10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED
August 31, 2006

OR

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

Commission file number: 1-15045

INTERVOICE, INC.

(Exact name of registrant as specified in its charter)

TEXAS	75-1927578
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

17811 WATERVIEW PARKWAY, DALLAS, TX 75252
(Address of principal executive offices)

972-454-8000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [Ö] Non-Accelerated Filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [Ö]

The Registrant had 38,580,006 shares of common stock, no par value per share, outstanding as of September 25, 2006.

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 4 Controls and Procedures
PART II. OTHER INFORMATION
	Item 1 Legal Proceedings
	Item 1A Risk Factors
	Item 4 Submission of Matters to a Vote of Security Holders
	Item 6 Exhibits
SIGNATURES
Index to Exhibits
San Tomas Business Park Office Lease
Amended and Restated Employment Agreement
Certification of CEO Pursuant to Rule 13a-14(a)
Certification of CFO Pursuant to Rule 13a-14(a)
Certification of CEO Pursuant to Rule 13a-14(b)
Certification of CFO Pursuant to Rule 13a-14(b)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTERVOICE, INC.
CONSOLIDATED BALANCE SHEETS

	(In Thousands, Except Share and Per Share Data)
ASSETS	August 31, 2006			February 28, 2006
	(Unaudited)
Current Assets
Cash and cash equivalents	$	31,963		$	42,076
Trade accounts receivable, net of allowance for doubtful accounts of $1,882 in fiscal 2007 and $1,701 in fiscal 2006		31,889			25,745
Inventory		12,257			9,439
Prepaid expenses and other current assets		6,383			4,406
Deferred income taxes		3,182			3,047
		85,674			84,713
Property and Equipment, net of accumulated depreciation of $63,343 in fiscal 2007 and $59,002 in fiscal 2006		33,636			28,893
Other Assets
Intangible assets, net of accumulated amortization of $18,589 in fiscal 2007 and $17,343 in fiscal 2006		9,038			10,284
Goodwill		32,461			32,461
Long term deferred income taxes		2,108			1,330
Other assets		496			454
	$	163,413		$	158,135
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	14,477		$	10,154
Accrued expenses		12,181			15,176
Customer deposits		5,449			6,157
Deferred income		31,133			32,172
Income taxes payable		1,135			484
Deferred income taxes		—			270
		64,375			64,413
Stockholders’ Equity
Preferred stock, $100 par value—2,000,000 shares authorized: none issued
Common stock, no par value, at nominal assigned value—62,000,000 shares authorized: 38,578,339 issued and outstanding in fiscal 2007 and 38,470,087 issued and outstanding in fiscal 2006		19			19
Additional capital		95,057			92,050
Retained earnings		4,749			3,558
Accumulated other comprehensive loss		(787	)		(1,905	)
Stockholders’ equity		99,038			93,722
	$	163,413		$	158,135

See notes to consolidated financial statements.

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INTERVOICE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	(In Thousands, Except Per Share Data)
	Three Months Ended					Six Months Ended
	August 31,			August 31,		August 31,		August 31,
	2006			2005		2006		2005
Sales
Solutions	$	24,245		$	22,022	$	43,714	$	43,392
Recurring services		26,235			21,268		52,434		43,161
		50,480			43,290		96,148		86,553
Cost of goods sold
Solutions		15,286			13,050		27,590		25,854
Recurring services		7,192			6,273		14,666		12,385
		22,478			19,323		42,256		38,239
Gross margin
Solutions		8,959			8,972		16,124		17,538
Recurring services		19,043			14,995		37,768		30,776
		28,002			23,967		53,892		48,314
Research and development expenses		5,239			3,884		11,021		8,079
Selling, general and administrative expenses		20,208			15,367		41,008		30,800
Amortization of acquisition related intangible assets		582			252		1,163		504
Income from operations		1,973			4,464		700		8,931
Interest income		448			599		947		1,096
Interest expense		—			—		—		(25	)
Other income (expense)		(125	)		36		82		162
Income before taxes		2,296			5,099		1,729		10,164
Income taxes		700			498		538		1,644
Net income	$	1,596		$	4,601	$	1,191	$	8,520
Net income per share — basic	$	0.04		$	0.12	$	0.03	$	0.23
Shares used in basic per share computation		38,552			38,130		38,528		37,831
Net income per share — diluted	$	0.04		$	0.12	$	0.03	$	0.22
Shares used in diluted per share computation		39,114			38,997		39,143		39,043

See notes to consolidated financial statements.

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INTERVOICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	(In Thousands)
	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2006			2005			2006			2005
Operating activities
Net income	$	1,596		$	4,601		$	1,191		$	8,520
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,573			1,870			5,251			3,592
Non-cash compensation expense		1,368			—			2,749			—
Change in accounts receivable		(6,062	)		3,942			(6,003	)		4,930
Other changes in operating activities		(4,756	)		1,045			(4,442	)		(2,612	)
Net cash provided by (used in) operating activities		(5,281	)		11,458			(1,254	)		14,430
Investing activities
Purchases of property and equipment		(4,207	)		(3,912	)		(8,614	)		(7,044	)
Purchase of Edify Corporation		(90	)		—			(926	)		—
Other		—			—			—			(300	)
Net cash used in investing activities		(4,297	)		(3,912	)		(9,540	)		(7,344	)
Financing activities
Paydown of debt		—			—			—			(1,733	)
Exercise of stock options		109			585			258			2,078
Exercise of warrants		—			—			—			2,500
Net cash provided by financing activities		109			585			258			2,845
Effect of exchange rates on cash		(30	)		(155	)		423			(781	)
Increase (decrease) in cash and cash equivalents		(9,499	)		7,976			(10,113	)		9,150
Cash and cash equivalents, beginning of period		41,462			61,416			42,076			60,242
Cash and cash equivalents, end of period	$	31,963		$	69,392		$	31,963		$	69,392

See notes to consolidated financial statements.

