely achievement of various
milestones, and our inability to recognize revenue in accordance with our
expectations will harm our operating results.

     In accordance with our revenue recognition policy, our ability to record
revenues depends upon several factors. These factors include acceptance by our
customers of new courses and the pace of participant registrations in courses
once they are completed and made available for access from our Web site. All of
our customer contracts provide that at least a portion of our revenues depend
on either course completion or participant registration, or both. Revenues from
custom course development accounted for approximately 53% of our total revenues
for the year ended March 31, 2002. Our ability to recognize revenues from
custom-tailored courses depends upon our customers providing us with subject
matter experts and content to be incorporated into the courses as well as our
completion of production and obtaining customer acceptance at each stage of
development. Accordingly, if customers do not provide us with the subject
matter experts or content in a timely manner, we will not be able to recognize
the revenues associated with that project, which would harm our operating
results.

     In addition, if the expected number of participants do not sign up for a
course, our ability to recognize revenues will be delayed, which could also
harm our operating results in any quarter. Participant registration depends in
large part on the promotional activities of our customers. If customers fail to
take necessary measures to require employee enrollment in courses or if they
fail to promote the course effectively to persons outside their organization,
our ability to recognize revenues, and therefore our operating results, could
be harmed.

                                       11


We are likely to be dependent upon a small group of major customers for a
significant portion of our revenues, and changes in sales to these customers
could harm our performance.

     We expect that we will continue to depend upon a small number of customers
for a significant portion of our revenues. As a result, our operating results
could suffer if we lost any of these customers or if these customers slowed or
cancelled purchases or delayed payment in any future fiscal period. For
example, in fiscal 2002, our largest customer, EDS, accounted for 8.8% and
another customer accounted for 15.5% of our total revenues of $43.4 million, or
25.9% and 12.6%, respectively, when excluding the forgiveness of a $10 million
penalty associated with the restructuring of an agreement with EDS. We expect
that EDS and other major customers will continue to account for a significant
portion of our revenues during future fiscal periods. Accordingly, changes in
these customers' businesses and in their views regarding the value of
e-learning in general and our products and services in particular could harm
our financial performance.

The length and variability of our sales cycle may make our operating results
unpredictable and volatile.

     The period between our initial contact with a potential customer and the
first purchase of our solution by that customer typically ranges from three to
nine months. In some cases the cycle has extended for close to two years.
Because we rely on large sales for a substantial portion of our revenues, these
long sales cycles can adversely effect our financial performance in any
quarter. Factors which may contribute to the variability and length of our
sales cycle include the time periods required for:

     o    our education of potential customers about the benefits of our
          e-learning solutions;

     o    our potential customers' assessment of the value of online solutions
          compared to traditional educational solutions;

     o    our potential customers' evaluation of competitive online solutions;
          and

     o    our potential customers' internal budget and approval processes.

     Our lengthy sales cycle limits our ability to forecast the timing and size
of specific sales. This, in turn, makes it difficult to predict quarterly
financial performance.

Our growth depends on hiring and retaining qualified personnel in a highly
competitive employment market.

     The growth of our business and revenues will depend in large part upon our
ability to attract and retain sufficient numbers of highly skilled employees,
particularly database engineers, course content developers, web designers and
technical and sales personnel. We primarily rely on individual third parties to
provide the majority of our tutoring and our ability to support our courses
depends on the availability and competency of these third-party tutors.
Education and Internet related industries create high demand for qualified
personnel and candidates experienced in both areas are limited. Our failure to
attract and retain sufficient skilled personnel may limit the rate at which we
can grow, which will harm our business and financial performance.

The growth of our business requires wide acceptance of e-learning solutions.

     The market for e-learning solutions is new and rapidly evolving. A number
of factors could impact the acceptance of our e-learning solutions, including:

     o    historic reliance on traditional education methods;

     o    limited allocation of our customers' and prospective customers'
          education budgets to e-learning; and

     o    ineffective use of online learning solutions.

     Our e-learning solutions are new, largely untested and less familiar to
prospective customers than more established education methods. If the market
for e-learning fails to develop or develops more slowly than we expect, we will
not achieve our growth and revenue targets and our stock price will likely
decline.

                                       12


We may fail to integrate adequately acquired products, third-party technologies
and businesses.

     We regularly evaluate acquisition opportunities and have made, and are
likely to make in the future, acquisitions that would provide additional
product or service offerings, additional industry expertise or an expanded
geographic presence. For example in August 2001 we acquired LearningByte
International, a provider of custom e-learning courseware. In November 2001, we
acquired TCT Technical Training Pvt. Ltd. ("TCT"), of Kolkata, India, a content
developer of custom courseware. We may be unable to locate attractive
opportunities to obtain access to technologies and products, or acquire any
companies that we identify on attractive terms. Future acquisitions of
companies, products or technologies could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to intangible assets, which could
materially adversely affect our results of operations. Product and technology
acquisitions or strategic partnerships entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concerns, risks
of entering markets in which we have no or limited prior experience and the
potential loss of key employees of acquired businesses. We may be unable to
integrate successfully any operations, personnel or products that have been
acquired or that might be acquired in the future. Further, the revenues from
the acquired businesses may not be sufficient to support the costs associated
with those businesses without adversely affecting our operating margin in the
future. Any failure to successfully complete the integration in a timely
fashion or to generate sufficient revenues from the acquired businesses could
have a material adverse effect on our business and results of operations.

We may not have adequate resources to compete effectively, acquire and retain
customers and attain future growth in the highly competitive e-learning market.

     The e-learning market is evolving quickly and is subject to rapid
technological change, shifts in customer demands and evolving learning
methodologies. In recent months e-learning has received more attention and
numerous new companies have entered the market. As a result, customers and
potential customers have more choices. This challenges us to distinguish our
offerings. If we fail to adapt to changes and the increased competition in our
industry, we may lose existing customers or fail to gain new customers. No
single competitor accounts for a dominant market share, yet competition is
intense. We compete primarily with:

     o third-party suppliers of instructor-led education and learning;

     o internal education departments; and

     o other suppliers of technology-based learning solutions.

     Due to the high market fragmentation, we do not often compete head-to-head
with any particular company. On occasion, our customers may evaluate our
solution by comparison with solutions offered by other e-learning companies.
These companies may include click2learn.com, Docent, IBM, NETg, Saba,
Skillsoft, SmartForce and other regional web development organizations. We may
not provide solutions that compare favorably with traditional or new
instructor-led techniques or other technology-based learning methodologies. Our
competitors vary in size and in the scope and breadth of the courses and
services they offer. Several of our competitors have longer operating histories
and significantly greater financial, technical and marketing resources. Larger
companies may enter the e-learning market through the acquisition of our
competitors. We anticipate that the lack of significant entry barriers to the
e-learning market will allow other competitors to enter the market, increasing
competition.

     To succeed, we must continue to expand our course offerings, upgrade our
technology and distinguish our solution. We may not be able to do so
successfully. Any failure by us to anticipate or respond adequately to changes
in technology and customer preferences, or any significant delays in course
development or implementation, could impact our ability to capture market
share. As competition continues to intensify, we expect the e-learning market
to undergo significant price competition. We also expect to face increasing
price pressures from customers as they demand more value for their learning
related expenditures. Increased competition, or our inability to compete
successfully against current and future competitors, could reduce operating
margins, loss of market share and thought leadership resulting in a diminution
of our brand.

                                       13


We rely on cooperation from our customers and third parties to develop and
deliver courses and our business will suffer if such cooperation occurs in an
untimely or inefficient manner.

     To be competitive, we must develop and introduce on a timely basis new
course offerings, which meet the needs of companies seeking to use our
e-learning solutions. The quality of our learning solutions depends in large
part on our ability to frequently update our courses and develop new content as
the underlying subject matter changes. We create courses by incorporating
subject matter expertise provided by our customers and third party content
developers into an e-learning delivery platform. The quality of our courses
depends on receiving content and cooperation from our customers, subject matter
experts provided by our customers, and third-party content developers. If we do
not receive materials from these sources in a timely manner, we may not be able
to develop or deliver specialized courses to our customers in the expected time
frame. Even if we do receive necessary materials from third parties, our
employees and consultants must complete their work in a timely manner or we
will not meet customer expectations. In the past, we have experienced delays in
obtaining access to our customers' experts, which has contributed to a longer
development cycle and inefficient allocation of our resources. Any prolonged
delays, even when caused by our customers, can result in failure to satisfy a
customer's demands and damage our reputation.

Our plans to expand the scope of our courses to fields other than information
technology depends on our ability to develop relationships with experts, and if
we are unable to attract the right experts, we may not be successful in
entering new fields.

     Our strategy involves broadening the fields presently covered by our
courses. In particular, to date we have been primarily focused on courses in
the information technology area. We are currently planning to develop and
introduce new course offerings in soft skills, financial services and other
fields. These new course offerings may encompass areas in which we have little
or no experience or expertise. Therefore, our ability to expand our courses
into these areas will depend in part on our ability to negotiate and execute
content development relationships with recognized experts or leading
corporations in the new fields. If we cannot locate these experts, we may fail
to develop the courses that our current and future customers will demand. The
failure to expand our course offerings to new fields could constrain our
revenue growth and harm our future prospects.

To remain competitive, we must keep pace with rapid technological changes in
our industry.

     Rapidly changing technologies, frequent new service introductions, short
development cycles and evolving standards characterize the e-learning market.
We must adapt to rapidly changing technologies by maintaining and improving the
performance features and reliability of our courses. We may experience
technical difficulties that could delay or prevent the successful development,
introduction or marketing of new courses and related services. For instance,
adding capabilities to deliver video over the Internet to our courses may be
desired by some customers, but may nevertheless pose a serious technical
challenge and could have a negative impact on our ability to develop and
deliver courses on a profitable basis. In addition, any new enhancements to our
courses must meet the requirements of our current and prospective customers and
participants. We could incur substantial costs to modify our services or
infrastructure to adapt to rapid technological change.

If we release updated functionality or new products containing defects, we may
need to reconfigure and re-release and our business and reputation would be
harmed

     Products as complex as ours often contain unknown and undetected errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction and initial deployment of new
products or enhancements to existing products. Although we attempt to resolve
all errors that we believe would be considered serious by our customers before
release to them, our products are not error-free. These errors or performance
problems could result in lost revenues or delays in customer acceptance and
would be detrimental to our business and reputation. As is typical in the
industry, with each release we have discovered errors in our products after
introduction. We will not be able to detect and correct all errors before
releasing our products commercially and these undetected errors could be
significant. We cannot assure that these undetected errors or performance
problems in our existing or future products will not be discovered in the
future or that known errors considered minor by us will not be considered
serious by our customers, resulting in a decrease in our revenues.

                                       14


We could inhibit increases in our revenues if we do not develop indirect sales
channels.

     To date, more than 90% of our sales have been made through direct sales
efforts. We believe that we will need to diversify our sales efforts to be
successful. If we do not develop indirect sales channels, we may miss sales
opportunities. We are currently investing in personnel and marketing activities
to develop indirect sales channels, particularly through our relationships with
EDS, KPMG and other system integrators and consulting firms who provide
learning as an additional service to their clients.

     Although we are currently investing to develop these indirect sales
channels, we may not succeed in establishing a channel that can effectively
market our e-learning solutions on a profitable basis. Our direct sales force
may compete with these resellers, and we may not be able to manage conflicts
across our direct and indirect sales channels. Our focus on increasing sales
through our indirect channel may divert management resources and attention from
direct sales. Conflicts across sales channels could cause us to encounter
pricing pressures and lose revenue opportunities, which could harm our business
and cause our operating results to decline.

The expected growth in our business requires continuous improvement in the
capacity of our technology infrastructure and a failure to coordinate such
improvements with our growth could lead to customer dissatisfaction and revenue
losses.

     In order to address the expected growth in our business, we must continue
to improve the capacity of our technology infrastructure. Our success requires
the continuing and uninterrupted performance of our internal computer network
and Internet course servers. Any system failure that causes interruptions or
delays in our ability to make our courses accessible to customers could reduce
customer satisfaction. If sustained or repeated, a system failure could reduce
the attractiveness of our courses and services, resulting in significant
revenue losses. We are particularly vulnerable to network failures during
periods of rapid growth when our roster of courses and participants can outpace
our network capacity. The continued viability of our business requires us to
support multiple participants concurrently and deliver fast response times with
minimal network delays. We continue to add system capacity, but we may not
adequately address network capacity, especially during periods of rapid growth.
Any failure to meet these capacity requirements could lead to additional
expenditures, lost business opportunities and damage to our reputation and
competitive position.

Any failure of, or capacity constraints in, the systems of third parties on
which we rely could adversely affect our business.

     Our success is highly dependent on the consistent performance of our
Internet and communications infrastructure. Our communications hardware and
some of our other computer hardware operations are located at the facilities of
Exodus, in Santa Clara, California. Unexpected events such as natural
disasters, power losses and vandalism could damage our systems.
Telecommunications failures, computer viruses, electronic break-ins,
earthquakes, fires, floods, other natural disasters or other similar disruptive
problems could adversely affect the operation of our systems. Despite
precautions we have taken, unanticipated problems affecting our systems in the
future could cause interruptions or delays in the delivery of our courses.

     Our telecommunications vendor and Exodus together provide us with our
Internet connection. Their failure to provide sufficient and timely data
communications capacity and network infrastructure could cause service
interruptions or slower response times, resulting in reduced customer demand
for our courses and services. Our insurance policies may not adequately
compensate us for any losses that may occur due to any damages or interruptions
in our systems. We could be required to make capital expenditures in the event
of damage. Any system failures could adversely affect customer usage in any
future quarters, which could adversely affect our revenues and operating
results and harm our reputation with corporate customers, subscribers and
commerce partners.

     We do not currently have fully redundant systems or a formal disaster
recovery plan. Our Web site must accommodate a high volume of traffic and
deliver courses and other information in a timely manner. If our Web site fails
for any reason or if we experience periods of unscheduled downtimes, even for a
short period of time, our business and reputation would be materially harmed.
We cannot accurately project the rate or timing of any increases in traffic to
our Web site and the failure to expand and upgrade the Web site or any system
error, failure or extended downtime could materially harm our business,
reputation, financial condition or results of operations.

                                       15


We have recently contracted with a third party to provide fully redundant
systems to our live site outside the San Francisco Bay area. We are in the
process of developing the redundant site, expected to be operational in the
last half of fiscal 2003.

We may become subject to government regulation and legal uncertainties that
could reduce demand for our products and services or increase the cost of doing
business, thereby adversely affecting our financial results

     We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
Internet commerce. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may become
applicable to us or may be adopted in the future with respect to the Internet
covering issues such as:

     o    user privacy;

     o    taxation;

     o    content;

     o    right to access personal data;

     o    copyrights;

     o    distribution; and

     o    characteristics and quality of services.

     The applicability of existing laws governing issues such as property
ownership, copyrights, and other intellectual property issues, encryption,
taxation, libel, export or import matters and personal privacy to the Internet
is uncertain. The vast majority of these laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do
not contemplate or address the unique issues of the Internet and related
technologies. Changes to these laws, including some recently proposed changes,
could create uncertainty in the Internet marketplace. Such uncertainty could
reduce demand for our services or increase the cost of doing business due to
increased costs of litigation or increased service delivery costs.

Our inability to protect our intellectual property and proprietary rights and
our Internet domain name could lead to unauthorized use of our courses or
restrict our ability to market our courses.

     Our success depends on our ability to protect our proprietary rights and
technology. We rely on a combination of copyrights, trademarks, service marks,
trade secret laws and employee and third-party nondisclosure agreements to
protect our proprietary rights. Despite our efforts, unauthorized parties may
attempt to duplicate or copy our courses or our delivery technology or obtain
and use information that we regard as proprietary. The laws of many countries
do not protect our proprietary rights to the same extent as the laws of the
United States. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which we provide our
courses and services.

     We have registered the trademark DigitalThink and we own the domain name
digitalthink.com. It is possible, however, that third parties could acquire
trademarks or domain names that are substantially similar or conceptually
similar to our trademarks or domain names. This could decrease the value of our
trademarks or domain names and could hurt our business. The regulation of
domain names in the United States and in foreign countries could change. The
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. As a result, we may not
acquire or maintain exclusive rights to our domain names in the United States
or in other countries in which we conduct business.

     We may from time to time encounter disputes over rights and obligations
concerning intellectual property. We obtain the content for many of our courses
from our customers and it is possible that the use of this content may subject
us to the intellectual property claims of third parties. Although we generally
seek indemnification from our customers to protect us from these types of
claims, we may not be fully protected from extensive damage claims or claims
for injunctive relief. Our customers may assert that some of the courses we
develop for our general catalog

                                       16


or under contract with other customers may improperly use their proprietary
content. Our involvement in any litigation to resolve intellectual property
ownership matters would require us to incur substantial costs and divert
management's attention and resources. We cannot predict the effect of a failure
to prevail in any litigation of this kind.

The price of our common stock has fluctuated significantly in the past and may
continue to do so.

     Our common stock price has fluctuated significantly since our initial
public offering in February 2000. While much of the fluctuation in our common
stock price may be due to our business and financial performance, we believe
that these fluctuations are also due to fluctuations in the stock market in
general based on factors not directly related to our performance, such as
general economic conditions or prevailing interest rates. As a result of these
fluctuations in the price of our common stock, it is difficult to predict what
the price of our common stock will be at any point in the future, and you may
not be able to sell your common stock at or above the price that you paid for
it.

We are subject to a pending legal proceeding and may become subject to
additional proceedings and adverse determinations in these proceedings could
harm our business.

     In October 2001, a complaint was filed in the United States District Court
for the Southern District of New York against the Company, certain of its
officers and directors, and certain underwriters of the Company's initial
public offering. The complaint was purportedly filed on behalf of a class or
certain persons who purchased the Company's common stock between February 24,
2000 and December 6, 2000. The complaint alleges violations by the Company and
its officers and directors of the Securities Act of 1933 in connection with
certain alleged compensation arrangements entered into by the underwriters in
connection with the offering. Substantially similar complaints have been filed
against over 300 other issuers that have had initial public offerings since
1998.

     We believe that this action is without merit and intend to vigorously
defend ourselves against it. Although we cannot presently determine the outcome
of this action, an adverse resolution of this matter could significantly
negatively impact our financial position and results of operations.

     We may be from time to time involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. An adverse
resolution of these matters could significantly negatively impact our financial
position and results of operations.

Provisions of our charter documents and Delaware law may have anti-takeover
effects that could prevent a change in our control, even if this would be
beneficial to stockholders.

     Provisions of our amended and restated certificate of incorporation,
bylaws and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. These
provisions include:

     o    A Shareholder Rights Plan that grants existing stockholders additional
          rights in the event that a single holder acquires greater than 15% of
          our shares;

     o    a classified board of directors, in which our board is divided into
          three classes with three year terms with only one class elected at
          each annual meeting of stockholders, which means that a holder of a
          majority of our common stock will need two annual meetings of
          stockholders to gain control of the board;

     o    a provision which prohibits our stockholders from acting by written
          consent without a meeting;

     o    a provision which permits only the board of directors, the president
          or the chairman to call special meetings of stockholders; and

     o    a provision which requires advance notice of items of business to be
          brought before stockholders meetings.

     Amending any of the above provisions will require the vote of the holders
of 66 2/3% of our outstanding common stock.

Item 2. Properties

     We are currently under agreement to lease a total of approximately 140,000
square feet of office space in three locations in San Francisco, California and
one location in Alameda, California. Approximately 25,000 square feet

                                       17


of this office space is currently under construction and we will begin paying
rent on that space in the first half of the 2003 fiscal year. In addition, we
have approximately 25,000 square feet of leased building space in Minneapolis,
Minnesota, which we have subleased, approximately 4,000 square feet of leased
building space in Troy, Michigan, approximately 9,000 square feet of building
space in San Diego California, approximately 3,000 square feet of leased office
space in Chicago, Illinois, approximately 8,000 square feet of leased building
space in the United Kingdom and a total of approximately 30,000 square feet of
leased building space in India in the cities of Kolkata, Bangalore and
Hyderabad. These leases expire at varying dates through 2016 and include
renewals at our option.

     In March 2002, the Company took a $6.8 million charge as part of the
restructuring charge, associated with leases related to excess or closed
facilities, which represents the excess of the remaining lease obligations over
estimated market value, net of anticipated sublease income. This action will
consolidate our sales, administrative and content and technology development
facilities from a total of approximately 244,000 square feet into approximately
100,000 square feet. Amounts accrued (net of anticipated sublease proceeds)
related to the consolidation of facilities will be paid over the respective
lease terms through 2016. As of March 31, 2002, seven sites have been vacated:
San Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
California; two facilities in San Francisco, California and our office in the
United Kingdom.

Item 3. Legal Proceedings

     In October 2001, a complaint was filed in the United States District Court
for the Southern District of New York against the Company, certain of its
officers and directors, and certain underwriters of the Company's initial
public offering. The complaint was purportedly filed on behalf of a class or
certain persons who purchased the Company's common stock between February 24,
2000 and December 6, 2000. The complaint alleges violations by the Company and
its officers and directors of the Securities Act of 1933 in connection with
certain alleged compensation arrangements entered into by the underwriters in
connection with the offering. Substantially similar complaints have been filed
against over 300 other issuers that have had initial public offerings since
1998. The Company intends to vigorously defend against this action. Although no
assurance can be given that this matter will be resolved in the Company's
favor, the Company believes that the resolution of this lawsuit will not have a
material adverse effect on its financial position, results of operations or
cash flows.

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

     We did not have any matters submitted to a vote of security holders during
the fourth quarter ended March 31, 2002.

                                       18


                                   MANAGEMENT

Executive Officers of the Registrant

                                
Jon C. Madonna .............   58     Chairman
Michael W. Pope ............   35     President and Chief Executive Officer
Robert J. Krolik ...........   33     Chief Financial Officer
Todd A. Clyde ..............   37     Vice President, Consulting and Alliances
Linda T. Drumright .........   41     Vice President, Engineering
Adam D. Levy ...............   40     Vice President, Human Resources and General Counsel
Umberto Milletti ...........   36     Vice President, Solutions Management
John M. Olmstead ...........   44     Vice President, Sales



     Jon C. Madonna has served as our Chairman since April 2002. Prior to that
he was President from December 2000 to April 2002, Chief Executive Officer from
August 2001 to April 2002 and a member of our board of directors since January
2000. From December 1998 to December 2000, Mr. Madonna was President and Chief
Executive Officer of Carlson Wagonlit Travel, a leading business travel and
expense management company. From January 1997 to October 1998, Mr. Madonna was
Vice Chairman of The Travelers Group, a financial services and insurance
company, and Vice Chairman of Travelers Property and Casualty and Chief
Executive Officer of the Personal Lines business. Previously, Mr. Madonna was
with KPMG Peat Marwick for 28 years, where he held numerous senior leadership
positions, most recently as Chairman and CEO from 1990 to December 1996. Mr.
Madonna holds a B.S. from the University of San Francisco.

     Michael W. Pope has served as our President and Chief Executive Officer
since April 2002. Prior to that he was Vice President, Chief Financial Officer
from October 1999 to April 2002. From June 1992 to October 1999, Mr. Pope served
in various positions at Dionex Corporation, a manufacturer and marketer of
chromatography systems and related products for chemical analysis, most recently
as Chief Financial Officer from April 1994 to October 1999. Mr. Pope holds a
B.A. in Quantitative Economics from Stanford University and a M.B.A. from the
Haas School of Business at the University of California at Berkeley.

     Robert J. Krolik has served as Chief Financial Officer since April 2002.
From March 2001 to April 2002 he was Corporate Controller. Prior to that he was
Chief Financial Officer of Karna LLC from September 1999 to March 2001. From
April 1997 to September 1999 he was Director of Finance of SRI Consulting. From
July 1991 to March 1997 he held various positions at Arthur Andersen, most
recently as manager from July 1996 to March 1997. Mr. Krolik holds a B.B.A. in
Finance from the University of Texas at Austin. He is also a Certified Public
Accountant.

     Todd A. Clyde has served as Vice President, Consulting and Alliances since
January 2001. Prior to that he was Vice President, Learning Solutions from March
1998 to December 2000. From October 1986 to March 1998, Mr. Clyde held several
positions with Anderson Consulting, most recently Senior Manager. Mr. Clyde
holds a B.A. in Management Science from the University of California at San
Diego.

     Linda T. Drumright has served as Vice President, Engineering since October
1999. From August 1998 to October 1999, Ms. Drumright served Vice President,
Budgeting, Planning and Forecasting Application Product Development for Hyperion
Solutions Corporation, a developer of enterprise analytic application software.
Prior to that, from July 1997 to August 1998, she was the Senior Director of the
Tools and Applications Division at Arbor Software Corp., a database software
developer, and from June 1990 to July 1997, she held several technical
positions, including Senior Manager, at Sybase, Inc. Ms. Drumright holds a B.A.
in Computer Science from the University of California at Berkeley.

     Adam D. Levy has served as Vice President, Human Resources and General
Counsel since October 2001. Prior to that he was General Counsel from February
1999 to October 2001. From September 1994 through October 1999, Mr. Levy was an
Associate at the law firm of Wilson Sonsini Goodrich and Rosati. Mr. Levy holds
a B.A. in Economics from Haverford College and a J.D. from Georgetown
University.

     Umberto Milletti is one of our co-founders and has served in various
positions and as our Vice President, Solutions Management since April 1996. From
March 1993 to March 1996, Mr. Milletti was Director of Product Development at
Knowledge Revolution. Mr. Milletti holds a B.S. in Electrical Engineering from
Tufts University and a M.S. in Electrical Engineering and Computer Science from
the University of California at Berkeley.

                                       19


     John M. Olmstead has served as Vice President, Sales since March 2001. From
April 1986 to March 2001 he was Vice President, Global Sales, Central Region for
UUNET & CompuServe Network Services. Prior to that he was National Account
Executive for Basic Computer/MicrOhio from March 1982 to March 1986. Mr.
Olmstead holds a Bachelor of Science and Systems from Taylor University.

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stock Matters

     Our Common Stock is traded on the Nasdaq National Market System under the
symbol DTHK. The following table sets forth, for the period indicated, the low
and high last reported prices per share for our Common Stock as reported by the
Nasdaq National Market.



                                 Fiscal Year ended           Fiscal Year ended
                                   March 31, 2002             March 31, 2001
                                  Low          High          Low           High
                              ----------   -----------   -----------   -----------
                                                           
   First quarter ..........     $ 5.51       $ 10.10       $ 15.00       $ 42.13
   Second quarter .........     $ 6.81       $ 15.00       $ 28.38       $ 60.00
   Third quarter ..........     $ 6.32       $ 11.34       $  9.50       $ 44.25
   Fourth quarter .........     $ 2.20       $ 11.50       $  6.88       $ 18.38


     As of May 23, 2002 there were approximately 7,000 holders of record of
DigitalThink Common Stock.

     No dividends have been paid on the Common Stock since inception and we
currently intend to retain all future earnings, if any, for use in our business
and do not anticipate paying cash dividends in the foreseeable future.

                      EQUITY COMPENSATION PLAN INFORMATION

     The following table gives information about our common stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of March 31, 2002, including the 1996 ISO
Stock Plan and 2000 Nonstatutory Stock Plan.



                                                                                                           (c)
                                                                                                  Number of securities
                                                       (a)                        (b)            remaining available for
                                              Number of securities         Weighted average       future issuance under
                                                to be issued upon          exercise price of    equity compensation plans
                                             exercise of outstanding     outstanding options,     (excluding securities
Plan Category                             options, warrants and rights    warrants and rights    reflected in column(a)
- -------------                             ----------------------------    -------------------    ----------------------
                                                                                               
Equity compensation plans approved by
security holders .......................            5,731,132                    $8.67                  2,217,466
Equity compensation plans not approved
by security holders ....................            1,244,480(1)                 $9.76                    225,520
                                                    ---------                                           ---------
Total ..................................            6,975,612                                           2,472,986
                                                    =========                                           =========


- ------------
(1)  Issued pursuant to our 2000 Nonstatutory Stock Option Plan, which does not
     require the approval of and has not been approved by our shareholders. See
     description of the 2000 Nonstatutory Stock Option Plan below.

2000 Nonstatutory Stock Option Plan

     On December 14, 2000, the Board of Directors approved the 2000 Nonstatutory
Stock Option Plan (the "2000 Plan"). The 2000 Plan provides for the granting of
non-qualified stock options to employees and consultants at the fair market
value of our common stock as of the date of grant. Options granted under the
2000 Plan generally vest at a rate of 1/4th after twelve months and 1/48th per
month thereafter, however, the vesting schedule can change on a grant-by-grant
basis. The 2000 Plan provides that vested options may be exercised for 3 months
after termination of employment and for 12 months after termination of
employment as a result of death or disability. We may select alternative periods
of time for exercise upon termination of service. The 2000 Plan permits options
to be exercised with cash, check, certain other shares of our stock or
consideration received by us under a "cashless exercise" program. In the event
that we merge with or into another corporation, or sell substantially all of our
assets,

                                       20


the 2000 Plan provides that each outstanding option will be assumed or
substituted for by the successor corporation. If such substitution or assumption
does not occur, each option will fully vest and become exercisable. There are
1,500,000 shares of common stock reserved under the Plan, and 255,520 shares
remaining for future issuance.

Item 6. Selected Financial Data

     The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Form 10-K.



                                                                              Year Ended March 31,
                                                     ----------------------------------------------------------------------
                                                         1998          1999          2000           2001           2002
                                                     -----------   -----------   ------------   ------------   ------------
                                                                     (In thousands, except per share data)
                                                                                                
Revenues:
Delivered Learning fees (1) ......................    $    148      $  1,034      $   4,994      $  17,978      $  20,401
 Learning Solution services (1) ..................          52           813          5,821         20,680         22,955
                                                      --------      --------      ---------      ---------      ---------
   Total revenues ................................         200         1,847         10,815         38,658         43,356
                                                      --------      --------      ---------      ---------      ---------
Costs and expenses:
 Cost of Delivered Learning fees .................         363           855          2,409          5,509          6,619
 Cost of Learning Solution services ..............          39           361          3,337         11,211         11,934
 Content research and development ................         886         1,657          4,082          6,092          7,094
 Technology research and development .............         665         1,005          3,687         11,791         11,318
 Selling and marketing ...........................       1,400         2,970         11,596         23,105         21,208
 General and administrative ......................         419           622          2,342          6,046          7,355
 Depreciation ....................................          83           236            915          3,190          5,274
 Amortization of warrants ........................          --            --             --         13,131         11,003
 Stock-based compensation * ......................          --            58          3,663          5,432          1,888
 Amortization of goodwill and other
   intangibles ...................................          --            --             --          3,602          7,208
 Write-off of in-process research and
   development ...................................          --            --             --          7,118             --
 Impairment of goodwill ..........................          --            --             --             --         10,437
 Acquisition related charges .....................          --            --             --             --          5,792
 Restructuring charge ............................          --            --             --             --          9,778
                                                      --------      --------      ---------      ---------      ---------
   Total costs and expenses ......................       3,855         7,764         32,031         96,227        116,908
                                                      --------      --------      ---------      ---------      ---------
Loss from operations .............................      (3,655)       (5,917)       (21,216)       (57,569)       (73,552)
Penalty income recognized (1) ....................          --            --             --             --         10,000
Interest and other income ........................         186           166          1,055          5,344          1,911
                                                      --------      --------      ---------      ---------      ---------
Net loss .........................................    $ (3,469)     $ (5,751)     $ (20,161)     $ (52,225)     $ (61,641)
                                                      --------      --------      ---------      ---------      ---------
Accretion of redeemable convertible preferred
 stock ...........................................    $  1,669      $  3,518      $   7,593      $      --      $      --
                                                      --------      --------      ---------      ---------      ---------
Loss attributable to common shareholders .........    $ (5,138)     $ (9,269)     $ (27,754)     $ (52,225)     $ (61,641)
                                                      --------      --------      ---------      ---------      ---------
Basic and diluted loss per common share ..........    $  (1.27)    $   (2.26)     $   (3.87)     $   (1.51)     $   (1.61)
                                                      --------     ---------      ---------      ---------      ---------
Shares used in basic and diluted loss per
 common share ....................................       4,036         4,095          7,164         34,524         38,176
                                                      --------     ---------      ---------      ---------      ---------
Pro forma basic and diluted loss per common
 share(2) ........................................    $     --     $   (0.56)     $   (1.09)     $   (1.51)     $   (1.61)
                                                      ========     =========      =========      =========      =========
Shares used in pro forma basic and diluted net
 loss per common share (3) .......................          --        16,687         25,412         34,524         38,176
                                                      ========     =========      =========      =========      =========


                                       21




                                                                                  March 31,
                                                   ------------------------------------------------------------------------
                                                       1998          1999           2000           2001            2002
                                                   -----------   ------------   ------------   ------------   -------------
                                                                                               
Balance Sheet Data:
Cash and cash equivalents and marketable
 securities ....................................    $  2,862      $   9,455      $  96,698      $  64,038      $   31,110
Working capital ................................       2,615          8,353         92,316         54,640          12,137
Total assets ...................................       3,580         11,330        110,176        111,687         136,272
Redeemable convertible preferred stock .........       9,329         24,583             --             --              --
Accumulated deficit ............................      (6,305)       (15,573)       (43,327)       (95,552)       (157,193)
Total stockholders' equity (deficit) ...........    $ (6,298)     $ (15,505)     $  97,880      $  89,127      $  109,726
(*) Stock-based compensation: ..................
    Cost of Delivered Learning fees ............    $     --      $       3      $     143      $     121      $       28
    Cost of Learning Solution services .........          --              4            318            500             165
    Content research and development ...........          --              4             72             76              34
    Technology research and development ........          --             13            473          1,329             555
    Selling and marketing ......................          --             25          1,042          1,391             451
    General and administrative .................          --              9          1,615          2,015             655
                                                    --------      ---------      ---------      ---------      ----------
   Total .......................................    $     --      $      58      $   3,663      $   5,432      $    1,888
                                                    ========      =========      =========      =========      ==========


- ------------
(1)  Reflects the forgiveness of the penalty associated with the restructuring
     of an agreement with EDS resulting in a reduction of revenues of $8.8
     million and $1.2 million for Delivery Learning fees and Learning Solution
     services, respectively, and $10 million of penalty income recognized in the
     fiscal year ended March 31, 2002.
(2)  Pro forma basic and diluted loss per common share is computed by dividing
     net loss by the weighted average number of shares outstanding for the
     period and the weighted average number of common shares resulting from the
     assumed conversion of outstanding shares of redeemable convertible
     preferred stock.
(3)  Shares used in pro forma basic and diluted net loss per common share
     assumes the conversion of preferred stock into an equivalent number of
     shares of common stock at time of issuance.

                                       22


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

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon
current expectations that involve risks and uncertainties. When used in this
document, the words "intend," "anticipate," "believe," "estimate," "plan," and
"expect" and similar expressions as they relate to us are included to identify
forward-looking statements. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" in this document.

Overview

     We provide online learning courses and services, which we refer to as
custom e-learning solutions. We were founded in April 1996. In fiscal 1997, we
invested in both course content development and research and development as we
built our course offerings and technology, releasing our first course in the
later part of fiscal 1997. Since fiscal 1998, we have made significant
investments in content research and development, sales and marketing
activities, technology research and development, Web delivery, and customer
support. We have also experienced significant headcount increases during this
period. We grew from 40 employees on March 31, 1998 to 235 on March 31, 2000 to
441 on March 31, 2001 and to 464 employees as of March 31, 2002. Our revenues
increased from $200,000 in fiscal 1998, to $1.8 million in fiscal 1999, to
$10.8 million in fiscal 2000, to $38.7 million in fiscal 2001, and to $43.4
million in fiscal 2002.

Sources of Revenues and Revenue Recognition Policy

     We deliver our custom e-learning solutions through a catalog of existing
courses and through customized content tailored to the specific needs of our
customers. We refer to the individuals taking courses as participants.
Customized e-learning courses have accounted for, and we expect will continue
to account for, a significant portion of our total revenues.

     We generate revenues by delivering courses included in our course catalog
as well as delivering our customized e-learning courses to participants.
Customers that enter into Delivered Learning contracts provide participants
with access to our online courses and tutor support. Additionally, customers
are provided with access to management systems that allow them to track and
monitor participants' performance. Delivered Learning contracts typically allow
for a specific number of registered participants, based on a per participant
fee. These contracts also typically limit the period of time over which
participants can register for and complete an online course. We begin
recognizing these Delivered Learning fees when a participant registers for a
course. These fees are recognized ratably over the time period a participant
has access to the course, which is typically six months. Customers typically
pay for the courses in advance of the anticipated timeframe of course
registration and do not receive refunds for the unused portion of the available
registrations agreed to in the contract. In cases where we allow unlimited
access to our courses for a specific period of time, revenue is recognized
ratably over the term of the contract.

     We also derive revenues from contracts that require development of
tailored e-learning solutions. Typically, these Learning Solution service
revenues are generated from performance consulting services, implementation
services, course content development, instructional plan design, and release of
the course for access by participants and are recognized as earned in
accordance with Statement of Position (SOP) 81-1, Accounting for Performance of
Construction Production-Type Contracts, as development progresses on the
percentage of completion method. We measure the percentage of completion based
on the ratio of actual custom development or service costs incurred to date, to
total estimated costs to complete the custom course or service. Provisions for
estimated losses on incomplete contracts will be made on a contract by contract
basis and recognized in the period in which such losses become probable and can
be reasonably estimated. To date, there have been no such losses. Custom
contracts typically call for non-refundable payments due upon achievement of
certain milestones in the production of courses or in consulting services.