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INTERVOICE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

(In Thousands, Except Share Data)

									Accumulated Other
	Common Stock				Additional		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss			Total
Balance at February 28, 2006		38,470,087	$	19	$	92,050	$	3,558	$	(1,905	)	$	93,722
Net income		—		—		—		1,191		—			1,191
Foreign currency translation adjustment		—		—		—		—		1,118			1,118
Comprehensive income													2,309
Exercise of stock options		108,252		—		258		—		—			258
Non-cash compensation		—		—		2,749		—		—			2,749
Balance at August 31, 2006		38,578,339	$	19	$	95,057	$	4,749	$	(787	)	$	99,038

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED AUGUST 31, 2006

Note A — Basis of Presentation

     We have prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles for interim financial information. The consolidated balance sheet at February 28, 2006 has been derived from the audited financial statements at that date. We believe we have included all adjustments necessary for a fair presentation of the unaudited August 31, 2006 and 2005 consolidated financial statements. Such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with our audited financial statements and related notes for the three years ended February 28, 2006 included in our Annual Report on Form 10-K. Our Annual Report is available on our website at www.intervoice.com. Our operating results for the three and six month periods ended August 31, 2006 are not necessarily indicative of the results that may be expected for our fiscal year ending February 28, 2007, as our results may be affected by a number of factors including the timing and ultimate receipt of orders from significant customers which continue to constitute a large portion of our sales, the sales channel mix of products and services sold, and changes in general economic conditions, any of which could have a material adverse effect on our operations.

     Our consolidated financial statements include the accounts of Intervoice, Inc. and our subsidiaries, all of which are directly or indirectly 100% owned by Intervoice, Inc. All significant intercompany transactions and accounts have been eliminated in consolidation. Financial statements of our foreign subsidiaries have been translated into U.S. dollars at current and average exchange rates. Resulting translation adjustments are recorded in stockholders’ equity as a part of accumulated other comprehensive loss. Any foreign currency transaction gains and losses are included in the accompanying consolidated statements of operations. Our total comprehensive income for the second quarter of fiscal 2007 and 2006 was $1.8 million and $4.4 million, respectively. For the six month periods ended August 31, 2006 and 2005, total comprehensive income was $2.3 million and $7.2 million, respectively. Total comprehensive income is comprised of net income and foreign currency translation adjustments.

Note B — Acquisition of Edify Corporation

     As discussed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2006, we acquired Edify Corporation (Edify), a former competitor in the enterprise market, from S1 Corporation. Results of operations for Edify were consolidated with ours beginning December 31, 2005; therefore, our results of operations presented for the three and six month periods ended August 31, 2005 do not include those of Edify.

     The following unaudited pro forma information represents our results of operations for the three and six month periods ended August 31, 2005 as if the Edify acquisition had occurred at March 1, 2005. The pro forma information has been prepared by combining the results of operations of Intervoice and Edify, adjusted for additional amortization expense of identified intangibles, a reduction in interest income as a result of our use of cash to acquire Edify and pay transaction costs, and the resulting impact on the provision for income taxes. The pro forma information has not been adjusted to reflect any stock compensation expense as required by SFAS No. 123R which was adopted by the Company effective March 1, 2006. The unaudited pro forma information does not purport to be indicative of what would have occurred had the Edify acquisition occurred as of the date assumed or of results of operations which may occur in the future (in thousands, except per share data):

	Three Months Ended		Six Months Ended
	August 31, 2005		August 31, 2005
	(unaudited)		(unaudited)
Sales	$	51,308	$	102,087
Income before income taxes		5,242		9,930
Net income		4,788		8,422
Net income per share:		0.12		0.22

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Note C — Inventory

     Our inventory consisted of the following (in thousands):

	August 31, 2006		February 28, 2006
Purchased parts	$	4,857	$	3,908
Work in progress		7,400		5,531
	$	12,257	$	9,439

Note D — Property and Equipment

     Our property and equipment consisted of the following (in thousands):

	August 31, 2006		February 28, 2006
Land and buildings	$	17,434	$	16,932
Computer equipment and software		50,423		42,817
Furniture and fixtures		3,352		3,165
Hosted solutions equipment		17,181		16,331
Maintenance services equipment		8,589		8,650
		96,979		87,895
Less allowance for accumulated depreciation		63,343		59,002
Property and equipment, net	$	33,636	$	28,893

     At August 31, 2006 the balance in our computer equipment and software account included approximately $13.5 million in capitalized costs associated with our SAP implementation. At February 28, 2006, approximately $8.0 million of such costs were included in our computer equipment and software account. Depreciation on approximately $2.6 million of the total began during the third quarter of fiscal 2006 as certain elements of the SAP project were placed into service. Depreciation on approximately $0.5 million additional of the total began during the second quarter of fiscal 2007. Depreciation on the remaining balance will begin in the third quarter of fiscal 2007 as additional components of the system are placed in service.

Note E — Stock-based Compensation

     Our stock-based employee compensation plans are fully described in Note J in our 2006 Annual Report on Form 10-K. Prior to March 1, 2006, we accounted for awards granted under our stock-based employee compensation plans following the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No compensation cost was reflected in net income for stock options, as all options granted under the plans have an exercise price equal to the market value of the underlying common stock on the date of grant. Compensation cost has previously been recognized for restricted stock units (RSUs).

     Effective March 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R, "Share-Based Payments,” using the modified prospective application method. Under this transition method, compensation cost recognized for the three and six month periods ended August 31, 2006 includes compensation expense for stock-based awards vesting during the period related to: (a) stock-based payments granted prior to, but not yet vested as of March 1, 2006 (based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123 and previously presented in pro forma footnote disclosures), and (b) stock-based payments granted subsequent to February 28, 2006 (based on the grant-date fair value estimated in accordance with the new provisions of SFAS No. 123R).

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     The following is the effect of adopting SFAS 123R as of March 1, 2006 (in thousands, except per share amounts):

	Three Months Ended		Six Months Ended
	August 31, 2006		August 31, 2006
Cost of Goods Sold	$	261	$	524
R&D		131		281
SG&A		931		1,857
Decrease in operating income	$	1,323	$	2,662
Related deferred income tax benefit		389		778
Decrease in net income	$	934	$	1,884
Decrease in earnings per share — basic	$	0.02	$	0.05
Decrease in earnings per share — diluted	$	0.02	$	0.05

     Under the modified prospective application method, results for periods prior to March 1, 2006 have not been restated to reflect the effects of implementing SFAS No. 123R. The following pro forma information, as required by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123,” is presented for comparative purposes and illustrates the pro forma effect on income from continuing operations and related earnings per common share for the three and six month periods ended August 31, 2005, as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation for those periods (in thousands, except per share amounts):

	Three Months Ended			Six Months Ended
	August 31, 2005			August 31, 2005
Net income, as reported	$	4,601		$	8,520
Less: Total stock-based compensation expense determined under fair value based methods for all awards		(2,005	)		(3,238	)
Pro forma net income		2,596			5,282
Net income per share:
Basic — as reported	$	0.12		$	0.23
Basic — pro forma	$	0.07		$	0.14
Diluted — as reported	$	0.12		$	0.22
Diluted — pro forma	$	0.06		$	0.13

Note F — Special Charges

     Accrued expenses at February 28, 2006 included amounts associated with severance and organizational changes affecting approximately 50 persons made at the time of the acquisition of Edify Corporation. Activity during the first six months of fiscal 2007 related to such accruals was as follows (in thousands):

	Accrued Balance				Accrued Balance
	February 28, 2006		Payments		August 31, 2006
Severance payments and related benefits	$	1,748	$	828	$	920

     We expect to pay the balance of accrued severance and related charges during fiscal 2007.

Note G — Income Taxes

     For the quarter and six months ended August 31, 2006, our effective tax rate of 30% and 31%, respectively, differs from the U.S. federal statutory rate primarily due to the expected benefits to be realized from the use of state net operating losses and certain foreign deferred tax assets for which we have not previously realized a benefit due to our uncertainty related to the utilization of those tax assets, and the effect of non-U.S. tax rates.

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     Given our three year history of profitability and the belief that we will continue to generate sufficient taxable income in the future to realize the benefits of certain of our remaining U.S. federal deferred tax assets, in February 2006 we reversed the valuation allowance associated with our U.S. federal deferred tax assets.

     For the quarter and six months ended August 31, 2005, our effective tax rate of 10% and 16% differs from the U.S. federal effective tax rate primarily due to expected benefits to be realized in the U.S. from previously reserved deferred tax assets, the effect of non-U.S. tax rates, and a reduction of $1.0 million and $1.2 million, respectively, as a result of favorable settlement of certain foreign tax liabilities.

     On June 13, 2006 the Financial Accounting Standards Board issued FASB Interpretation Number 48 (FIN 48), Accounting for Income Tax Uncertainties, which will be effective as of the beginning of our fiscal year ending February 29, 2008. FIN 48 defines the threshold for recognizing the financial statement benefit of tax return positions as “more-likely-than-not” to be sustained by the taxing authority. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its merits, no tax benefit can be recognized from the position.

     We have begun our evaluation of the effect of FIN 48 on our reported income tax liabilities. It is possible that we may be required to adjust our income tax liabilities as a result of our adoption of FIN 48 in the first quarter of fiscal 2008. We expect to complete our evaluation of the effects of FIN 48 on our reported income tax liabilities by the end of fiscal 2007.

Note H — Earnings Per Share

	Three Months Ended				Six Months Ended
	August 31,		August 31,		August 31,		August 31,
(in thousands, except per share data)	2006		2005		2006		2005
Numerator:
Net income	$	1,596	$	4,601	$	1,191	$	8,520
Denominator:
Denominator for basic earnings per share		38,552		38,130		38,528		37,831
Dilutive potential common shares Employee stock options		562		867		615		1,105
Outstanding warrants		—		—		—		107
Denominator for diluted earnings per share		39,114		38,997		39,143		39,043
Net income per share:
Basic	$	0.04	$	0.12	$	0.03	$	0.23
Diluted	$	0.04	$	0.12	$	0.03	$	0.22

     Options to purchase 7,486,987 and 4,807,262 shares of common stock at average exercise prices of $8.83 and $10.49 per share were outstanding during the three month periods ended August 31, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market prices of our common shares during the applicable period and, therefore, the effect would have been anti-dilutive. Options to purchase 7,300,237 and 1,521,054 shares at average exercise prices of $8.89 and $11.34 were outstanding during the six month periods ended August 31, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average prices of our shares for the six month periods.