     Delivered Learning fees and Learning Solution service revenues are each
recognized only when collection is probable and there is evidence that we have
completed our obligation. If a contract includes both Delivered Learning fees
and Learning Solution services, the revenues are apportioned consistent with
the value associated with each and the term of the contract. In all cases,
these revenues are recognized in accordance with the policies detailed above.

     We have entered into revenue sharing agreements with some of our customers
and have certain reseller agreements. Under revenue sharing agreements, we
receive royalties or similar payments based on sales of courses

                                       23


by the customer. Under reseller agreements, we provide the reseller with
courses at a discount from our list price. The reseller then assumes
responsibility for sales, marketing, and related activities, and we would not
expect to incur significant sales and marketing expenses in connection with
reseller sales.

     We have a limited operating history, which makes it difficult to forecast
future operating performance. Although our revenues have grown in recent years,
this growth rate may not be sustainable. In addition, we have never been
profitable and expect to incur significant net losses in the foreseeable future
as we increase our content research and development, technology research and
development, selling and marketing, and general and administrative expenses.

     We have experienced losses in each quarter since our inception and expect
that our quarterly losses will continue at least through the next three
quarters. We expect that these losses will result in large part from our
ongoing emphasis on course development and sales and marketing activities. As
of March 31, 2002, we had an accumulated deficit of $157.2 million. In
addition, we derive a significant portion of our revenues from a limited number
of customers and the percentage of our revenues from any one customer can be
material. For example, in fiscal 2002, our largest customer, EDS, accounted for
8.8% and another customer accounted for 15.5% of our total revenues of $43.4
million, or 25.9% and 12.6%, respectively, when excluding the forgiveness of a
$10 million penalty associated with the restructuring of an agreement with EDS.
We expect that EDS and other major customers will continue to account for a
significant portion of our revenues during future fiscal periods. Sales to our
largest customer comprised 10% of our revenues in fiscal 2001. Sales to our
largest customer comprised 32% of our revenues in fiscal 2000. In fiscal 1999,
no customer accounted for more than 10% of our revenues.

Stock-Based Compensation

     Deferred stock compensation represents the difference between the
estimated fair value of the common stock for accounting purposes and the option
exercise price at the date of grant. We recorded deferred stock compensation of
$390,000 in fiscal 1999, and $11.3 million in fiscal 2000, and $1.6 million in
fiscal 2001 in connection with an acquisition. These amounts are being
amortized over the four-year vesting period of the options using the multiple
option approach. Stock-based compensation expense of, $3.7 million was recorded
in fiscal 2000, $5.4 million was recorded in fiscal 2001, and $1.9 million was
recorded in fiscal 2002. See Note 8 of Notes To Consolidated Financial
Statements.

Net Operating Loss Carryforwards

     From inception through March 31, 2001, we incurred net losses for federal
and state income tax purposes and have not recognized any income tax provision
or benefit. As of March 31, 2002, we had $87.1 million of federal and $84.7
million of state net operating loss carryforwards. These net operating loss
carryforwards begin to expire in 2012 and 2005 for federal and state purposes,
respectively. Given our limited operating history and losses incurred to date,
coupled with difficulty in forecasting future results, a full valuation
allowance has been recorded. Furthermore, as a result of changes in our equity
ownership from our preferred stock offerings and initial public offering,
utilization of net operating losses and tax credits may be subject to
substantial annual limitations. This is due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. The degree
of any such limitation cannot presently be estimated. To date, we have not
performed an evaluation to determine if such a limitation exists, and we may
not perform such an evaluation until and unless we are profitable in the
future. The annual limitation may result in the expiration of net operating
losses and tax credits before utilization. See Note 6 of Notes To Consolidated
Financial Statements.

Acquisition of Arista Knowledge Systems

     On July 6, 2000 DigitalThink, Inc. acquired Arista Knowledge Systems, Inc.
("Arista"), a company providing Internet-based learning management systems.
DigitalThink issued approximately 746,000 shares of DigitalThink common stock
in exchange for outstanding stock, options and warrants of Arista. The total
cost of the acquisition, including transaction costs, was approximately $26.3
million. The acquisition was accounted for as a purchase business combination;
accordingly the results of operations of Arista have been included with the
Company's results of operations since July 6, 2000. Of the purchase price, $7.1
million represented purchased in-process technology that was estimated to be
70% complete in its development at the time of acquisition. The in-process
technology represented a turnkey solution for education and knowledge
distribution systems that had not yet reached

                                       24


technological feasibility and had no alternative future use. Accordingly, this
amount was immediately expensed in the consolidated statement of operations
upon consummation of the acquisition. The value of intangibles was based upon
management's estimates of after tax cash flow. The valuation gave consideration
to the following: (i) comprehensive due diligence concerning all potential
intangibles; (ii) the value of developed and core technology, ensuring that the
relative allocations to core technology and in-process research and
development, were consistent with the contribution of final products; (iii) the
allocation to in-process research and development was based upon a calculation
that only considered the efforts completed as of the date of the transaction,
and only cash flows associated with one generation of products currently
in-process; and (iv) it was performed by an independent valuation group. A
discount rate of 28% was used for the in-process technology. Intangible assets
acquired are being amortized on a straight-line basis over a period of up to
four years.

Acquisition of LearningByte International

     Effective August 28, 2001, the Company acquired LearningByte
International, Inc. ("LBI"), a provider of custom e-learning courseware, in
exchange for an agreement to issue approximately 4.7 million shares of
DigitalThink common stock and assume approximately 500,000 warrants
outstanding, for a total purchase price of approximately $68 million, including
transaction costs. The acquisition of LBI was accounted for by the purchase
method; accordingly the results of operations of LBI have been included with
the Company's results of operations since the effective date of the
acquisition. The assets acquired and liabilities assumed were recorded at
estimated fair values as determined by the Company's management based on
information currently available and on current assumptions as to future
operations and based on an independent appraisal of the fair value of the
acquired intangible assets. Identifiable intangible assets acquired of $6.8
million are being amortized on a straight-line basis over a weighted average
period of 4.6 years. Goodwill will not be amortized in accordance with
Statement of Financial Accounting Standards ("SFAS") No.141, Business
Combinations.

     In connection with the LBI acquisition, the Company recorded a charge of
$5.8 million comprised of approximately $5.3 million for the write-off of
internal use software made obsolete by the acquisition of LBI and $0.5 million
for severance-related costs.

Acquisition of TCT Technical Training Pvt. Ltd.

     Effective November 16, 2001, the Company acquired TCT Technical Training
Pvt. Ltd. ("TCT"), of Kolkata, India, a content developer of custom courseware.
DigitalThink acquired all the outstanding shares of TCT for $500,000 in cash
after we received governmental approval in November 2001. TCT has been acting
exclusively as a contractor to the Company since April 2001, when the
transaction was first announced. Upon acquisition, $215,000 was recorded as an
intangible that will be amortized over one year, and $285,000 represented the
net fair market value of tangible assets acquired and liabilities assumed. The
acquisition of TCT was accounted for by the purchase method. TCT's results of
operations have been included in the Company's results of operations since the
effective date of the acquisition.

Strategic Alliance with Electronic Data Systems Corporation

     On July 11, 2000 the Company entered into an agreement with EDS pursuant
to which EDS was issued two separate performance warrants to purchase shares of
DigitalThink common stock. Under the terms of the first warrant, EDS could earn
warrants to purchase up to 862,955 shares of DigitalThink common stock
exercisable at $29 per share. The warrant could have been earned when EDS
delivered third-party customers from the United States prior to July 31, 2003,
which generated a total of $50 million of contractually committed revenue to
DigitalThink recognizable by July 31, 2005. The warrants expired October 31,
2003. This warrant contained a significant disincentive for non-performance. If
EDS failed to deliver the full $50 million of contracted, United States revenue
by July 31, 2003, EDS agreed to pay DigitalThink $5 million.

     Under the terms of the second warrant, EDS could earn warrants for up to
690,364 shares of DigitalThink common stock exercisable at $29 per share. The
warrant could have been earned when EDS delivered third-party customers from
outside the United States prior to July 31, 2003, which generated a total of
$50 million of contractually committed revenue to DigitalThink recognizable by
July 31, 2005. The warrants expired October 31, 2003. This warrant contained a
significant disincentive for non-performance. If EDS failed to deliver the full
$50 million of contracted, non-United States revenue by July 31, 2003, EDS
agreed to pay DigitalThink $5 million.

                                       25


     The Company calculated a fixed non-cash charge of $38 million related to
this transaction, based on the fair value of the warrants issued. A portion of
the warrant vested at the date of the transaction resulting in an immediate
charge of $4.9 million. Amortization of the remaining warrant expense would
occur over three years from July 2000 through July 2003, in proportion to the
amount of revenue generated under the agreement, or on a straight-line basis,
whichever is faster. Through March 31, 2002, amortization was recorded on a
straight-line basis totaling $24.1 million.

     On March 27, 2002, DigitalThink restructured the agreement entered into
with EDS, whereby EDS has surrendered its vested and unvested warrants to
purchase shares of DigitalThink common stock and DigitalThink has forgiven the
$10 million total non-performance penalty associated with these warrants.
Therefore, a charge of approximately $10 million was recorded as a reduction of
revenue and a credit of approximately $10 million was recorded as other income.

Impairment of Goodwill and Other Long-Lived Assets

     As part of our ongoing review of the Company's operations and financial
performance, we performed an assessment of the carrying value of the our
long-lived assets to be held for use including goodwill and other intangible
assets recorded in connection with our various acquisitions. The assessment was
performed pursuant to SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The conclusion of that
assessment was that the value of the technology purchased associated with the
Arista acquisition was no longer being utilized in current product offerings and
was not part of the product roadmap for the future. As a result, we recorded
charges of $10.4 million to write off the Arista goodwill during the fourth
quarter of fiscal 2002 as it no longer had any recoverable value.

     In addition, it is likely we may incur additional reductions in goodwill
upon adoption of SFAS No. 142, Goodwill and Other Intangible Assets.

Strategic Initiative--Restructuring Charge

     Since the middle of fiscal year 2002, the Company and its industry have
experienced a progressive downturn, the primary direct cause of which has been a
decrease in new training initiatives and a decrease in expenditures by most
Fortune 2000 companies. The Company believes that this decrease can be
attributable to, among other things: (a) constrained capital markets; and (b)
other factors, including the general economic business slowdown and other higher
priority objectives at potential clients. The result has been a decrease in the
overall demand for e-learning training. In response, buyers are exhibiting
caution when making significant expenditures. Moreover, as the economic slowdown
continues, the Company's current customers delayed committed projects to reduce
their spending. Consequently, the impact of the slowdown on the Company's
business is magnified, as it faces declining sales as the result of its
customers' declining business and the resulting adjustment to their spending
levels.

     In March 2002 we initiated a strategic initiative, under which we
restructured our business in response to the current market environment and as
part of our continuing program to create efficiencies within our operations. We
recorded total restructuring charges of $9.8 million as part of our strategic
initiative, which included the following:

     o    Reducing our workforce by approximately 80 employees, mainly within
          the learning services organization, resulting in a $700 thousand
          severance charge. Approximately $400 thousand was paid in March 2002,
          and approximately $300 thousand will be paid in the first and second
          quarters of fiscal 2003.

     o    Consolidating our sales, administrative and content and technology
          development facilities through building and site closures, from a
          total of approximately 244,000 square feet into approximately 100,000
          square feet. As of March 31, 2002, seven sites have been vacated: San
          Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
          California; two facilities in San Francisco, California and our office
          in the United Kingdom. Property and equipment that was disposed or
          removed from operations resulted in a charge of $2.3 million and
          consisted primarily of leasehold improvements, computer equipment and
          furniture and fixtures. In addition, we incurred a charge of $6.8
          million associated with leases related to excess or closed facilities,
          which represents the excess of the remaining lease obligations over
          estimated market value, net of anticipated sublease income. Amounts
          accrued (net of anticipated sublease proceeds) related to the
          consolidation of facilities will be paid over the respective lease
          terms through 2016.

                                       26


                       HISTORICAL RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, the percentage
of net revenue represented by certain items in our statement of operations.



                                                                          Year Ended March 31,
                                                              ---------------------------------------------
                                                                   2000            2001            2002
                                                              -------------   -------------   -------------
Revenues:
                                                                                     
 Delivered Learning fees (1) ..............................         46.2%           46.5%           47.1%
 Learning Solution services (1) ...........................         53.8            53.5            52.9
                                                                  ------          ------          ------
   Total revenues .........................................        100.0%          100.0%          100.0%
                                                                  ------          ------          ------
Costs and expenses:
 Cost of Delivered Learning fees ..........................         22.3            14.3            15.2
 Cost of Learning Solution services .......................         30.9            29.0            27.5
 Content research and development .........................         37.7            15.8            16.4
 Technology research and development ......................         34.1            30.5            26.1
 Selling and marketing ....................................        107.2            59.8            48.9
 General and administrative ...............................         21.7            15.6            17.0
 Depreciation .............................................          8.5             8.3            12.2
 Amortization of warrants .................................           --            34.0            25.4
 Stock-based compensation .................................         33.9            14.1             4.4
 Amortization of goodwill and other intangibles ...........           --             9.3            16.6
 Write-off of in-process research and development .........           --            18.4              --
 Impairment of goodwill ...................................           --              --            24.1
 Acquisition related charges ..............................           --              --            13.3
 Restructuring charges ....................................           --              --            22.6
                                                                  ------          ------          ------
   Total costs and expenses ...............................        296.3           249.1           269.7
                                                                  ------          ------          ------
Loss from operations ......................................       (196.3)         (149.1)         (169.7)
Penalty income recognized (1) .............................           --              --            23.1
Interest and other income .................................          9.8            13.8             4.4
Net loss ..................................................       (186.5)%        (135.3)%        (142.2)%


- ------------
(1) Reflects the forgiveness of the penalty associated with the restructuring
    of an agreement with EDS resulting in a reduction of revenues of $8.8
    million and $1.2 million for Delivery Learning fees and Learning Solution
    services, respectively, and $10 million of penalty income recognized in
    the fiscal year ended March 31, 2002.

Comparison of Fiscal 2001 and Fiscal 2002

     Revenues

     Revenues increased from $38.7 million in fiscal 2001 to $43.4 million for
fiscal 2002, reflecting the forgiveness of a penalty associated with the
restructuring of an agreement with EDS of approximately $10 million. In fiscal
2002, Delivered Learning fees represented 47% of revenues and Learning Solution
services represented 53% of revenues. This is compared to fiscal 2001, during
which Delivered Learning fees represented 47% of revenues and Learning Solution
services represented 53% of revenues.

     Delivered Learning Fees

     Delivered Learning fees increased from $18.0 million in fiscal 2001 to
$20.4 million in fiscal 2002, reflecting the forgiveness of a penalty
associated with the restructuring of an agreement with EDS of approximately
$8.8 million, as the number of customers increased from 366 to 458, and overall
course registration increased. In addition, we also increased the number of
catalog courses we offered from 257 to 317 and the number of custom courses
from 222 to 459. We expect that the number of courses and customers will
continue to increase as our content development projects progress.

                                       27


 Learning Solution Services

     Learning Solution service revenues increased from $20.7 million in fiscal
2001 to $23.0 million in fiscal 2002, reflecting the forgiveness of a penalty
associated with the restructuring of our agreement with EDS of approximately
$1.2 million, as the number of projects and dollar size of projects increased.
We expect that both Delivered Learning fees and Learning Solutions services
revenue will continue to account for a similarly significant proportion of our
total revenues in the near term.

     We market our products primarily through our direct sales force in the
United States. We also market our products through indirect channels including
resellers, consulting firms, customers, co-developers, and Internet portals.
Internationally, we have begun developing relationships with third-party
integrators and resellers. To date, our international revenues have been less
than 5% of total revenue.

Costs and Expenses

     Cost of Delivered Learning Fees

     Cost of Delivered Learning fees include personnel related costs,
maintenance and facility costs required to operate our Web site and to provide
interactive tutor support to participants in our courses. Cost of Delivered
Learning fees increased from $5.5 million in fiscal 2001 to $6.6 million in
fiscal 2002. This increase was attributable to increased personnel on average
throughout the year and rental equipment related expenses required for a
greater number of courses and an increased number of participants. In addition,
a greater number of customers and courses required additional support from
tutors to provide timely online responses to participants. Headcount, which
excludes third-party tutors related to Cost of Delivered Learning fees,
decreased from 36 employees at March 31, 2001 to 29 employees at March 31,
2002.

     Cost of Learning Solution Services

     Cost of Learning Solution services consists primarily of personnel related
costs and contractor expenses to develop custom and tailored courses for
specific customers. Cost of Learning Solution services increased from $11.2
million in fiscal 2001 to $11.9 million in fiscal 2002, due primarily to the
need for additional contractors throughout the year to meet demand for the
development of custom courses. Headcount decreased from 116 employees at March
31, 2001 to 56 at March 31, 2002.

     Content Research and Development

     Content research and development costs are expensed as incurred in
accordance with SFAS No. 86, and represent costs to develop catalog courses,
including personnel related costs, content acquisition costs and content
editing. Content research and development expenses increased from $6.1 million
in fiscal 2001 to $7.1 million in fiscal 2002. This increase was due to higher
content acquisition fees related to the purchase of additional content and the
hiring of additional personnel primarily engaged in catalog course development.
Headcount in content research and development increased from 57 employees at
March 31, 2001 to 218 employees at March 31, 2002 due to the acquisitions of
TCT and LBI during the year. Management believes that continued investment in
content development and content acquisition is essential to expand our
business. As a result, we expect these expenses to increase in future periods.

     Technology Research and Development

     Technology research and development expenses consist primarily of
personnel related costs in connection with product development efforts of
underlying technology. Technology research and development expenses decreased
from $11.8 million in fiscal 2001 to $11.3 million in fiscal 2002. This
decrease was due to the reduction in headcount during the year, from 73
employees at March 31, 2001 to 64 employees at March 31, 2002.

     Selling and Marketing

     Selling and marketing expenses consist primarily of personnel related
costs, commissions, advertising and other promotional expenses, royalties paid
to authors, and travel and entertainment expenses. Selling and marketing
expenses decreased from $23.1 million in fiscal 2001 to $21.2 million in fiscal
2002. This decrease reflects the

                                       28


reduction in headcount offset by higher commissions associated with increased
revenues. Headcount in sales and marketing decreased from 116 at March 31, 2001
to 58 employees at March 31, 2002. We expect selling and marketing expenses
will remain flat as we reevaluate our marketing efforts and review our
promotional activities.

     General and Administrative

     General and administrative expenses consist primarily of personnel related
costs, occupancy costs and professional service fees. General and
administrative expenses increased from $6.0 million in fiscal 2001 to $7.4
million in fiscal 2002. This increase was due to an increase in personnel
related costs, higher occupancy costs and fees related to professional
services. Headcount decreased from 43 employees at March 31, 2001 to 39
employees at March 31, 2002.

     Amortization of Goodwill and Other Intangibles

     Amortization of goodwill and other intangibles totaled $3.6 million in
fiscal 2001 associated with the acquisition of Arista. Amortization totaled
$7.2 million in fiscal 2002 related to amortization of goodwill and other
intangibles associated with the acquisition of Arista, and amortization of
other intangibles associated with the acquisition of LBI.

     Amortization of warrants

     The Company recorded amortization of $13.1 million in fiscal 2001 and
$11.0 million in fiscal 2002 in connection with the strategic alliance with EDS
and the two separate performance warrants to purchase shares of the Company's
common stock.

     Goodwill Impairment

     As part of our ongoing review of the Company's operations and financial
performance, we performed an assessment of the carrying value of the our
long-lived assets to be held for use including goodwill and other intangible
assets recorded in connection with our various acquisitions. The assessment was
performed pursuant to SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The conclusion of that
assessment was that the value of the technology purchased associated with the
Arista acquisition was no longer being used in the current product offerings
and was not part of the product roadmap for the future. As a result, we
recorded charges of $10.4 million to write off the Arista goodwill during the
fourth quarter of fiscal 2002 as it no longer had any recoverable value.

     Acquisition and Other Related Charges

     Expenses related to the acquisition of LBI and other related charges
totaled $5.8 million in fiscal 2002 and are comprised of approximately $5.3
million for the write-off of internal use software made obsolete by the
acquisition, and approximately $500,000 for severance-related costs for
redundancies. The write-off of internal use software related to one significant
project that was put into service during fiscal 2002 to better enable content
development by the Company and clients, but was determined to be obsolete given
LBI's technology.

     Restructuring

     In March 2002 we initiated a strategic initiative, under which we
restructured our business in response to the current market environment and as
part of our continuing program to create efficiencies within our operations. We
recorded total restructuring charges of $9.8 million as part of our strategic
initiative, which included the following:

     o    Reducing our workforce by approximately 80 employees, mainly within
          the learning services organization, resulting in a $700 thousand
          severance charge. Approximately $400 thousand was paid in March 2002,
          and approximately $200 thousand will be paid in the first and second
          quarters of fiscal 2003.

     o    Consolidating our sales, administrative and content and technology
          development facilities through building and site closures, from a
          total of approximately 244,000 square feet into approximately 100,000
          square feet. As of March 31, 2002, seven sites have been vacated: San
          Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
          California; two facilities in San Francisco, California and our office
          in the United

                                       29


          Kingdom. Property and equipment that was disposed or removed from
          operations resulted in a charge of $2.3 million and consisted
          primarily of leasehold improvements, computer equipment and furniture
          and fixtures. In addition, we incurred a charge of $6.8 million
          associated with leases related to excess or closed facilities, which
          represents the excess of the remaining lease obligations over
          estimated market value, net of anticipated sublease income. Amounts
          accrued (net of anticipated sublease proceeds) related to the
          consolidation of facilities will be paid over the respective lease
          terms through 2016.

     Write-off of In-Process Research and Development

     On July 6, 2000 DigitalThink, Inc. acquired Arista. Of the purchase price,
$7.1 million represented purchased in-process technology that was estimated to
be 70% complete in its development at the time of acquisition. The in-process
technology represented a turnkey solution for education and knowledge
distribution systems that had not yet reached technological feasibility and had
no alternative future use. Accordingly, this amount was immediately expensed in
the consolidated statement of operations upon consummation of the acquisition.
The value of intangibles was based upon management's estimates of after tax
cash flow. The valuation gave consideration to the following: (i) comprehensive
due diligence concerning all potential intangibles; (ii) the value of developed
and core technology, ensuring that the relative allocations to core technology
and in-process research and development, were consistent with the contribution
of final products; (iii) the allocation to in-process research and development
was based upon a calculation that only considered the efforts completed as of
the date of the transaction, and only cash flows associated with one generation
of products currently in-process; and (iv) it was performed by an independent
valuation group. A discount rate of 28% was used for the in-process technology.
Intangible assets acquired will be amortized on a straight-line basis over a
period of up to four years.

     Stock-Based Compensation

     Stock-based compensation expense totaled $5.4 million in fiscal 2001 and
$1.9 million in fiscal 2002.

     Penalty Recognized

     On March 27, 2002, DigitalThink restructured the agreement entered into
with EDS, whereby EDS surrendered its vested and unvested warrants to purchase
shares of DigitalThink common stock and DigitalThink forgave the $10.0 million
total non-performance penalty associated with this agreement. Therefore, a
charge of approximately $10 million was recorded as a reduction of revenue and
a credit of approximately $10.0 million was recorded as other income.

     Net Loss

     The net loss increased from $52.2 million in fiscal 2001 to $61.6 million
in fiscal 2002.

Comparison of Fiscal 2000 and Fiscal 2001

     Revenues

     Revenues increased from $10.8 million in fiscal 2000 to $38.7 million for
fiscal 2001. In fiscal 2001, Delivered Learning fees represented 47% of
revenues and Learning Solution services represented 53% of revenues. This is
compared to fiscal 2000, during which Delivered Learning fees represented 46%
of revenues and Learning Solution services represented 54% of revenues.

     Delivered Learning Fees

     Delivered Learning fees increased from $5.0 million in fiscal 2000 to
$18.0 million in fiscal 2001 as the number of customers increased from 231 to
366, and overall course registration increased. In addition, we also increased
the number of catalog courses we offered from 232 to 257 and the number of
custom courses from 132 to 222.

     Learning Solution Services

     Learning Solution service revenues increased from $5.8 million in fiscal
2000 to $20.7 million in fiscal 2001 as the number of projects and dollar size
of projects increased.

                                       30


Costs and Expenses

     Cost of Delivered Learning Fees

     Cost of Delivered Learning fees include personnel related costs,
maintenance and facility costs required to operate our Web site and to provide
interactive tutor support to participants in our courses. Cost of Delivered
Learning fees increased from $2.4 million in fiscal 2000 to $5.5 million in
fiscal 2001. This increase was attributable to increased personnel and
equipment related expenses required for a greater number of courses and an
increased number of participants. In addition, a greater number of customers
and courses required additional support from tutors to provide timely online
responses to participants. Headcount, which excludes third-party tutors related
to cost of Delivered Learning fees, increased from 19 employees at March 31,
2000 to 36 employees at March 31, 2001.

     Cost of Learning Solution Services

     Cost of Learning Solution services consists primarily of personnel related
costs and contractor expenses to develop custom and tailored courses for
specific customers. Cost of Learning Solution services increased from $3.3
million in fiscal 2000 to $11.2 million in fiscal 2001, due primarily to the
need for additional headcount to meet demand for the development of custom
courses. Headcount increased from 64 employees at March 31, 2000 to 116 at
March 31, 2001.

     Content Research and Development

     Content research and development expenses represent costs to develop
catalog courses, including personnel related costs, content acquisition costs
and content editing. Content research and development expenses increased from
$4.1 million in fiscal 2000 to $6.1 million in fiscal 2001. This increase was
due to higher content acquisition fees related to the purchase of additional
content and the hiring of additional personnel primarily engaged in catalog
course development. Headcount in content research and development increased
from 36 employees at March 31, 2000 to 57 employees at March 31, 2001.

     Content research and development expenses are expensed as incurred, except
for costs related to localizing a course to a specific country. In accordance
with Financial Accounting Standards Board ("FASB") Statement No. 86, under
which we are required to capitalize software development costs after
technological feasibility has been established. In fiscal 2001, approximately
$160,000 in localization costs have been capitalized related to translating
courses in different languages.

     Technology Research and Development

     Technology research and development expenses consist primarily of
personnel related costs in connection with product development efforts of
underlying technology. Technology research and development expenses increased
from $3.7 million in fiscal 2000 to $11.8 million in fiscal 2001. This increase
was due to the hiring of additional technology research and development
employees and the acquisition of Arista. Headcount increased from 39 employees
at March 31, 2000 to 73 employees at March 31, 2001.

     Software development costs are accounted for in accordance with the FASB
Statement No. 86, under which we are required to capitalize software
development costs after technological feasibility has been established. In
fiscal 2001, approximately $4.9 million in development costs have been
capitalized related to a new delivery platform, where technological feasibility
has been reached.

     Selling and Marketing

     Selling and marketing expenses consist primarily of personnel related
costs, commissions, advertising and other promotional expenses, royalties paid
to authors, and travel and entertainment expenses. Selling and marketing
expenses increased from $11.6 million in fiscal 2000 to $23.1 million in fiscal
2001. This increase reflects the costs associated with the hiring of additional
personnel and increased promotional activities. Headcount in sales and
marketing increased from 57 at March 31, 2000 to 116 employees at March 31,
2001.

                                       31


 General and Administrative

     General and administrative expenses consist primarily of personnel related
costs, occupancy costs and professional service fees. General and
administrative expenses increased from $2.3 million in fiscal 2000 to $6.0
million in fiscal 2001. This increase was due to an increase in personnel
related costs, higher occupancy costs and fees related to professional
services. Headcount increased from 20 employees at March 31, 2000 to 43
employees at March 31, 2001.

     Amortization of Goodwill and Other Intangibles

     Amortization totaled $3.6 million in fiscal 2001 associated with the
acquisition of Arista. No amortization was recorded in fiscal 2000.

     Amortization of warrants

     The Company recorded amortization in fiscal 2001 of $13.1 million in
connection with the strategic alliance with EDS and the two separate
performance warrants to purchase shares of the Company's common stock. No
amortization was recorded in fiscal 2000.

     Stock-Based Compensation

     Stock-based compensation expense totaled $3.7 million in fiscal 2000 and
$5.4 million in fiscal 2001.

     Net Loss

     The net loss increased from $20.2 million in fiscal 2000 to $52.2 million
in fiscal 2001.

Quarterly Results of Operations

     The following table sets forth unaudited quarterly consolidated statement
of operations data for each of the eight most recent quarters. In our opinion,
this information has been prepared on the same basis as the audited financial
statements contained in this report and includes all adjustments, consisting
only of normal recurring adjustments, we consider necessary for fair
presentation in accordance with generally accepted accounting principles. This
information should be read in conjunction with our annual consolidated
financial statements and the related notes appearing elsewhere in this report.
Our operating results for any three-month period are not necessarily indicative
of results for any future period.



                             June 30,   September 30,   December 31,   March 31,
                               2000          2000           2000          2001
                            ---------- --------------- -------------- -----------
                                                          
Revenues:
Delivered Learning
 fees (1) .................   $2,395        $3,322         $ 5,460      $ 6,801
Learning Solution
 services (1) .............    3,867         5,438           5,327        6,048
                              ------        ------         -------      -------
Total revenues ............    6,262         8,760          10,787       12,849
Costs and expenses:
Cost of Delivered
 Learning fees ............    1,012         1,331           1,521        1,645
Cost of Learning
 Solution services ........    2,281         2,932           2,981        3,017
Content research and
 development ..............    2,820         1,125           1,062        1,085
Technology research
 and development ..........    2,142         2,778           3,435        3,436
Selling and marketing .....    3,921         5,736           6,585        6,863
General and
 administrative ...........    1,174         1,498           1,558        1,816
Depreciation ..............      562           771             922          935
Amortization of
 warrants .................       --         7,629           2,751        2,751
Stock-based
 compensation .............    1,549         1,656           1,182        1,045


                             June 30,   September 30,   December 31,    March 31,
                               2001          2001           2001          2002
                            ---------- --------------- -------------- ------------
                                                          
Revenues:
Delivered Learning
 fees (1) .................  $ 7,778       $ 8,239         $ 7,397      $ (3,013)
Learning Solution
 services (1) .............    7,232         7,045           6,410         2,268
                             -------       -------         -------      --------
Total revenues ............   15,010        15,284          13,807          (745)
Costs and expenses:
Cost of Delivered
 Learning fees ............    1,795         1,775           1,567         1,482
Cost of Learning
 Solution services ........    3,363         3,375           3,023         2,173
Content research and
 development ..............    1,382         1,919           1,862         1,931
Technology research
 and development ..........    3,246         3,153           2,603         2,316
Selling and marketing .....    7,210         5,390           4,676         3,932
General and
 administrative ...........    1,758         1,790           1,604         2,203
Depreciation ..............    1,067         1,443           1,308         1,456
Amortization of
 warrants .................    2,751         2,751           2,751         2,750
Stock-based
 compensation .............      628           541             469           250


                                       32




                              June 30,    September 30,   December 31,   March 31,
                                2000           2000           2000          2001
                            ------------ --------------- -------------- -----------
                                                            
Amortization of
 goodwill and other
 intangibles ..............         --          1,201          1,201        1,200
Write-off of in-process
 research and
 development ..............         --          7,118             --           --
Impairment of goodwill              --             --             --           --
Acquisition and other
 related charges ..........         --             --             --           --
Restructuring charge ......         --             --             --           --
                                    --          -----          -----        -----
Total costs and
 expenses .................     15,461         33,775         23,198       23,793
                                ------         ------         ------       ------
Interest and other
 income ...................      1,549          1,434          1,317        1,044
Penalty income
 recognized (1) ...........         --             --             --           --
                                ------         ------         ------       ------
Net loss ..................   $ (7,650)     $ (23,581)     $ (11,094)    $ (9,900)
                              ========      =========      =========     ========


                              June 30,    September 30,   December 31,    March 31,
                                2001           2001           2001           2002
                            ------------ --------------- -------------- -------------
                                                            
Amortization of
 goodwill and other
 intangibles ..............      1,201          1,794          2,114          2,099
Write-off of in-process
 research and
 development ..............         --             --             --             --
Impairment of goodwill              --             --             --         10,437
Acquisition and other
 related charges ..........         --          5,792             --             --
Restructuring charge ......         --             --             --          9,778
                                 -----          -----          -----         ------
Total costs and
 expenses .................     24,401         29,723         21,977         40,807
                                ------         ------         ------         ------
Interest and other
 income ...................        829            578            324            180
Penalty income
 recognized (1) ...........         --             --             --         10,000
                                ------         ------         ------         ------
Net loss ..................   $ (8,562)     $ (13,861)      $ (7,846)     $ (31,372)
                              ========      =========       ========      =========


- ------------
(1) Reflects the forgiveness of the penalty associated with the restructuring
    of an agreement with EDS resulting in a reduction of revenues of $8.8
    million and $1.2 million for Delivery Learning fees and Learning Solution
    services, respectively, and $10 million of penalty income recognized in
    the fiscal year ended March 31, 2002.

Critical Accounting Policies

     Management has evaluated the accounting policies used in the preparation
of the accompanying consolidated financial statements and related notes and
believes those policies to be reasonable and appropriate. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities. We believe that the following accounting policies are
both important to the portrayal of the company's financial condition and
results and requires management's most difficult, subjective or complex
judgments.

     Revenue Recognition. The Company has two types of revenue: Delivered
Learning fees and Learning Solution services. Delivered Learning fees allow
access to training systems, courses hosted by the Company, tutor support, and
other learning materials for a fixed period, typically six months. Delivered
Learning fees are recognized ratably over this access period. Learning Solution
services revenue consists of revenue from fixed-price contracts, which require
the accurate estimation of the value, scope and duration of each course hour.
Revenue for these projects is recognized on percentage of completion, in
accordance with AICPA Statement of Position (SOP) 81-1, Accounting for
Performance of Construction/Production-Type Contracts, as development
progresses based on the percentage of completion method. The percentage of
completion is based on the ratio of actual custom development or service costs
incurred to date, to total estimated costs to complete the custom course or
service. Provisions for estimated losses on incomplete contracts are made on a
contract by contract basis and recognized in the period in which such losses
become probable and can be reasonably estimated. If the Company does not
accurately estimate the resources required or the scope of work to be
performed, or does not manage its projects properly within the planned periods
of time or satisfy its obligations under the contracts, then future learning
services margins may be significantly and negatively affected or losses on
existing contracts may need to be recognized. Any such resulting reductions in
margins or contract losses could be material to the Company's results of
operations.

     Allowance for Doubtful Accounts. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. We review, with assistance from our sales
team, the ability of our customers to pay the indebtedness. We provide an
allowance for doubtful accounts for all specific receivables that we judge to
be unlikely of collection. In addition, we record an estimated reserve based on
the size and age of all receivable balances against which we have not
established a specific reserves. These estimated allowances are periodically
reviewed, analyzing the customer's payment history and information regarding
customer's credit worthiness known to us. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

                                       33


     Goodwill and Other Acquired Intangibles. Our business acquisitions
typically result in goodwill and other intangible assets, which affect the
amount of future period amortization expense and possible impairment expense
that we will incur. The determination of the value of such intangible assets
requires management to make estimates and assumptions that affect our
consolidated financial statements. In assessing the recoverability of the
Company's goodwill and other intangibles, the Company must make assumptions
regarding estimated future cash flows and other factors to determine the fair
value of the respective assets. If these estimates or their related assumptions
change in the future, the Company may be required to record impairment charges
for these assets not previously recorded. Effective April 1, 2002 the Company
will adopt SFAS No. 142, Goodwill and Other Intangible Assets, and will be
required to analyze its goodwill for impairment issues during the first six
months of fiscal 2003, and then on a periodic basis thereafter. It is likely we
may incur additional reductions in goodwill upon adoption of SFAS No. 142.
During the year ended March 31, 2002, the Company recorded an impairment loss
related to goodwill of $10.4 million associated with the Arista acquisition.

     Operating Leases. We have many operating lease agreements related to our
office buildings throughout the United States, the United Kingdom and India.
The agreements qualify for operating lease accounting treatment under SFAS No.
13, Accounting for Leases, and, as such, the assets are not included on our
balance sheet. We believe we will be able to meet our obligations under the
agreements, but if we default on our commitments and are unable to remedy the
default quickly enough, the lessors may terminate all remaining commitments and
demand payment equal to the lessor's net present value of all future lease
payments. If we default on the leases and are required to make payment, this
will decrease our cash available for working capital and could require us to
find alternate facilities on terms that may not be as favorable as the current
arrangement. As of March 31, 2002, we were in compliance with all covenants.
For further information on these leases, please refer to our "Commitments"
section under "Liquidity and Capital Resources" and Note 12 of our Notes to
Consolidated Financial Statements.

     We have chosen to account for our common stock incentive awards under the
intrinsic value method, in accordance with Accounting Principles Board (APB)
Opinion No. 25. This accounting policy is applied consistently for all years
presented. Our operating results would have been affected if other alternatives
were used. Information about the impact on our operating results of using APB
Opinion No. 25 is included in Note 8 of our Notes to Consolidated Financial
Statements.

Liquidity and Capital Resources

     Through February 25, 2000, we historically satisfied our cash requirements
primarily through private placements of equity securities, raising since
inception a total of $45.1 million. On February 25, 2000, we completed our
initial public offering and concurrent private placements raising a total of
$78.7 million, net of expenses. See Note 8 of Notes to Consolidated Financial
Statements. As of March 31, 2002, we had cash and cash equivalents of $29.5
million compared to $30.5 million on March 31, 2001. In addition, on March 31,
2002 we had investments in marketable securities of $1.6 million, compared to
$33.5 million on March 31, 2001.