Note I — Operating Segment Information and Major Customers

     We operate as a single, integrated business unit. Our chief operating decision maker assesses performance and allocates resources on an enterprise wide basis. Our product line includes voice automation/IVR solutions, messaging solutions, payment solutions, maintenance and support services, and

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hosted solutions. We believe that product line distinction provides the most meaningful breakdown of quarterly and annual sales activity. Our net sales by product line for the three and six month periods ended August 31, 2006 and 2005 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	August 31,		August 31,		August 31,		August 31,
	2006		2005		2006		2005
Voice automation/IVR solution sales	$	19,254	$	13,741	$	32,998	$	27,933
Messaging solution sales		3,569		6,018		7,287		10,866
Payment solution sales		1,422		2,263		3,429		4,593
Total solution sales		24,245		22,022		43,714		43,392
Maintenance and related service revenues		20,666		14,940		40,851		30,375
Hosted solutions revenues		5,569		6,328		11,583		12,786
Total recurring services revenues		26,235		21,268		52,434		43,161
Total sales	$	50,480	$	43,290	$	96,148	$	86,553

     Geographic Operations

     We assign revenues to geographic areas based on the locations of our customers. Our net sales by geographic area for the three and six month periods ended August 31, 2006 and 2005 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	August 31,		August 31,		August 31,		August 31,
	2006		2005		2006		2005
North America	$	32,206	$	22,323	$	59,247	$	45,403
Europe		6,647		10,825		15,383		21,705
Middle East and Africa		4,482		4,890		7,559		11,945
Central and South America		4,718		4,025		9,444		5,376
Pacific Rim		2,427		1,227		4,515		2,124
Total	$	50,480	$	43,290	$	96,148	$	86,553

     Concentration of Revenue

     No customers accounted for 10% of our revenues during the quarter and six months ended August 31, 2006. One customer, O2, accounted for approximately 10% of our revenue for the quarter and six months ended August 31, 2005.

Note J — Contingencies

Intellectual Property Matters

     We provide our customers a qualified indemnity against the infringement of third party intellectual property rights. From time to time, various owners of patents and copyrighted works send us or our customers letters alleging that our products do or might infringe upon the owner’s intellectual property rights, and/or suggesting that we or our customers should negotiate a license or cross-license agreement with the owner. Our policy is to never knowingly infringe upon any third party’s intellectual property rights. Accordingly, we forward any such allegation or licensing request to our outside legal counsel for their review and opinion. We generally attempt to resolve any such matter by informing the owner of our position concerning non-infringement or invalidity, and/or, if appropriate, negotiating a license or cross-license agreement. Even though we attempt to resolve these matters without litigation, it is always possible that the owner of a patent or copyrighted work will sue us. Although no such litigation is currently pending against us, owners of patents and/or copyrighted works have previously sued us alleging infringement of their intellectual property rights. We currently have a portfolio of 84 patents, and we have

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applied for and will continue to apply for and receive a number of additional patents to protect our technological innovations. We believe our patent portfolio could allow us to assert counterclaims for infringement against certain owners of intellectual property rights if those owners were to sue us for infringement.

     From time to time Ronald A. Katz Technology Licensing L.P. (“RAKTL”) has sent letters to certain of our customers suggesting that the customer should negotiate a license agreement to cover the practice of certain patents owned by RAKTL. In the letters, RAKTL has alleged that certain of its patents pertain to certain enhanced services offered by network providers, including prepaid card and wireless services and postpaid card services. RAKTL has further alleged that certain of its patents pertain to certain call processing applications, including applications for call centers that route calls using a called party’s DNIS identification number. As a result of the correspondence, many of Intervoice’s customers have had discussions, or are in discussions, with RAKTL.

     We offer certain products that can be programmed and configured to provide enhanced services to network providers and call processing applications for call centers. Our contracts with customers usually include a qualified obligation to indemnify and defend customers against claims that products as delivered by Intervoice infringe a third party’s patent. None of our customers has notified us that RAKTL has claimed that any product provided by us infringes any claims of any RAKTL patent. Accordingly, we have not been required to defend any customers against a claim of infringement under a RAKTL patent. We have, however, received letters from customers notifying us of the efforts by RAKTL to license its patent portfolio and reminding us of our potential obligations under the indemnification provisions of our agreements in the event that a claim is asserted. In response to correspondence from RAKTL, a few customers have attempted to tender to us the defense of our products under contractual indemnity provisions. We have informed these customers that while we fully intend to honor any contractual indemnity provisions, we do not believe we currently have any obligation to provide such a defense because RAKTL does not appear to have made a claim that an Intervoice product infringes a patent. Some of these customers have disagreed with us and believe that the correspondence from RAKTL can be construed as a claim against Intervoice products.

     Some of our customers have licensed certain rights under the RAKTL patent portfolio. Two such customers who had previously attempted to tender the defense of their products to us informed us that they had entered into agreements to license certain rights under the RAKTL patents and demanded we indemnify them for unspecified amounts, including attorney’s fees, paid in connection with the license agreements. We notified these customers that we believe we do not have any indemnity obligation in connection with the license agreements. We have received no further response from either customer.

     A customer of ours is one of several companies sued on July 19, 2005 by RAKTL in the case of Ronald A. Katz Technology Licensing, L.P. v. Citibank, et al.; No. 505CV 142, pending in the United States District Court for the Eastern District of Texas, Texarkana Division. The customer has not asserted that we are obligated to indemnify and defend the customer in the lawsuit, but the customer has notified us under the indemnity paragraph of its sales agreement with us that the lawsuit could potentially impact one or more of its agreements with us. A customer of our recently acquired subsidiary, Edify, is also a defendant in the lawsuit and has asserted that Edify is obligated to indemnify the customer under the indemnity paragraph of its sales agreement. Edify told the customer that it does not believe it has an obligation to indemnify the customer in connection with the lawsuit. Another customer of Edify is one of many companies sued by RAKTL on September 1, 2006 in the case of Ronald A. Katz Technology Licensing LP v. American International Group., et al.; Civil Action No. 06-547, pending in the United States District Court for the District of Delaware. The customer recently asserted that Edify is obligated to indemnify the customer under the indemnity paragraph of its sales agreement. Edify does not believe that it has an obligation to indemnify the customer in connection with the lawsuit and has requested that the customer provide additional information concerning the assertions made by RAKTL.

     Even though no claims have been made that a specific product offered by Intervoice infringes any claim under the RAKTL patent portfolio, we have received opinions from our outside patent counsel that certain products and applications we offer do not infringe certain claims of the RAKTL patents. We have also received opinions from our outside counsel that certain claims under the RAKTL patent portfolio are invalid or unenforceable. Furthermore, based on the reviews by outside counsel, we are not aware of any valid and enforceable claims under the RAKTL portfolio that are infringed by our products. If we do become involved in litigation in connection with the RAKTL patent portfolio, under a contractual indemnity or any other legal theory, we intend to vigorously contest the claims and to assert appropriate defenses.

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     We have received letters from Webley Systems (“Webley”), a division of Parus Holdings, Inc. (“Parus”), and its counsel alleging that certain Webley patents cover one or more of our products and services. In the letters, Parus offers a license to the Webley patents. As a result of the correspondence, we conducted discussions with Parus. Based on reviews by our outside counsel, we are not aware of any valid and enforceable claims under the Webley patents that are infringed by our products or services.

Pending Litigation

     David Barrie, et al., on Behalf of Themselves and All Others Similarly Situated v. InterVoice-Brite, Inc., et al.; No. 3-01CV1071-D, pending in the United States District Court, Northern District of Texas, Dallas Division:

     Several related class action lawsuits were filed in the United States District Court for the Northern District of Texas on behalf of purchasers of common stock of Intervoice during the period from October 12, 1999 through June 6, 2000 (the “Class Period”). Plaintiffs have filed claims, which were consolidated into one proceeding, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 against us as well as certain named current and former officers and directors of Intervoice on behalf of the alleged class members. In the complaint, Plaintiffs claim that we and the named current and former officers and directors issued false and misleading statements during the Class Period concerning the financial condition of Intervoice, the results of the merger with Brite Voice Systems, Inc. and the alleged future business projections of Intervoice. Plaintiffs have asserted that these alleged statements resulted in artificially inflated stock prices.

     The District Court dismissed the Plaintiffs’ complaint because it lacked the degree of specificity and factual support to meet the pleading standards applicable to federal securities litigation. The Plaintiffs’ appealed the dismissal to the United States Court of Appeals for the Fifth Circuit, which affirmed the dismissal in part and reversed in part. The Fifth Circuit remanded a limited number of issues for further proceedings in the District Court.

     On September 26, 2006, the District Court granted the Plaintiffs’ motion to certify a class of people who purchased Intervoice stock during the period between October 12, 1999 and June 6, 2000. We intend to ask the Fifth Circuit to review the class certification order. In addition, we are in the process of producing documents in response to the Plaintiffs’ request for production. We believe that we and our officers and directors complied with the applicable securities laws and will continue to vigorously defend the case.

     Daniel Wardiman, derivatively on behalf of Nominal Defendant, Intervoice-Brite, Inc. v. Daniel D. Hammond et.al.; No. 3-05CV2114-N, filed in the United States District Court, Northern District of Texas, Dallas Division:

     One of our shareholders filed a shareholder derivative suit against certain current and former directors and officers on October 27, 2005. The suit alleged that these individuals breached their fiduciary duties to Intervoice during the fiscal year ended February 29, 2000 and during the first quarter of the fiscal year ended February 28, 2001. The alleged conduct is largely the same conduct that is the subject of the Barrie class action lawsuit discussed above. The shareholder filed the derivative suit after sending a letter demanding that Intervoice file suit against the defendants.

     We and defendants filed a motion on January 17, 2006 to dismiss the suit because we believe the case is barred under the applicable statutes of limitations. The District Court granted our motion to dismiss the suit and issued a final judgment on July 6, 2006. The Plaintiff has not appealed the judgment, and all applicable deadlines for the Plaintiff to appeal the judgment have expired.