     Net cash used in operating activities totaled $10.5 million for fiscal
2000, $20.2 million for fiscal 2001, and $19.0 million for fiscal 2002. Cash
used in operating activities resulted from net operating losses in each of the
periods and changes in operating assets and liabilities. To date, we have met
our operating expense requirements primarily from the proceeds of our equity
offerings. Deferred revenue decreased from $11.5 million at March 31, 2001 to
$7.0 million at March 31, 2002. Deferred revenue results from customer
prepayments of Delivered Learning fees and Learning Solutions services. In both
cases, prepayments remain in deferred revenue until revenue recognition
criteria have been met.

     Net cash used in investing activities totaled $49.4 million in fiscal
2000, $5.8 million in fiscal 2001, and net cash provided by investing
activities totaled $17.1 in fiscal 2002. The source of cash resulted from the
sales of marketable securities offset by the acquisition of capital assets,
including hardware for our Web site, computer and office equipment, and
platform development costs, and purchases of marketable securities.

     Cash provided by financing activities totaled $105.3 million in fiscal
2000, $1.7 million in fiscal 2001, and $1.2 in fiscal 2002. The sources in
fiscal 2000 were attributable to both the issuance of preferred stock in
November 1999 and our initial public offering and private placement in February
2000. The sources in fiscal 2001 and fiscal 2002 were the proceeds received
from issuance of common stock through the exercise of options and the employee
stock purchase plan.

                                       34


     In December 2001 we entered into a $5 million line of credit agreement,
expiring in December 2002, and had available $2.8 million from this line of
credit as of March 31, 2002. Subsequent to March 31, 2002, the balance on the
line of credit of $2.2 million was repaid.

     The company leases its facilities and certain equipment and furniture
under operating lease agreements that expire at various dates through fiscal
2007 and thereafter. Future lease payments under the operating lease agreements
are approximately as follows:



                                 
Fiscal Year Ending March 31,          (000's)
  2003 ..........................     $7,196
  2004 ..........................      6,677
  2005 ..........................      6,554
  2006 ..........................      6,710
  2007 ..........................      6,722
  Thereafter ....................     27,585
                                      ------
  Total .........................    $61,444
                                     =======


     We believe our existing cash resources and available borrowings are
sufficient to finance our presently anticipated operating expenses and working
capital requirements for at least the next twelve months. Our future liquidity
and capital requirements will depend on numerous factors. The rate of expansion
of our operations in response to potential growth opportunities and competitive
pressures will affect our capital requirements as will funding of continued net
losses and substantial negative cash flows. Additionally, we may need
additional capital to fund acquisitions of complementary businesses, products,
and technologies. Our forecast of the period of time through which our
financial resources will be adequate to support operations is a forward-looking
statement that involves risks and uncertainties. Actual resources sought may
differ materially. We may seek to sell additional equity or debt securities or
secure a larger bank line of credit. The sale of additional equity or debt
securities could result in additional dilution to our stockholders. Currently,
we have no other immediately available sources of liquidity. Additional
financing may not be available in amounts or on terms acceptable to us, if at
all.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes a new model for accounting for derivatives and hedging
activities and supercedes and amends a number of existing accounting standards.
SFAS No. 133 requires that all derivatives be recognized in the balance sheet
at their fair market value and the corresponding derivative gains or losses be
either reported in the statement of operations or as a deferred item depending
on the type of hedge relationship that exists with respect of such derivatives.
In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date until years
beginning after June 30, 2000. In June 2000, the FASB issued SFAS No. 138,
Accounting for Derivative Instruments and Hedging Activities--An Amendment of
FASB Statement No. 133. SFAS No. 138 amends the accounting and reporting
standards for certain derivatives and hedging activities such as net settlement
contracts, foreign currency transactions and intercompany derivatives. The
Company has adopted SFAS No. 133 in its quarter ending June 30, 2001. To date,
the Company has not engaged in derivative or hedging activities, and
accordingly, the adoption of SFAS No. 133 had no impact on the financial
statements.

     In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No.142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be amortized, but will
rather be tested at least annually for impairment. The Company will adopt SFAS
No. 142 for its fiscal year beginning April 1, 2002. During the first half of
fiscal year 2003, we will perform the first of the required impairment tests

                                       35


of goodwill and indefinite-lived intangible assets as of April 1, 2002. We are
currently assessing the impact, if any, of SFAS 142 on our financial position
and results of operations.

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires businesses to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. We
are required to adopt SFAS No. 143 for our fiscal year beginning April 1, 2003.
We are currently assessing the impact, if any, of SFAS No. 143 on our financial
position and results of operations.

     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of and APB No. 30, Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 144 also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell. The
statement also significantly changes the criteria required to classify an asset
as held-for-sale. Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from
the ongoing operations of the entity in a disposal transaction. We are required
to adopt SFAS 144 for our fiscal year beginning April 1, 2002. We are currently
assessing the impact, if any, of SFAS 144 on our financial position and results
of operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

     The following discusses our exposure to market risk related to changes in
interest rates and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors.

Interest Rate Risk

     As of March 31, 2002, we had cash and cash equivalents of $29.5 million,
consisting of cash and highly liquid short-term investments with original
maturities of three months or less at the date of purchase. Additionally the
Company had marketable securities, classified as available for sale, with
maturities greater than three months totaling $1.6 million. These investments
may be subject to interest rate risk and will decrease in value if market rates
increase. A hypothetical increase or decrease in market interest rates of 10%
from the market rates in effect at March 31, 2002 would cause the fair value of
these investments to change by an immaterial amount. Declines in interest rates
over time would result in lower interest income.

Foreign Currency and Exchange Rate Risk

     Almost all of our revenues recognized to date have been denominated in
U.S. dollars and are primarily from the United States. However, a portion of
our future revenue may be derived from international customers. Revenues from
these customers may be denominated in the local currency of the applicable
countries. As a result, our operating results could become subject to
significant foreign currency fluctuations based upon changes in exchange rates
in relation to the U.S. dollar.

     Furthermore, as we engage in business outside the United States, changes
in exchange rates relative to the U.S. dollar could make us less competitive in
international markets. Although we will continue to monitor our foreign
currency exposure, and may use financial instruments to limit this exposure,
there can be no assurance that exchange rate fluctuations will not have a
materially negative impact on our business.

                                       36


Item 8. Consolidated Financial Statements and Supplementary Data

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                                              Page
                                                                                             -----
                                                                                          
Independent Auditors' Report .............................................................   38
Consolidated Balance Sheets as of March 31, 2001 and 2002 ................................   39
Consolidated Statements of Operations for the years ended March 31, 2000, 2001 and 2002 ..   40
Consolidated Statement of Stockholders' Equity (Deficit) for the years ended March 31,
   2000, 2001 and 2002 ...................................................................   41
Consolidated Statements of Cash Flows for the years ended March 31, 2000, 2001 and 2002 ..   42
Notes to Consolidated Financial Statements ...............................................   43


                                       37


                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
DigitalThink, Inc.

     We have audited the accompanying consolidated balance sheets of
DigitalThink, Inc. and subsidiaries as of March 31, 2001 and 2002, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended March 31, 2002.
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 of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of DigitalThink, Inc. and
subsidiaries at March 31, 2001 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2002 in conformity with accounting principles generally accepted in the United
States of America.

                                        DELOITTE & TOUCHE LLP

San Jose, California
April 23, 2002

                                       38


                      DIGITALTHINK, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                     (in thousands, except per share data)



                                                                                        As of March 31,
                                                                                 -----------------------------
                                                                                      2001            2002
                                                                                 --------------   ------------
                                                                                            
                                                               ASSETS
Current assets:
 Cash and cash equivalents ...................................................     $ 30,512        $   29,470
 Marketable securities .......................................................       33,526             1,640
 Accounts receivable, net of allowance for doubtful accounts of $247 and $484,
   respectively ..............................................................        9,027             5,779
 Prepaid expenses and other current assets ...................................        4,118             1,675
                                                                                   ---------       ----------
    Total current assets .....................................................       77,183            38,564
Restricted cash and deposits .................................................        3,833             4,083
Property and equipment, net ..................................................       15,061            18,325
Goodwill and other intangible assets .........................................       15,610            75,300
                                                                                   ---------       ----------
    Total assets .............................................................     $111,687        $  136,272
                                                                                   =========       ==========
                                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable ............................................................     $  4,471        $    3,569
 Accrued liabilities .........................................................        6,524            13,238
 Borrowings under line of credit .............................................           --             2,577
 Deferred revenues ...........................................................       11,548             7,043
                                                                                   ---------       ----------
    Total current liabilities ................................................       22,543            26,427
Long-term liabilities ........................................................           17               119
Commitments and contingencies (Note 12)
Stockholders' equity:
 Common stock -- $0.001 per share value; 250,000 shares authorized;
   issued and outstanding 34,999 in 2001 and 40,452 in 2002 ..................      187,583           267,814
Deferred stock compensation ..................................................       (3,099)             (631)
Stockholders' notes receivable ...............................................             (9)             --
Accumulated other comprehensive income .......................................          204              (264)
Accumulated deficit ..........................................................      (95,552)         (157,193)
                                                                                   ----------      ----------
Total stockholders' equity ...................................................       89,127           109,726
                                                                                   ----------      ----------
Total liabilities and stockholders' equity ...................................     $111,687        $  136,272
                                                                                   ==========      ==========


          See accompanying notes to consolidated financial statements.
                                       39


                      DIGITALTHINK, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)



                                                                              Year Ended March 31,
                                                                   ------------------------------------------
                                                                       2000           2001           2002
                                                                   ------------   ------------   ------------
                                                                                        
Revenues:
 Delivered Learning fees .......................................    $   4,994      $  17,978      $  20,401
 Learning Solution services ....................................        5,821         20,680         22,955
                                                                    ---------      ---------      ---------
    Total revenues .............................................       10,815         38,658         43,356
                                                                    ---------      ---------      ---------
Costs and expenses:
 Cost of Delivered Learning fees ...............................        2,409          5,509          6,619
 Cost of Learning Solution services ............................        3,337         11,211         11,934
 Content research and development ..............................        4,082          6,092          7,094
 Technology research and development ...........................        3,687         11,791         11,318
 Selling and marketing .........................................       11,596         23,105         21,208
 General and administrative ....................................        2,342          6,046          7,355
 Depreciation ..................................................          915          3,190          5,274
 Amortization of warrants ......................................           --         13,131         11,003
 Stock-based compensation* .....................................        3,663          5,432          1,888
 Amortization of goodwill and other intangibles ................           --          3,602          7,208
 Write-off of in-process research and development ..............           --          7,118             --
 Impairment of goodwill ........................................           --             --         10,437
 Acquisition related charges ...................................           --             --          5,792
 Restructuring charge ..........................................           --             --          9,778
                                                                    ---------      ---------      ---------
    Total costs and expenses ...................................       32,031         96,227        116,908
                                                                    ---------      ---------      ---------
Loss from operations ...........................................      (21,216)       (57,569)       (73,552)
Penalty income recognized (Note 13) ............................           --             --         10,000
Interest and other income ......................................        1,055          5,344          1,911
                                                                    ---------      ---------      ---------
Net loss .......................................................      (20,161)     $ (52,225)     $ (61,641)
                                                                    =========      =========      =========
Accretion of redeemable convertible preferred stock ............    $   7,593      $      --      $      --
                                                                    ---------      ---------      ---------
Loss attributable to common stockholders .......................      (27,754)     $ (52,225)     $ (61,641)
                                                                    ---------      ---------      ---------
Basic and diluted loss per common share ........................    $   (3.87)     $   (1.51)     $   (1.61)
                                                                    ---------      ---------      ---------
Shares used in basic and diluted loss per common share .........        7,164         34,524         38,176
                                                                    ---------      ---------      ---------
Pro forma basic and diluted loss per common share ..............    $   (1.09)     $   (1.51)     $   (1.61)
                                                                    =========      =========      =========
Shares used in pro forma basic and diluted net loss per
 common share ..................................................       25,412         34,524         38,176
                                                                    =========      =========      =========
(*) Stock-based compensation:
  Cost of Delivered Learning fees ..............................    $     143      $     121      $      28
  Cost of Learning Solution services ...........................          318            500            165
  Content research and development .............................           72             76             34
  Technology research and development ..........................          473          1,329            555
  Selling and marketing ........................................        1,042          1,391            451
  General and administrative ...................................        1,615          2,015            655
                                                                    ---------      ---------      ---------
    Total ......................................................    $   3,663      $   5,432      $   1,888
                                                                    =========      =========      =========


          See accompanying notes to consolidated financial statements.
                                       40


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                   Years ended March 31, 2000, 2001 and 2002
                                (in thousands)



                                                   Common stock
                                              ----------------------  Deferred Stock
                                                Shares     Amount      Compensation
                                              --------- ------------ ----------------
                                                               
Balances, March 31, 1999 ....................  $ 4,131    $    400      $    (332)
Components of comprehensive income: .........
 Net loss ...................................       --          --             --
   Total comprehensive income ...............
 Exercise of stock options ..................      707         506             --
 Accretion for redemption value on
  Series A, B, C and D preferred stock ......       --          --             --
 Conversion of preferred stock to
  common stock ..............................   22,815      58,242             --
 Common stock issued for cash in
  initial public offering and
  concurrent private placement, net
  of issuance costs .........................    6,135      78,728             --
 Deferred stock compensation ................       --      11,284        (11,284)
 Amortization of deferred stock
  compensation ..............................       --          --          3,663
                                               -------    --------      ---------
Balances, March 31, 2000 ....................   33,788     149,160         (7,953)
Components of comprehensive income:
 Net loss ...................................       --          --             --
 Change in unrealized gain on available-
  for-sale investments ......................       --          --             --
 Translation adjustment .....................       --          --             --
   Total comprehensive income ...............
 Exercise of stock options ..................      525         480             --
 Employee stock purchase plan ...............      100       1,187             --
 Stockholders' notes receivable .............       --          --             --
 Forfeited and unvested options .............       --        (974)           974
 Amortization of deferred stock
  compensation ..............................       --          --          5,432
 Amortization of warrants ...................       --      13,131             --
 Issuance of common stock and
  assumption of stock options in
  connection with acquisition ...............      586      24,599         (1,552)
                                               -------    --------      ---------
Balances, March 31, 2001 ....................   34,999    $187,583      $  (3,099)
Components of comprehensive income:
 Net loss ...................................       --          --             --
 Change in unrealized gain on available-
  for-sale investments ......................       --          --             --
 Translation adjustment .....................       --          --             --
   Total comprehensive income ...............
 Exercise of stock options and warrants .....      516         993             --
 Employee stock purchase plan ...............      228       1,629             --
 Repayment of stockholders' notes
  receivable ................................       --          --             --
 Forfeited and unvested options .............       --        (580)           580
 Amortization of deferred stock
  compensation ..............................       --          --          1,888
 Amortization of warrants ...................       --      11,003             --
 Issuance of common stock and
  assumption of warrants in connection
  with acquisition ..........................    4,709      67,186             --
                                               -------    --------      ---------
Balances, March 31, 2002 ....................   40,452    $267,814      $    (631)
                                               =======    ========      =========


                                                                   Accumulated
                                                                      Other
                                                 Stockholders'    Comprehensive    Accumulated
                                               Notes Receivable       Income         Deficit         Total
                                              ------------------ --------------- -------------- ---------------
                                                                                       
Balances, March 31, 1999 ....................        $--             $   --        $  (15,573)     $(15,505)
Components of comprehensive income: .........
 Net loss ...................................         --                 --           (20,161)      (20,161)
                                                                                                   --------
   Total comprehensive income ...............                                                       (20,161)
                                                                                                   --------
 Exercise of stock options ..................         --                 --                --           506
 Accretion for redemption value on
  Series A, B, C and D preferred stock ......         --                 --            (7,593)       (7,593)
 Conversion of preferred stock to
  common stock ..............................         --                 --                --        58,242
 Common stock issued for cash in
  initial public offering and
  concurrent private placement, net
  of issuance costs .........................         --                 --                --        78,728
 Deferred stock compensation ................         --                 --                --            --
 Amortization of deferred stock
  compensation ..............................         --                 --                --         3,663
                                                     ---             ------        ----------      --------
Balances, March 31, 2000 ....................         --                 --           (43,327)       97,880
Components of comprehensive income:
 Net loss ...................................         --                 --           (52,225)      (52,225)
 Change in unrealized gain on available-
  for-sale investments ......................         --                177                --           177
 Translation adjustment .....................         --                 27                --            27
                                                                                                   --------
   Total comprehensive income ...............                                                       (52,021)
                                                                                                   --------
 Exercise of stock options ..................         --                 --                --           480
 Employee stock purchase plan ...............         --                 --                --         1,187
 Stockholders' notes receivable .............           (9)              --                --              (9)
 Forfeited and unvested options .............         --                 --                --            --
 Amortization of deferred stock
  compensation ..............................         --                 --                --         5,432
 Amortization of warrants ...................         --                 --                --        13,131
 Issuance of common stock and
  assumption of stock options in
  connection with acquisition ...............         --                 --                --        23,047
                                                     -----           ------        ----------      ----------
Balances, March 31, 2001 ....................        $(9)            $  204        $  (95,552)     $ 89,127
Components of comprehensive income:
 Net loss ...................................         --                 --           (61,641)      (61,641)
 Change in unrealized gain on available-
  for-sale investments ......................         --               (165)               --          (165)
 Translation adjustment .....................         --               (303)               --          (303)
                                                                                                   ----------
   Total comprehensive income ...............                                                       (62,109)
                                                                                                   ----------
 Exercise of stock options and warrants .....         --                 --                --           993
 Employee stock purchase plan ...............         --                 --                --         1,629
 Repayment of stockholders' notes
  receivable ................................          9                 --                --             9
 Forfeited and unvested options .............         --                 --                --            --
 Amortization of deferred stock
  compensation ..............................         --                 --                --         1,888
 Amortization of warrants ...................         --                 --                --        11,003
 Issuance of common stock and
  assumption of warrants in connection
  with acquisition ..........................         --                 --                --        67,186
                                                     -----           ------        ----------      ----------
Balances, March 31, 2002 ....................        $--             $ (264)       $ (157,193)     $109,726
                                                     =====           ======        ==========      ==========


          See accompanying notes to consolidated financial statements.
                                       41


                      DIGITALTHINK, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)



                                                                                     Year Ended March 31,
                                                                         ---------------------------------------------
                                                                              2000            2001            2002
                                                                         -------------   -------------   -------------
                                                                                                
Cash flows from operating activities:
 Net loss ............................................................     $ (20,161)      $ (52,225)      $ (61,641)
 Adjustments to reconcile net loss to net cash used in
   operating activities: .............................................
   Depreciation ......................................................           915           3,190           5,274
   Amortization of deferred stock compensation .......................         3,663           5,432           1,888
   Amortization of warrants ..........................................            --          13,131          11,003
   Amortization of goodwill and other intangibles ....................            --           3,602           7,208
   Impairment of goodwill ............................................            --              --          10,437
   Restructuring charges .............................................            --              --           2,333
   Acquisition related charges .......................................            --              --           5,328
   Write-off of in-process research and development ..................            --           7,118              --
   Changes in assets and liabilities: ................................
    Accounts receivable ..............................................        (4,207)         (3,705)          4,078
    Prepaid expenses and other current assets ........................          (758)         (1,705)          2,427
    Accounts payable .................................................         1,868           1,868          (2,433)
    Accrued liabilities ..............................................         2,307             652           1,397
    Deferred revenues ................................................         5,869           4,456          (6,294)
                                                                           ---------       ---------       ---------
      Net cash used in operating activities ..........................       (10,504)        (18,186)        (18,995)
                                                                           ---------       ---------       ---------
Cash flows from investing activities: ................................
 Restricted cash .....................................................            --          (2,033)           (250)
 Purchases of property and equipment .................................        (5,781)        (12,404)        (14,402)
 Net cash paid in acquisition ........................................            --          (1,732)           (169)
 Purchases of marketable securities ..................................       (43,644)        (52,799)        (17,300)
 Proceeds from maturities of marketable securities ...................            --          61,117          49,186
 Other assets ........................................................            27              --               9
                                                                           ---------       ---------       ---------
      Net cash (used in) provided by investing activities ............       (49,398)         (7,851)         17,074
                                                                           ---------       ---------       ---------
Cash flows from financing activities: ................................
 Proceeds from sale of preferred stock ...............................        26,067              --              --
 Payments of notes payable ...........................................            --              --          (1,440)
 Proceeds from sale of common stock ..................................        79,234           1,668           2,622
                                                                           ---------       ---------       ---------
      Net cash provided by financing activities ......................       105,301           1,668           1,182
                                                                           ---------       ---------       ---------
Effect of exchange rate changes on cash and cash equivalents .........            --              27            (303)
Net increase(decrease) in cash and cash equivalents ..................        45,399         (24,342)         (1,042)
Cash and cash equivalents, beginning of year .........................         9,455          54,854          30,512
                                                                           ---------       ---------       ---------
Cash and cash equivalents, end of year ...............................     $  54,854       $  30,512       $  29,470
                                                                           =========       =========       =========
Supplemental disclosure of cash flow information:
 Cash paid for interest ..............................................     $      --       $      --       $      41
Supplemental disclosure of noncash investing and financing
 activities:
 Unrealized gain/(loss) on marketable securities .....................     $      --       $     177       $    (165)


          See accompanying notes to consolidated financial statements.
                                       42


                      DIGITALTHINK, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

     Organization

     DigitalThink, Inc. (the "Company"), was incorporated in California on
April 22, 1996 to provide Web-based training courses and training delivery
technology. The Company completed the development of its delivery technology
and initial content, and began substantial sales and marketing efforts in
fiscal year 1998. In November 1999, the Company reincorporated in Delaware.

     Principles of Consolidation

     The consolidated financial statements include the accounts of DigitalThink
Inc., and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Accounts denominated in
foreign currencies have been translated using the U.S. dollar as the functional
currency.

     Estimates

     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. Actual results
could differ from those estimates.

     Cash and Cash Equivalents

     The Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less to be cash equivalents.

     Marketable Securities

     At March 31, 2002 all short-term marketable securities were due in one
year or less and consisted of the following (in thousands):



                                                                          Gross                Gross           Estimated
                                                          Cost      Unrealized Gains     Unrealized Losses     Fair Value
                                                       ---------   ------------------   -------------------   -----------
                                                                                                     
Short-Term Investments Government agencies .........    $1,652             $--                 $ (12)            $1,640


     At March 31, 2001 all short-term marketable securities were due in one
year or less and consisted of the following (in thousands):



                                                     Gross                Gross           Estimated
                                    Cost       Unrealized Gains     Unrealized Losses     Fair Value
                                 ----------   ------------------   -------------------   -----------
                                                                               
Short-Term Investments
 Commercial paper ............    $18,015            $ 47                  $--             $18,062
 Government agencies .........     15,334             130                   --              15,464
                                  -------            ----                  ---             -------
                                  $33,349            $177                  $--             $33,526
                                  =======            ====                  ===             =======


     The Company classifies these investments as available for sale. Unrealized
gains or losses are included in a separate component of stockholders' equity.
Realized gains and losses are computed based on the specific determination
method and were not material during any of the periods presented.

     Restricted Cash and Deposits

     Restricted cash and deposits represent deposits held as collateral
relating to operating leases and letters of credit.

                                       43


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

     Concentration of Credit Risk

     Financial instruments potentially subjecting the Company to concentrations
of credit risk consist primarily of cash, cash equivalents, short term
investments and accounts receivable. The Company invests its excess cash in
deposits with major banks, in U.S. Treasury and U.S. agency obligations and in
debt securities of corporations with strong credit ratings. No losses have been
experienced on such investments.

     Accounts receivable are unsecured, and the Company is at risk to the
extent that such amounts become uncollectible. The Company closely monitors its
outstanding receivable balances on an on-going basis. At March 31, 2001, one
account represented 21% of gross accounts receivable, although less than 30
days outstanding. At March 31, 2002, one account represented 23% of gross
accounts receivable, although less than 30 days outstanding.

     In fiscal 2000, one customer accounted for 32% of total revenues. In
fiscal 2001, one customer accounted for 10% of total revenues. In fiscal 2002,
our largest customer, EDS, accounted for 8.8% and another customer accounted
for 15.5% of our total revenues of $43.4 million, or 25.9% and 12.6%,
respectively, when excluding the forgiveness of a $10 million penalty
associated with the restructuring of an agreement with EDS.

     Property and Equipment

     Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives of three to four years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the estimated useful lives or the remaining lease terms.

     Long-Lived Assets

     The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of that asset may
not be recoverable. An impairment loss would be recognized when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount.

     Goodwill

     Goodwill is recorded when the consideration paid for acquisitions exceeds
the estimated fair value of identifiable net tangible and intangible assets
acquired. Goodwill related to acquisitions occurring prior to July 1, 2001 and
other acquisition-related intangibles are amortized on a straight-line basis up
to four years. Goodwill and other acquisition-related intangibles are reviewed
for recoverability periodically or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.

     As part of our ongoing review of the Company's operations and financial
performance, we performed an assessment of the carrying value of the our
long-lived assets to be held for use including goodwill and other intangible
assets recorded in connection with our various acquisitions. The assessment was
performed pursuant to SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The conclusion of that
assessment was that the value of the technology purchased associated with the
Arista acquisition was no longer being used in the current product offerings
and was not part of the product roadmap for the future. As a result, we
recorded charges of $10.4 million to write off the Arista goodwill during the
fourth quarter of fiscal 2002 as it no longer had any recoverable value.

     Revenue Recognition

     Delivered learning fees allow access to training systems, courses hosted
by the Company, tutor support, and other learning materials for a fixed period,
typically six months. Delivered Learning fees are recognized ratably over this
access period. Revenues for Learning Solution services (custom course
development or consulting services) are recognized as earned in accordance with
Statement of Position (SOP) 81-1, Accounting for Performance of
Construction/Production-Type Contracts, as development progresses based on the
percentage of

                                       44


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

completion method. The percentage of completion is based on the ratio of actual
custom development or service costs incurred to date, to total estimated costs
to complete the custom course or service. Provisions for estimated losses on
incomplete contracts will be made on a contract by contract basis and
recognized in the period in which such losses become probable and can be
reasonably estimated. To date, there have been no such losses. Custom contracts
typically call for non-refundable payments due upon achievement of certain
milestones in production of the courses or in consulting services. Deferred
revenues represent customer prepayments for both Delivered Learning fees and
Learning Solution services.

     Content research and development

     Expenses charged to operations as incurred include course development
personnel related costs. Course development expenses and subject matter expert
payments to course authors are expensed as incurred, in accordance with SFAS
No. 86, as the recoverability of such costs against future revenues is
uncertain.

     Technology research and development

     Expenses are charged to operations as incurred. Such expenses include Web
site development costs. Web site development costs which meet the
capitalization criteria of SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use are capitalized and amortized
over the useful economic life.

     Income Taxes

     The Company accounts for income taxes using an asset and liability
approach. Deferred tax liabilities are recognized for future taxable amounts
and deferred tax assets are recognized for future deductions and operating loss
carryforwards, net of a valuation allowance to reduce net deferred tax assets
to amounts that are more likely than not to be realized.

     Stock-Based Awards

     The Company accounts for stock-based awards to employees under its stock
option plan and employee stock purchase plan as noncompensatory in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.

     Translation of Foreign Currency

     The Company's foreign operations are measured using local currencies as
the functional currency. Assets and liabilities are translated into U.S.
dollars at year-end rates of exchange, and results of operations are translated
at average rates for the year.

     Loss per Common Share

     Basic loss per common share excludes dilution and is computed by dividing
loss attributable to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted loss per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Common share equivalents are excluded from the computation in loss periods as
their effect would be anti-dilutive.

     Pro Forma Net Loss per Common Share

     Pro forma basic and diluted loss per share is computed by dividing net
loss by the weighted average number of shares outstanding for the period and
the weighted average number of common shares resulting from the assumed
conversion of outstanding shares of redeemable convertible preferred stock.

                                       45


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

     Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes a new model for accounting for derivatives and hedging
activities and supercedes and amends a number of existing accounting standards.
SFAS No. 133 requires that all derivatives be recognized in the balance sheet
at their fair market value and the corresponding derivative gains or losses be
either reported in the statement of operations or as a deferred item depending
on the type of hedge relationship that exists with respect of such derivatives.
In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date until years
beginning after June 30, 2000. In June 2000, the FASB issued SFAS No. 138,
Accounting for Derivative Instruments and Hedging Activities--An Amendment of
FASB Statement No. 133. SFAS No. 138 amends the accounting and reporting
standards for certain derivatives and hedging activities such as net settlement
contracts, foreign currency transactions and intercompany derivatives. The
Company has adopted SFAS No. 133 in its quarter ending June 30, 2001. To date,
the Company has not engaged in derivative or hedging activities, and
accordingly, the adoption of SFAS No. 133 had no impact on the financial
statements.

     In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No.142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be amortized, but will
rather be tested at least annually for impairment. The Company will adopt SFAS
No. 142 for its fiscal year beginning April 1, 2002. During the first half of
fiscal year 2003, we will perform the first of the required impairment tests of
goodwill and indefinite-lived intangible assets as of April 1, 2002. We are
currently assessing the impact, if any, of SFAS 142 on our financial position
and results of operations.

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires businesses to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. We
are required to adopt SFAS No. 143 for our fiscal year beginning April 1, 2003.
We are currently assessing the impact, if any, of SFAS No. 143 on our financial
position and results of operations.

     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of and APB No. 30, Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 144 also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell. The
statement also significantly changes the criteria required to classify an asset
as held-for-sale. Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from
the ongoing operations of the entity in a disposal transaction. We are required
to adopt SFAS 144 for our fiscal year beginning April 1, 2002. We are currently
assessing the impact, if any, of SFAS 144 on our financial position and results
of operations.

                                       46


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

     Comprehensive Income

     The Company is required to report comprehensive income in the financial
statements, in addition to net income. The primary differences between net
income and comprehensive income are foreign currency translation adjustments
and net unrealized gains or losses on securities available for sale.

     Reclassification

     Certain prior year amounts in the consolidated financial statements and
notes thereto have been reclassified to conform to the current year
presentation.

2. Business Combinations

     On July 6, 2000 DigitalThink, Inc. acquired Arista Knowledge Systems, Inc.
("Arista"), a company providing Internet-based learning management systems.
DigitalThink issued approximately 746,000 shares of DigitalThink common stock
in exchange for outstanding stock, options and warrants of Arista. The total
cost of the acquisition, including transaction costs, was approximately $26.3
million. The acquisition was accounted for as a purchase business combination;
accordingly the results of operations of Arista have been included with the
Company's results of operations since July 6, 2000. The purchase price paid for
the Arista acquisition was allocated based on the estimated fair values of the
net assets acquired as follows (in thousands):

                                                                        
            In-process research and development ........................    $  7,118
            Acquired technology, workforce intangible and goodwill            19,212
            Intrinsic value of unvested Arista options assumed .........       1,552
            Tangible assets acquired ...................................       1,718
            Liabilities assumed ........................................      (3,269)
                                                                            --------
            Net assets acquired ........................................    $ 26,331
                                                                            ========



     The consideration given in the acquisition of Arista was as follows:

                                               
  DigitalThink common stock ...................    $20,523
  Stock options assumed .......................      3,976
  Net cash paid ...............................      1,732
  Transaction costs ...........................        100
                                                   -------
  Total purchase price ........................    $26,331
                                                   =======



     Of the purchase price, $7.1 million represents purchased in-process
technology that had not yet reached technological feasibility and had no
alternative future use. Accordingly, this amount was immediately expensed in
the consolidated statement of operations upon consummation of the acquisition.
The value assigned to purchased in-process technology was based on a valuation
prepared by an independent third-party appraiser. Intangible assets acquired
will be amortized on a straight-line basis over a period of four years.

     The following unaudited pro forma results of operations for the years
ended March 31, 2000 and 2001 give effect to the acquisition as if it had
occurred at the beginning of fiscal 2000. The pro forma results of operations
exclude the $7.1 million of nonrecurring charges that were recorded in
conjunction with the acquisition (in thousands, except per share amounts):

                                       47


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

2. Business Combinations -- (Continued)



                                                                 Years Ended March 31,
                                                            -------------------------------
                                                                 2000             2001
                                                            --------------   --------------
                                                                         
         Net revenues ...................................     $   10,832       $   38,658
         Loss from operations ...........................     $   26,189       $   62,061
         Net loss .......................................     $  (25,406)      $  (58,353)
         Basic and diluted loss per share attributable to
          common shareholders ...........................     $    (4.61)      $    (1.69)


     Effective August 28, 2001, the Company acquired LearningByte
International, Inc. ("LBI"), a provider of custom e-learning courseware, in
exchange for approximately 4.7 million shares of DigitalThink common stock and
assume approximately 500,000 warrants outstanding, for a total purchase price
of approximately $68 million, including transaction costs, as follow (in
thousands):

                                                    
            DigitalThink common stock ..............    $ 63,656
            Warrants assumed at fair value .........       3,530
            Transaction costs ......................         800
                                                        --------
            Total purchase price ...................    $ 67,986
                                                        ========



     The acquisition of LBI was accounted for by the purchase method. LBI's
results of operations have been included in the Company's results of operations
since the effective date of the acquisition. The assets acquired and
liabilities assumed were recorded at estimated fair values as determined by the
Company's management based on information currently available and on current
assumptions as to future operations. The Company obtained an independent
appraisal of the fair value of the acquired tangible and identified intangible
assets, and their remaining useful lives. The allocation of the purchase price
is based on preliminary estimates that are not expected to change materially.
Intangible assets acquired will be amortized on a straight-line basis over a
weighted average period of 4.6 years. Goodwill will not be amortized in
accordance with SFAS 141. A summary of the assets acquired and liabilities
assumed in the acquisition follows (in thousands):

                                                                      
            Acquired technology and customer list ....................    $  6,800
            Goodwill .................................................      70,040
            Net fair value of tangible assets acquired and liabilities
               assumed ...............................................      (8,854)
                                                                          --------
            Net assets acquired ......................................    $ 67,986
                                                                          ========



     The following table reflects the results of operations on a pro forma
basis as if the acquisition had been completed on April 1, 2001 and 2000, and
does not consider the effects of synergies and cost reduction initiatives
directly related to all acquisitions. Therefore, the pro forma financial
information is as follows (in thousands, except per share amounts):



                                                           Years Ended March 31,
                                                      -------------------------------
                                                           2002             2001
                                                      --------------   --------------
                                                                 
         Net revenues .............................     $   46,387       $   32,216
         Loss from operations .....................     $  (70,513)      $  (58,781)
         Net loss .................................     $  (70,162)      $  (54,476)
         Basic and diluted loss per share .........     $    (1.75)      $    (1.39)


     In connection with the LBI acquisition, the Company recorded a charge of
$5.8 million comprised of approximately $5.3 million for the write-off of
internal use software made obsolete by the acquisition of LBI and $0.5 million
for severance-related costs.

     Effective November 16, 2001, the Company acquired TCT Technical Training
Pvt. Ltd. ("TCT"), of Kolkata, India, a content developer of custom courseware.
DigitalThink acquired all the outstanding shares of TCT for

                                       48


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

2. Business Combinations -- (Continued)

$500,000 after we received governmental approval in November 2001. TCT has been
acting exclusively as a contractor to the Company since April 2001, when the
transaction was first announced. Upon acquisition, $215,000 was recorded as an
intangible to be amortized over one year and $285,000 was the net fair value of
tangible assets acquired and liabilities assumed. The acquisition of TCT was
accounted for by the purchase method. TCT's results of operations have been
included in the Company's results of operations since the effective date of the
acquisition. Pro forma financial information in connection with the TCT
acquisition has not been provided, as results would not have differed
materially from actual reported results.

3. Restructuring Charge (in thousands)



                                                                                                    Remaining
                                                                                   Charged to       Liability
                                      Fiscal 2002       Cash         Non-Cash         Other       Balances as of
                                        Expense       Payments       Charges        Accounts      March 31, 2002
                                     -------------   ----------   -------------   ------------   ---------------
                                                                                      
Severance ........................      $   650       $  (440)      $      --         $ --            $  210
Facilities and equipment .........        2,365            --          (2,333)          --                32
Lease commitments ................        6,763            --              --          864             7,627
                                        -------       -------       ---------         ----            ------
 Total ...........................      $ 9,778       $  (440)      $  (2,333)        $864            $7,869


     In March 2002 we initiated a strategic initiative, under which we
restructured our business in response to the current market environment and as
part of our continuing program to create efficiencies within our operations. We
recorded total restructuring charges of $9.8 million as part of our strategic
initiative, which included the following:

     o    Reducing our workforce by approximately 80 employees, mainly within
          the learning services organization, resulting in a $700 thousand
          severance charge. Approximately $400 thousand was paid in March 2002,
          and approximately $300 thousand will be paid in the first and second
          quarters of fiscal 2003.

     o    Consolidating our sales, administrative and content and technology
          development facilities through building and site closures, from a
          total of approximately 244,000 square feet into approximately 100,000
          square feet. As of March 31, 2002, seven sites have been vacated: San
          Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
          California; two facilities in San Francisco, California and our office
          in the United Kingdom. Property and equipment that was disposed or
          removed from operations resulted in a charge of $2.3 million and
          consisted primarily of leasehold improvements, computer equipment and
          furniture and fixtures. In addition, we incurred a charge of $6.8
          million associated with leases related to excess or closed facilities,
          which represents the excess of the remaining lease obligations over
          estimated market value, net of anticipated sublease income. Amounts
          accrued (net of anticipated sublease proceeds) related to the
          consolidation of facilities will be paid over the respective lease
          terms through 2016.

     The Company has been recording deferred rent for those leased facilities
that met the criteria in accordance with SFAS No. 13, Accounting for Leases.
Nine leased facilities were included in the restructuring costs and for two of
those facilities; the Company had recorded deferred rent of approximately $864
thousand. This amount of deferred rent was a liability as of March 2002 and
noted as part of the restructuring liability.

                                       49


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4. Property and Equipment

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



                                                            March 31,
                                                    -------------------------
                                                        2001          2002
                                                    -----------   -----------
                                                            
         Furniture and fixtures .................    $    671      $    737
         Computer hardware and software .........      11,587        18,812
         Leasehold improvements .................       2,473         8,337
         Assets in progress .....................       4,879            --
         Accumulated depreciation ...............      (4,549)       (9,561)
                                                     --------      --------
         Property and equipment, net ............    $ 15,061      $ 18,325
                                                     ========      ========


5. Accrued Liabilities (in thousands):



                                                        March 31,
                                                  ---------------------
                                                     2001        2002
                                                  ---------   ---------
                                                        
         Payroll and related expenses .........    $2,865      $ 1,464
         Deferred rent ........................       531          103
         Restructuring charge .................        --        7,869
         Other ................................     3,128        3,802
                                                   ------      -------
         Total accrued liabilities ............    $6,524      $13,238
                                                   ======      =======


6. Income Taxes:

     No income taxes were provided for any of the periods presented due to the
Company's net losses. Deferred tax assets (liabilities) are comprised of the
following (in thousands):



                                                                     March 31,
                                                            ---------------------------
                                                                2001           2002
                                                            ------------   ------------
                                                                     
         Deferred tax assets: ...........................
         Accruals and reserves ..........................    $     617      $     539
         Net operating losses and tax credits carried
          forward .......................................       19,189         31,755
         Basis difference in fixed assets ...............          400            392
                                                             ---------      ---------
          Total gross deferred tax asset before valuation
            allowance ...................................       20,206         32,686
         Valuation allowance ............................      (20,206)       (32,686)
                                                             ---------      ---------
         Net deferred tax asset .........................    $      --      $      --
                                                             =========      =========


     At March 31, 2002, the Company had available federal and California state
net operating loss carryforwards of approximately $77.0 million and $74.6
million, respectively, to offset future taxable income. These net operating
loss carryforwards begin to expire in 2012 and 2005 for federal and state
purposes, respectively. The Company has federal and California state research
and development credit carryforwards of $326,000 and $271,000 respectively. The
Company also has California state enterprise zone credit carryforwards of
$613,000. At March 31, 2002, the Company's wholly owned foreign subsidiaries in
the United Kingdom and India had foreign net operation loss carryforwards of
approximately $3.0 million to offset future foreign taxable income. At March
31, 2001 and 2002, the net deferred tax assets have been fully reserved due to
the uncertainty surrounding the realization of such benefits.

     Internal Revenue Code Section 382 places a limitation (the "Section 382
Limitation") on the amount of taxable income which can be offset by net
operating loss ("NOL") carryforwards after a change in control (generally
greater

                                       50


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

6. Income Taxes: -- (Continued)

than 50% change in ownership) of a loss corporation. California has similar
rules. Generally, after a control change, a loss corporation cannot deduct NOL
carryforwards in excess of the Section 382 Limitation. Due to these "change in
ownership" provisions, utilization of the NOL carryforwards may be subject to
an annual limitation regarding their utilization against taxable income in
future periods.

7. Redeemable Convertible Preferred Stock

     In July 1996, the Company issued 2,910,000 shares of Series A preferred
stock for cash at $0.50 per share. In December 1996, 274,000 shares of Series A
preferred stock were issued upon conversion of $137,000 of convertible notes.
In June 1997, the Company issued 7,726,668 shares of Series B preferred stock
for $0.75 per share. In December 1998 and March 1999, the Company issued
7,824,305 shares of Series C preferred stock for $1.50 per share. In November
1999, the Company issued 3,999,617 shares of Series D preferred stock for $6.50
per share.

     Beginning in 2001, the shares of each series of preferred stock were
redeemable at the option of the holders of a majority of the outstanding
preferred shares of that series, provided that the Company had not completed a
public offering meeting certain criteria. The redemption price of Series A
preferred stock was $0.50 per share plus a 25% compound annual rate of return
from July 19, 1996 (as adjusted for any stock dividends, combinations, or
splits). The redemption price of Series B preferred stock was $0.75 per share
plus a 25% compound annual rate of return from June 1, 1997. The redemption
price of Series C preferred stock was $1.50 per share plus a 25% compound
annual rate of return from October 30, 1998. The redemption price of Series D
preferred stock was $6.50 per share plus a 25% compound annual rate of return
from November 1, 1999. The redemption value was accreted over the redemption
period. Accretion for Series A was $278,000, $468,000, $584,000, and $658,000
in fiscal 1997, 1998, 1999 and 2000, respectively. Accretion for Series B was
$1,202,000, $1,719,000 and $1,934,000 in fiscal 1998, 1999 and 2000
respectively. Accretion for Series C was $1,214,000 and $2,900,000 in fiscal
1999 and 2000 respectively. Accretion for Series D was $2,101,000 in fiscal
2000.

     Upon the closing of the Company' initial public offering on March 1, 2000
all of the outstanding shares of Series A, B, C and D redeemable convertible
preferred stock were automatically converted into shares of common stock on a
one-to-one basis.

8. Stockholders' Equity (Deficit)

     Initial Public Offering

     On February 25, 2000, the Company completed its initial public offering of
5,060,000 shares, resulting in net proceeds of $64.7 million to the Company.

     Private Placement

     In February 2000, concurrent with its initial public offering, the Company
completed a private placement of 1,075,269 shares, resulting in proceeds of
$14.0 million to the Company.

     Stock Option Plan

     The Company's stock option plans provide for grants of incentive or
nonstatutory stock options to officers, employees, directors and consultants.
Options vest over four years and expire over terms up to ten years. One of the
Company's stock option plans provides for annual increases in the number of
shares available for issuance equal to the lesser of 2 million shares, 5% of
the outstanding shares on the date of the annual increase, or a lesser amount
as may be determined by the board of directors.

     The Company had 2,472,986 shares available for future grant at March 31,
2002.

                                       51


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

8. Stockholders' Equity (Deficit) -- (Continued)

     A summary of the activity under the Company's stock option plans is as
follows:



                                                                                                    Weighted
                                                                                                    Average
                                                                                      Number        Exercise
                                                                                    of Shares        Price
                                                                                 ---------------   ---------
                                                                                              
Balances, March 31, 1999 (397,626 exercisable at a weighted average exercise
 price of $0.074 per share) ..................................................       2,185,049      $  0.23
Granted (weighted average fair value of $3.69) ...............................       3,709,550         4.18
Canceled .....................................................................        (307,874)        0.68
Exercised ....................................................................        (707,461)        0.71
                                                                                     ---------      -------
Balances, March 31, 2000 (487,576 exercisable at a weighted average exercise
 price of $4.18 per share) ...................................................       4,879,264         3.13
Granted (weighted average fair value of $14.47) ..............................       4,627,554        17.12
Options assumed in acquisition ...............................................         159,704        17.44
Canceled .....................................................................      (1,012,929)       15.77
Exercised ....................................................................        (524,698)        0.90
                                                                                    ----------      -------
Balances, March 31, 2001 (1,407,436 exercisable at a weighted average exercise
 price of $3.14 per share ....................................................       8,128,895      $  9.89
Granted (weighted average fair value of $7.99) ...............................       1,629,519         9.63
Canceled .....................................................................      (2,277,736)       14.44
Exercised ....................................................................        (505,066)        1.96
                                                                                    ----------      -------
Balances, March 31, 2002 .....................................................       6,975,612      $  8.89
                                                                                    ==========      =======


     The following table summarizes information as of March 31, 2002 concerning
options outstanding:



                                       Options Outstanding                      Vested Options
                         -----------------------------------------------   ------------------------
                                          Weighted Average     Weighted                    Weighted
       Range of                               Remaining         Average                    Average
       Exercise              Number       Contractual Life     Exercise       Number       Exercise
        Prices            Outstanding          (Years)           Price        Vested        Price
        ------            -----------          -------           -----        ------        -----
                                                                            
   $ 0.05 -- $ 0.25          704,440             6.09           $ 0.14        631,287      $ 0.12
     0.50 --   1.50        1,350,117             7.47             1.37        774,806        1.38
     4.43 --   7.75        1,292,504             8.96             7.63        316,791        7.66
     7.82 --  11.00        2,618,386             8.70             9.51        771,526        9.78
    11.19 --  34.25          684,552             8.73            17.48        210,899       20.97
    34.63 --  56.00          325,613             8.37            41.00        144,288       41.08
                           ---------             ----           ------        -------      ------
              Total        6,975,612             8.23           $ 8.89      2,849,597      $ 7.53
                           =========             ====           ======      =========      ======


     Additional Stock Plan Information

     As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.

     Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), requires the disclosure of pro forma net
income (loss) had the Company adopted the fair value method. Under SFAS 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including expected
time to exercise, which greatly affect the calculated values. Until the date of
the initial public offering the Company's calculations were made using the
minimum value pricing method. The following weighted average assumptions were
used: expected life after vesting, 2.5 years in fiscal 2000, 3 years

                                       52


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

8. Stockholders' Equity (Deficit) -- (Continued)

in fiscal 2001 and 2.5 years in fiscal 2002; average risk-free interest rate,
6.0% in fiscal 2000, 5.3% in fiscal 2001 and 4.5% in fiscal 2002. The Company's
calculations include volatility of 100% in the period following the public
offering through March 31, 2000, 115% in fiscal 2001 and 120% in fiscal 2002
and no dividends during the expected term. The Company's calculations are based
on a multiple option valuation approach, and forfeitures are recognized as they
occur.

     If the computed values of the Company's stock-based awards to employees
had been amortized to expense over the vesting period of the awards as
specified under SFAS No. 123, loss attributable to common stockholders and
basic and diluted loss per share on a pro forma basis (as compared to such
items as reported) would have been:



                                                    Years Ended March 31,
                                        ---------------------------------------------
                                             2000            2001            2002
                                        -------------   -------------   -------------
Net loss (in thousands):
                                                                 
 As reported ........................     $ (20,161)      $ (52,225)      $ (61,641)
 Pro forma ..........................     $ (20,407)      $ (53,411)      $ (62,222)
Basic and diluted net loss per share:
 As reported ........................     $   (3.87)      $   (1.51)      $   (1.61)
 Pro forma ..........................     $   (3.91)      $   (1.55)      $   (1.63)


     Stock-Based Compensation

     During fiscal 2000, the Company issued 3,709,550 common stock options at a
weighted average price of $4.18 per share, which was less than the deemed
weighted average fair value of $7.22 per share. Accordingly, the Company
recorded $11,284,000 as the value of such options. Stock-based compensation of
$3,663,000 was amortized to expense in the year ended March 31, 2000.

     During fiscal 2001, the Company assumed 159,704 unvested common stock
options at a weighted average price of $17.44 per share, which was less than
the fair value of $35 per share, related to the Arista acquisition.
Accordingly, the Company recorded $1.6 million as the value of such options.
Stock-based compensation of $5.4 million was amortized to expense in the year
ended March 31, 2001. In addition, the Company recorded a $974,000 decrease in
deferred stock compensation in fiscal 2001 due to unvested options of
terminated employees.

     At March 31, 2002, the Company had $631,000 in deferred stock compensation
related to options, which will be amortized to expense through fiscal 2004.

9. Net Loss Per Share

     For fiscal 2000, 2001 and 2002, the Company had stock options outstanding
of 4,879,264, 8,128,895, and 6,975,612, respectively, which could potentially
dilute basic earnings per share in the future, but were excluded in the
computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive.

10. Related Party Transactions:

     During fiscal 2000, the Company generated revenues of approximately
$549,000, $526,000, $230,000, $158,000, $143,000, and $113,000 from six
customers who are investors in the Company. Additionally, the Company generated
revenues of $3.5 million from one customer of which one of the Company's
directors is an executive officer.

     During fiscal 2001, the Company generated revenues of approximately $4.0
million, $3.0 million, $831,000, $827,000, and $199,000 from 5 customers who
are investors in the Company. Additionally, the Company generated revenues of
$2.5 million from one customer of which one of the Company's directors is a
director. Receivables at fiscal year-end relating to these six customers
totaled $752,000.

                                       53


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10. Related Party Transactions: -- (Continued)

     During fiscal 2002, the Company generated revenues of approximately $4.0
million, $1.5 million, $335,000, and $10,000 from 4 customers who are investors
in the Company. Additionally, the Company generated revenues of $3.9 million
from one customer of which one of the Company's directors is an executive
officer. Receivables at fiscal year-end relating to these six customers totaled
$486,000.

11. Employee Benefit Plans

 401(k) Plan

     The Company has a 401(k) retirement plan (the Plan) that covers
substantially all employees of the Company. The Plan provides for voluntary
salary reduction contributions of up to 20% of eligible participants' annual
compensation. The Company has not provided matching contributions for any of
the periods presented.

     Employee Stock Purchase Plan

     The Company has a Qualified Employee Stock Purchase Plan (ESPP) under
which 200,000 shares of common stock were originally reserved for issuance. The
ESPP allows for annual increases equal to the lesser of 1% of the outstanding
shares of common stock on the first day of the fiscal year, 400,000 shares, or
such lesser amount as may be determined by the board. Under the ESPP, eligible
employees may purchase shares of the Company's common stock through payroll
deductions of up to 10% of the participant's compensation.

     Under this plan, eligible employees may purchase shares of the Company's
common stock at 85% of fair market value at specific, predetermined dates. In
fiscal 2001, approximately 100,000 shares were purchased at an average price of
$11.87. In fiscal 2002, approximately 228,000 shares were purchased at an
average price of $7.18. At March 31, 2002, approximately 227,000 shares were
available for purchase under the ESPP.

12. Lease Commitments

     The Company leases its principal office facilities under operating leases.
As of March 31, 2002, future minimum payments under facilities operating leases
are as follows (in thousands):



Fiscal Year Ending March 31,
- ------------------------------
                              
  2003 .......................     $7,196
  2004 .......................      6,677
  2005 .......................      6,554
  2006 .......................      6,710
  2007 .......................      6,722
  Thereafter .................     27,585
                                   ------
    Total ....................    $61,444
                                  =======


     Rent expense under operating leases was $978, $2,730, and $4,366 for the
years ended March 31, 2000, 2001 and 2002, respectively.

13. Strategic Alliance with Electronic Data Systems Corporation

     On July 11, 2000 the Company entered into an agreement with EDS pursuant
to which EDS was issued two separate performance warrants to purchase shares of
DigitalThink common stock. Under the terms of the first warrant, EDS could earn
warrants to purchase up to 862,955 shares of DigitalThink common stock
exercisable at $29 per share. The warrant could have been earned when EDS
delivered third-party customers from the United States prior to July 31, 2003,
which generated a total of $50 million of contractually committed revenue to
DigitalThink recognizable by July 31, 2005. The warrants expired October 31,
2003. This warrant contained a significant disincentive for non-performance. If
EDS failed to deliver the full $50 million of contracted, United States revenue
by July 31, 2003, EDS agreed to pay DigitalThink $5 million.

                                       54


                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

13. Strategic Alliance with Electronic Data Systems Corporation -- (Continued)

     Under the terms of the second warrant, EDS could earn warrants for up to
690,364 shares of DigitalThink common stock exercisable at $29 per share. The
warrant could have been earned when EDS delivered third-party customers from
outside the United States prior to July 31, 2003, which generated a total of
$50 million of contractually committed revenue to DigitalThink recognizable by
July 31, 2005. The warrants expired October 31, 2003. This warrant contained a
significant disincentive for non-performance. If EDS failed to deliver the full
$50 million of contracted, non-United States revenue by July 31, 2003, EDS
agreed to pay DigitalThink $5 million.

     The Company calculated a fixed non-cash charge of $38 million related to
this transaction, based on the fair value of the warrants issued. A portion of
the warrant vested at the date of the transaction resulting in an immediate
charge of $4.9 million. Amortization of the remaining warrant expense would
occur over three years from July 2000 through July 2003, in proportion to the
amount of revenue generated under the agreement, or on a straight-line basis,
whichever is faster. Through March 31, 2002, amortization was recorded on a
straight-line basis totaling $24.1 million.

     On March 27, 2002, DigitalThink restructured the agreement entered into
with EDS, whereby EDS has surrendered its vested and unvested warrants to
purchase shares of DigitalThink common stock and DigitalThink has forgiven the
$10 million total non-performance penalty associated with these warrants.
Therefore, a charge of approximately $10 million was recorded as a reduction of
revenue and a credit of approximately $10 million was recorded as other income.

                                   * * * * *

                                       55


Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure
   None

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

     The information required by this item is hereby incorporated by reference
from the information under the captions "Election of Directors" and "Executive
Officers" contained in DigitalThink's definitive Proxy Statement, to be filed
with the Securities and Exchange Commission no later than 120 days from the end
of our last fiscal year in connection with the solicitation of proxies for our
2002 Annual Meeting of Stockholders (the "Proxy Statement"). The information
required by Section 16(a) is incorporated by reference form the information
under the caption "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" in the Proxy Statement.

Item 11. Executive Compensation

     The information required by this item is incorporated by reference from
the information under the caption "Executive Officer Compensation" in the Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information required by this item is incorporated by reference from
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

     The information required by this item is incorporated by reference from
the information under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.

                                    PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a) 1. Consolidated Financial Statements

     The following Consolidated Financial Statements of DigitalThink, Inc. and
Report of Deloitte & Touche LLP, have been filed as part of this Form 10-K. See
Index to Consolidated Financial Statements under Item 8, above:

                  Index to Consolidated Financial Statements

   Independent Auditors' Report
   Consolidated Balance Sheets as of March 31, 2001 and 2002
   Consolidated Statements of Operations for the years ended March 31, 2000,
      2001 and 2002
   Consolidated Statement of Stockholders' Equity (Deficit) for the years
      ended March 31, 2000, 2001 and 2002
   Consolidated Statements of Cash Flows for the years ended March 31, 2000,
      2001 and 2002
   Notes to Consolidated Financial Statements

(a) 2. Financial Statement Schedule

     The following financial statement schedule of DigitalThink, Inc. for the
fiscal years ended March 31, 2000, 2001, and 2002 is filed as part of this
Report and should be read in conjunction with the Consolidate Financial
Statements of DigitalThink, Inc.

     Schedule II -- Valuation and Qualifying Accounts

     Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Note thereto.

(a) 3. Exhibits

     Refer to (C) below.

                                       56


(b) Reports on Form 8-K

     The Company filed an 8-K on August 22, 2001, amended on October 26, 2001,
describing the LearningByte acquisition.

     The Company filed an 8-K on April 5, 2002, press release dated April 2,
2002 announcing DigitalThink's Preliminary Results for Fourth Quarter; Revises
Outlook and a press release dated April 2, 2002 announcing Executive
Appointments naming Jon Madonna as Chairman and Michael Pope, President and CEO

(c) Exhibits



Exhibit
Number                                           Description of Document
- ------                                           -----------------------
      
^2.1     Agreement and Plan of Reorganization among and between DigitalThink, LearningByte
         International and Merger Sub, dated August 14, 2001
 3.1     Amended and Restated Certificate of Incorporation
#3.2     Bylaws of DigitalThink, Inc.
*5.1     Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.15    Restated 1996 ISO Stock Plan
10.16    Change of Control Severance Agreement between DigitalThink and Jon C. Madonna dated
         September 14, 2001
10.17    Change of Control Severance Agreement between DigitalThink and Michael W. Pope dated
         September 14, 2001
10.18    Standard Industrial/Commercial Single Tenant Lease dated July 17, 2000 between Thomas A. Price
         and Gwendolyn L. Price, as trustees of the Price Trust UTD October 5, 1984 and DigitalThink, for
         office space located at 601 Brannan Street, San Francisco, California, and addenda and inserts thereto
21.1     DigitalThink subsidiaries
23.1     Independent Auditors' Consent and Report on Schedule
24.1     Power of Attorney (included in Registration Statement on page 55)


- ------------
^ Incorporated by reference to exhibit 99.1 filed with our Report on Form 8-K
  (File No. 000-28687).
# Incorporated by reference to exhibit 4.2(b) filed with our Registration
  Statement on Form S-1 (File No. 333-92429), as amended.
* Incorporated by reference to the same number exhibit filed with our
  Registration Statement on Form S-1 (File No. 333-92429), as amended.

                                       57


                                   SIGNATURES

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

                                        DIGITALTHINK, INC.
                                        (Registrant)

June 4, 2002
                                        By:   /s/ MICHAEL W. POPE
                                             -------------------------
                                             Michael W. Pope
                                             President and Chief Executive
                                             Officer

June 4, 2002
                                        By:   /s/ ROBERT J. KROLIK
                                             -------------------------
                                             Robert J. Krolik
                                             Chief Financial Officer

                                POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael W. Pope and Robert J. Krolik, or
either of them, each with the power of substitution, his attorney-in-fact, to
sign any amendments to this Form 10-K (including post-effective amendments), 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 each of said attorneys-in-fact, or his substitute or
substitutes, 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 and in the capacities and on the dates indicated.



                  Signature                                 Title                            Date
                  ---------                                 -----                            ----
                                                                               
BY:          /s/ JON C. MADONNA                     Chairman of the Board               June 4, 2002
        ---------------------------
               Jon C. Madonna

By:          /s/ MICHAEL W. POPE           Chief Executive Officer, President and       June 4, 2002
        ---------------------------                       Director
               Michael W. Pope                 (Principal Executive Officer)

By:         /s/ ROBERT J. KROLIK                   Chief Financial Officer              June 4, 2002
        ---------------------------     (Principal Financial and Accounting Officer)
              Robert J. Krolik

By:         /s/ STEVE L. ESKENAZI                         Director                      June 4, 2002
        ---------------------------
              Steve L. Eskenazi

By:         /s/ PETER J. GOETTNER                         Director                      June 4, 2002
        ---------------------------
              Peter J. Goettner

By:        /s/ SAMUEL D. KINGSLAND                        Director                      June 4, 2002
        ---------------------------
             Samuel D. Kingsland

By:       /s/ WILLIAM H. LANE, III                        Director                      June 4, 2002
        ---------------------------
            William H. Lane, III

By:        /s/ RODERICK C. MCGEARY                        Director                      June 4, 2002
        ---------------------------
             Roderick C. McGeary


                                       58


                                                                    Schedule II

                      DigitalThink, Inc. and Subsidiaries
                       Valuation and Qualifying Accounts
                For the Years Ended March 31, 2000, 2001, 2002



                                             Balance at     Charges to                         Charged       Balance at
                                              Beginning      Costs and                        To Other         End of
                                              of Period      Expenses       Deductions      Accounts (1)       Period
                                            ------------   ------------   --------------   --------------   -----------
                                                                                             
Year ended March 31, 2000:
Allowance for doubtful accounts .........     $ 75,000       $170,000       $  (40,000)       $     --       $205,000
Year ended March 31, 2001:
Allowance for doubtful accounts .........     $205,000       $170,000       $ (128,000)       $     --       $247,000
Year ended March 31, 2002:
Allowance for doubtful accounts .........     $247,000       $ 96,000       $ (342,000)       $483,000       $484,000


- ------------
(1) Recorded on the books of acquired company

                                       59


                                 EXHIBIT LIST



Exhibit
Number                                           Description of Document
- ------                                           -----------------------
      
^2.1     Agreement and Plan of Reorganization among and between DigitalThink, LearningByte
         International and Merger Sub, dated August 14, 2001
 3.1     Amended and Restated Certificate of Incorporation
#3.2     Bylaws of DigitalThink, Inc.
*5.1     Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.15    Restated 1996 ISO Stock Plan
10.16    Change of Control Severance Agreement between DigitalThink and Jon C. Madonna dated
         September 14, 2001
10.17    Change of Control Severance Agreement between DigitalThink and Michael W. Pope dated
         September 14, 2001
10.18    Standard Industrial/Commercial Single Tenant Lease dated July 17, 2000 between Thomas A. Price
         and Gwendolyn L. Price, as trustees of the Price Trust UTD October 5, 1984 and DigitalThink, for
         office space located at 601 Brannan Street, San Francisco, California, and addenda and inserts thereto
21.1     DigitalThink subsidiaries
23.1     Independent Auditors' Consent and Report on Schedule
24.1     Power of Attorney (included in Registration Statement on page 55)


- ------------
^ Incorporated by reference to exhibit 99.1 filed with our Report on Form 8-K
  (File No. 000-28687).
# Incorporated by reference to exhibit 4.2(b) filed with our Registration
  Statement on Form S-1 (File No. 333- 92429), as amended.
* Incorporated by reference to the same number exhibit filed with our
  Registration Statement on Form S-1 (File No. 333-92429), as amended.

                                       60

EX-3.(I)

                                                                     Exhibit 3.1

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                               DIGITALTHINK, INC.

     DigitalThink, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:

     A. The name of the corporation is DigitalThink, Inc. The corporation was
originally incorporated under the same name, and the original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
November 2, 1999.

     B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of the corporation.

     C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:

                                    ARTICLE I

     The name of this corporation is DigitalThink, Inc.

                                   ARTICLE II

     The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.

                                  ARTICLE III

     The purpose of the 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

     The corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the corporation is authorized
to issue is 260,000,000 shares. The number of shares of Common Stock authorized
is 250,000,000. The number of authorized shares of Preferred Stock is
10,000,000.


     The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, 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, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.

     The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:

         (a) the distinctive designation of such class or series and the number
of shares to constitute such class or series;

         (b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;

         (c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;

         (d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the corporation;

         (e) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;

         (f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;

         (g) voting rights, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;

         (h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and

                                       2


         (i) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the board of directors of the corporation,
acting in accordance with this Restated Certificate of Incorporation, may deem
advisable and are not inconsistent with law and the provisions of this Restated
Certificate of Incorporation.

                                   ARTICLE V

     The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.

                                   ARTICLE VI

     The corporation is to have perpetual existence.

                                  ARTICLE VII

     1. Limitation of Liability. To the fullest extent permitted by the General
Corporation Law of the State of Delaware as the same exists or as may hereafter
be amended, 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.

     2. Indemnification. The corporation may indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the corporation, or any predecessor of
the corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the corporation or any predecessor to the
corporation.

     3. Amendments. Neither any amendment nor repeal of this Article VII, nor
the adoption of any provision of the corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.

                                  ARTICLE VIII

     In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the corporation.

                                       3


                                   ARTICLE IX

     Holders of stock of any class or series of the corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to Sections 2115 or 301.5 of the California General
Corporation Law, in which event each such holder shall be entitled to as many
votes as shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and the holder may cast all of such votes for a
single director or may distribute them among the number of directors to be voted
for, or for any two or more of them as such holder may see fit, so long as the
name of the candidate for director shall have been placed in nomination prior to
the voting and the stockholder, or any other holder of the same class or series
of stock, has given notice at the meeting prior to the voting of the intention
to cumulate votes.

     1. Number of Directors. The number of directors which constitutes the whole
Board of Directors of the corporation shall be designated in the Amended and
Restated Bylaws of the corporation. The directors shall be divided into three
classes with the term of office of the first class (Class I) to expire at the
annual meeting of stockholders held in 2000; the term of office of the second
class (Class II) to expire at the annual meeting of stockholders held in 2001;
the term of office of the third class (Class III) to expire at the annual
meeting of stockholders held in 2002; and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election.

     2. Election of Directors. Elections of directors need not be by written
ballot unless the Amended and Restated Bylaws of the corporation shall so
provide.

                                   ARTICLE X

     In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Amended and Restated Bylaws of the corporation.

                                   ARTICLE XI

     No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Amended and Restated Bylaws and no action shall be taken by the stockholders by
written consent. The affirmative vote of sixty-six and two-thirds percent (66
2/3%) of the then outstanding voting securities of the corporation, voting
together as a single class, shall be required for the amendment, repeal or
modification of the provisions of Article IX, Article X, Article XI or Article
XII of this Amended and Restated Certificate of Incorporation or Sections 2.3
(Special Meeting), 2.4 (Notice of Stockholders' Meeting), 2.5 (Advanced Notice
of Stockholder Nominees and Stockholder Business), 2.10 (Voting), or 2.12
(Stockholder Action by Written Consent Without a Meeting), or 3.2 (Number of
Directors) of the corporation's Amended and Restated Bylaws.

                                       4


                                  ARTICLE XII

     Meetings of stockholders may be held within or without the State of
Delaware, as the Amended and Restated Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Amended and Restated
Bylaws of the corporation.

                                       5


     IN WITNESS WHEREOF, DigitalThink, Inc. has caused this certificate to be
signed by Jon C. Madonna, its Chief Executive Officer, this 27th day of
November, 2001.

                                Jon C. Madonna
                                -----------------------------------
                                /s/ Jon C. Madonna, President & CEO

EX-10

                                                                   Exhibit 10.15

                               DIGITALTHINK, INC.

                               1996 ISO STOCK PLAN

     1. Purposes of the Plan. The purposes of this Stock Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees and Consultants of the Company and
its Subsidiaries and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an Option
and subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder. Stock Purchase Rights may also be granted
under the Plan.

     2. Definitions. As used herein, the following definitions shall apply:

        (a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.

        (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

        (c) "Board" means the Board of Directors of the Company.

        (d) "Code" means the Internal Revenue Code of 1986, as amended.

        (e) "Committee" means a Committee appointed by the Board of Directors in
accordance with Section 4 of the Plan.

        (f) "Common Stock" means the Common Stock of the Company.

        (g) "Company" means DigitalThink, Inc., a Delaware corporation.

        (h) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company; provided,
however, that Consultant shall not include Directors who are not compensated for
their services or are paid only a Director's fee by the Company.

        (i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of



the Company or between the Company, its Parent, any Subsidiary, or any
successor. A leave of absence approved by the Company shall include sick leave,
military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed 90 days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract, including Company policies. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 91st day of such leave any Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.

        (j) "Director" means a member of the Board of Directors of the Company.

        (k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.

        (l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

        (m) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:

            (i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or system for the last market trading day prior to the time of
determination and reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

            (ii) If the Common Stock is quoted on the NASDAQ System (but not on
the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or

            (iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.

        (n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

        (o) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.

        (p) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

                                       2


        (q) "Option" means a stock option granted pursuant to the Plan.

        (r) "Optioned Stock" means the Common Stock subject to an Option or a
Stock Purchase Right.

        (s) "Optionee" means an Employee or Consultant who receives an Option or
Stock Purchase Right.

        (t) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

        (u) "Plan" means this 1996 ISO Stock Plan.

        (v) "Restricted Stock" means shares of Common Stock acquired pursuant to
a grant of a Stock Purchase Right under Section 11 below.

        (w) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
of 1934, as amended.

        (x) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 12 below.

        (y) "Stock Purchase Right" means a right to purchase Common Stock
pursuant to Section 11 below.

        (z) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

     3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 9,816,586 Shares plus an annual increase to be added
on the first day of the Company's fiscal year, beginning in 2001, equal to the
lesser of (i) 2,000,000 shares, (ii) 5% of the outstanding shares on such date
or (iii) an amount determined by the Administrator. The Shares may be authorized
but unissued, or reacquired Common Stock.

     If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an option
exchange program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available


                                       3


for future grant under the Plan. For purposes of the preceding sentence, voting
rights shall not be considered a benefit of Share ownership.

     4. Administration of the Plan.

        (a) Procedure.

            (i) Multiple Administrative Bodies. Different Committees with
respect to different groups of Service Providers may administer the Plan.

            (ii) Section 162(m). To the extent that the Administrator determines
it to be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two or more "outside directors" within the
meaning of Section 162(m) of the Code.

            (iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.

            (iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.

        (b) Powers of the Administrator. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discretion:

            (i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;

            (ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;

            (iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;

            (iv) to determine the number of Shares to be covered by each such
award granted hereunder;

            (v) to approve forms of agreement for use under the Plan;

            (vi) to determine the terms and conditions of any award granted
hereunder;

                                       4


            (vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;

            (viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and

            (ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

        (b) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.

     5. Eligibility.

        (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if otherwise eligible, be granted additional Options or
Stock Purchase Rights.

        (b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

        (c) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.

        (d) The following limitations shall apply to grants of Options and Stock
Purchase Rights to Employees:

            (i) No Employee shall be granted, in any fiscal year of the Company,
Options and Stock Purchase Rights to purchase more than 75% of the shares
reserved for issuance under the Plan.

            (ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.

                                       5


            (iii) If an Option or Stock Purchase Right is cancelled in the same
fiscal year of the Company in which it was granted (other than in connection
with a transaction described in Section 12), the cancelled Option or Stock
Purchase Right shall be counted against the limit set forth in subsection (i)
above. For this purpose, if the exercise price of an Option or Stock Purchase
Right is reduced, such reduction will be treated as a cancellation of the Option
or Stock Purchase Right and the grant of a new Option or Stock Purchase Right.

     6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company, as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 14 of the
Plan.

     7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.

     8. Option Exercise Price and Consideration.

        (a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

            (i) In the case of an Incentive Stock Option

                (A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.

                (B) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.

            (ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                                       6


        (b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.

     9. Exercise of Option.

        (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.

            An Option may not be exercised for a fraction of a Share.

            An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a stockholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 hereof.

            Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

        (b) Termination of Employment or Consulting Relationship. In the event
of termination of an Optionee's Continuous Status as an Employee or Consultant
(but not in the event of an Optionee's change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three


                                       7


(3) months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.

        (c) Disability of Optionee. In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the date
of such termination (and in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination. If
such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months and one day following such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

        (d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's death, the
Optionee's estate or a person who acquires the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

        (e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

     10. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, Options and Stock Purchase Rights may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.

                                       8


     11. Stock Purchase Rights.

        (a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator makes the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock purchase
agreement in the form determined by the Administrator. Shares purchased pursuant
to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."

        (b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.

        (c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.

        (d) Rights as a Stockholder. Once the Stock Purchase Right is exercised,
the purchaser shall have rights equivalent to those of a stockholder and shall
be a stockholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date the Stock
Purchase Right is exercised, except as provided in Section 12 of the Plan.

     12. Adjustments Upon Changes in Capitalization or Merger.

        (a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the


                                       9


Company. The conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.

        (b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify the Optionee at
least fifteen (15) days prior to such proposed action. To the extent it has not
been previously exercised, the Option or Stock Purchase Right shall terminate
immediately prior to the consummation of such proposed action.

        (c) Merger. In the event of a merger of the Company with or into another
corporation, each outstanding Option or Stock Purchase Right may be assumed or
an equivalent option or right may be substituted by such successor corporation
or a parent or subsidiary of such successor corporation. If, in such event, an
Option or Stock Purchase Right is not assumed or substituted, the Option or
Stock Purchase Right shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.

     13. Time of Granting Options and Stock Purchase Rights. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

     14. Amendment and Termination of the Plan.

        (a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall


                                       10


be made which would impair the rights of any Optionee under any grant
theretofore made, without his or her consent. In addition, to the extent
necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with
Section 422 of the Code (or any other applicable law or regulation, including
the requirements of the NASD or an established stock exchange), the Company
shall obtain stockholder approval of any Plan amendment in such a manner and to
such a degree as required.

        (b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.

     15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

        As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.

     16. Reservation of Shares. The Company, during the term of this Plan, shall
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

        The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

     17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.

     18. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.


                                       11

EX-10

                                                                   Exhibit 10.16

                               DIGITALTHINK, INC.

                      CHANGE OF CONTROL SEVERANCE AGREEMENT

         This Change of Control Severance Agreement (the "Agreement") is made
and entered into by and between Jon C. Madonna (the "Employee") and
DigitalThink, Inc., a Delaware Corporation (the "Company"), effective as of
September 14, 2001 (the "Effective Date").

                                    RECITALS

     1. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined herein) of the Company.

     2. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his or
her employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.

     3. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon the Employee's termination of employment
following a Change of Control. These benefits will provide the Employee with
enhanced financial security and incentive and encouragement to remain with the
Company notwithstanding the possibility of a Change of Control.

     4. Certain capitalized terms used in the Agreement are defined in Section 6
below.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:

     1. Term of Agreement. This Agreement shall terminate upon the date that all
of the obligations of the parties hereto with respect to this Agreement have
been satisfied.

     2. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law, except as may otherwise be specifically provided under the terms
of any written formal employment agreement between the Company and the Employee
(an "Employment Agreement"). If the Employee's employment terminates for any
reason, including (without limitation) any termination prior to a Change of
Control, the Employee shall not be entitled to any payments, benefits, damages,


awards or compensation other than as provided by this Agreement or under his or
her Employment Agreement.

     3. Severance Benefits.

          (a) Involuntary Termination Following a Change of Control. If within
twelve (12) months following a Change of Control (i) the Employee terminates his
or her employment with the Company (or any parent or subsidiary of the Company)
for "Good Reason" (as defined herein) or (ii) the Company (or any parent or
subsidiary of the Company) terminates the Employee's employment for other than
"Cause" (as defined herein), and the Employee signs and does not revoke a
standard release of claims with the Company in a form acceptable to the Company,
then the Employee shall receive the following severance from the Company:

               (i) Options. All of the Employee's then outstanding options to
purchase shares of the Company's Common Stock (the "Options") that would have
otherwise vested at any time following such termination (as if the Employee had
remained continuously employed with the Company during such period) shall
immediately vest and became exercisable (that is, in addition to the shares
subject to the Options which have vested and become exercisable as of the date
of such termination, including any acceleration provided for in Section 3), but
in no event shall the number of shares subject to such Options which so vest
exceed the total number of shares subject to such Options.

          (b) Voluntary Resignation; Termination for Cause. If the Employee's
employment with the Company terminates (i) voluntarily by the Employee or (ii)
for Cause by the Company, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be established
under the Company's then existing severance and benefits plans and practices or
pursuant to other written agreements with the Company.

          (c) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or the Employee's
employment terminates due to his or her death, then the Employee shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing written severance and
benefits plans and practices or pursuant to other written agreements with the
Company.