Audit Committee Investigation

     During fiscal 2005, our Audit Committee conducted an investigation of certain transactions that occurred during our fiscal years 2000 through 2002. The Audit Committee was assisted in its investigation by separate independent legal counsel and a national accounting firm. The Audit Committee reported the results of its investigation to the SEC, and we are cooperating with the SEC as it makes its own inquiries regarding the transactions. We are currently providing documents to the SEC in response to a subpoena and informal requests for information about the transactions, and several of our current and former officers and non-officer employees have provided testimony to the SEC. Our Audit Committee and its counsel are continuing to monitor our response to the SEC, and they also have conducted a review of certain documents provided to the SEC which we located after the Committee’s original investigation. Intervoice is also honoring our obligation to indemnify certain current and former officers and other employees of Intervoice, including our Chief Executive

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Officer, who received subpoenas to produce documents and provide testimony to the SEC in connection with the investigation. Furthermore, we are honoring our obligation to reimburse legal fees incurred by certain recipients of the subpoenas.

     The Audit Committee investigation found that we accounted for certain transactions incorrectly during our fiscal years 2000 through 2002. The Audit Committee investigation concluded that a $0.9 million payment made by Intervoice to a publicly held supplier purportedly for certain prepaid licenses was linked to an agreement to amend a 1997 warrant issued to us by the supplier to permit our cashless exercise of the warrant. As a result, we believe the $0.9 million payment should have been recorded as a reduction in the $21.4 million gain we recognized on the sale of the shares underlying the warrant during the fourth quarter of fiscal 2001 and should not have been recorded as prepaid license inventory. Our payment to the supplier may have rendered unavailable a nonexclusive registration exemption for the sale of the shares underlying the warrant. The Audit Committee investigation also found that we intentionally provided the same supplier false or misleading documents for such supplier to use to support such supplier’s improper recognition of revenue in calendar 2001.

     The Audit Committee investigation and review further found that six of the seven customer sales transactions the Committee investigated were accounted for incorrectly and that there was intentional misconduct in at least one of those sales transactions. These six transactions occurred at the end of quarters in which we just met analysts’ expectations with respect to earnings per share. The Audit Committee found that we improperly recognized revenue in a quarter-end barter transaction involving approximately 0.4% of annual revenues for fiscal 2000, and that we improperly accelerated the recognition of revenue in five quarter-end transactions totaling approximately 0.4% and 0.3% of annual revenues in fiscal 2000 and fiscal 2002, respectively. We, and certain of our current and former officers and the SEC have agreed that Intervoice and the officers will not assert any defenses based on a statute of limitations with respect to any action or proceeding against Intervoice brought by or on behalf of the SEC arising out of the SEC investigation for the time periods set forth in the agreements. As a result of work performed in responding to the SEC subpoena, the Committee has concluded that Intervoice also improperly recognized approximately $5.4 million of revenue in two sales transactions during the second and third quarters of fiscal 2002 because the transactions were subject to oral side agreements that gave our customer expanded rights of return. We subsequently reversed the $5.4 million of revenue during the fourth quarter of fiscal 2002 in connection with a return of the related systems. We are providing documents to the SEC concerning these two additional sales transactions pursuant to a separate subpoena. Separately, the Audit Committee determined that in September 2001 one of our current executive officers improperly communicated Intervoice information to a shareholder.

     Intervoice’s management has concluded, with the concurrence of the Audit Committee and our external auditors, that restatement of our prior period financial statements to adjust for the findings of the Audit Committee investigation and review is not necessary. In reaching this conclusion, we considered the impact of the incorrect accounting on each of the periods affected, the ages of the affected financial statements and the lack of any material changes in prior period trends as a result of the incorrect accounting. In addition, we noted that since the date of the most recent transaction reviewed in the investigation, we have restructured our business, made significant management changes, consolidated our physical operations, significantly reduced our fixed operating costs and refinanced and repaid all of our major debt obligations. We cannot predict whether we may have future losses relating to the matters investigated by the Audit Committee as a result of future claims, if any, including any claims by the government.

Other Matters

     We are a defendant from time to time in lawsuits incidental to our business. Based on currently available information, we believe that resolution of the lawsuits and other matters described above is uncertain, and there can be no assurance that future costs related to such matters would not be material to our financial position or results of operations.

     We are a party to many routine contracts in which we provide general indemnities and warranties in the normal course of business to third parties for various risks. These indemnities and warranties are discussed in the following paragraphs. Except in specific circumstances where we have determined that the likelihood of loss is probable and the amount of the loss quantifiable, we have not recorded a liability for any of these indemnities. In general, we are not able to estimate the potential amount of any liability relating to these indemnities and warranties.

     Many of our contracts, particularly for hosted solutions, foreign contracts and contracts with telecommunication companies, include provisions for the assessment of damages for delayed project

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completion and/or for our failure to achieve certain minimum service levels. We have had to pay damages in the past and may have to pay additional damages in the future. Any such future damages could be significant.

     Our contracts with our customers generally contain qualified indemnifications against third party claims relating to the infringement of intellectual property as described in “Intellectual Property Matters” above.

     Our contracts with our customers also generally contain warranties and, in some cases, general indemnifications against other unspecified third party and general liability claims. We have liability insurance protecting us against certain obligations, primarily certain claims related to property damage, that result from these indemnities.

     We are obligated under letters of credit totaling approximately $0.2 million issued by a bank to guarantee our performance under a long-term international hosted solution contract and related proposals. These letters of credit expire during fiscal 2007 and fiscal 2008.