          (d) Termination Apart from Change of Control. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Employee shall be entitled to receive
severance and any other benefits only as may then be established under the
Company's existing written severance and benefits plans and practices or
pursuant to other written agreements with the Company.

          (e) Exclusive Remedy. In the event of a termination of Employee's
employment within twelve (12) months following a Change of Control, the
provisions of this Section 3 are intended to be and are exclusive and in lieu of
any other rights or remedies to which the Employee or the Company may otherwise
be entitled, whether at law, tort or contract, in equity, or under this
Agreement. The Employee shall be entitled to no benefits, compensation or other
payments or rights


                                       2


upon termination of employment following a Change in Control other than those
benefits expressly set forth in this Section 3.

     4. Golden Parachute Excise Tax Gross-Up. In the event that the severance
and other benefits provided for in this Agreement or otherwise payable to the
Employee constitute "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to the excise tax imposed by Section 4999 of the Code, then the Employee shall
receive (i) a payment from the Company sufficient to pay such excise tax, and
(ii) an additional payment from the Company sufficient to pay the excise tax and
federal and state income taxes arising from the payments made by the Company to
the Employee pursuant to this sentence. Unless the Company and the Employee
otherwise agree in writing, the determination of the Employee's excise tax
liability and the amount required to be paid under this Section shall be made in
writing by the Company's accountants (the "Accountants"). In the event that the
excise tax incurred by the Employee is determined by the Internal Revenue
Service to be greater or lesser than the amount so determined by the
Accountants, the Company and the Employee agree to promptly make such additional
payment, including interest and any tax penalties, to the other party as the
Accountants reasonably determine is appropriate to ensure that the net economic
effect to the Employee under this Section, on an after-tax basis, is as if the
Code Section 4999 excise tax did not apply to the Employee. For purposes of
making the calculations required by this Section, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on interpretations of the Code for which there is a "substantial authority"
tax reporting position. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section.

     5. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:

          (a) Cause. "Cause" means (i) an act of dishonesty made by the Employee
in connection with such Employee's responsibilities as an employee, (ii) the
Employee's conviction of, or plea of nolo contendre to, a felony which the Board
reasonably believes had or will have a material detrimental effect on the
Company's reputation or business, (iii) the Employee's gross misconduct, (iv)
the Employee's continued substantial violations of such Employee's duties as an
employee after the Employee has received a written demand for performance from
the Company which specifically sets forth the factual basis for the Company's
belief that the Employee has not substantially performed such Employee's duties.

          (b) Change of Control. "Change of Control" means the occurrence of any
of the following:

               (i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or

                                       3


               (ii) Any action or event occurring within a two-year period, as a
result of which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are directors of the
Company as of the date hereof, or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

               (iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation; or

               (iv) The consummation of the sale, lease or other disposition by
the Company of all or substantially all the Company's assets.

          (c) Disability. "Disability" shall mean that the Employee has been
unable to perform his Company duties as the result of his incapacity due to
physical or mental illness, and such inability, at least twenty-six (26) weeks
after its commencement, is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Employee or the
Employee's legal representative (such Agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least thirty (30) days' written notice by the Company of its
intention to terminate the Employee's employment. In the event that the Employee
resumes the performance of substantially all of his or her duties hereunder
before the termination of his or her employment becomes effective, the notice of
intent to terminate shall automatically be deemed to have been revoked.

          (d) Good Reason. "Good Reason" means without the Employee's express
written consent (i) a significant reduction of the Employee's duties, position
or responsibilities, or the removal of such Employee from such position and
responsibilities, unless the Employee is provided with a comparable position
(i.e., a position of equal or greater organizational level, duties, authority,
compensation and status); provided, however, that in an event, if following a
Change of Control, the Employee is not an executive of the parent corporation of
the ultimate parent entity of the Company, Good Reason shall exist; (ii) a
substantial reduction of the facilities and perquisites (including office space
and location) available to the Employee immediately prior to such reduction;
(iii) a reduction by the Company in the base compensation of the Employee as in
effect immediately prior to such reduction; (iv) a material reduction by the
Company in the kind or level of benefits to which the Employee was entitled
immediately prior to such reduction with the result that such Employee's overall
benefits package is significantly reduced; (v) the relocation of the Employee to
a facility or a location more than fifty (50) miles from such Employee's then
present location.

     6. Successors.

                                       4


          (a) The Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
6(a) or which becomes bound by the terms of this Agreement by operation of law.

          (b) The Employee's Successors. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

     7. Notice.

          (a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him or her at the home address which he or she
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its President.

          (b) Notice of Termination. Any termination by the Company for Cause or
by the Employee for Good Reason or as a result of a voluntary resignation shall
be communicated by a notice of termination to the other party hereto given in
accordance with Section 7(a) of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than thirty (30) days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of the Employee hereunder or preclude the Employee from asserting such
fact or circumstance in enforcing his or her rights hereunder.

     8. Miscellaneous Provisions.


          (a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.

          (b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by


                                       5


the other party shall be considered a waiver of any other condition or provision
or of the same condition or provision at another time.

          (c) Headings. All captions and section headings used in this Agreement
are for convenient reference only and do not form a part of this Agreement.

          (d) Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto and supersedes in their entirety all prior
representations, understandings, undertakings or agreements (whether oral or
written and whether expressed or implied) of the parties with respect to the
subject matter hereof.

          (e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.

          (f) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.

          (g) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.

          (h) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.

                                       6


     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year set
forth below.

COMPANY                               DIGITALTHINK, INC.

                                      By:
                                               ---------------------------------

                                      Title:
                                               ---------------------------------



EMPLOYEE                              By:
                                         ---------------------------------------

                                      Title:
                                               ---------------------------------


                                       7

EX-10

                                                                   Exhibit 10.17

                               DIGITALTHINK, INC.

                      CHANGE OF CONTROL SEVERANCE AGREEMENT

         This Change of Control Severance Agreement (the "Agreement") is made
and entered into by and between Michael W. Pope (the "Employee") and
DigitalThink, Inc., a Delaware Corporation (the "Company"), effective as of
September 14, 2001 (the "Effective Date").

                                    RECITALS

     1. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined herein) of the Company.

     2. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his or
her employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.

     3. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon the Employee's termination of employment
following a Change of Control. These benefits will provide the Employee with
enhanced financial security and incentive and encouragement to remain with the
Company notwithstanding the possibility of a Change of Control.

     4. Certain capitalized terms used in the Agreement are defined in Section 6
below.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:

     1. Term of Agreement. This Agreement shall terminate upon the date that all
of the obligations of the parties hereto with respect to this Agreement have
been satisfied.

     2. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law, except as may otherwise be specifically provided under the terms
of any written formal employment agreement between the Company and the Employee
(an "Employment Agreement"). If the Employee's employment terminates for any
reason, including (without limitation) any termination prior to a Change of
Control, the Employee shall not be entitled to any payments, benefits, damages,


awards or compensation other than as provided by this Agreement or under his or
her Employment Agreement.

     3. Severance Benefits.

        (a) Involuntary Termination Following a Change of Control. If within
twelve (12) months following a Change of Control (i) the Employee terminates his
or her employment with the Company (or any parent or subsidiary of the Company)
for "Good Reason" (as defined herein) or (ii) the Company (or any parent or
subsidiary of the Company) terminates the Employee's employment for other than
"Cause" (as defined herein), and the Employee signs and does not revoke a
standard release of claims with the Company in a form acceptable to the Company,
then the Employee shall receive the following severance from the Company:

            (i) Options. All of the Employee's then outstanding options to
purchase shares of the Company's Common Stock (the "Options") that would have
otherwise vested at any time following such termination (as if the Employee had
remained continuously employed with the Company during such period) shall
immediately vest and became exercisable (that is, in addition to the shares
subject to the Options which have vested and become exercisable as of the date
of such termination, including any acceleration provided for in Section 3), but
in no event shall the number of shares subject to such Options which so vest
exceed the total number of shares subject to such Options.

        (b) Voluntary Resignation; Termination for Cause. If the Employee's
employment with the Company terminates (i) voluntarily by the Employee or (ii)
for Cause by the Company, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be established
under the Company's then existing severance and benefits plans and practices or
pursuant to other written agreements with the Company.

        (c) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or the Employee's
employment terminates due to his or her death, then the Employee shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing written severance and
benefits plans and practices or pursuant to other written agreements with the
Company.

        (d) Termination Apart from Change of Control. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Employee shall be entitled to receive
severance and any other benefits only as may then be established under the
Company's existing written severance and benefits plans and practices or
pursuant to other written agreements with the Company.

        (e) Exclusive Remedy. In the event of a termination of Employee's
employment within twelve (12) months following a Change of Control, the
provisions of this Section 3 are intended to be and are exclusive and in lieu of
any other rights or remedies to which the Employee or the Company may otherwise
be entitled, whether at law, tort or contract, in equity, or under this
Agreement. The Employee shall be entitled to no benefits, compensation or other
payments or rights


                                       2


upon termination of employment following a Change in Control other than those
benefits expressly set forth in this Section 3.

     4. Golden Parachute Excise Tax Gross-Up. In the event that the severance
and other benefits provided for in this Agreement or otherwise payable to the
Employee constitute "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to the excise tax imposed by Section 4999 of the Code, then the Employee shall
receive (i) a payment from the Company sufficient to pay such excise tax, and
(ii) an additional payment from the Company sufficient to pay the excise tax and
federal and state income taxes arising from the payments made by the Company to
the Employee pursuant to this sentence. Unless the Company and the Employee
otherwise agree in writing, the determination of the Employee's excise tax
liability and the amount required to be paid under this Section shall be made in
writing by the Company's accountants (the "Accountants"). In the event that the
excise tax incurred by the Employee is determined by the Internal Revenue
Service to be greater or lesser than the amount so determined by the
Accountants, the Company and the Employee agree to promptly make such additional
payment, including interest and any tax penalties, to the other party as the
Accountants reasonably determine is appropriate to ensure that the net economic
effect to the Employee under this Section, on an after-tax basis, is as if the
Code Section 4999 excise tax did not apply to the Employee. For purposes of
making the calculations required by this Section, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on interpretations of the Code for which there is a "substantial authority"
tax reporting position. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section.

     5. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:

        (a) Cause. "Cause" means (i) an act of dishonesty made by the Employee
in connection with such Employee's responsibilities as an employee, (ii) the
Employee's conviction of, or plea of nolo contendre to, a felony which the Board
reasonably believes had or will have a material detrimental effect on the
Company's reputation or business, (iii) the Employee's gross misconduct, (iv)
the Employee's continued substantial violations of such Employee's duties as an
employee after the Employee has received a written demand for performance from
the Company which specifically sets forth the factual basis for the Company's
belief that the Employee has not substantially performed such Employee's duties.

        (b) Change of Control. "Change of Control" means the occurrence of any
of the following:

            (i) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the total
voting power represented by the Company's then outstanding voting securities; or

                                       3


            (ii) Any action or event occurring within a two-year period, as a
result of which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are directors of the
Company as of the date hereof, or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

            (iii) The consummation of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; or

            (iv) The consummation of the sale, lease or other disposition by the
Company of all or substantially all the Company's assets.

        (c) Disability. "Disability" shall mean that the Employee has been
unable to perform his Company duties as the result of his incapacity due to
physical or mental illness, and such inability, at least twenty-six (26) weeks
after its commencement, is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Employee or the
Employee's legal representative (such Agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least thirty (30) days' written notice by the Company of its
intention to terminate the Employee's employment. In the event that the Employee
resumes the performance of substantially all of his or her duties hereunder
before the termination of his or her employment becomes effective, the notice of
intent to terminate shall automatically be deemed to have been revoked.

        (d) Good Reason. "Good Reason" means without the Employee's express
written consent (i) a significant reduction of the Employee's duties, position
or responsibilities, or the removal of such Employee from such position and
responsibilities, unless the Employee is provided with a comparable position
(i.e., a position of equal or greater organizational level, duties, authority,
compensation and status); provided, however, that in an event, if following a
Change of Control, the Employee is not an executive of the parent corporation of
the ultimate parent entity of the Company, Good Reason shall exist; (ii) a
substantial reduction of the facilities and perquisites (including office space
and location) available to the Employee immediately prior to such reduction;
(iii) a reduction by the Company in the base compensation of the Employee as in
effect immediately prior to such reduction; (iv) a material reduction by the
Company in the kind or level of benefits to which the Employee was entitled
immediately prior to such reduction with the result that such Employee's overall
benefits package is significantly reduced; (v) the relocation of the Employee to
a facility or a location more than fifty (50) miles from such Employee's then
present location.

     6. Successors.

                                       4


        (a) The Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
6(a) or which becomes bound by the terms of this Agreement by operation of law.

        (b) The Employee's Successors. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

     7. Notice.

        (a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him or her at the home address which he or she
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its President.

        (b) Notice of Termination. Any termination by the Company for Cause or
by the Employee for Good Reason or as a result of a voluntary resignation shall
be communicated by a notice of termination to the other party hereto given in
accordance with Section 7(a) of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than thirty (30) days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of the Employee hereunder or preclude the Employee from asserting such
fact or circumstance in enforcing his or her rights hereunder.

     8. Miscellaneous Provisions.

        (a) No Duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that the Employee may receive from any other
source.

        (b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by


                                       5


the other party shall be considered a waiver of any other condition or provision
or of the same condition or provision at another time.

        (c) Headings. All captions and section headings used in this Agreement
are for convenient reference only and do not form a part of this Agreement.

        (d) Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto and supersedes in their entirety all prior representations,
understandings, undertakings or agreements (whether oral or written and whether
expressed or implied) of the parties with respect to the subject matter hereof.

        (e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.

        (f) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.

        (g) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.

        (h) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.


                                       6


     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year set
forth below.

COMPANY                           DIGITALTHINK, INC.

                                  By:
                                           ------------------------------------

                                  Title:
                                           ------------------------------------



EMPLOYEE                          By:
                                     ------------------------------------------

                                  Title:
                                           ------------------------------------


                                       7

EX-10

                                                                   Exhibit 10.18

                       SUMMARY OF BASIC LEASE INFORMATION

         The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Lease (this Summary and the Lease to be
known collectively as the "Lease") which pertains to the building (the
"Building") which is located at 601 Brannan Street, San Francisco, California
(the "Site"). Each reference in the Lease to any term of this Summary shall have
the meaning as set forth in this Summary for such term. In the event of a
conflict between the terms of this Summary and the Lease, the terms of the Lease
shall prevail. Any capitalized terms used herein and not otherwise defined
herein shall have the meaning as set forth in the Lease.



         TERMS OF LEASE                     DESCRIPTION

                                      
(a.)     Date:                              July 17, 2000

(b.)     Landlord:                          Thomas A. Price and Gwendolyn L. Price, as trustees of
                                            the Price Trust UTD October 5, 1984

(c.)     Address of Landlord (Paragraph 8): 55 Peninsula Road, Belvedere, California 94920

(d.)     Tenant:                            Digital Think, Inc., a Delaware corporation

(e.)     Address of Tenant (Paragraph 8):   1098 Harrison Street, San Francisco, California.
                                            Attention: Chief Financial Officer

(f.)     Premises (Paragraph 1):            601 Brannan Street, San Francisco, California. Total square
                                            footage of Premises:  approximately 74,200 (subject to
                                            adjustment pursuant to Paragraph 1.3.)

(g.)     Term (Paragraph 2):                Approximately ten (10) years.

         (i) Lease Commencement Date:       Two hundred seventy (270) days (as measured pursuant to
                                            Paragraph 2.2) after the City and County of San Francisco
                                            has issued the Final Use Approval (as defined in Paragraph
                                            3.1) (as such date may be extended pursuant to Paragraph 5.2
                                            of the Work Letter), or the date on which Tenant is able to
                                            occupy substantially all of the Premises and conduct
                                            business thereon, whichever first occurs.

         (ii) Lease Expiration Date:        The last day of the month in which the tenth (10th)
                                            anniversary of the Lease Commencement Date occurs (unless
                                            the Lease Commencement Date falls on the first day of a
                                            calendar month, in which case the Lease Expiration Date
                                            shall be the last day of the month preceding the tenth
                                            (10th) anniversary of the Lease Commencement Date).

                                       1


         (iii) Early Occupancy:             Tenant shall take possession of approximately 13,520 square
                                            feet of the Building on the date the current tenant vacates
                                            the Premises, which tenant shall vacate no later than sixty
                                            (60) days following the date of execution of this Lease
                                            (Paragraph 3.2).

(h.) Monthly Basic Rent:                    See Paragraph 4.

(i.) Adjustment to Monthly
     Basic Rent (Paragraph 4.1):            Annual Consumer Price Index increases; 3% minimum, 5% maximum.

(j.) Prepaid Rent:                          $355,541.67 upon execution of Lease.

(k.) Operating Expenses (Paragraph 5):      Tenant is responsible for payment of all operating expenses
                                            related to the Premises, the Building and the Site.

(l.) Security Deposit (Paragraph 6):        $1,000,000.00 in cash; $2,133,250.00 in a letter of credit
                                            (subject to adjustment pursuant to Paragraph 6).

(m.) Broker (Paragraph 9):                  Tenant's Broker:    HC&M Commercial Properties, Inc.
                                            Landlord's Broker:  Cappiello & Associates, Inc.

(n.) Work Letter (Exhibit D):               See attached.


The foregoing terms of this Summary are agreed to by Landlord and Tenant.



LANDLORD:                                                     TENANT:

                                                           
Thomas A. Price and Gwendolyn L. Price, as trustees           Digital Think, Inc., a Delaware corporation
of the Price Trust UTD October 5, 1984

                                                              By:  ____________________________
By:____________________________                               Name:  _________________________
     Thomas A. Price, Trustee                                 Its:  ____________________________

By:____________________________                               By:____________________________
     Gwendolyn Price, Trustee                                 Name:_________________________
                                                              Its:____________________________


                                       2


                                      LEASE

         THIS LEASE, dated July 17, 2000, for purposes of reference only, is
made and entered into by and between Thomas A. Price and Gwendolyn L. Price, as
trustees of the Price Trust UTD October 5, 1984 ("Landlord") and Digital Think,
Inc., a Delaware corporation ("Tenant").

1. Premises Leased.

1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Premises designated in the Summary and outlined on the Diagram attached
hereto as Exhibit A consisting of the Building at the address designated in the
Summary and the parcel of real property designated as the Site in the Summary,
including all parking areas located on the Site, subject to such reasonable
rules and regulations as Landlord may deliver to Tenant from time to time.
Tenant acknowledges that Landlord has made no representation or warranty
regarding the condition of the Premises, Building, or Site except as
specifically stated in this Lease. The parties hereto agree that said letting
and hiring is upon and subject to the terms, covenants and conditions herein set
forth and Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
such performance.

1.2 The rights and obligations of the parties regarding the construction of the
Premises are described in the tenant work letter ("Work Letter") attached to
this Lease as Exhibit D. Any inconsistency between the provisions of the Work
Letter and the provisions of the balance of the Lease, shall be governed by the
provisions of the Work Letter.

1.3 Tenant acknowledges that a portion of the Base Building Work (as defined in
the Work Letter) includes construction of additional second floor space in a
portion of the Building, and that upon completion of such construction, the
square footage of the Building is estimated to be approximately 74,200 square
feet. Upon substantial completion of the Base Building Work, Base Building
Architect and Tenant's Architect shall calculate the actual square footage of
the Building pursuant to modified BOMA (gross taken to outside surface of
exterior walls, without deduction for stairwells or telephony/equipment rooms,
with deduction for shafts and transformer rooms) for purposes of determining the
final, actual square footage of the Building.

2. Term.

2.1 Subject to Paragraphs 2.2 and 3, the term of this Lease (the "Term") shall
commence on the Lease Commencement Date, and terminate on the Lease Expiration
Date, as such terms are defined in the Summary, unless the Term is earlier
commenced or terminated as hereinafter provided. At all times that Tenant has
access to the Premises prior to the Lease Commencement Date, whether to perform
construction of Base Building Work or Tenant's Improvements, to fixturize the
Premises or for any other purpose, the terms and conditions of this


                                       3


Lease shall be in full force and effect, with the exception of the payment of
Monthly Basic Rent which, subject to Paragraph 3.2, shall not commence until the
Lease Commencement Date.

2.2 Landlord and Tenant shall each exercise commercially reasonable efforts to
substantially complete the Base Building Work and the Tenant's Improvements, as
contemplated by the Work Letter, in the shortest time possible, taking into
account the necessary governmental permissions and approvals, demand on
construction industry resources, inclement weather and other events and
circumstances outside the parties' control. The Lease Commencement Date shall be
(i) that date which is two hundred ten (210) days following the date on which
the City and County of San Francisco (the "City") issues Final Use Approval (as
defined in Paragraph 3.1); provided however, that such date shall be extended by
the length of time it takes Base Building Architect (as defined in the Work
Letter) to complete the Base Building Drawings (as defined in the Work Letter)
and for the Contractor (as defined in the Work Letter), with Tenant's and
Landlord's reasonable cooperation, to obtain a building permit for construction
of the Base Building Work, which extension shall not exceed sixty (60) days
unless extended by a Permitted Delay (as defined in the Work Letter), or (ii)
the date on which Tenant is able to occupy substantially all of the Premises and
operate its business thereon, whichever first occurs. The Lease Expiration Date
shall be the last day of the month in which the tenth (10th) anniversary of the
Lease Commencement Date occurs (unless the Lease Commencement Date falls on the
first day of a calendar month, in which case the Lease Expiration Date shall be
the last day of the month preceding the tenth (10th) anniversary of the Lease
Commencement Date). The actual Lease Commencement Date and the actual Lease
Expiration Date shall be specified in Landlord's Notice of Lease Term Dates
("Notice"), in the form attached hereto as Exhibit B, and shall be served upon
Tenant as provided in Paragraph 8 promptly after the Term shall have commenced.

3. Possession.

3.1 Landlord and Tenant each acknowledge and agree that this Lease, and the
parties' respective rights and obligations hereunder, is subject to the City
giving its final approval for a conversion of the Premises from the existing
service/light industrial use to a multimedia use (the "Final Use Approval").
Landlord shall use its commercially reasonable efforts to obtain Final Use
Approval on or before January 31, 2001, and thereafter if Final Use Approval has
not been obtained within said period. Tenant shall fully cooperate with Landlord
as necessary to facilitate obtaining Final Use Approval as expeditiously as
possible. In the event Final Use Approval is not received on or before January
31, 2001, Landlord and Tenant shall each have the right to terminate this Lease
by giving written notice of termination to the other party at any time prior to
the City issuing Final Use Approval. In the event the City informs Landlord that
Final Use Approval is not forthcoming prior to January 31, 2001, Landlord shall
promptly inform Tenant, and Landlord and Tenant shall then each have the right
to terminate this Lease by giving written notice to the other party so stating.
In the event of such notice, Tenant shall return possession of the Early
Occupancy Premises (as defined below) to Landlord in good condition within
thirty (30) days. Upon receipt of possession of the Early Occupancy Premises,
Landlord shall return all deposits and all prepaid Rent (less any earned Rent
for the Early Occupancy Period (as defined below)) to Tenant, and shall repay
Tenant for all advances made by Tenant related to Base Building Work. Except as
provided in the immediately preceding sentence, each party shall otherwise bear
their own costs and fees incurred through the date of termination (including
without limitation attorney's fees, architectural and engineering fees, design
fees or other construction planning and related costs), and neither party


                                       4


shall have any further obligation to the other. In the event this Lease is
terminated pursuant to this Paragraph, Landlord's obligation to repay all
advances made by Tenant related to Base Building Work shall be contingent only
upon the return of the Early Occupancy Premises to Landlord in good condition,
and otherwise shall constitute an independent covenant. Landlord shall cooperate
with and keep Tenant fully informed in connection with seeking Final Use
Approval and shall reasonably consult with Tenant prior to submitting any
information to the City in connection with obtaining Final Use Approval.
Landlord shall keep Tenant informed of all communications and shall provide
Tenant with copies of all written communications received from the City related
to obtaining Final Use Approval, and shall further notify Tenant in writing of
any meetings at which the application for Final Use Approval will be addressed
to allow Tenant to send representatives to such meetings. Tenant shall have no
direct contact with the City concerning the Final Use Approval without
Landlord's prior written consent, which shall not be unreasonably withheld.

3.2 Notwithstanding the provisions of this Lease concerning the calculation of
the Lease Commencement Date or the length of the Term, beginning on the date
that the current tenant vacates the Premises (not to exceed sixty (60) days from
the date hereof) and continuing until the Lease Commencement Date (the "Early
Occupancy Period"), Tenant shall take possession of approximately 13,520 square
feet of the Premises consisting of (i) approximately 8,140 square feet of space
on the existing second floor of the Premises, and (ii) approximately 5,380
square feet on the ground floor level, all as more particularly set forth in
Exhibit A (the "Early Occupancy Premises"). Tenant accepts such space in its "AS
IS" condition; provided, however, that Landlord shall, prior to commencement of
the Early Occupancy Period, construct a temporary, insulated wall along the
column line separating the above-referenced 5,380 square foot ground level space
from the balance of the ground floor to allow Tenant to more effectively use
such space during the Early Occupancy Period and while construction is ongoing
with respect to the remainder of the Premises. All of the terms and conditions
of this Lease shall be applicable during the Early Occupancy Period as though
the Term had commenced; provided, however, that during the Early Occupancy
Period, and until the Lease Commencement Date, (i) Tenant shall pay in lieu of
Monthly Basic Rent the sum of $51,893.75 per month, (ii) Landlord shall be
responsible for payment of earthquake insurance premiums associated with
coverage during the Early Occupancy Period, and (iii) Tenant shall only be
responsible for payment of 18.22% of the Real Property Taxes (as defined below)
which accrue during the Early Occupancy Period. During the Early Occupancy
Period, the Early Occupancy Rent shall be paid in accordance with Paragraph 4.4.

         If, during the Early Occupancy Period, the City (or any other
governmental agency with jurisdiction) notifies Landlord or Tenant that Tenant's
occupancy of any portion of the Early Occupancy Premises is not permitted, and
Landlord is not able within a reasonable time to obtain the City's consent to
such occupancy, Tenant's right of possession of the applicable portion of the
Early Occupancy Premises shall terminate and Tenant shall promptly vacate such
portion and return possession to Landlord. In such event, the reduced Monthly
Basic Rent set forth above shall be further reduced to an amount equal to the
sum of (i) $57.50 multiplied by the square footage of the second floor portion
of the Early Occupancy Premises Tenant continues to occupy, and (ii) $28.75
multiplied by the square footage of the first floor portion of the Early
Occupancy Premises Tenant continues to occupy. Except as amended by this
Subparagraph, all of the terms and conditions applicable to the Early Occupancy
Period shall remain in full force and effect.

                                       5


4. Monthly Basic Rent/Rent Adjustments.

4.1 Tenant agrees to pay to Landlord monthly rent for the Premises (the "Monthly
Basic Rent") in the following amounts, which amounts are subject to adjustment
as provided in Paragraphs 4.2, 4.3, 4.4 and 4.5:

         Months 1 through 12:                                 $244,430.56
         Months 13 through 18:                                $255,096.81
         Months 19 through end of Term:                       $366,207.92

4.2 The parties acknowledge that the Monthly Basic Rent amounts set forth above
have been determined assuming the square footage of the Building is 74,200
square feet. In the event an adjustment to the square footage of the Building is
made pursuant to Paragraph 1.3, the Monthly Basic Rent amounts set forth above
shall be recalculated by multiplying the stated Monthly Basic Rent by a
fraction, the numerator of which shall be the actual square footage of the
Building as determined pursuant to Paragraph 1.3, and the denominator of which
shall be 74,200.

4.3 Commencing with the Monthly Basic Rent due on the first day of the
twenty-fifth (25th) month of the Term ("Initial Adjustment Date"), the Monthly
Basic Rent shall be adjusted in accordance with the provisions of this
Paragraph, and shall thereafter be adjusted on each subsequent annual
anniversary of the Initial Adjustment Date (each date an "Adjustment Date")
during the balance of the Term. Such adjustment to Monthly Basic Rent shall
reflect any increase in the Consumer Price Index (All Items) for Urban Consumers
for the San Francisco-Oakland-San Jose Area (Base Period 1982-84=100), published
by the United States Department of Labor, Bureau of Labor Statistics ("Index"),
and shall be calculated as follows:

         The Index published and in effect immediately prior to the Initial
Adjustment Date (the "First Adjustment Index") and the Index published and in
effect exactly one year prior to the First Adjustment Index (the "Beginning
Index") shall be used to determine the amount of the first increase in Monthly
Basic Rent. The Monthly Basic Rent on the Initial Adjustment Date shall be
increased by the same percentage amount as the increase in the First Adjustment
Index over the Beginning Index. Thereafter, on each subsequent Adjustment Date,
the Monthly Basic Rent for the ensuing year shall be increased over the Monthly
Basic Rent in effect immediately prior to the subject Adjustment Date by the
same percentage amount as the increase in the Index published and in effect
immediately prior to such Adjustment Date over the Index published and in effect
exactly one year earlier; provided, however, that the increase in Monthly Basic
Rent for any adjustment period shall never be less than three percent (3%) nor
more than five percent (5%).

         If the Index is changed so that the Base Period differs from that
described above, the Index shall be converted in accordance with the conversion
factor published by the United States Department of Labor, Bureau of Labor
Statistics. If the Index is discontinued or revised during the Term, such other
government index or computation with which it is replaced shall be used in order
to obtain substantially the same result as would be obtained if the Index had
not been discontinued or revised. On adjustment of the Monthly Basic Rent as
provided in this Paragraph (due to an adjustment in square footage or an annual
adjustment based on a change in the Index), Landlord shall promptly deliver to
Tenant written notice setting forth the new Monthly Basic Rent.


                                       6


Landlord's failure to promptly deliver such notice shall not constitute a waiver
of Landlord's right to increase the Monthly Basic Rent as provided herein.

4.4 All payments of Monthly Basic Rent shall be due and payable in advance on
the first day of each and every calendar month during the Term, except that the
amount specified in Paragraph (j) of the Summary as Prepaid Rent shall be paid
upon the execution hereof and shall be applied as a credit against the first
installments of Monthly Basic Rent due hereunder until exhausted. Tenant's
obligation to pay Monthly Basic Rent hereunder shall be prorated during any
partial month of the Term based on the number of days in such month. In addition
to said Monthly Basic Rent, Tenant agrees to pay the amount of the rental
adjustments as and when provided in this Lease. Monthly Basic Rent and all
additional rent shall be paid to Landlord without any prior demand therefor and
without any deduction or offset (unless otherwise provided in this Lease) in
lawful money of the United States of America, which shall be legal tender at the
time of payment, at the address of Landlord designated in Paragraph (b) of the
Summary, or to such other person or at such other place as Landlord may from
time to time designate in writing. Further, all charges to be paid by Tenant
hereunder, including, without limitation, payments for Real Property Taxes (as
defined below) and other costs and expenses shall be considered additional rent
for the purposes of this Lease, and the word "Rent" in this Lease shall include
such additional rent as well as Monthly Basic Rent unless the context
specifically or clearly implies that only the Monthly Basic Rent is referenced.
All payments received by Landlord from Tenant shall be applied to the oldest
payment obligation owed by Tenant to Landlord. No designation by Tenant, either
in a separate writing or on a check or money order, shall modify this clause or
have any force or effect.

4.5 Paragraph 1.3 of the Work Letter sets forth Landlord's and Tenant's
obligations with respect to the payment for Base Building Costs (as defined in
the Work Letter). Notwithstanding anything to the contrary contained herein, in
the event the sum of (i) the Base Building Costs, plus (ii) one-half of the
Extractions (as defined below) paid by Tenant exceeds in the aggregate
$2,000,000.00 (such excess is hereafter referred to as the "Excess Building
Costs"), then one-eighteenth (1/18th) of the Excess Building Costs shall be
credited against the Monthly Basic Rent due for each of the first full eighteen
(18) months of the Term; provided, however, that if the Excess Building Costs
exceed the total amount of the Monthly Basic Rent due for the first eighteen
(18) months of the Term, then any such excess amount shall be applied as a
credit against the full amount of the Monthly Basic Rent due for the nineteenth
(19th) month of the Term and, if necessary, any succeeding months of the Term
until such excess amount is exhausted.

         By way of example only, assume that the final, actual square footage of
the Building (as determined pursuant to Paragraph 1.3) is 73,000 square feet,
the Base Building Costs paid by Tenant are $3,000,000.00, and the Extractions
paid by Tenant are $1,000,000, then the Monthly Basic Rental for Months 1-18 of
the Term would be adjusted to equal the following amounts: $157,144.18 for
Months 1-12 {[$244,430.56 x 73,000/74,200] - [(($3,000,000.00 - $2,000,000.00) +
(1/2 of $1,000,000.00))/18]} and $167,637.93 for Months 13-18 {[$255,096.81 x
73,000/74,200] - [(($3,000,000.00 - $2,000,000.00) + (1/2 of
$1,000,000.00))/18]}.

4.6 In the event this Lease is terminated during the Early Occupancy Period or
the first eighteen (18) months of the Term, and such termination is not the
result, in whole or part, of Tenant's breach or default of this Lease or the
attached Work Letter, Landlord shall return to Tenant (i) any unearned, prepaid
Monthly Basic Rent, (ii) any unused portion of the Security


                                       7


Deposit, and (iii) any amount paid by Tenant toward Base Building Work. Landlord
shall deliver all such amounts to Tenant within ninety (90) days following the
date of such termination. In the event such termination is the result of a
casualty or other event which results in insurance proceeds being paid to
Landlord, Tenant shall have the right to receive, and Landlord shall be
obligated to pay, any sums due to Tenant under this Paragraph from such
insurance proceeds.

5. Payment of Taxes, Utilities and Extractions.

5.1 Tenant shall pay prior to delinquency all taxes assessed against and levied
upon Tenant-owned leasehold improvements, trade fixtures, furnishings, equipment
and all personal property of Tenant contained in the Premises or elsewhere. When
possible, Tenant shall cause its leasehold improvements, trade fixtures,
furnishings, equipment and all other personal property to be assessed and billed
separately from the real property of Landlord.

5.2 Tenant shall pay prior to delinquency all Real Property Taxes (as defined
below) which accrue in connection with the Premises during the Term of this
Lease. Promptly upon receipt of invoices for Real Property Taxes attributable to
the Premises, Landlord shall deliver such invoices to Tenant. Upon written
request from Tenant, Landlord shall provide Tenant with copies of all other
correspondence or documentation related to any Real Property Taxes Tenant is
obligated to pay hereunder. Upon request, Tenant shall furnish Landlord with
satisfactory evidence that all Real Property Taxes are paid and current. If any
Real Property Taxes paid by Tenant cover any period of time prior to the
Commencement Date or after expiration of the Term, Tenant's share of the Real
Property Taxes shall be equitably prorated to cover only the period of time this
Lease is in effect, and Landlord shall reimburse Tenant for any overpayment by
reason of such proration. If Tenant shall fail to pay any Real Property Taxes
required by this Lease to be paid by Tenant, Landlord shall have the right to
pay the same upon ten (10) days written notice to Tenant, and Tenant shall
reimburse Landlord therefor, including any interest and penalties upon demand.

         As used herein, the term "Real Property Taxes" shall include any form
of real estate tax, any general, special, ordinary or extraordinary assessment,
any improvement bond, levy or similar tax (or any other fee, charge, or excise
which may be imposed as a substitute for any of the foregoing) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district, levied against
any legal or equitable interest of Landlord in the Premises. Tenant shall not be
responsible for the payment of any tax levied against Landlord's leasing of the
Premises, or for the payment of any estate, inheritance, transfer, gift or
franchise taxes, or any penalties or interest accrued in connection with the
Real Property Taxes (unless the result of Tenant's failure to comply with its
obligations under this Lease). In the event of an increase in Real Property
Taxes due directly to the sale or transfer of the Site by Landlord, Tenant's
obligation to pay Real Property Taxes accruing during the Term shall only
include fifty percent (50%) of any such increase.

         Tenant shall obtain Landlord's consent (which consent shall not be
unreasonably withheld) prior to contesting any Real Property Taxes Tenant is
obligated to pay hereunder, and in the event of such tax contest by Tenant,
Tenant shall (i) fully indemnify Landlord pursuant to the provisions of
Paragraph 18, and (ii) bear the full cost of any such contest including without
limitation the cost


                                       8


of any interest and penalties which may be assessed. If a change in Real
Property Taxes is obtained for any year of the Term, then Real Property Taxes
for that year shall be retroactively adjusted to reflect any actual reduction
realized by Landlord and Landlord shall provide Tenant with a credit, if any,
based on the actual adjustment. Landlord shall notify Tenant in writing of any
material change in any tax assessment or reassessment of the Building and the
Site within sufficient time to allow Tenant to review such assessment or
reassessment. Landlord shall cooperate at no more than a nominal cost to
Landlord and in good faith with Tenant in connection with any protest or contest
of taxes or assessments made by Tenant.

5.3 Tenant shall pay prior to delinquency all charges for water, gas, heat,
light, power, telephone, sewage, air conditioning and ventilating, scavenger,
janitorial, landscaping, and all other materials and utilities supplied to the
Premises, and all other expenses related to the operation of the Premises not
the responsibility of Landlord hereunder. Landlord shall not be liable, and,
except as otherwise provided in Paragraph 17, Tenant shall not be entitled to
any abatement of Rent (including without limitation Monthly Basic Rent) for the
reduction, interruption or suspension of any utility service to the Premises
unless caused by the negligent act or omission of Landlord or its agents;
provided, however, that Landlord shall reasonably cooperate with Tenant at
Tenant's request to reestablish any such interrupted services. No such
interruption, reduction or suspension of utilities shall constitute an eviction
of Tenant from the Premises. Landlord shall not charge Tenant a management fee
related to this Lease, Tenant's occupancy of the Premises or the performance of
Landlord's obligations hereunder.

5.4 Landlord and Tenant acknowledge that, in connection with changing the use
of, and constructing additional square footage at, the Building, the City will
assess certain charges and extractions (the "Extractions") against the Building
in furtherance of the City's policy to allocate a portion of school, traffic and
other City infrastructure costs to commercial property development in the City.
Tenant shall pay all such Extractions as and when due.

6. Security Deposit. Tenant shall pay to Landlord as follows a security deposit
in the amounts specified in Paragraph (l) of the Summary to be held by Landlord
as security for the faithful performance by Tenant of all of the terms,
covenants and conditions of this Lease by Tenant to be kept and performed during
the Term hereof: (i) upon execution of this Lease by the parties, Tenant shall
post the cash portion of the Security Deposit; (ii) within ten (10) business
days after the execution of this Lease by the parties, Tenant shall deliver a
letter of credit in the amount of $1,066,625.00; and (iii) within ten (10)
business days after receipt of Final Use Approval, Tenant shall increase the
amount of the letter of credit to that amount set forth in Paragraph (l) of the
Summary. The letter of credit portion of the deposit shall be in a form, and
with a financial institution, reasonably acceptable to Landlord. If at any time
during the Term of this Lease any item constituting Rent as provided herein
shall be overdue and unpaid then Landlord may, after expiration of any
applicable cure period and at the sole option of Landlord, but without any
requirement to do so, appropriate and apply the deposit provided pursuant to
this Paragraph 6 to payment of such overdue Rent. In doing so, Landlord shall
first apply the cash portion of the deposit prior to making any draw against the
letter of credit. Further, in the event of the failure of Tenant to keep and
perform any term, covenant or condition of this Lease to be kept or performed by
Tenant, then, after expiration of the applicable cure period and at the sole
option of Landlord, Landlord may appropriate and apply the deposit to the extent
necessary to compensate Landlord for any loss or damage sustained by Landlord
due to such breach on the part of Tenant, and/or to cure


                                       9


such breach. In the event that all or any portion of the deposit is appropriated
and applied by Landlord pursuant to this Paragraph, then Tenant shall, upon
written demand of Landlord, promptly remit to Landlord a sufficient amount of
cash or replacement letter of credit to restore each component of the deposit to
the amount of deposit then required under this Paragraph. Any failure on the
part of Tenant to restore the deposit within ten (10) days following the date on
which demand for restoration is deemed given hereunder shall constitute a
default pursuant to Paragraph 24.1(c) without any further notice. Upon
expiration of the Term, or earlier termination of this Lease, and within the
time prescribed by law, Landlord shall deliver to Tenant any cash or letter of
credit portion of the deposit which has not been appropriated or applied by
Landlord in accordance with the provisions of this Paragraph. Tenant
acknowledges that the deposit is not prepaid rent and, except as expressly
provided below, shall not be applied by Tenant to the payment of any Rent due
Landlord. No interest shall be paid to Tenant on the deposit, and Landlord shall
not be obligated to maintain the cash portion of the deposit separate or apart
from any other funds of Landlord. In the event Landlord transfers the deposit to
any successor in interest of Landlord to title of the Site and Building who has
agreed in writing to assume the obligations of Landlord under this Lease, then,
in such event, Landlord shall be discharged from any further obligation or
liability with respect to the deposit. Tenant waives the provisions of
California Civil Code Section 1950.7 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 damages caused by Tenant, or to clean the Premises. Landlord and
Tenant agree that Landlord may, in addition, claim those sums reasonably
necessary to compensate Landlord for any other foreseeable or unforeseeable loss
or damage caused by the act or omission by Tenant or Tenant's officers, agents,
employees, independent contractors or invitees. Tenant may not assign or
encumber the deposit without the consent by Landlord. Any attempt to do so shall
be void and shall not be binding on Landlord.

         On each anniversary of the Lease Commencement Date, and provided Tenant
has not been in default of this Lease beyond any applicable cure period at any
time during the immediately preceding three hundred sixty-five (365) day period,
Tenant may replace the letter of credit portion of the deposit with another
letter of credit in an amount reduced by one-sixth (1/6th) of the original
letter of credit amount; provided, however, that at such time as the letter of
credit has been so reduced three (3) times down to $1,066,625.00, the fourth and
final reduction in the letter of credit shall be for $66,625.00, and the
replacement letter of credit for $1,000,000.00 shall thereafter remain in place
until the expiration or earlier termination of the Term. Provided Tenant has not
been in default of this Lease beyond any applicable cure period at any time
during the immediately preceding three hundred sixty-five (365) day period, and
provided Tenant is not in default on the date the applicable Monthly Basic Rent
payment is due, beginning with the Monthly Basic Rent due for the thirty-seventh
(37th) month of the Term, Landlord shall apply one-twelfth (1/12th) of the cash
portion of the deposit as a credit against Monthly Basic Rent for each month of
the Term thereafter until the cash portion of the deposit has been fully
credited against Monthly Basic Rent.

7. Use.

7.1 Tenant shall use the Premises for multimedia and/or business services, and
all purposes incident thereto, and shall not use or permit the Premises to be
used for any other purpose without the prior written consent of Landlord, which
consent may be granted or withheld in Landlord's sole discretion. Tenant shall
not use or occupy the Premises in violation of any currently


                                       10


recorded covenants, conditions and restrictions affecting the Site or of any
law, nor shall Tenant use or occupy, or permit the Premises to be used or
occupied, in any way which would jeopardize Landlord's right to use the Site in
accordance with the Final Use Approval. Tenant shall, upon five (5) days written
notice from Landlord, discontinue any use of the Premises proscribed in the
immediately preceding sentence. Tenant shall not interfere with radio or
television broadcasting or reception from or in the Building or elsewhere.
Tenant shall comply with any direction of any governmental authority having
jurisdiction which shall, by reason of the nature of Tenant's specific use or
alteration of the Premises, impose any duty upon Tenant or Landlord with respect
to the Premises or with respect to the use or occupation thereof. Tenant shall
not do or permit to be done anything which will invalidate or increase the cost
of any fire, extended coverage or any other insurance policy covering the
Building and/or property located therein and shall comply with all rules,
orders, regulations and requirements of the Pacific Fire Rating Bureau or any
other organization performing a similar function. Tenant shall promptly upon
demand reimburse Landlord as additional Rent for any additional premium charged
for such policy by reason of Tenant's failure to comply with the provisions of
this Paragraph 7. Tenant shall not use or allow the Premises to be used for any
unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on
or about the Premises, or allow any noxious odors to exist at or emanate from
the Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises and shall keep the Premises in good repair and appearance.
Tenant shall not place a load upon the Premises exceeding the average pounds of
live load per square foot of floor area specified for the Building by Landlord's
architect, with the partitions to be considered a part of the live load.
Landlord reserves the right to prescribe the weight and position of all safes,
files and heavy equipment which Tenant desires to place in the Premises so as to
distribute properly the weight thereof. Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted to
the Building structure or to any other space in the Building shall be so
installed, maintained and used by Tenant as to eliminate such vibration or
noise. Tenant shall be responsible for all structural engineering required to
determine structural load. Tenant shall fasten all files, bookcases and like
furnishings to walls in a manner to prevent tipping over in the event of earth
movements. Landlord shall not be responsible for any damage or liability for
such events.

7.2 Except for the normal and proper use and storage of typical cleaning fluids
and solutions, and office equipment supplies (such as copier toner), in amounts
commensurate with Tenant's use and occupancy of the Premises, Tenant shall not
use, introduce to the Premises, generate, manufacture, produce, store, release,
discharge or dispose of, on, under or about the Premises or transport to or from
the Premises any Hazardous Material (as defined below) or allow its employees,
agents, contractors, invitees or any other person or entity to do so. Tenant
warrants that it shall not make any use of the Premises which may cause
contamination of the soil, the subsoil or ground water. Tenant shall keep and
maintain the Premises in compliance with, and shall not cause or permit the
Premises to be in violation of any and all federal, state or local laws,
ordinances, rules or regulations pertaining to health, industrial hygiene or the
environmental conditions on, under or about the Premises. Tenant shall give
immediate written notice to Landlord of (i) any action, proceeding or inquiry by
any governmental authority or any third party with respect to the presence of
any Hazardous Material on the Premises or the migration thereof from or to other
property or (ii) any spill, release or discharge of Hazardous Materials that
occurs with respect to the Premises or Tenant's operations.

                                       11


7.2.1 Tenant shall indemnify and hold harmless Landlord, its directors,
officers, employees, agents, successors and assigns (collectively "Landlord")
from and against any and all claims arising from Tenant's use of the Premises in
violation of this Paragraph. The indemnity shall include all costs, fines,
penalties, judgments, losses, attorney's fees, expenses and liabilities incurred
by Landlord for any such claim or any action or proceeding brought thereon
including, without limitation, (a) all foreseeable consequential damages
including without limitation loss of rental income and diminution in property
value; and (b) the costs of any cleanup, detoxification or other ameliorative
work of any kind or nature required by any governmental agency having
jurisdiction thereof, including without limitation all costs of monitoring and
all fees and expenses of consultants and experts retained by Landlord. This
indemnity shall survive the expiration or termination of this Lease. In any
action or proceeding brought against Landlord by reason of any such claim, upon
notice from Landlord if Landlord does not elect to retain separate counsel,
Tenant shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord. Tenant's indemnity obligations pursuant to this
Subparagraph shall not include the presence of Hazardous Materials on or beneath
the Site which are the result of migration from properties adjacent to the Site.

7.2.2 To the best of Landlord's actual knowledge, no Hazardous Materials exist
on, at or under the Premises, the Building or the Site as of the date of
execution of this Lease. Landlord has received a "No Further Action" letter for
the Site from the applicable governmental agency, a copy of which, along with
any other Hazardous Materials reports or materials related to the Site in
Landlord's possession, Landlord shall provide to Tenant upon execution of this
Lease. Landlord shall be responsible at its sole cost and expense for removing
or otherwise remediating as required by applicable law any Hazardous Materials
which existed on, at or under the Premises, the Building or the Site as of the
date of execution of this Lease and Landlord shall, in similar scope as Tenant's
indemnification obligations set forth in Subparagraph 7.2.1, indemnify, defend
and hold Tenant harmless from any costs and expenses related to any such
preexisting Hazardous Materials. If either party desires, a Phase I
Environmental Assessment shall be performed on the Site prior to the Lease
Commencement Date, in which event the parties shall share equally all costs of
obtaining such environmental assessment.

7.2.3 As used herein, the term "Hazardous Material" shall mean any substance or
material which has been determined by any state, federal or local governmental
authority to be capable of posing a risk of injury to health, safety or
property, including all of those materials and substances designated as
hazardous or toxic by the city in which the Premises are located, the U.S.
Environmental Protection Agency, the Consumer Product Safety Commission, the
Food and Drug Administration, the California Water Resources Control Board, the
Regional Water Quality Control Board, San Francisco Bay Region the California
Air Resources Board, CAL/OSHA Standards Board, Division of Occupational Safety
and Health, the California Department of Food and Agriculture, the California
Department of Health Services, and any federal agencies that have overlapping
jurisdiction with such California agencies, or any other governmental agency now
or hereafter authorized to regulate materials and substances in the environment.
Without limiting the generality of the foregoing, the term "Hazardous Material"
shall included all of those materials and substances defined as "hazardous
materials" or "hazardous waste" in Sections 66680 through 66685 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, as the same shall be
amended from time to time, petroleum, petroleum-related substances and the
by-products, fractions, constituents and sub-constituents of petroleum or
petroleum-related substances, asbestos, and any

                                       12


other materials requiring remediation now or in the future under federal, state
or local statutes, ordinances, regulations or policies.

8. Payments and Notices. All Rents and other sums payable by Tenant to Landlord
hereunder shall be paid to Landlord by check, cashier's check, or cash, at
Landlord's option, at the address designated by Landlord in the Summary or at
such other places as Landlord may hereafter designate in writing. Any notice
required or permitted to be given hereunder must be in writing and may be given
by personal delivery, mail, or by recognized overnight courier. If notice is
given by personal delivery, such notice shall be deemed to be given upon
delivery at the addresses designated in the Summary, if notice is given by
registered or certified mail such notice shall be deemed given three (3)
business days following deposit in the U.S. mail, postage prepaid, addressed to
Tenant or Landlord (as the case may be) at the addresses designated in the
Summary and if given by overnight courier shall be deemed given the next
business day following delivery to the courier, charges prepaid, address as
stated above. Either party may by written notice to the other specify a
different address for notice purposes. If more than one person or entity
constitutes the "Tenant" under this Lease, service of any notice upon any one of
said persons or entities shall be deemed as service upon all of said persons or
entities.

9. Brokers. The parties recognize that the brokers who negotiated this Lease are
the brokers whose names are stated in Paragraph (m) of the Summary, and agree
that Landlord shall be solely responsible for the payment of brokerage
commissions to said brokers, and that Tenant shall have no responsibility
therefor. As part of the consideration for the granting of this Lease, Tenant
represents and warrants to Landlord that to Tenant's knowledge no other broker,
agent or finder negotiated or was instrumental in negotiating or consummating
this Lease and that Tenant knows of no other real estate broker, agent or finder
who is, or might be, entitled to a commission or compensation in connection with
this Lease. Any broker, agent or finder of Tenant whom Tenant has failed to
disclose herein shall be paid by Tenant. Tenant shall hold Landlord harmless
from all damages and indemnify Landlord for all said damages paid or incurred by
Landlord resulting from any claims that may be asserted against Landlord by any
broker, agent or finder who has, or has claimed to have, rendered services to
Tenant undisclosed by Tenant herein. Landlord shall hold Tenant harmless from
all damages and indemnify Tenant for all said damages paid or incurred by Tenant
resulting from any claims that may be asserted against Tenant by any broker,
agent or finder who has, or has claimed to have, rendered services to Landlord
undisclosed by Landlord herein.

10. Holding Over. If Tenant remains in possession of the Premises after
expiration or earlier termination of this Lease with Landlord's express consent,
Tenant's occupancy shall be a month to month tenancy at a rent agreed upon by
Landlord and Tenant but, in no event less than the Monthly Basic Rent payable
under this Lease during the last full month before the date of expiration or
earlier termination. The month to month tenancy shall be on the terms and
conditions of this Lease except as provided in the preceding sentence and the
Lease clauses concerning extension rights. If Tenant holds over after the
expiration or earlier termination of the Term hereof without the express written
consent of Landlord, Tenant shall become a tenant at sufferance only, at a
rental rate equal to one hundred fifty percent (150%) of the Monthly Basic Rent
which would be applicable to the Premises upon the date of such expiration
(subject to adjustment as provided herein and prorated on a daily basis) for the
first sixty (60) days of such holdover, and two hundred percent (200%) of the
Monthly Basic Rent thereafter during the pendency of such holdover, and
otherwise subject to the terms, covenants and conditions of this Lease,
including without limitation the payment of Real


                                       13


Property Taxes, insurance premiums, utility charges and all other amounts
(either directly to third parties or to Landlord) required hereunder. Acceptance
by Landlord of Rent after such expiration or earlier termination shall not
constitute a consent to a holdover hereunder or result in a renewal. The
foregoing provisions of this Paragraph 10 are in addition to and do not affect
Landlord's right of re-entry or any rights of Landlord hereunder or as otherwise
provided by law. If Tenant fails to surrender the Premises upon the expiration
of this Lease despite demand to do so by Landlord, Tenant shall indemnify and
hold Landlord harmless from all loss or liability arising out of such failure,
including without limitation, any claim made by any succeeding tenant founded on
or resulting from such failure to surrender. No provision of this paragraph 10
shall be construed as implied consent by Landlord to any holding over by Tenant.
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease upon expiration or other
termination of this Lease. The provisions of this paragraph 10 shall not be
considered to limit or constitute a waiver of any other rights or remedies of
Landlord provided in this Lease or at law.

11. [Intentionally Left Blank].

12. Condition of Premises. Except as otherwise expressly provided herein, Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty of any kind whatsoever with respect to the Premises
or the Building or with respect to the suitability of either for the conduct of
Tenant's business. Tenant acknowledges and agrees that Tenant is relying solely
upon Tenant's own inspection of the Premises, and Tenant is not relying on any
representation or warranty from the Landlord regarding the Premises or the
Building, except as specifically set forth in this Lease or the Work Letter,
including, without limitation, any representation or warranty as to the physical
condition, design or layout of the Premises.

13. Alterations.

13.1 Tenant may, at any time and from time to time during the Term of this
Lease, at its sole cost and expense, make alterations, additions, installations,
substitutions, improvements and decorations (hereinafter collectively called
"Changes" and individually, a "Change") in and to the Premises, excluding
structural changes, on the following conditions, and providing such Changes will
not result in a violation of any law applicable to the Premises, or affect
adversely Landlord's right to use the Site in accordance with the Final Use
Approval:

(a.) The outside appearance, character or use of the Building shall not be
affected adversely, and no Changes shall weaken or impair the structural
strength or, in the reasonable opinion of Landlord, lessen the value of the
Building or create the potential for unusual expenses to be incurred upon the
removal of Changes and the restoration of the Premises upon the termination of
this Lease.

(b.) No part of the Building outside of the Premises shall be physically
affected.

(c.) The proper functioning of any of the mechanical, electrical, sanitary and
other service systems or installations of the Building ("Service Facilities")
shall not be adversely affected and there shall be no construction which might
interfere with Landlord's free access to the Service


                                       14


Facilities or interfere with the moving of Landlord's equipment to or from the
enclosures containing the Service Facilities.

(d.) In performing the work involved in making such Changes, Tenant shall be
bound by and observe all of the conditions and covenants contained in this
Paragraph.

(e.) All work shall be done at such times and in such manner as Landlord from
time to time may reasonably designate.

(f.) At the date upon which the Term of this Lease shall end, or the date of any
earlier termination of this Lease, Tenant shall on Landlord's written request
restore the Premises to their condition prior to the making of any Changes
permitted by this Paragraph, reasonable wear and tear excepted; provided,
however, that Tenant shall have the right at the time Tenant seeks Landlord's
consent to a Change to require Landlord to then state in writing whether or not
Landlord will require the Change to be removed, and the Premises restored, at
the expiration of the Term or earlier termination of this Lease. In no event
shall Tenant be responsible for removing the Base Building Work or Tenant's
Improvements constructed at the Premises pursuant to the Work Letter. If Tenant
fails to complete the restoration before the latter of (i) expiration of the
Term; or (ii) thirty (30) days following the written notice from Landlord
requesting the restoration, Landlord may complete the restoration and charge the
cost of the restoration to Tenant. In no event shall Tenant be required to
remove any of the Work contemplated by the Work Letter.

13.2 Before proceeding with any Change (exclusive only of changes to items
constituting Tenant's personal property), Tenant shall submit to Landlord plans
and specifications for the work to be done, which shall in all cases require
Landlord's prior written approval, which approval shall not be withheld
unreasonably. Landlord may confer with consultants in connection with the review
of such plans and specifications. If Landlord or such consultant(s) shall
disapprove of any of Tenant's plans, Tenant shall be advised of the reasons of
such disapproval. In any event, Tenant agrees to pay to Landlord, as additional
Rent, the reasonable cost of such consultation and review (but not in excess of
$3,500.00) immediately upon receipt of invoices either from Landlord or such
consultant(s). Any Change for which approval has been received shall be
performed strictly in accordance with the approved plans and specifications, and
no material amendments or additions to such plans and specifications shall be
made without the prior written consent of Landlord. Notwithstanding the
foregoing, Tenant shall be entitled to make non-structural, interior Changes to
the Premises which do not exceed One Hundred Thousand Dollars ($100,000) in
cost, in the aggregate over the duration of the Term, without Landlord's prior
written consent provided that such Changes (i) shall be subject to the other
provisions of this Paragraph, including without limitation the removal
provisions of Paragraph 13.1(f), and (ii) Landlord shall be given prior written
notice of such Changes.

13.3 If the proposed Change requires approval by or notice to the lessor of a
superior lease or the holder of a mortgage, no Change shall be commenced until
such approval has been received, or such notice has been given, as the case may
be, and all applicable conditions and provisions of said superior lease or
mortgage with respect to the proposed Change or alteration have been met or
complied with at Tenant's expense; and Landlord, if it approves the Change, will
request such approval or give such notice, as the case may be.

                                       15


13.4 Tenant shall submit to Landlord the name and address of each contractor
intended to be used by Tenant in connection with construction of Changes. No
contractor which is reasonably unacceptable to Landlord shall be engaged by
Tenant. All costs and expenses incurred in Changes shall be paid timely by
Tenant. If Landlord approves the construction of specific interior improvements
in the Premises by contractors or mechanics selected by Tenant and approved by
Landlord, then Tenant's contractors shall obtain on behalf of Tenant and at
Tenant's sole cost and expense, (i) all necessary governmental permits and
certificates for the commencement and prosecution of Tenant's Changes and for
final approval thereof upon completion, and (ii) at Landlord's request, a
completion and lien indemnity bond, or other surety, satisfactory to Landlord,
for Changes which require Landlord's prior approval. In the event Tenant shall
request any changes in the work to be performed after the submission of the
plans referred to in this Paragraph 13, such additional changes shall be subject
to the same approvals and notices as the changes initially submitted by Tenant.

13.5 All Changes and the performance thereof shall at all times comply with (i)
all laws, rules, orders, ordinances, directions, regulations and requirements of
all governmental authorities, agencies, offices, departments, bureaus and boards
having jurisdiction thereof, (ii) all rules, orders, directions, regulations and
requirements of the Pacific Fire Rating Bureau, or of any similar insurance body
or bodies, and (iii) all rules and regulations of Landlord, and Tenant shall
cause Changes to be performed in compliance therewith and in good and first
class workmanlike manner, using materials and equipment at least equal in
quality and class to the installations of the Building. Changes shall be
performed in such manner as not to impose any additional expense upon Landlord
in construction, maintenance or operation of the Building, and shall be
performed by Contractors or mechanics reasonably approved by Landlord and
submitted to Tenant pursuant to this Paragraph, who shall coordinate their work
in cooperation with any other work being performed with respect to the Building.
Throughout the performance of Changes, Tenant, at its expense, shall carry, or
cause to be carried, workmen's compensation insurance in statutory limits, and
general liability insurance for any occurrence in or about the Building, of
which Landlord and its managing agent shall be named as parties insured, in such
limits as Landlord may reasonably prescribe, with insurers reasonably
satisfactory to Landlord all in compliance with Subparagraph 20.2.
Notwithstanding any provision of this Lease to the contrary, in no event shall
Landlord be required to undertake any alteration or any improvements of any kind
whatsoever in connection with the Premises or the Building as a result of or in
connection with any Changes being made by Tenant and specifically, but without
limitation, Landlord shall not be required to make any improvements or
alteration of any kind whatsoever in order to comply with any applicable laws,
orders, ordinances, regulations or building codes which may be required in
connection with Changes being made by Tenant.

13.6 Tenant further covenants and agrees that any mechanic's lien filed against
the Premises or against the Building for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at
the cost and expense of Tenant. All alterations, decorations, additions or
improvements upon the Premises, made by either party, including (without
limiting the generality of the foregoing) all wall covering, built-in cabinet
work, paneling and the like, shall, unless Landlord elects otherwise, become the
property of Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the Term hereof, except that Landlord
may by written notice to Tenant, given at least thirty (30) days prior to the
end of the Term, require Tenant to remove all partitions, counters, railings and
the like installed by Tenant, and Tenant shall repair any


                                       16


damage to the Premises arising from such removal or, at Landlord's option, shall
pay to the Landlord all of Landlord's costs of such removal and repair.
Notwithstanding the sentence immediately above, Tenant shall not be required to
remove or restore any Changes which Landlord agreed in accordance with the
provisions of Subparagraph 13.1(f) need not be removed or restored.

13.7 All articles of personal property and all business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the Term
provided Tenant is not in default hereunder, and provided further that Tenant
shall repair any damage caused by such removal. If Tenant shall fail to remove
all of its effects from said Premises upon termination of this Lease for any
cause whatsoever, Landlord may, at its option, remove the same in any manner
that Landlord shall choose, and store said effects without liability to Tenant
for loss thereof, and Tenant agrees to pay Landlord upon demand any and all
expenses incurred in such removal, including court costs and attorneys' fees and
storage charges on such effects for any length of time that the same shall be in
Landlord's possession or Landlord may, at its option, without notice, sell said
effects, or any of the same, at private sale and without legal process, for such
price as Landlord may obtain and apply the proceeds of such sale upon any
amounts due under this Lease from Tenant to Landlord and upon the expense
incident to the removal and sale of said effects.

13.8 Subject to Landlord's agreement to minimize any disturbance of Tenant's use
of the Premises, Landlord reserves the right at any time and from time to time
without the same constituting an actual or constructive eviction and without
incurring any liability to Tenant therefor or otherwise affecting Tenant's
obligations under this Lease, to make such changes, alterations, additions,
improvements, repairs or replacements in or to the Site or the Building
(including the Premises if required so to do by any law or regulation) and the
fixtures and equipment thereof, as well as in or to the street entrances, halls,
passages and stairways thereof, and/or to change the name by which the Building
is commonly known, as Landlord may deem necessary or desirable. Nothing
contained in this Paragraph 13, shall be deemed to relieve Tenant of any duty,
obligation or liability of Tenant with respect to making any repair, replacement
or improvement or complying with any law, order or requirement of any government
or other authority and nothing contained in this Paragraph 13, shall be deemed
or construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision of repair of the Building or any part
thereof other than as otherwise provided in this Lease.

13.9 The construction of the improvements to the Premises to be constructed
pursuant to the provisions of the Work Letter attached to this Lease as Exhibit
D (if any) shall be governed by the terms of such Work Letter to the extent
inconsistent with the provisions of this Paragraph 13.

13.10 Upon completion of any Changes, Tenant shall provide Landlord with a set
of final "as-built" plans as soon as practical.

14. Repairs and Maintenance.

14.1 Except as otherwise provided in Paragraphs 7, 14.3, 21 and/or 22, Tenant
shall, at Tenant's sole cost and expense, maintain and preserve in good
condition, and repair and replace as


                                       17


necessary, each and every part, system and facility serving or comprising the
Premises, including by way of example and without limitation all restroom and
kitchen facilities, heating and air conditioning systems, plumbing and
electrical systems, parking lot surfaces, glass and windows, wall, ceiling and
floor surfaces and each and every other component of the Premises. In the event
that Tenant is obligated to replace the air conditioning and/or heating system
serving the Premises or any major components thereof during the last two (2)
years of the Term, and the useful life of the system or components to be
replaced will exceed the remaining Term, Tenant may require that Landlord make
the needed replacements, in which event the cost thereof shall be amortized over
the useful life of the replaced system or components and Tenant shall thereafter
pay to Landlord, along with monthly installments of Rent, the monthly amortized
portion of the cost of said replaced items together with interest on the
unamortized portion at the prevailing rate available to Landlord from commercial
banks.

14.2 All maintenance and repairs shall be performed by contractors reasonably
acceptable to Landlord. All costs and expenses incurred in such maintenance and
repair shall be paid timely by Tenant. Landlord shall reasonably cooperate with
Tenant (including assignment thereof) to allow Tenant to avail itself of any
contractor warranties which may exist with respect to the construction of Base
Building Work contemplated by the Work Letter. Tenant shall upon the expiration
or sooner termination of the Term surrender the Premises to Landlord in good
condition, reasonable wear and tear excepted. Landlord shall have no obligation
to alter, remodel, improve, repair, decorate or paint the Premises or any part
thereof (except as provided in the Work Letter), and the parties hereto affirm
that Landlord has made no representations to Tenant respecting the condition of
the Premises or the Building except as specifically herein set forth.
Notwithstanding anything set forth above in this Paragraph to the contrary,
Tenant shall have no obligation to install, maintain or repair any of the
structural elements or systems of the Building (including the roof), unless such
work is required due to Tenant's specific use or misuse of the Premises (subject
to the waiver of subrogation provisions of Paragraph 20.6).

14.3 Landlord shall, at Landlord's sole cost and expense, repair and maintain
the structural components of the Building (including without limitation the
exterior and other load bearing walls, footings, columns, structural floors and
foundations), and shall be responsible for all major repairs to and replacement
of the roof surface, unless such maintenance and repairs are caused in part or
in whole by the act, neglect, fault of or omission of any duty of Tenant, its
agents, servants, employees or invitees, in which case Tenant shall pay to
Landlord as additional Rent, the reasonable cost of such maintenance and repairs
(unless the same are covered by insurance required to be maintained by Landlord
or Tenant pursuant to Paragraph 20). Tenant shall solely be responsible for any
roofing membrane maintenance or repairs necessitated by Tenant's penetration of
the roof for the purpose of installing any equipment, antennae or other devices.
Landlord shall not be liable for any failure to make any repairs, or to perform
any maintenance, required of Landlord unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. In the event of an emergency, Tenant
shall have the right to make necessary repairs which would otherwise be
Landlord's responsibility and obtain reimbursement from Landlord for the
reasonable costs of such repairs; provided, however, that Tenant shall first use
commercially reasonable efforts to notify Landlord and allow Landlord the
opportunity to effect such repairs. Except as provided in Paragraphs 21 and 22,
there shall be no abatement of Rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making of
any repairs, alterations or improvements in or to


                                       18


any portion of the Building or the Premises or in or to fixtures, appurtenances
and equipment therein. Tenant hereby waives the provisions of California Civil
Code Sections 1932(1), 1941 and 1942 and of any similar law, statute or
ordinance now or hereafter in effect.

15. Liens. Tenant shall not permit any mechanic's, material men's or other liens
to be filed against the real property of which the Premises form a part nor
against the Tenant's leasehold interest in the Premises. Landlord shall have the
right at all reasonable times to post and keep posted on the Premises any
notices which it deems necessary for protection from such liens. If any such
liens are filed, Landlord may, following not less than ten (10) days prior
written notice to Tenant and without waiving its rights and remedies based on
such breach of Tenant and without releasing Tenant from any of its obligations,
cause such liens to be released by any means it shall deem proper, including
payment in satisfaction of the claim giving rise to such lien. Tenant shall pay
to Landlord at once, upon notice by Landlord, any sum paid by Landlord to remove
such liens, together with interest at the maximum rate per annum permitted by
law from the date of such payment by Landlord.

16. Entry by Landlord. Subject to Landlord's agreement to use reasonable efforts
to minimize any disturbance of Tenant's use of the Premises by exercise of the
following rights, Landlord reserves and shall at any and all reasonable times
(except in the case of emergency) have the right to enter the Premises to
inspect the same, to supply any service to be provided by Landlord to Tenant
hereunder, to submit said Premises to prospective purchasers or
mortgagors/lenders or, during the last twelve (12) months of the Term of this
Lease, to prospective tenants, to post notices of nonresponsibility, to alter,
improve or repair the Premises or any other portion of the Building, all without
being deemed guilty of any eviction of Tenant and without abatement of Rent, and
may, in order to carry out such purposes, erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, provided that the business of Tenant shall be interfered with as
little as is reasonably practicable. Tenant hereby waives any claim for damages
for any injury or inconvenience to or interference with Tenant's business, any
loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon and
about the Premises excluding Tenant's vaults and safes, and Landlord shall have
the means which Landlord may deem proper to open said doors in an emergency in
order to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord by any of said means, or otherwise, shall not under any circumstances
be construed or deemed to be a forcible or unlawful entry into, or a detainer
of, the Premises, or an eviction of Tenant from the Premises or any portion
thereof, and any damages caused on account thereof shall be paid by Tenant. It
is understood and agreed that no provision of this Lease shall be construed as
obligating Landlord to perform any repairs, alterations or decorations except as
otherwise expressly agreed herein to be performed by Landlord. Landlord shall
(i) attempt in the exercise of its rights under this Paragraph 16 to minimize
any disturbance of Tenant's use and possession of the Premises and to provide as
much notice to Tenant as may be reasonably possible prior to any such exercise
of Landlord's rights under this Paragraph 16, and (ii) comply with Tenant's
reasonable security requirements including the right of Tenant to accompany
Landlord while upon the Premises except in the case of emergency.

17. Utilities and Services. Tenant acknowledges that, pursuant to Paragraph 5.3,
Tenant is to contract directly for and obtain (and Landlord is to have no
responsibility for) certain utilities and services necessary for the operation
of the Premises. Landlord shall not be liable for, and Tenant


                                       19


shall not be entitled to any abatement or reduction of Rent by reason of the
discontinuation of utilities to the Building where such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, or for other causes beyond Landlord's
reasonable control; provided, however, that to the extent there is an
interruption in utility service resulting from a particular cause which, if the
Rent were to abate, such rental abatement would be covered by insurance required
to be maintained by Landlord pursuant to Paragraph 20.2(a), then in such event,
and to the extent Landlord actually receives payment under such policy, Monthly
Basic Rent due hereunder, and all other monetary payments and additional Rent
owed by Tenant to Landlord hereunder (but only to the extent Tenant's use
thereof has been diminished), shall abate. Additionally, in the event of an
interruption of utility services, Landlord shall cooperate with and assist
Tenant as reasonably requested by Tenant (and at no more than nominal cost to
Landlord) to reestablish such services as soon as is possible. Tenant hereby
waives the provisions of California Civil Code Section 1932(1) or any other
applicable existing or future law, ordinance or governmental regulation
permitting the termination of this Lease due to the interruption or failure of
or inability to provide any services required to be provided by Landlord
hereunder.

18. Indemnification.

18.1 To the fullest extent permitted by law, and except as caused by Landlord's,
or Landlord's agent's, negligence or willful misconduct, Tenant hereby agrees to
defend, indemnify, protect and hold Landlord harmless against and from any and
all loss, cost, damage or liability arising in whole or in part from Tenant's
use of the Premises or the conduct of its business or from any activity, work,
or thing done, permitted or suffered by Tenant, its agents, contractors,
employees or invitees in or about the Premises or elsewhere, and hereby agrees
to further indemnify and hold harmless Landlord against and from any and all
loss, cost, damage or liability arising in whole or in part from any breach or
default in the performance of any obligation on Tenant's part to be performed
under the terms of this Lease or arising from any act, neglect, fault or
omission of Tenant, or of its agents, employees or invitees, and from and
against all costs, attorneys' fees, expenses and liabilities incurred for such
claim or any action or proceeding brought thereon. In case any action or
proceeding is brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord hereby agrees to defend the same at Tenant's expense by
counsel approved in writing by Landlord. Tenant, as a material part of the
consideration to Landlord, hereby waives all claims against Landlord (but not
against Landlord's agents or any third parties) for damage to property or injury
to persons in, upon or about the Premises from any cause whatsoever except that
which is caused by Landlord's (or its agent's) gross negligence or intentional
misconduct.

18.2 Landlord shall defend and indemnify Tenant and hold it harmless from any
loss by reason of injury to person or property to the extent such injury is
caused by the gross negligence or intentional misconduct of Landlord, including
without limitation any liability or injury to the person or property of
Landlord, its officers, directors, partners, employees, agents, invitees or
guests. Nothing herein shall relieve Tenant of liability for its own willful
acts or negligence.

19. Damage to Tenant's Property. Landlord shall not be liable to Tenant for any
damage to property, nor for loss of or damage to any property by theft or
otherwise, nor for any injury or damage to persons or property resulting from
fire, explosion, falling plaster, 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 sub-surface or from any other place or
resulting


                                       20


from dampness or any other patent or latent cause whatsoever, unless such damage
is caused by the gross negligence or willful misconduct of Landlord or its
agents. Landlord or its agents shall not be liable for interference with the
light, air, view or intangible characteristics or qualities of the Premises.
Tenant shall give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects known to Tenant therein or in the
fixtures or equipment located therein. Further, neither Landlord nor any
partner, director, officer, agent, servant or employee of Landlord shall be
liable: (i) for any such damage caused by any persons in, upon or about the
Building, or caused by operations in the construction of any private, public or
quasi-public work (the limitations of liability set forth in this clause (i)
shall not apply to any damage or liability caused by the gross negligence or
intentional misconduct of Landlord or its agents); or (ii) for consequential
damages, including lost profits, of Tenant or any person claiming through or
under Tenant.

20. Insurance.

20.1 During the Term hereof, Tenant, at its sole expense, shall obtain and keep
in force the following insurance:

(a.) Commercial general liability insurance designating Landlord as a named
insured against any and all claims for bodily injury and property damage
occurring in, or about the Premises (including without limitation damage or
injury to vehicles or persons in the parking lot located on the Site) arising
out of Tenant's use and occupancy of the Premises. Such insurance shall have a
combined single limit of not less than Three Million Dollars ($3,000,000) per
occurrence with a Ten Million Dollar ($10,000,000) aggregate limit. Such
liability insurance shall be primary and not contributing to any insurance
available to Landlord and any insurance maintained by Landlord shall be excess
thereto. In no event shall the limits of such insurance be considered as
limiting the liability of Tenant under this Lease.

(b.) Fire and casualty insurance in the name of Landlord and Tenant, with loss
payable to Landlord and to any Mortgagee, insuring against loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, exclusive of foundations, as the same shall exist from
time to time, or the amount required by any lender(s), but in no event more than
the commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. The insurance required by this Paragraph shall,
in addition, include coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Premises required to be demolished, and shall also contain an agreed
valuation provision in lieu of any coinsurance clause, waiver of subrogation and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
then Tenant shall be liable for the full deductible amount.

(c.) Personal property insurance insuring all equipment, trade fixtures,
inventory, fixtures and personal property located on or in the Premises for
perils covered by the causes of loss - special form (all risk) and in addition,
coverage for flood, and boiler and machinery (if applicable).