     We have employment agreements with four executive officers and three other officers. One agreement with an executive officer requires us to make termination payments to the officer of one and one-half times the officer’s annual base compensation in the event the officer’s services are terminated without cause or payments of up to 2.99 times the officer’s annual compensation including bonuses in connection with a termination of the officer’s services within a two year period following a change in ownership of Intervoice, as defined in the agreement. If the officer with whom we have such an agreement were terminated for one of the preceding reasons during fiscal 2007, we would incur costs ranging from $0.6 million to $1.2 million. The agreements with two other executive officers require us to make termination payments of one and one-half times the officer’s annual base compensation in the event the officer’s services are terminated without cause or payments of up to two times the officer’s annual base compensation including bonuses in connection with a termination of the officer’s services within an 18 month period following a change in ownership of Intervoice, as defined in the agreements. If both of these officers were terminated for one of the preceding reasons during fiscal 2007, we would incur costs ranging from $0.9 million to $1.2 million. The agreement with the fourth executive officer, which was amended and restated on October 9, 2006, requires us to make payment of the greater of the compensation for the unexpired term of the contract which expires in December 2007 or one-half of the annual compensation under the contract. If this officer were terminated during fiscal 2007, we would incur costs ranging from $0.2 million to $0.3 million. The remaining agreements with officers provide for their employment through December 2007 for one of the officers and through August 2008 with respect to the remaining two officers. If we terminated these officers prior to the expiration of their contracts, we would owe them the greater of their compensation for the unexpired term of the contracts or one-half of their annual compensation under the contracts. If these officers were terminated during fiscal 2007, we would incur costs ranging from $0.7 million to $1.0 million.

     Under the terms of our Articles of Incorporation, we indemnify our directors, officers, employees or agents or any other person serving at our request as a director, officer, employee or agent of another corporation in connection with a derivative suit if he or she (1) is successful on the merits or otherwise or (2) acted in good faith, and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation. We will not provide indemnification, however, for any claim as to which the person was adjudged liable for negligence or misconduct unless the court determines that under the circumstances the person is fairly and reasonably entitled to indemnification. We provide the same category of persons with indemnification in a non-derivative suit only if such person (1) is successful on the merits or otherwise or (2) acted in good faith, and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reason to believe his or her conduct was unlawful. Under the terms of our Bylaws, we also indemnify our current and former officers and directors to the fullest extent permitted or required under Article 2.02-1 of the Texas Business Corporation Act.

     In connection with certain lawsuits filed against us and certain of our present and former officers and directors (see “Pending Litigation” above), we have agreed to pay in advance any expenses, including attorneys’ fees, incurred by such present and former officers and directors in defending such litigation, in accordance with Article 2.02-1 of the Texas Business Corporation Act and the Company’s Articles of Incorporation and Bylaws. Each of these parties has provided us with a written undertaking to repay us the expenses advanced if the person is ultimately not entitled to indemnification.

     We have a qualified obligation to indemnify certain current and former officers and other employees of Intervoice in connection with activities resulting from the Audit Committee investigation and related SEC inquiries described in “Audit Committee Investigation” above.

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     Texas corporations are authorized to obtain insurance to protect officers and directors from certain liabilities, including liabilities against which the corporation cannot indemnify its officers and directors. We have obtained liability insurance for our officers and directors as permitted by Article 2.02-1 of the Texas Business Corporation Act. Our insurance policies provide coverage for losses and expenses incurred by us and our current and former directors and officers in connection with claims made under the federal securities laws. These policies, however, exclude losses and expenses related to the Barrie class action lawsuit, or to other litigation based on claims that are substantially the same as those in the Barrie class action, and contain other customary provisions to limit or exclude coverage for certain losses and expenses.

Note K — Acquisition of Assets of Nuasis

     On September 1, 2006, we acquired the assets and certain liabilities of Nuasis, a California based company that provides Internet-enabled customer contact software, for approximately $2.5 million in cash. We funded the purchase from existing cash reserves.

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

     Critical Accounting Policies. In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we use estimates and projections that affect the reported amounts and related disclosures and that may vary from actual results. Effective March 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, “Share-Based Payments.” We consider our accounting policies related to SFAS 123R as important to the portrayal of our financial condition, and requiring subjective judgment. Other critical accounting policies are discussed fully in the Annual Report on Form 10-K for the year ended February 28, 2006.

Stock-Based Compensation

     We adopted SFAS 123R effective March 1, 2006 using the modified prospective transition method, which resulted in recording $1.3 million of stock-based compensation expense during the second quarter of fiscal 2007 and $2.6 million during the first six months of fiscal 2007 as further detailed in Note E to the financial statements. Determining the amount and classification of expense for stock-based compensation, as well as the associated impact to the balance sheets and statements of cash flows, requires us to develop estimates of the fair value of stock-based compensation expenses using fair value models. The most significant assumptions used in calculating the fair value include the expected volatility, expected lives and estimated forfeiture rates for employee stock option grants.

     We use a weighted average of the implied volatility, the most recent one-year volatility and the median volatility for the period of the expected life of the option to determine the expected volatility to be used in our fair value calculation. We believe that this is the best available estimate of expected volatility. The expected lives of options are determined based on our historical stock option exercise experience. We believe the historical experience method is the best estimate of future exercise patterns currently available. Estimated forfeiture rates are derived from historical forfeiture patterns. We believe the historical experience method is the best estimate of forfeitures currently available. Changes to these assumptions or changes to our Stock-Based Compensation plans, including the number of awards granted, could impact our stock-based compensation expense in future periods.