                                       21


Such insurance shall be written on a replacement cost basis in an amount equal
to the full replacement value of the aggregate of the foregoing less any
applicable deductible.

(d.) Workers' compensation insurance in accordance with statutory law.

(e.) Loss of income and extra expense insurance in such amounts as will
reimburse Tenant for direct or indirect loss of earnings attributable to all
perils commonly insured against by prudent tenants or attributable to prevention
of access to the Premises or to the Building as result of such perils.

(f.) Any other form or forms of insurance as Tenant, Landlord, or Landlord's
mortgagees may reasonably require from time to time in form, in amounts, and for
insurance risks against which a prudent tenant of a comparable size and in a
comparable business would protect itself.

20.2 During the Term hereof (including the Early Occupancy Period), Landlord
shall obtain and keep in force the following insurance:

(a.) Policies of insurance in the name of Landlord insuring the Building
(excluding any property which Tenant is obligated to insure under Subparagraph
20.l(c) hereof and any Changes, but including the Base Building Work and
Tenant's Improvements) against damage caused by earthquake or flood, if the
Premises is within a designated flood zone. Landlord may, but shall not be
obligated to, obtain and carry any other form or forms of insurance as it or
Landlord's mortgagees may determine advisable. Notwithstanding any contribution
by Tenant to the cost of insurance premiums, as provided herein, Tenant
acknowledges that it has no right to receive any proceeds from any insurance
policies carried by Landlord. Except for such costs related to the Early
Occupancy Period, Tenant shall reimburse Landlord for the cost of all such
insurance within twenty (20) days of receipt of an invoice therefor. Tenant
shall be responsible for the payment of any deductible amount in connection with
any such policies carried by Landlord; provided, however, that Tenant's
obligation to pay the deductible in connection with an earthquake policy shall
decrease by 10% upon expiration of each lease year of the Term (Tenant shall pay
100% of the deductible if a casualty occurs in the first lease year, 90% if the
casualty occurs in the second lease year, 80% in the third lease year, etc.),
and Landlord shall be responsible for the payment of the balance of any
deductible.

(b.) Policies of insurance in the name of Landlord, with loss payable to
Landlord and any Mortgagee, insuring the loss of the full rental or other
charges payable by Tenant to Landlord pursuant to this Lease for a period of not
less than one year. Such insurance shall provide that in the event that the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of Rent from
the date of any such loss. Said insurance shall contain an agreed evaluation
provision in lieu of any coinsurance clause, and the amount of coverage shall be
adjusted annually to reflect the projected Rent payable by Tenant for the next
twelve (12) month period. Tenant shall reimburse Landlord for the cost of all
such insurance within twenty (20) days of receipt of an invoice therefor. Tenant
shall be liable for any deductible amount in the event of a loss.

                                       22


20.3 The policies required to be maintained by Tenant and Landlord hereunder
shall be with companies rated AVIII or better in the most current issue of
Best's Insurance Reports. Insurers shall be licensed to do business in the state
in which the Premises are located and domiciled in the USA. Any deductible
amounts under any insurance policies required hereunder shall not exceed
$10,000.00; provided, however, that the deductible with respect to the insurance
required pursuant to Paragraph 20.2(b) shall be substantially equal to that
amount which is 10% of the full replacement cost of the Building (including Base
Building Work and Tenant's Improvements). Certificates of insurance shall be
delivered to Landlord prior to the commencement date and annually thereafter at
least thirty (30) days prior to the expiration date of the old policy. Tenant
shall have the right to provide insurance coverage which it is obligated to
carry pursuant to the terms hereof in a blanket policy, provided such blanket
policy expressly affords coverage to the Premises and to Landlord as required by
this Lease. Each policy of insurance shall provide that Landlord (and any
mortgagee) are additional insureds and shall provide notification to Landlord at
least thirty (30) days prior to any cancellation or modification to reduce the
insurance coverage. Landlord shall have the right to review the limits of
coverage maintained by Tenant periodically during the Term, and may request that
such limits be increased to commercially reasonable levels consistent with other
similar buildings in the area of the Building if a discrepancy is discovered.

20.4 Tenant will not knowingly keep, use, sell, or offer for sale in, or upon,
the Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building. If Tenant's occupancy or business
in, or on, the Premises, whether or not Landlord has consented to the same,
results in any increase in premiums for the insurance required or actually
carried by Tenant and/or Landlord with respect to the Building, Tenant shall pay
any such increase in premiums as additional Rent. In determining whether
increased premiums are a result of Tenant's use of the Premises, a schedule
issued by the organization computing the insurance rate on the Building or the
Premises showing the various components of such rate, shall be conclusive
evidence of the several items and charges which make up such rate. Tenant shall
promptly comply with all reasonable requirements of the insurance authority or
any present or future insurer relating to the Premises.

20.5 If any insurance policy required to be maintained by Tenant shall be
canceled or cancellation shall be threatened or the coverage thereunder reduced
or threatened to be reduced in any way because of the specific use of the
Premises or any part thereof by Tenant or any assignee or sub-tenant of Tenant
or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the
condition giving rise to such cancellation, threatened cancellation, reduction
of coverage, threatened reduction of coverage, increase in premiums, or
threatened increase in premiums, within 48 hours after written notice thereof,
Landlord may, at its option, enter upon the Premises and attempt to remedy such
condition, and Tenant shall promptly pay all costs thereof to Landlord as
additional Rent. Landlord shall not be liable for any damage or injury caused to
any property of Tenant or of others located on the Premises resulting from such
entry. If Landlord is unable, or elects not, to remedy such condition, then
Landlord shall have all of the remedies provided for in this Lease in the event
of a default by Tenant.

20.6 Notwithstanding anything herein to the contrary, Landlord and Tenant hereby
mutually waive their respective rights of recovery against each other for any
loss of, or damage to, either parties' property, to the extent that such loss or
damage is insured by an insurance policy required to be in effect at the time of
such loss or damage. Each party shall obtain any special


                                       23


endorsements, if required by its insurer whereby the insurer waives its rights
of subrogation against the other party.

20.7 In the event Tenant does not purchase the insurance required by this Lease
or keep the same in full force and effect, Landlord may, but shall not be
obligated to purchase the necessary insurance and pay the premium. The Tenant
shall repay to Landlord, as additional Rent, the amount so paid promptly upon
demand. In addition, Landlord may recover from Tenant and Tenant agrees to pay,
as additional Rent, any and all reasonable expense (including attorneys' fees)
and damages which Landlord may sustain by reason of the failure to Tenant to
obtain and maintain such insurance.

20.8 Prior to commencement of the Early Occupancy Period, Landlord shall be
responsible for maintaining the insurance coverages set forth in Paragraphs
20.1(b) and 20.2(a), and shall be responsible for the payment of all premiums
for such policies which accrue prior to the Early Occupancy Period.

21. Damage or Destruction.

21.1 In the event that the Premises is damaged by fire or other casualty which
is covered under insurance pursuant to the provisions of the foregoing section,
Landlord shall restore such damage provided that: (i) the insurance proceeds,
plus the amount of any deductible (the payment of which shall be Tenant's
responsibility, except to the extent Landlord is responsible for payment of the
deductible pursuant to Paragraph 20.2(a)), are sufficient to pay one hundred
percent (100%) of the cost of restoration; and (ii) in the reasonable judgment
of Landlord, the restoration can be completed within two hundred and seventy
(270) days after the date of the damage or casualty under the laws and
regulations of the state, federal, county and municipal authorities having
jurisdiction. Landlord shall notify Tenant whether or not the Premises will be
restored under this section within forty-five (45) days of the occurrence of the
casualty. If such conditions apply so as to require Landlord to restore such
damage pursuant to this section, this Lease shall continue in full force and
effect, unless otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent (to the extent such
amounts are covered by rental interruption insurance which Landlord was
obligated to maintain pursuant to Paragraph 20.2(b)) at all times during which
Tenant's use of the Premises is interrupted, such proportionate reduction to be
based on the extent to which the damage and restoration efforts actually
interfere with Tenant's business in the Premises. Except as otherwise provided
in Paragraph 21.4, 21.6 and subject to Paragraph 24.6, Tenant's right to a
reduction of Rent hereunder shall be Tenant's sole and exclusive remedy in
connection with any such damage. Notwithstanding the foregoing, if Landlord
elects to terminate this Lease pursuant to this Subparagraph 21.1, if within
thirty (30) days after receipt of Landlord's notice Tenant elects to provide the
funds necessary to make up the shortage (or absence) of insurance proceeds and
provides Landlord with reasonable assurance thereof, Landlord shall restore the
Premises as provided in this Subparagraph provided that the Premises are
reasonably subject to restoration within two hundred seventy (270) days
following the date on which the casualty occurs.

21.2 In the event that the Premises is damaged by a casualty against which
Tenant is not required to maintain insurance pursuant to Paragraph 20, and
Landlord is not required to restore such damage in accordance with the
provisions of the immediately preceding section, Landlord shall have the option
to either (i) repair or restore such damage, with the Lease continuing in full

                                       24


force and effect, but Rent to be proportionately abated as provided above; or
(ii) give notice to Tenant at any time within forty-five (45) days after the
occurrence of such damage terminating this Lease as of a date to be specified in
such notice which date shall not be less than thirty (30) nor more than sixty
(60) days after the date on which such notice of termination is given. In the
event of the giving of such notice of termination, this Lease shall expire and
all interest of Tenant in the Premises shall terminate on the date so specified
in such notice and the Rent, reduced by any proportionate reduction in Rent as
provided for above, shall be paid to the date of such termination.
Notwithstanding the foregoing, if Landlord elects to terminate this Lease
pursuant to this Subparagraph 21.2, if within thirty (30) days after receipt of
Landlord's notice Tenant elects to provide the funds necessary to make up the
shortage (or absence) of insurance proceeds and provides Landlord with
reasonable assurance thereof, Landlord shall restore the Premises as provided in
this Subparagraph provided that the Premises are reasonably subject to
restoration within two hundred seventy (270) days following the date on which
the casualty occurs. Tenant in connection with such election, shall have the
right to exercise any remaining option(s) to extend the Term provided herein (if
any), provided that Tenant otherwise meets all requirements necessary for such
exercise.

21.3 Notwithstanding the foregoing, either Landlord or Tenant may terminate this
Lease if the Premises is damaged by fire or other casualty (and Landlord's
reasonably estimated cost of restoration of the Premises exceeds ten percent
(10%) of the then replacement value of the Premises) and such damage or casualty
occurs during the last twelve (12) months of the Term of this Lease (or the Term
of any renewal option, if applicable) by giving the other notice thereof at any
time within thirty (30) days following the occurrence of such damage or
casualty. Such notice shall specify the date of such termination, which date
shall not be less than thirty (30) nor more than sixty (60) days following the
date on which such notice of termination is given. In the event of the giving of
such notice of termination, this Lease shall expire and all interest of Tenant
in the Premises shall terminate on the date so specified in such notice and the
Rent shall be paid to the date of such termination. Notwithstanding the
foregoing to the contrary, Landlord shall not have the right to terminate this
Lease if damage or casualty occurs during the last twelve (12) months of the
Term if Tenant timely exercises its option to extend the Term of this Lease (if
any) within twenty (20) days after the date of such damage or casualty.

21.4 In the event that the destruction to the Premises cannot be restored as
required herein under applicable laws and regulations within two hundred seventy
(270) days of the damage or casualty, notwithstanding the availability of
insurance proceeds, either party shall have the right to terminate this Lease by
giving the other notice thereof within thirty (30) days of date of the
occurrence of such casualty specifying the date of termination which shall not
be less than thirty (30) days nor more than sixty (60) days following the date
on which such notice of termination is given. In the event of the giving of such
notice of termination, this Lease shall expire and all interest of Tenant in the
Premises shall terminate on the date so specified in such notice and the Rent,
reduced by any proportionate reduction in Rent as provided for above, shall be
paid to the date of such termination.

21.5 Upon any termination of this Lease under any of the provisions of this
Paragraph 21, the parties shall be released thereby without further obligation
to the other from the date possession of the Premises is surrendered to
Landlord, except for (i) items which have already accrued and are then unpaid by
Tenant under the Lease, (ii) any prepaid (and unearned) Monthly Basic Rent or

                                       25


unused security deposit amounts, and (iii) any portion of the costs of the Base
Building Work not yet offset against Monthly Basic Rent.

21.6 Tenant shall not be released from any of its obligations under this Lease
except to the extent and upon the conditions expressly stated in this Paragraph
21. Notwithstanding anything to the contrary contained in this Paragraph 21,
should Landlord be delayed or prevented from repairing or restoring the damaged
Premises within one (1) year after the occurrence of such damage or destruction
by reason of acts of God, war, governmental restrictions, inability to procure
the necessary labor or materials, or other cause or force majeure beyond the
control of Landlord, such one (1) year period shall be extended by one day for
each day completion of the work to restore the Premises is delayed thereby. Upon
expiration of the one (1) year period for reconstruction (as the same may be
extend by force majeure), and provided such reconstruction is not then
substantially complete, Tenant may give Landlord written notice terminating this
Lease, and in the event Landlord does not substantially complete the
reconstruction of the Premises within sixty (60) days of receipt of such notice,
this Lease shall terminate.

21.7 If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall be obligated to make repairs or restoration only of
those portions of the Building and the Premises which constituted the Work (as
defined in the Work Letter), or which were insured by either party and the
proceeds of such insurance have been received by Landlord. The repair and
restoration of items not provided at Landlord's expense shall be the obligation
of Tenant.

21.8 Tenant hereby waives California Civil Code Sections 1932(2) and 1933(4),
providing for termination of hiring upon destruction of the thing hired and
Sections 1941 and 1942, providing for repairs to and of premises.

22. Eminent Domain.

22.1 In case the whole of the Site (including the Building and all parking areas
located on the Site), or such part thereof as shall substantially interfere with
Tenant's use and occupancy thereof, shall be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority. Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking (provided that Tenant may present a separate
claim for Tenant's relocation costs, lost personal property and the unamortized
portion of any leasehold improvements performed by Tenant other than the Work
(as defined in the Work Letter), so long as such claim does not diminish any
award otherwise available to Landlord), and Landlord shall be entitled to
receive the entire amount of any award without deduction for any estate or
interest of Tenant. In the event the amount of property or the type of estate
taken shall not substantially interfere with the conduct of Tenant's business,
Landlord shall be entitled to the entire amount of the award without deduction
for any estate or interest of Tenant. If this Lease is not so terminated,
Landlord shall promptly proceed to restore the Premises to substantially their
same condition prior to such partial taking, and a proportionate allowance shall
be made to Tenant for the Rent corresponding to the time during which, and to
the part of the Premises of which, Tenant shall be so deprived on account of
such taking and restoration. Nothing contained in this Paragraph shall be deemed
to give Landlord any interest in any award separately made to Tenant for the
taking of


                                       26


personal property and trade fixtures belonging to Tenant, for the loss of
Tenant's goodwill or for moving costs incurred by Tenant in relocating Tenant's
business.

22.2 In the event of taking of the Premises or any part thereof for temporary
use, (i) this Lease shall be and remain unaffected thereby and Rent shall not
abate, and (ii) Tenant shall be entitled to receive for itself such portion or
portions of any award made for such use with respect to the period of the taking
which is within the Term, provided that if such taking shall remain in force at
the expiration or earlier termination of this Lease, Tenant shall then pay to
Landlord a sum equal to the reasonable cost of performing Tenant's obligations
under Paragraph 14 with respect to surrender of the Premises and upon such
payment shall be excused from such obligations. For purpose of this Subparagraph
22.2, a temporary taking shall be defined as a taking for a period of 270 days
or less.

22.3 Landlord and Tenant each hereby waive the provisions of California Code of
Civil Procedure Section 1265.130 and any other applicable existing or future
law, ordinance or governmental regulation providing for, or allowing either
party to petition the courts of the state of California for, a termination of
this lease upon a partial taking of the Premises and/or the Building.

23. Bankruptcy. If Tenant shall file a petition in bankruptcy under any Chapter
of federal bankruptcy law as then in effect, or if Tenant be adjudicated a
bankrupt in involuntary bankruptcy proceedings and such adjudication shall not
have been vacated within sixty (60) days from the date thereof, or if a receiver
or trustee be appointed of Tenant's property and the order appointing such
receiver or trustee not be set aside or vacated within sixty (60) days after the
entry thereof, or if Tenant shall assign Tenant's estate or effects for the
benefit of creditors, or if this Lease shall otherwise by operation of law pass
to any person or persons other than Tenant, then and in any such event Landlord
may, if Landlord so elects, with or without notice of such election and with or
without entry or action by Landlord, forthwith terminate this Lease to the
extent allowed by applicable law. Notwithstanding any other provisions of this
Lease, Landlord, in addition to any and all rights and remedies allowed by law
or equity, shall upon such termination be entitled to recover damages in the
amount provided in Subparagraph 24.2 below and neither Tenant nor any person
claiming through or under Tenant or by virtue of any statute or order of any
court shall be entitled to possession of the Premises but shall forthwith quit
and surrender the Premises to Landlord. Nothing herein contained shall limit or
prejudice the right of Landlord to prove and obtain as damages by reason of any
such termination an amount equal to the maximum allowed by any statute or rule
of law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of damages recoverable under the provisions of this
Paragraph 23.

24. Defaults and Remedies.

24.1 The occurrence of any one or more of the following events shall constitute
a default hereunder by Tenant:

(a.) The abandonment of the Premises by Tenant. Abandonment is herein defined to
include, but is not limited, to, any absence by Tenant from the Premises for
fourteen (14) consecutive days or more without paying Rent and providing
reasonably adequate security for the Premises.

                                       27


(b.) The failure by Tenant to make any payment of Monthly Basic Rent, additional
Rent or any other payment required to be made by Tenant hereunder as and when
due, where such failure continues for a period of five (5) days after written
notice thereof from Landlord to Tenant; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure 1161 (provided such notice is prepared and
delivered to Tenant in compliance with Section 1161).

(c.) The failure by Tenant to observe or perform any of the express or implied
covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in Subparagraph 24.1(a) or 24.1(b) above, where such
failure shall continue for a period of ten (10) days after written notice
thereof from Landlord to Tenant; provided, however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California Code
of Civil Procedure 1161 (provided such notice is prepared and delivered to
Tenant in compliance with Section 1161); provided, further, that if the nature
of Tenant's default is such that more than ten (10) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant shall
commence such cure within said ten-day period and thereafter diligently and
without interruption prosecute such cure to completion.

(d.) (1) The making by Tenant of any general assignment for the benefit of
creditors; (2) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (3) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within sixty (60) days; or (4) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease where such seizure
is not discharged within sixty (60) days.

24.2 In the event of any such default by Tenant, in addition to any other
remedies available to Landlord at law or in equity, Landlord shall have the
immediate option to terminate this Lease and all rights of Tenant hereunder.
Upon such termination of Tenant's right to possession of the Premises, this
Lease shall terminate and Landlord shall be entitled to recover damages from
Tenant as provided in California Civil Code Section 1951.2 or any other
applicable existing or future law, ordinance or regulation providing for
recovery of damages for such breach, including but not limited to the following:

(a.) the worth at the time of award of any unpaid Rent which had been earned at
the time of such termination; plus

(b.) the worth at the time of award of the amount by which the unpaid Rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss 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 for
the balance of the Term after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; plus

                                       28


(d.) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform his obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom.

         As used in Subparagraphs 24.2(a) and 24.2(b) above, the "worth at the
time of award" is computed by allowing interest at the maximum rate permitted by
law per annum. As used in Subparagraph 24.2(c) above, the Worth at the time of
awards is computed by discounting to present value at the time of the award such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).

24.3 If a default exists under this Lease, Landlord shall also have the remedy
described in California Civil Code Section 1951.4 (Landlord may continue this
Lease in effect after Tenant has breached this Lease and abandoned the Premises
and recover Rent as it becomes due; provided, however that Tenant has the right
to sublet or assign this Lease, subject only to reasonable limitations). Acts of
maintenance or preservation or efforts to relet the Premises or the appointment
of a receiver upon initiative of Landlord to protect Landlord's interest under
this Lease shall not constitute a termination of Tenant's right to possession.

24.4 During the continuance of a default, and subject to all applicable due
process requirements, Landlord may enter the Premises without terminating this
Lease and remove all Tenant's personal property, any Changes and trade fixtures
from the Premises and store them at Tenant's risk and expense. If Landlord
removes such property from the Premises and stores it at Tenant's risk and
expense, and if Tenant fails to pay the cost of such removal and storage after
written demand therefor and/or to pay any Rent then due, then after the property
has been stored for a period of thirty (30) days or more Landlord may sell such
property at public or private sale, in the manner and at such times and places
as Landlord deems commercially reasonable following reasonable notice to Tenant
of the time and place of such sale. The proceeds of any such sale shall be
applied first to the payment of the expenses for removal and storage of the
property, the preparation for and the conducting of such sale, and for
attorneys' fees and other legal expenses incurred by Landlord in connection
therewith; and the balance shall be applied to any past due amount owing
hereunder.

         Tenant hereby waives all claims for damages that may be caused by
Landlord's reentering and taking possession of the Premises or removing and
storing Tenant's personal property pursuant to this Paragraph 24, and Tenant
shall hold Landlord harmless from and against any loss, cost or damage resulting
from any such act. No reentry by Landlord shall constitute or be construed as a
forcible entry by Landlord.

24.5 All rights, options' and remedies of Landlord contained in this Lease shall
be construed and held to be cumulative, and no one of them shall be exclusive of
the other, and Landlord shall have the right to pursue any one or all of such
remedies or any other remedy or relief which may be provided by law, whether or
not stated in this Lease. No waiver of any default of Tenant hereunder shall be
implied from any acceptance by Landlord of any Rent or other payments due
hereunder or any omission by Landlord to take any action on account of such
default if such default persists or is repeated, and no express waiver shall
affect defaults other than as specified in said waiver. The consent or approval
or Landlord to or of any act by Tenant requiring Landlord's


                                       29


consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent or approval to or of any subsequent similar acts by Tenant.

24.6 The failure by Landlord to observe or perform any of the covenants,
conditions or provisions of this Lease shall constitute an event of default
under the Lease, but only if such failure continues for a period of thirty (30)
days after written notice thereof from Tenant to Landlord; provided, however,
that if additional time is necessary to cure such default, no event of default
shall be deemed to have occurred if Landlord commences to cure the default
within thirty (30) days of notice from Tenant and thereafter diligently
prosecutes such cure to completion. For purposes of this Paragraph, a cure of
the default shall include a reasonable period of time for Landlord to (i)
evaluate the alleged event of default, (ii) obtain bids from three or more
qualified contractors to perform the work necessary to cure the default (if
applicable), (iii) award a contract to a contractor to perform any necessary
work to cure the default, and (iv) complete the work to cure the default. In the
event of any uncured event of default, then Tenant, at Tenant's option, may
thereafter pursue one of the following remedies: (a) perform Landlord's
obligation and invoice Landlord for reimbursement for reasonable expenses
actually incurred by Tenant, with supporting documentation in form and substance
satisfactory to Landlord; provided, however, that Tenant shall have no right to
offset the cost thereof against Monthly Basic Rent or other sums payable by
Tenant to Landlord hereunder, or (b) institute an action for specific
performance and/or other equitable remedies against Landlord in the San
Francisco Superior Court. Notwithstanding the foregoing, and without
constituting a default on Landlord's part, Tenant shall have the right to
perform repairs to the Premises otherwise the responsibility of Landlord if (i)
the circumstances can fairly be described as an emergency and the contemplated
repairs are necessary to avoid continuing damage to the Building or Tenant's
property, and (ii) Tenant gives Landlord advanced notice and a reasonable
opportunity to effect the necessary repairs. In such event, Tenant may offset
the reasonable costs of such repairs against subsequent Monthly Basic Rent
payments. Tenant shall have the further right to offset against subsequent
Monthly Basic Rent payments any portion of the cost of the Base Building Work in
excess of $4,000,000.00 for which Landlord is required to reimburse Tenant
pursuant to Paragraph 1.3.1 of the Work Letter, if such reimbursement is not
received by Tenant within the time provided in Paragraph 1.3.1 of the Work
Letter.

25. Assignment and Subletting. Tenant shall not voluntarily assign or encumber
its interest in this Lease or in the Premises, or sublease all or any part of
the Premises, or allow any other person or entity to occupy or use all or any
part of the Premises, without first obtaining Landlord's prior written consent,
which consent shall not be unreasonably withheld. Any assignment, encumbrance or
sublease without Landlord's prior written consent shall be voidable, at
Landlord's election, and shall constitute a default. For purposes hereof, in the
event Tenant is a partnership, a withdrawal or change of partners, or change of
ownership of partners, owning more than a fifty percent (50%) interest in the
partnership, or if Tenant is a private (as opposed to a public) corporation, any
transfer of fifty percent (50%) of its stock, or of voting control of such
corporation, shall constitute a voluntary assignment and shall be subject to
these provisions. Notwithstanding the provisions of this Paragraph 25 to the
contrary, Tenant shall be entitled to assign or sublet all or a portion of its
interest in this Lease to an affiliate of Tenant without the prior consent of
Landlord provided that (i) Tenant shall continue to be liable following the
assignment for the obligations pursuant to this Lease, and (ii) Tenant shall
give thirty (30) days prior written notice, along with complete financial
information for the affiliate, to Landlord of any such proposed assignment to an
affiliate. For purposes hereof, the term "affiliate" shall refer to any entity
which (i) directly or indirectly, through


                                       30


one or more intermediaries, controls, is controlled by, or is under common
control with Tenant, or (ii) any entity with which or into which Tenant merges
or consolidates. No consent to any assignment, encumbrance, or sublease shall
constitute a further waiver of the provisions of this Paragraph. No later than
thirty (30) days prior to the effective date of the proposed assignment or
sublease, Tenant shall notify Landlord in writing of Tenant's intent to assign,
encumber, or sublease, the name of the proposed assignee or sublessee,
information concerning the financial responsibility of the proposed assignee or
sublessee and the terms of the proposed assignment or subletting, and Landlord
shall, within twenty (20) days of receipt of such written notice as well as any
additional information requested by Landlord concerning the proposed assignee's
or sublessee's financial responsibility, either approve or reject the proposed
assignment, encumbrance or sublease.

         Without limiting the instances in which it may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in the following instances: (i) if at the time consent is requested or
at any time prior to the granting of consent, Tenant is in default under this
Lease or would be in default under this Lease but for the pendency of any grace
or cure period under Paragraph 24 above; (ii) if the proposed assignee or
sublessee is a governmental agency; (iii) if, in Landlord's judgment, the use of
the Premises by the proposed assignee or sublessee (1) would be inconsistent
with Paragraph 7 of this Lease, or (2) would result in more than a reasonable
number of occupants per floor; or (iv) if the proposed assignee's or sublessee's
credit, character and business or professional standing does not meet the
reasonable standards of Landlord.

         In the event that Landlord shall consent to any assignment or sublease
under the provisions of this Paragraph 25, Tenant shall pay Landlord's
reasonable processing costs and attorneys' fees incurred in giving such consent.
Landlord's consent to any assignment or sublease shall not release or relieve
Tenant from its obligations for the full and timely performance of each and
every term and condition to be performed by Tenant hereunder. If for any
proposed assignment or sublease Tenant receives Rent or other consideration,
either initially or over the term of the assignment or sublease, in excess of
the Rent and monthly amortization of Transfer Costs (defined below) called for
hereunder, or, in case of the sublease of a portion of the Premises, in excess
of the monthly amortization of all Transfer Costs and such Rent fairly allocable
to such portion, after appropriate adjustments to assure that all other payments
called for hereunder are taken into account, Tenant shall, except where such
assignee or subtenant is an affiliate of Tenant, pay to Landlord as additional
Rent hereunder 50% of the excess of each such payment of Rent or other
consideration received by Tenant promptly after its receipt. As used herein,
"Transfer Costs" shall mean commercially reasonable brokerage commissions and
attorneys' fees incurred by Tenant in negotiating and documenting such
assignment or sublease, and such expenses as Landlord shall approve in advance
(in Landlord's sole discretion) incurred by Tenant in performing Changes to the
Premises reasonably required by the proposed assignee or sublessee, such
Transfer Costs to be amortized (without interest) for the purposes of Tenant's
recovery of same from excess consideration, on a straight-line basis over the
remaining initial Term of this Lease as of the effective date of such assignment
or subletting. Landlord's waiver or consent to any assignment or subletting
shall not relieve Tenant from any obligation under this Lease..

26. Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon Tenant
paying the Rent required under this Lease and paying all other charges and
performing all of the covenants and provisions aforesaid on Tenant's part to be
observed and performed under this Lease and subject to


                                       31


the terms and conditions of this Lease, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises in accordance with this Lease.

27. Subordination. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any first mortgagee with a lien on the Building or any
ground lessor with respect to the Building, this lease shall be subject and
subordinate at all times to: (a) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building or the land upon
which the Building is situated or both, and (b) the lien of any mortgage or deed
of trust which may now exist or hereafter be executed in any amount for which
the Building, land, ground leases or underlying leases, or Landlord's interest
or estate in any of said items is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this lease. In the event that any ground lease or underlying lease terminates
for any reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall, if requested by the
ground lessor, mortgagee or beneficiary, as applicable, attorn to and become the
Tenant of the successor in interest to Landlord and in such event Tenant's right
to possession of the Premises shall not be disturbed if Tenant is not in default
and so long as Tenant shall pay the Rent and all other amounts required to be
paid to Landlord pursuant to the terms hereof and observe and perform all of the
provisions of this Lease, unless the Lease is otherwise terminated pursuant to
its terms. Tenant covenants and agrees to execute and deliver, upon demand by
Landlord and in the form reasonably requested by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect to
any such ground leases or underlying leases or the lien of any such mortgage or
deed of trust, provided that such documents shall contain commercially
reasonable non-disturbance provisions such that as long as Tenant observes and
performs its obligations as provided hereunder, its possession of the Premises
and its rights hereunder will not be disturbed and that, in the event of any
foreclosure by such mortgagee or ground lessor, Tenant's leasehold interest
hereunder shall not be terminated. Should Tenant fail to sign and return any
such documents within ten (10) business days of receipt, Tenant shall be in
default, and Landlord may, at Landlord's option, terminate this Lease provided
written notice of such termination is received by Tenant prior to Landlord's
receipt of such documents. Within ninety (90) days of execution of this Lease,
Landlord shall obtain from all existing mortgagees and ground lessors a
commercially reasonable Subordination, Nondisturbance and Attornment Agreement.
Landlord shall also obtain (and Tenant shall also execute) such documentation
with respect to any future mortgagees or ground lessors of the Site. Within
ninety (90) days of execution of this Lease, Landlord shall obtain a
commercially reasonable Subordination, Nondisturbance and Attornment Agreement
from all other parties with "of record" lien or leasehold rights in the Site, or
shall cause the recordation of such documentation as may be reasonably
acceptable to Fidelity National Title Company to remove such matters from the
title to the Site.

28. Estoppel Certificate.

28.1 Within ten (10) business days following any written request which Landlord
may make from time to time, Tenant shall execute and deliver to Landlord a
statement, in a form substantially similar to the form of Exhibit C attached
hereto, certifying; (i) the Commencement Date of this Lease; (ii) the fact that
this Lease is unmodified and in full force and effect (or, if there have been
modifications hereto, that this Lease is in full force and effect, as modified,
and stating the date and nature of such modifications); (iii) the date to which
the rental and other sums payable


                                       32


under this Lease have been paid; (iv) the fact that there are no current
defaults under this Lease by either Landlord or Tenant except as specified in
such statement; and (v) such other matters reasonably requested by the
requesting party. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph 28 may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or any interest therein.

28.2 Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) that there are no
uncured defaults in the requesting party's performance, and (iii) that not more
than one (1) month's Rent has been paid in advance. If Tenant fails to deliver
said statement to Landlord within ten (10) business days of receipt of a written
request therefor, such failure shall, without the requirement of any future
notice or any further grace period, constitute a default under this Lease
pursuant to Paragraph 24.1(c).

29. Conflict of Laws. This Lease shall be governed by and construed pursuant to
the laws of the State of California.

30. Successors and Assigns. Except as otherwise provided in this Lease, all of
the covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representative, successors and assigns.

31. Surrender of Premises. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord, operate as an assignment to it of any or all subleases
or subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all alterations and additions (except as
otherwise provided in Paragraph 13) thereto broom-clean, in good order, repair
and condition, reasonable wear and tear excepted. The delivery of keys to any
employee of Landlord or to Landlord's agent or any employee thereof shall not be
sufficient to constitute a termination of this Lease or a surrender of the
Premises.

32. Professional Fees.

32.1 In the event that Landlord or Tenant should bring suit for the possession
of the Premises, for the recovery of any sum due under this Lease, or because of
the breach of any provisions of this Lease, or for any other relief against
Tenant or Landlord hereunder, or should either party bring suit against the
other with respect to matters arising from or growing out of this Lease, then
all costs and expenses, including without limitation, its reasonable
professional fees such as appraisers', accountants' and attorneys' fees,
incurred by the prevailing party therein shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on the
date of the commencement of such action and shall be enforceable whether or not
the action is prosecuted to judgment.

32.2 Should Landlord be named as a defendant in any suit brought against Tenant
in connection with or arising out of Tenant's occupancy hereunder, and such suit
is not based on any negligent or wrongful conduct of Landlord or its agents,
Tenant shall pay to Landlord its costs and expenses incurred in such suit as and
when incurred, including without limitation, its actual professional fees such
as appraiser's, accountants' and attorneys' fees.

                                       33


33. Performance by Tenant. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of Rent, except as
otherwise provided herein. Tenant acknowledges that the late payment by Tenant
to Landlord of any sums due under this Lease will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of such cost being extremely
difficult and impractical to fix. Such costs include, without limitation,
processing and accounting charges, and late charges that may be imposed on
Landlord by the terms of any encumbrance and note secured by any encumbrance
covering the Premises or the Building of which the Premises are a part.
Therefore if any amount due Landlord from Tenant hereunder has not been received
on or before the fifth (5th) day after Tenant receives written notice that such
amount is past due, Tenant shall pay to Landlord, without notice or demand, as
additional Rent, five percent (5 %) of the overdue amount as a late charge. Such
overdue amount shall also bear interest, as additional Rent, at the maximum rate
permissible by law calculated, as appropriate, from the date of receipt of said
notice until the date of payment to Landlord. Landlord's acceptance of any late
charge or interest shall not constitute a waiver of Tenant's default with
respect to the overdue amount or prevent Landlord from exercising any of the
other rights and remedies available to Landlord under this Lease or any law now
or hereafter in effect. Further, in the event such late charge is imposed by
Landlord for two (2) consecutive months for whatever reason, Landlord shall have
the option to require that, beginning with the first payment of Rent due
following the imposition of the second consecutive late charge, Rent shall no
longer be paid in monthly installments but shall be payable three (3) months in
advance.

34. Mortgagee and Senior Lessor Protection. No act or failure to act on the part
of Landlord which would entitle Tenant under the terms of this Lease, or by law,
to be relieved of Tenant's obligations hereunder or to terminate this Lease,
shall result in a release of such obligations or a termination of this Lease
unless (a) Tenant has given notice by registered or certified mail to Landlord
and to any beneficiary of a deed of trust or mortgage covering the Building and
to the lessor under any master or ground lease covering the Building, the Site
or any interest therein whose identity and address shall have been furnished to
Tenant, and (b) Tenant offers such beneficiary, mortgagee or lessor a reasonable
opportunity (but in no event less than thirty (30) days) to cure the default,
including time to obtain possession of the Premises by power of sale or of
judicial foreclosure, if such should prove necessary to effect a cure. Landlord
shall, from time to time, give Tenant written notice of the identity and address
of the beneficiary of any deed of trust or mortgage covering the Building and/or
the lessor under any master or ground lease.

35. Definition of Landlord. The term "Landlord" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall be limited
to mean, and include only, the owner or owners, at the time in question, of the
fee title to, or a lessee's interest in a ground lease of the Site or master
lease of the Building. In the event of any transfer, assignment or other
conveyance or transfer of any such title or interest, Landlord herein named (and
in case of any subsequent transfers or conveyances, the then grantor) shall be
automatically freed and relieved from and after the date of such transfer,
assignment or conveyance of all liability with respect to the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed and, without further agreement, the transferee of
such title or interest shall be deemed to have agreed to observe and perform any
and all obligations of Landlord hereunder, during its ownership of the Premises.
Landlord may transfer its interest in the Premises without the consent


                                       34


of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.

36. Waiver. The failure of either Landlord or Tenant to seek redress for
violation of, or to insist upon strict performance of, any term, covenant or
condition of this Lease shall not be deemed a waiver of such violation, nor
shall any custom or practice which may become established between the parties in
the administration of the terms hereof be deemed a waiver of, or in any way
affect, the right of either party to insist upon the performance by the other
party in strict accordance with said terms. The subsequent acceptance or payment
of Rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular Rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such Rent.

37. Terms and Headings. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. If there be more than one Tenant, i.e., if two or more persons or
entities are jointly referred to in this Lease as "Tenant," the obligations
hereunder imposed upon Tenant shall be joint and several. The Paragraph headings
of this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof. Where ever in the Lease
Tenant's obligation to return the Premises to Landlord, or to repair or maintain
the Premises, excepts or is made subject to "normal wear or tear", or similar
qualifying language, any of such Tenant obligations shall also be subject to
"damage due to casualty or condemnation", except where the subject damage is
materially caused by Tenant's, or Tenant's employees', agents' or invitees'
negligence or willful misconduct and is not covered by (i) insurance proceeds
actually received by Landlord from policies to be maintained by Tenant during
the Term, or (ii) insurance policies to be maintained by Landlord during the
Term.

38. Examination of Lease. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for Lease,
and it is not effective as a Lease or otherwise until execution by and delivery
to both Landlord and Tenant.

39. Time. Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.

40. Prior Agreement; Amendments. This Lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreement or understanding, oral or written, express or
implied, pertaining to any such matter shall be effective for any purpose. No
provision of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in interest.
The parties acknowledge that all prior agreements, representations and
negotiations are deemed superseded by the execution of this Lease to the extent
they are not incorporated herein.

41. Severability. Any provision of this Lease which shall prove to be invalid,
void or illegal in no way affects, impairs or invalidates any other provision
hereof, and such other provisions shall remain in full force and effect.

42. Recording. Neither Landlord nor Tenant shall record this Lease nor a short
memorandum thereof without the consent of the other and if such recording
occurs, it shall be at the sole cost and


                                       35


expense of the party requesting the recording, including any documentary
transfer taxes or other expenses related to such recordation.

43. Limitation on Liability. The obligations of Landlord under this Lease do not
constitute personal obligations of the individual partners, directors, officers
or shareholders of Landlord, and Tenant shall not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or any of
their personal assets for satisfaction of any liability in respect to this
Lease. In consideration of the benefits accruing hereunder, Tenant and all
successors and assigns covenant and agree that in the event of any actual or
alleged failure, breach or default hereunder by Landlord, the sole and exclusive
remedy shall be against Landlord's interest in the Building.

44. Signs. Tenant shall not place any sign upon the Premises or the Building
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. All signs shall be constructed, erected and
affixed to the Premises at Tenant's sole cost and expense, and Tenant shall be
responsible for the removal of such signage, and the repair of any damage to the
Building caused thereby, at the end of the Term. All signs shall be in full
compliance with all applicable ordinances, statutes and regulations imposed by
all applicable governmental authorities.

45. Modification for Lender. If in connection with obtaining construction,
interim or permanent financing for the Building, the lender shall request
reasonable modifications in this Lease as a condition to such financing, Tenant
will not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not increase the obligations of Tenant hereunder or
adversely affect the leasehold interest hereby created or Tenant's rights
hereunder.

46. Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a
lesser amount than the Rent payment herein stipulated shall be deemed to be
other than on account of the Rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as Rent be deemed an
accord and satisfaction and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Rent or pursue any
other remedy provided in this Lease. Tenant agrees that each of the foregoing
covenants and agreements shall be applicable to any covenant or agreement either
expressly contained in this lease or imposed by any statute or at common law.

47. Tenant as Corporation. If Tenant executes this Lease as a corporation, then
Tenant and the persons executing this Lease on behalf of Tenant represent and
warrant that the individuals executing this Lease on Tenant's behalf are duly
authorized to execute and deliver this Lease on its behalf in accordance with a
duly adopted resolution of the board of directors of Tenant, a copy of which
shall be delivered to Landlord within ten (10) days of Landlord's request
therefor, and in accordance with the By-Laws of Tenant and that this Lease is
binding upon Tenant in accordance with its terms.

48. No Partnership or Joint Venture. Nothing in this Lease shall be deemed to
constitute Landlord and Tenant as partners or joint venturers. It is the express
intent of the parties hereto that their relationship with regard to this Lease
be and remain that of landlord and tenant.

                                       36


49. Landlord Authority. Landlord holds good title to the Premises and the
signatories to this Lease on Landlord's behalf are fully empowered to enter into
this Lease, and to perform and honor its terms and conditions on behalf of
Landlord.

                  [Remainder of Page Intentionally Left Blank]


                                       37


         IN WITNESS WHEREOF, the parties have executed and delivered this Lease
the day and year first above written.



LANDLORD:                                                     TENANT:

                                                           
Thomas A. Price and Gwendolyn L. Price, as trustees           Digital Think, Inc., a Delaware corporation
of the Price Trust UTD October 5, 1984

                                                              By:_____________________________
                                                              Name:___________________________
By:___________________________                                Its:______________________________
    Thomas A. Price, Trustee

                                                              By:_____________________________
By:____________________________                               Name:___________________________
    Gwendolyn Price, Trustee                                  Its:______________________________



                                       38


                                    EXHIBIT A

                                   FLOOR PLAN

                                [To be attached]


                                       39


                                    EXHIBIT B

                                 SAMPLE FORM OF
                           NOTICE OF LEASE TERM DATES

     To: ________________________________ Date:
     Re: Lease dated __________________ between ______________________, Tenant,
and ____________________________, Landlord, concerning the Premises located at
_________________________________.

Gentlemen:

         In accordance with the subject Lease, we wish to advise and/or confirm
as follows:

1. That the Premises have been accepted herewith by the Tenant.

2. That the Tenant has possession of the subject Premises and acknowledges that
under the provisions of the subject Lease, the Term of said Lease shall commence
as of ___________ and shall expire on ___________________. Based on the
above-referenced actual Lease Commencement Date and Lease Expiration Date, the
Monthly Basic Rent due during the Term shall be as follows:

3. That in accordance with the subject Lease, rental commences to accrue on
_______________________, which is the Commencement Date.

4. Rent is due and payable in advance on the first day of each and every month
during the Term of said Lease. Your rent checks should be made payable
to____________________ at_______________________.

                               AGREED AND ACCEPTED

TENANT:                                     LANDLORD:
- -------                                     ---------

_____________________________               __________________________________,
a ___________________________               a ________________________________

By:__________________________               By:_______________________________
Name:________________________               Name:_____________________________
Its:_________________________               Its:______________________________


                                       40


                                    EXHIBIT C

                                 SAMPLE FORM OF
                           TENANT ESTOPPEL CERTIFICATE

The undersigned, ______________________________ ("Landlord"), with a mailing,
address c/o _____________________________ and _____________________________
("Tenant"), hereby certify to _____________________, a ________________________
as follows:

1. Attached hereto is a true, correct and complete copy of that certain lease
dated ___________________ between Landlord and Tenant (the "Lease"), which
premises are located on the__________ (_____) floor of the Building located at
___________________.

         The Lease is now in full force and effect and has not been amended,
modified or supplemented, except as set forth in Paragraph 4 below.

2. The term of the Lease commenced on _______________________.

3. The term of the Lease shall expire on _______________________.

4. The Lease has: (Initial one)

     ( ) not been amended, modified, supplemented, extended, renewed or
     assigned.

     ( ) been amended, modified, supplemented, extended, renewed or assigned by
     the following described agreements, copies of which are attached hereto:

     ---------------------------------------------------------------------------
     ---------------------------------------------------------------------------

5. Tenant has accepted, is now in possession of and is now conducting business
in said Premises.

6. Tenant and Landlord acknowledge that the Lease will be assigned to __________
and that no modification, adjustment, revision or cancellation of the Lease or
amendments thereto shall be effective unless written consent of is obtained, and
that until further notice, payments under the Lease may continue as heretofore.

7. The amount of Monthly Basic Rent is $____________
Monthly Basic Rent shall be increased based upon Operating Expense increases and
as follows:_____________________________________.

8. The amount of security deposit (if any) is $ ____________. No other security
deposits have been made.

                                       41


9. Tenant is paying the full lease rental, which has been paid in full as of the
date hereof. No Rent under the Lease has been paid for more than thirty (30)
days in advance of its due date.

10. All Work required to be performed by Landlord under the Lease has been
completed and all required contributions by Landlord to Tenant on account of
Tenant Improvements have been received.

11. There are no defaults on the part of the Landlord or Tenant under the Lease.

12. Tenant has no defense as to its obligations under the Lease and claims no
set-off or counterclaim against Landlord.

13. Tenant has no right to any concessions (rental or otherwise) or similar
compensation in connection with renting the space it occupies, except as
provided in the Lease.

14. The Lease, amended as noted in Item 4 above, represents the entire agreement
between Landlord and Tenant as to this leasing.

                  All provisions of the Lease and the amendments thereto (if
any) referred to above are hereby ratified.

DATED: _______________________ , 19__

TENANT:                                     LANDLORD:
- -------                                     ---------

_____________________________,              __________________________________,
a ___________________________               a ________________________________

By:__________________________               By:_______________________________
Name:________________________               Name:_____________________________
Its:_________________________               Its:______________________________

                                       42


                                    EXHIBIT D

                  601 BRANNAN STREET, SAN FRANCISCO, CALIFORNIA
                               TENANT WORK LETTER

         This Tenant Work Letter ("Work Letter") is entered into effective July
17, 2000 and shall set forth the terms and conditions controlling the
construction of certain initial improvements to the Premises known as 601
Brannan Street, San Francisco, California. Unless otherwise defined herein, all
capitalized terms shall have the meanings ascribed to them in that certain lease
between Digital Think, Inc., a Delaware corporation ("Tenant") and Thomas A.
Price and Gwendolyn L. Price, as trustees of the Price Trust UTD October 5, 1984
("Landlord") dated July 17, 2000 (the "Lease").

                                    SECTION 1
                               BASE BUILDING WORK

1.1 Scope of Base Building Work. The following work and improvements ("Base
Building Work") shall be specified in drawings ("Base Building Drawings")
prepared by a licensed, qualified architect and other qualified consultants
selected by Landlord (collectively, "Base Building Architect") and shall be
constructed by the Contractor (as defined below), subject to the provisions of
Paragraph 1.3:

1.1.1 Installation of new roof surface on the rear, brick portion of the
Building, as depicted in The Base Building Drawings, and construction of
structural roof support system sufficient to support any roof mounted HVAC
equipment, as specified in The Base Building Drawings.

1.1.2 Install a ninety (90) ton main HVAC system with supply and return ducting
stubbed to each floor of the Building.

1.1.3 Install 3500 amp electrical service into the Building, stubbed to each
floor of the Building.

1.1.4 Installation of life-safety systems as required by applicable building
codes on an unoccupied basis, including all sprinkler systems, emergency exit
systems (including required exit signs, lighting and strobes), fire alarm pull
stations, and other required fire safety systems.

1.1.5 Installation of sewer and water line connections to all occupied levels of
the Building in the same area as the present ground level restrooms of
sufficient capacity for construction of required capacity restrooms.

1.1.6 Performance of all work necessary for the Site and the Building to comply
with all applicable seismic regulations, the Americans with Disabilities Act of
1980 (except with respect to those compliances associated exclusively with
Tenant's Improvements), all applicable path of travel regulations, all
covenants, conditions, restrictions and encumbrances ("CC&R's") affecting the
Building (if any), all insurance underwriter's requirements (if any), and all
rules, regulations, ordinances, laws and building codes (collectively, "Laws"),
in effect and requiring compliance with respect to Landlord's Work on the Lease
Commencement Date.

                                       43


1.1.7 Installation of all insulation and other improvements necessary to meet
Title 24 requirements for existing ceilings and sidewalls.

1.1.8 Installation of the additional floor area as described in Paragraph 1.3 of
the Lease, including required concrete floors and an additional two hour fire
demising wall where required and in accordance with all applicable building
codes.

1.1.9 Demolition of existing ramps to the Building from the parking lot and the
leveling and re-paving of that area, the re-striping of the parking lot to
accommodate the maximum permissible number of parking stalls.

1.1.10 Level all interior drive-in ramps, and fill in all unneeded roll-up door
openings with appropriate materials.

1.2 Construction of the Base Building Work. Tenant, with the reasonable
cooperation of Landlord, shall cause the Base Building Work to be constructed by
a contractor (the "Contractor") and subcontractors selected in accordance with
Paragraph 1.3.1, in accordance with The Base Building Drawings, all applicable
CC&R's and Laws, in a good and workmanlike manner, using new materials and
equipment of good quality. Tenant shall enter into a commercially reasonable
written contract with the Contractor for construction of the Base Building Work,
which contract shall be subject to Landlord's reasonable approval. Tenant's
representative (designated below) shall serve as the construction manager for
the Work; provided, however, that Landlord shall have the right to appoint a
separate construction supervisor to assist in the coordination and prosecution
of the Base Building Work. Construction of the Base Building Work shall be
conducted in accordance with the provisions of Section 4.

1.3 Payment for Base Building Work; Selection of Contractor/Subcontractors.

1.3.1 Except as provided herein, Tenant shall be responsible for the timely
payment to Contractor of all costs associated with the Base Building Work,
including without limitation designer, architect and engineer fees, all
building, use and occupancy permit(s)/certificate(s), construction inspection
charges, labor and material costs, contractor profit, project management costs,
and all other construction costs (collectively, "Base Building Costs"). The
first $2,000,000.00 in Base Building Costs shall be Tenant's sole financial
responsibility. Any Base Building Costs in excess of $2,000,000.00 but less than
$4,000,000.00 shall be borne by Tenant and thereafter shall be offset against
Monthly Basic Rent in accordance with the provisions of Paragraph 4.5 of the
Lease. Any Base Building Costs in excess of $4,000,000.00 shall be Landlord's
sole financial responsibility ("Landlord's Contribution"), and Landlord shall
reimburse Tenant for all such excess Base Building Costs within ten (10) days of
receipt of an invoice therefor. Prior to reimbursing Tenant for any portion of
Base Building Costs in excess of $4,000,000.00, Landlord shall have the right to
request and receive reasonable documentation to verify the Base Building Costs
previously incurred, and the Base Building Costs for which Tenant has invoiced
Landlord. Landlord and Tenant shall have an affirmative obligation to control
and minimize in a commercially reasonable manner the construction costs of the
Base Building Work. In this regard, the parties shall solicit the bids of not
less than three (3) qualified general contractors in selecting the Contractor,
one of which contractors shall be Delcon Construction, Inc. The bidding process
shall


                                       44


be "open book", not sealed, and each component of the bids shall be subject to
review and evaluation by the parties in connection with the Contractor selection
process. Each material component of the Base Building Work (in excess of
$100,000.00) to be performed by subcontractor shall also be bid by not less than
three (3) qualified specialty subcontractors. Landlord shall have the right to
approve the bids of all bidding contractors and subcontractors, which approval
shall not be unreasonably withheld; provided, however, that it shall be
reasonable for Landlord to withhold its consent to a particular subcontractor or
contractor if the subcontractor or contractor bid exceeds by ten percent (10%)
or more the cost for the same component of the Base Building Work as bid by the
low, responsive bidding contractor or subcontractor. Tenant shall have the right
to accept the bid of a contractor or subcontractor whose bid exceeds the bid of
the lowest bidder in the applicable bid category by 10%, provided the contractor
or subcontractor is otherwise reasonably acceptable to Landlord, and provided
further that Tenant shall sole be responsible for all costs in excess of the
lowest bid plus 10%.

1.3.2 Prior to Landlord's payment of any portion of Landlord's Contribution,
Contractor shall furnish Landlord with mechanic's and materialmen's lien
waivers, and contractors' and architects' affidavits and statements, applicable
to the Base Building Work for which Landlord's Contribution is sought, in such
forms as Landlord may reasonably require. Upon substantial completion of the
Work, Tenant shall submit to Landlord a detailed breakdown of Tenant's total
construction costs regarding the Base Building Work, together with such evidence
of payment, including full and final lien waivers from the Contractor and all
subcontractors, reasonably satisfactory to Landlord. For purposes of the Lease
and this Work Letter, the date of "substantial completion" of the Base Building
Work shall mean the date on which (i) Tenant has substantially completed the
Base Building Work in accordance with The Base Building Drawings and this Work
Letter as certified by Tenant's architect, subject only to completion of
finishing details, mechanical adjustments and other normal punch list items, and
(ii) all necessary governmental inspections of the Base Building Work have been
obtained and approved. Tenant shall give written notice to Landlord of the
occurrence of substantial completion of the Base Building Work. Within two (2)
business days after the date on which the notice of substantial completion is
given by Tenant to Landlord, Tenant, Tenant's Architect (as defined below) and
Landlord and Base Building Architect shall conduct a walk through of the
Premises setting forth a description of any and all of the Base Building Work
remaining to be completed or defective, and requiring repair or replacement as
reasonably determined by Tenant's Architect and Base Building Architect. Tenant
shall, following the preparation of the punch list, diligently pursue completion
and/or repair of the punch list items.

1.4 Remediation of Hazardous Materials. In the event any Hazardous Materials (as
defined in Paragraph 7 of the Lease) are discovered at the Site during
construction of the Work, Landlord shall solely be responsible, at Landlord's
sole cost, for performing all required investigation, monitoring and/or
remediation which any applicable governmental agency with jurisdiction may
require.

                                    SECTION 2
                              TENANT'S IMPROVEMENTS

         2.1 Scope of Tenant's Improvements. The improvements to the Premises
and Building as described in the Construction Drawings, which are to be
constructed by the Contractor at Tenant's cost, shall be referred to as
"Tenant's Improvements". The Base Building Work and


                                       45


Tenant's Improvements are sometimes collectively referred to as the "Work".
Tenant shall be responsible for all costs relating to the construction of
Tenant's Improvements including space planning, architectural and engineering
costs, all costs incurred in connection with permits required for the Tenant's
Improvements, all costs incurred in connection with constructing Tenant's
Improvements (including without limitation labor, materials and insurance) and
any and all other construction costs incurred in connection with construction of
Tenant's Improvements.

         2.2 Payment for Tenant's Improvements. Landlord shall have the right to
request that Tenant provide Landlord with assurances reasonably acceptable to
Landlord that Tenant has identified and earmarked sufficient funds for the
construction of Tenant's Improvements. Tenant shall cause Tenant's Improvements
to be constructed at the Premises in a lien free manner. Landlord shall have the
right periodically to require that Tenant deliver copies of lien releases and
all other reasonable evidence of Tenant's payment of all costs and expenses
associated with the Work.

                                    SECTION 3
                   CONSTRUCTION DRAWINGS; SUPERVISION OF WORK

         3.1 Selection of Architect/Construction Drawings. Tenant shall select
one or more architects ("Tenant's Architect") to prepare the Construction
Drawings (as defined below), subject to Landlord's approval, which approval
shall not be unreasonably withheld or delayed. Tenant shall enter into a written
contract with Tenant's Architect in a form reasonably acceptable to Landlord and
shall be responsible for direct payment of all of Tenant's Architect's fees,
expenses and liabilities. To the extent required or appropriate, Tenant also
shall select engineering consultants reasonably acceptable to Landlord (the
"Engineers") to prepare and/or review plans and drawings relating to Tenant's
Improvements and shall be responsible for direct payment of all Engineer's fees,
expenses and liabilities. The plans and drawings to be prepared by Tenant's
Architect and the Engineers hereunder shall be known collectively as the
"Construction Drawings". All Construction Drawings, and all subsequent change
orders reflecting additions or changes to the scope of Tenant's Improvements
(except minor, in-the-field changes), shall be subject to Landlord's written
approval, which shall not be unreasonably withheld. Tenant and Tenant's
Architect shall verify in the field the actual dimensions and conditions of the
Building and the Site, and Tenant and Tenant's Architect shall be solely
responsible therefor and shall rely exclusively thereon. Landlord shall
cooperate with Tenant and Tenant's Architect and provide them with all relevant
plans, drawings and other information concerning the Building in Landlord's
possession or control, but Landlord shall have no responsibility whatsoever for
determination of the dimensions and conditions of the Building, and makes no
representations in connection therewith. Landlord's review of the Construction
Drawings as set forth in this Paragraph shall be for its sole purpose and shall
not imply Landlord's review of the same, or obligate Landlord to review the
same, for quality, design, code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
architect, engineers and consultants (if any), and notwithstanding any advice or
assistance which may be rendered to Tenant by Landlord or Base Building
Architect, engineers, and consultants (if any), Landlord shall have no liability
whatsoever in connection therewith and shall not be responsible for any
omissions or errors contained in the Construction Drawings. Tenant's indemnity
obligations set forth in the Lease shall specifically apply to the Construction
Drawings. No changes, modifications or alterations in the Construction Drawings
may be made without the prior written consent of Landlord, which shall not be
unreasonably withheld.

                                       46


         3.2 Permits. Prior to the commencement of construction of Tenant's
Improvements, Tenant and Contractor, with the assistance and cooperation of
Tenant's Architect, shall submit the Construction Drawings as approved by
Landlord to the appropriate municipal authorities for all applicable building
permits necessary to allow the Contractor to commence and fully complete the
construction of Tenant's Improvements (the "Permits"). Landlord shall cooperate
with Tenant and Contractor in executing permit applications and performing other
ministerial acts reasonably necessary to enable Tenant and Contractor to obtain
any such permits or approvals.

         3.3 Supervision and Management. Landlord shall hire such construction
management professionals as Landlord deems appropriate, subject to the
reasonable approval of Tenant, to assist in supervising and coordinating the
Base Building Work, and to otherwise represent Landlord's interests in
connection with the construction of the Base Building Work. The costs associated
with the construction manager shall be borne by Landlord to the extent
applicable to Base Building Work (subject to Paragraph 1.3.1). Landlord, at
Landlord's sole cost and expense, shall also have the right to hire a
construction management professional to protect Landlord's interests in
connection with the construction of Tenant's Improvements. Tenant shall
cooperate reasonably with Landlord and Landlord's construction manager to allow
the construction manager to protect Landlord's interests.

                                    SECTION 4
                      CONSTRUCTION OF TENANT'S IMPROVEMENTS

         4.1 Contractor. Tenant shall be entitled to select the contractor to
perform Tenant's Improvements, subject to Landlord's prior approval which shall
not be unreasonably withheld or delayed, and subject to the provisions of
Paragraph 1.3.1. Tenant shall be solely responsible to the Contractor for
performance of Tenant's Improvements, it being expressly understood that
Landlord is not in contractual privity with the Contractor with respect to
Tenant's Improvements, and that all costs of constructing Tenant's Improvements
are Tenant's responsibility. Tenant shall not be obligated to use the same
contractor to perform Tenant's Improvements as the Contractor selected to
perform the Base Building Work; provided, however, that any delay in
substantially completing the Work caused by the use of two contractors shall not
be a Permitted Delay.

         4.3 Construction of Tenant Improvements.

                  4.3.1 Construction.

                           4.3.1.1 Landlord's General Conditions. Tenant's
construction of the Work shall comply with the following: (i) the Work shall be
constructed in accordance with The Base Building Drawings and the approved
Construction Drawings, and in strict accordance with all applicable CC&R's and
Laws, in a good and workmanlike manner, using new materials and equipment of
good quality; and (ii) Tenant shall abide by all rules made by Landlord with
respect to the storage of materials, and any other matter in connection with
this Work Letter, including, without limitation, the construction of Tenant's
Improvements.

                           4.3.1.2 Indemnity. Tenant's indemnity obligations to
Landlord as set forth in the Lease shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any way to any act
or omission of Tenant or the Contractor, or anyone directly or indirectly
employed by any of them, or in connection with Tenant's nonpayment of any amount

                                       47


arising out of the Work and/or Tenant's disapproval of all or any portion of any
request for payment.

                           4.3.1.3 Requirements of Tenant's Contractor. The
Contractor shall warrant to Tenant and for the benefit of Landlord that the
portion of the Work for which it is responsible shall be free from any defects
in workmanship and materials for a period of not less than one (1) year from the
date of completion thereof. The Contractor shall be responsible for the
replacement or repair, without additional charge, of all work done or furnished
in accordance with its contract that shall become defective within one (1) year
after the substantial completion of the work performed by such Contractor or its
subcontractors. The correction of such work shall include, without additional
charge, all additional expenses and damages incurred in connection with such
removal or replacement of all or any part of the Work, and/or the Building
and/or common areas that may be damaged or disturbed thereby. All such
warranties as to materials or workmanship of or with respect to the Work shall
be contained in the contract with the Contractor and shall be written such that
such warranties shall inure to the benefit of both Landlord and Tenant, as their
respective interests may appear, and can be directly enforced by either. To the
extent such warranties are related to components of the Work for which Landlord
is responsible for maintenance and/or repair, such warranties shall be
assignable to Landlord, and Tenant shall cooperate with Landlord in availing
itself of the benefit of all such warranties.

                  4.3.2 Insurance Requirements.

                           4.3.2.1 General Coverages. The Contractor shall carry
worker's compensation insurance covering all of its respective employees, and
shall also carry public liability insurance, including property damage, all with
limits, in form and with companies as are required to be carried by Tenant as
set forth in the Lease.

                           4.3.2.2 Special Coverages. Tenant shall carry, or
cause Contractor to carry, "Builder's All Risk" insurance in an amount covering
the full cost of construction of the Work, and such other insurance as Landlord
reasonably may require. Such insurance shall be in amounts and shall include
such extended coverage endorsements as may reasonably be required by Landlord.

                           4.3.2.3 General Terms. Certificates for all insurance
carried pursuant to this section shall be delivered to Landlord before the
commencement of construction of the Work and before the Contractor's equipment
is moved onto the site. All such policies of insurance must contain a provision
that the company writing said policy will give Landlord thirty (30) days' prior
written notice of any cancellation or lapse of the effective date or any
reduction in the amounts of such insurance. In the event the Work is damaged by
any cause during the course of construction, the provisions of Paragraph 21 of
the Lease shall apply; provided, however, that all policies of insurance
required to be maintained by this Work Letter shall also be considered, and so
long as the Lease is not terminated by Landlord or Tenant pursuant to Paragraph
21, Tenant shall cause the same to be repaired promptly at Tenant's sole cost
and expense. Contractor shall maintain all of the foregoing insurance coverage
in force until the Work are fully completed and accepted by Landlord. All
policies carried pursuant to this section shall insure Landlord and Tenant, as
their interests may appear, as well as Contractor. All insurance, except
Workers' Compensation and public liability insurance, maintained by Contractor
shall preclude subrogation claims by the insurer against anyone


                                       48


insured thereunder. Such insurance shall provide that it is primary insurance
with respect to Landlord and that any other insurance maintained by Landlord is
excess and noncontributing with the insurance required hereunder. The
requirements for the foregoing insurance shall not in any way effect or
eliminate Tenant's indemnification obligations to Landlord as provided in the
Lease and in this Work Letter.

                  4.3.3 Governmental Compliance. The Work shall comply in all
respects with the following: (i) all applicable building codes and other state,
federal, city or quasi-governmental laws, codes, ordinances and regulations, as
each may apply according to the rulings of the controlling public official,
agent or other person; (ii) applicable standards of the American Insurance
Association (formerly, the National Board of Fire Underwriters) and the National
Electrical Code; and (iii) building material manufacturer's specifications.

                  4.3.4 Inspection by Landlord. Landlord shall have the right to
inspect the Work at all times, provided however, that Landlord's failure to
inspect the Work shall in no event constitute a waiver of any of Landlord's
rights hereunder nor shall Landlord's inspection of the Work constitute
Landlord's approval of the same. Should Landlord disapprove any portion of the
Work, Landlord shall notify Tenant in writing of such disapproval and shall
specify the items disapproved. Any defects or deviations in, and/or disapproval
by Landlord of, the Work shall be rectified by Tenant at no expense to Landlord;
provided, however, that in the event Landlord determines that a defect or
deviation exists or disapproves of any matter in connection with any portion of
the Work and such defect, deviation or matter might adversely affect the
mechanical, electrical, plumbing, heating, ventilating and air-conditioning or
life-safety systems of the Building, the structure or exterior appearance of the
Building, Landlord may, after delivering written notice to Tenant and Tenant
failing within seven (7) days thereafter to commence a cure and prosecute such
cure diligently to completion, take such action as Landlord deems necessary, at
Tenant's expense and without incurring any liability on Landlord's part, to
correct any such defect, deviation and/or matter, including, without limitation,
causing the cessation of performance of the construction of the Work until such
time as the defect, deviation and/or matter is corrected to Landlord's
satisfaction.

                  4.3.5 Meetings. Commencing upon the execution of the Lease,
Tenant shall hold weekly meetings at a reasonable time, with the Architect and
the Contractor regarding the progress of the preparation of Construction
Drawings and the construction of the Work, which meetings shall be held at a
location acceptable to Landlord, and Landlord and/or its agents shall receive
prior notice of, and shall have the right to attend, all such meetings. In
addition, minutes shall be taken at all such meetings, a copy of which minutes
shall be promptly delivered to Landlord. One such meeting each month shall
include the review of Contractor's current request for payment. Landlord's
attendance at such meetings shall in no way create any greater obligation or
liability on Landlord's part in excess of Landlord's express obligations set
forth herein. Landlord's nonattendance at such meetings shall in no way
constitute a waiver of any rights in Landlord set forth herein or in the Lease,
including without limitation Landlord's right to indemnification by Tenant.

         4.4 Notice of Completion; Copy of Record Set of Plans. Within ten (10)
days after completion of construction of the Work, Tenant shall cause a Notice
of Completion to be recorded in the office of the Recorder of the City and
County of San Francisco in accordance with Paragraph 3093 of the Civil Code of
the State of California or any successor statute, and shall furnish a copy



                                       49


thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord
may execute and file the same on behalf of Tenant as Tenant's agent for such
purpose, at Tenant's sole cost and expense. At the conclusion of construction,
(i) Tenant and Landlord shall cause the Architects and Contractor(s) (A) to
update the approved Construction Drawings as necessary to reflect all changes
made to the approved Construction Drawings during the course of construction,
(B) to certify to their knowledge that the "record-set" of mylar as-built
drawings are true and correct, which certification shall survive the expiration
or termination of the Lease, and (C) to deliver to Landlord two (2) sets of
copies of such record-set of drawings within ninety (90) days following
completion of the Work (as evidenced by the recordation of a Notice of
Completion) for the Premises, and (ii) Tenant shall deliver to Landlord a copy
of all warranties, guaranties, and operating manuals and information relating to
the improvements, equipment, and systems in the Premises.

                                    SECTION 5
                   TENANT'S COVENANTS; LEASE COMMENCEMENT DATE

6.1 Tenant Indemnity. In addition to Tenant's indemnification obligations set
forth in the Lease, and unless substantially the result of Landlord's, Base
Building Architect's or Landlord's agents' negligence or willful misconduct,
Tenant hereby indemnifies Landlord from any loss, claims, damages or delays
arising from the actions of Tenant's agents, employees or contractors in the
Premises or the Building. In the event Tenant shall conduct additional work to
the Premises separate and apart from the Work prior to Substantial Completion of
the Work, such as fixture installation or workstation set up, Tenant shall do so
in strict compliance with any and all rules and regulations related thereto that
Landlord's Building manager, Contractor or Landlord shall reasonably impose.
Tenant waives any and all claims against Landlord for damages incurred during
construction of the Work except if such damages are caused by Landlord's gross
negligence or willful misconduct.

6.2 Lease Commencement Date. The Lease Commencement Date shall be such date as
determined pursuant to Paragraph (g)(i) of the Summary; provided, however, that
if the Lease Commencement Date is determined by calculating two hundred ten
(210) days from the date of Final Use Approval, and the Work is not
substantially complete due to a Permitted Delay (defined below), the Lease
Commencement Date shall instead be that date which is 210 days after Final Use
Approval is received, plus the number of days of delay caused by a Permitted
Delay. A Permitted Delay shall be defined as (i) a delay caused by extreme
inclement weather, riot, war, casualty, general strike, act of god or such other
event customarily considered a force majeure event beyond Tenant's reasonable
control, (ii) a delay caused by Landlord's failure to approve the original plans
and drawings for the Work within seven (7) business days of receipt, or any
change order or other Tenant submittal requiring approval within three (3)
business days of receipt, (iii) any delay caused by the discovery, investigation
and/or remediation of any Hazardous Materials discovered at the Site during
prosecution of the Work, (iv) any delay caused by Base Building Architect's
failure to complete all required The Base Building Drawings in a form sufficient
for submission to the City for the purpose of obtaining a building permit for
construction of the Base Building Work within the sixty (60) day period
described in Paragraph 2.2 of the Lease (such Permitted Delays caused by Base
Building Architect shall include, by way of example, incomplete drawings, lack
of necessary detail (as determined by the building department of the City),
material field inspector changes and errors in the drawings, but shall not
include changes to The Base Building Drawings made at the request of


                                       50


Tenant, or necessitated by changes in the Construction Drawings), (v) any delay
caused by the lack of electrical power or other utility available at the Site
sufficient to construct the Base Building Work, or (vi) any delay caused by the
failure of any governmental authority to perform any required act, or give any
required approval, within a reasonable time after Tenant's submission or
request. The parties shall agree in good faith on the calculation of any
Permitted Delay. If they are unable to do so within a reasonable time, Tenant's
Architect and Base Building Architect shall attempt to agree on the appropriate
number of days of Permitted Delay. If the Architects are unable to agree, the
provisions of Paragraph 6.5 shall apply.

                                    SECTION 7
                                  MISCELLANEOUS

7.1 Tenant's Representative. Tenant has designated David Yokell as its sole
representative with respect to the matters set forth in this Work Letter, who,
unless and until Tenant notifies Landlord in writing of a change in
representative, shall have full authority and responsibility to act on behalf of
the Tenant as required in this Work Letter.

7.2 Landlord's Representative. Landlord has designated Matt Cappiello as its
sole representative with respect to the matters set forth in this Work Letter,
who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Work Letter.

7.3 Time of the Essence. Unless otherwise indicated, all references herein to a
"number of days" shall mean and refer to calendar days. If any item requiring
approval is timely disapproved by Landlord, the procedure for preparation of the
document and approval thereof shall be repeated until the document is approved
by Landlord. Unless otherwise provided in this Work Letter, Landlord's approval
of any submittals required to be made by Tenant (with the exception of the
Construction Drawings, which shall be approved or rejected within seven (7)
business days) shall be given or withheld within three (3) business days after
receipt by Landlord of Tenant's submittal. If Landlord disapproves of any
submittals, the reasons for disapproval shall be specified in writing. If
Landlord has not approved or disapproved the submittal within the three (3)
business day period, the submittal shall be deemed approved and Tenant shall be
entitled to proceed as if Landlord had approved the submittal in writing;
provided, however, that Landlord may, within the applicable period request more
time for review and approval, in which event the additional days requested shall
constitute a Permitted Delay for purposes of calculating the Lease Commencement
Date. Any resubmittal by Tenant shall be approved or disapproved within the
applicable period, and this procedure shall continue until Landlord's approval
of any submittal or resubmittal has been approved or is deemed approved by
Landlord.

7.4 Incorporated into the Lease. For all purposes, this Work Letter shall be and
is hereby deemed a part of the Lease, and to the extent necessary, they shall
together be construed as one and the same document; provided, however, that in
the event of a conflict between any provision of the Lease and this Work Letter
concerning the Work, this Work Letter shall control.

7.5 Arbitration. Any dispute concerning Permitted Delays which is not resolved
pursuant to such Paragraph shall be finally settled by binding arbitration in
accordance with and under the rules of practice and procedure for arbitration
hearings of Judicial Arbitration and


                                       51


Mediation Services, Inc. ("JAMS"), or its successor in San Francisco,
California. The parties may agree upon a retired judge from the JAMS panel. If
they are unable to agree, JAMS shall provide a list of available judges
containing one more judge than there are parties to the arbitration and each
party may strike one. The remaining judge shall serve as the arbitrator. The
arbitrator shall have the authority to grant injunctive and/or other equitable
relief. The arbitrator shall not have the power to commit errors of law or legal
reasoning and the appropriate court shall have the authority to review the award
for errors of fact, law or legal reasoning. The award may also be vacated or
corrected pursuant to the California Code of Civil Procedure for any such error.
If and when a demand for arbitration is made by either party, the parties agree
to execute a submission agreement, provided by JAMS, setting forth the rights of
the parties and the rules and procedures to be followed at the arbitration
hearing; provided, however, that (i) the arbitration shall take place in San
Francisco California; (ii) the arbitrator shall apply the rules of evidence and
substantive law of the State of California; (iii) the arbitrator shall render
written findings of fact and conclusions of law; (iv) the parties shall be
entitled to conduct such pre-hearing discovery as would otherwise be permitted
under California law; (v) the arbitrator shall have the authority to entertain
and decide motions before the arbitration hearing as otherwise would be
permitted in a court of law, including, by way of example, motions to compel
discovery and motions for summary judgment; and (vi) remedies which the
arbitrator shall have the authority to grant shall be limited to the same
remedies which could otherwise be imposed by a court of law. Such arbitration
shall be the sole remedy available to the parties.

                  [Remainder of Page Intentionally Left Blank]


                                       52


         IN WITNESS WHEREOF, the parties have executed and delivered this Work
Letter on the day and year first above written.



LANDLORD:                                                     TENANT:

                                                           
Thomas A. Price and Gwendolyn L. Price, as trustees           Digital Think, Inc., a Delaware corporation
of the Price Trust UTD October 5, 1984

                                                              By:  ____________________________
By:____________________________                               Name:  _________________________
     Thomas A. Price, Trustee                                 Its:  ____________________________

By:____________________________                               By:____________________________
     Gwendolyn Price, Trustee                                 Name:_________________________
                                                              Its:____________________________


                                       53

EX-21

                                                                   Exhibit 21.1

               DIGITALTHINK, INC.--SUBSIDIARIES (All 100% Owned)



Subsidiaries of the Registrant       State or Other Jurisdiction of Incorporation
- ----------------------------------   ---------------------------------------------
                                  
Arista Knowledge Systems, Inc.       Delaware
DigitalThink UK, Ltd.                United Kingdom
LearningByte International, Inc.     Minnesota
TCT Technical Training Pvt. Ltd.     India


                                       61

EX-23

                                                                   Exhibit 23.1

              INDEPENDENT AUDITOR'S CONSENT AND REPORT ON SCHEDULE

To the Board of Directors and Stockholders
DigitalThink, Inc.

     We consent to the incorporation by reference in DigitalThink, Inc. and
subsidiaries Registration Statement Nos. 333-43284, 333-56770, 333-68384 and
333-86732 on Form S-8, and Registration Statement Nos. 333-59434 and 333-73110
on Form S-3 of our report dated April 23, 2002 appearing in this Annual Report
on Form 10-K of the Company for the year ended March 31, 2002.

     Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of the Company, listed in
Item 14(a)(2). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
June 4, 2002

                                       62