     Sales. We operate as a single, integrated business unit. Our chief operating decision maker assesses performance and allocates resources on an enterprise wide basis. Our product line includes voice automation/IVR solutions, messaging solutions, payment solutions, maintenance and support services, and hosted solutions. We believe that product line distinction provides the most meaningful breakdown of quarterly and annual sales activity. Our net sales by product line for the three and six month periods ended August 31, 2006 and 2005 were as follows (in thousands):

	Three Months Ended							Six Months Ended
	August 31,					August 31,		August 31,					August 31,
	2006		% Change			2005		2006		% Change			2005
Voice automation/IVR solution sales	$	19,254		40.1	%	$	13,741	$	32,998		18.1	%	$	27,933
Messaging solution sales		3,569		(40.7	)%		6,018		7,287		(32.9	)%		10,866
Payment solution sales		1,422		(37.2	)%		2,263		3,429		(25.3	)%		4,593
Total solution sales		24,245		10.1	%		22,022		43,714		0.7	%		43,392
Maintenance and related services revenues		20,666		38.3	%		14,940		40,851		34.5	%		30,375
Hosted solutions revenues		5,569		(12.0	)%		6,328		11,583		(9.4	)%		12,786
Total recurring services revenues		26,235		23.4	%		21,268		52,434		21.5	%		43,161
Total sales	$	50,480		16.6	%	$	43,290	$	96,148		11.1	%	$	86,553

     We assign revenues to geographic areas based on the locations of our customers. Our net sales by geographic area for the three and six month periods ended August 31, 2006 and 2005 were as follows (in thousands):

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	Three Months Ended							Six Months Ended
	August 31,					August 31,		August 31,					August 31,
	2006		% Change			2005		2006		% Change			2005
North America	$	32,206		44.3	%	$	22,323	$	59,247		30.5	%	$	45,403
Europe		6,647		(38.6	)%		10,825		15,383		(29.1	)%		21,705
Middle East and Africa		4,482		(8.3	)%		4,890		7,559		(36.7	)%		11,945
Central and South America		4,718		17.2	%		4,025		9,444		75.7	%		5,376
Pacific Rim		2,427		97.8	%		1,227		4,515		112.6	%		2,124
Total	$	50,480		16.6	%	$	43,290	$	96,148		11.1	%	$	86,553

     International sales comprised 36% of our total sales during the second quarter of fiscal 2007, down from 48% during the second quarter of fiscal 2006.

     Total sales for the second quarter and first six months of fiscal 2007 included the impact of a full quarter and six months of activity related to the acquisition of Edify. These Edify sales were primarily to North American customers and were included in the voice automation/IVR product line. Sales of voice automation/IVR solutions for the first six months of fiscal 2007 also included approximately $2.5 million of revenue from a cash basis customer based in the Central and South American market. Such sales also included $3.5 million from a follow on order for incremental capacity from the same customer which was recognized on an accrual basis. Based on our successful cash collections activities associated with this customer over several years, the application of our accounting policy was updated during the first quarter of fiscal 2007 to utilize the accrual method of accounting for any future activity with this customer. Sales of messaging solutions included approximately $2.8 million and $3.6 million for the second quarter and first six months of fiscal 2006, respectively, under the first two contracts of our new advanced messaging product — media exchange for networks. One of these contracts was completed during the first quarter of fiscal 2007. Our sales of payment solutions continue to primarily reflect sales of capacity upgrades to existing customers.

     The increase in our maintenance and related services revenue in the second quarter of fiscal 2007 as compared to the second quarter of fiscal 2006 is comprised of an increase of $5.9 million (47.4%) in maintenance revenues on voice automation/IVR solutions offset by a decrease of $0.2 million (20.4%) in maintenance revenues on payment solutions. The increase in our maintenance and related services revenue in the first six months of fiscal 2007 as compared to the first six months of fiscal 2006 is comprised of an increase of $11.6 million (46.7%) in maintenance revenues on voice automation/IVR solutions offset by decreases of $1.1 million (20.8%) in maintenance revenues on messaging and payment solutions. These increases in maintenance revenues on voice automation/IVR solutions resulted primarily from the acquisition of Edify.

     The 12.0% decrease in hosted solutions revenue in the second quarter of fiscal 2007 compared to the second quarter of fiscal 2006 is comprised of growth of $0.8 million (26.1%) from our North American enterprise customers offset by net reductions of $1.5 million (45.7%) in revenues from our international network customers. This reduction reflects the expiration of one long term hosted solution contract with O2 during the second quarter of fiscal 2007. Sales under this contract totaled $1.0 million and $2.2 million for the quarters ended August 31, 2006 and 2005. Sales under this contract totaled $3.0 million and $4.7 million for the six month periods ended August 31, 2006 and 2005. The reduction in managed services revenues from our international network customers also included a $0.6 million reduction in revenue for the six month period ended August 31, 2006 as compared to the six month period ended August 31, 2005 from an international hosted solution customer for which we recognize revenue on a cash basis.

     No customers accounted for 10% of our revenues during the quarter and six months ended August 31, 2006. One customer, O2, accounted for approximately 10% of our revenue for the quarter and six months ended August 31, 2005.

     We are prone to quarterly fluctuations. Some of our transactions are completed in the same fiscal quarter as ordered. The quantity and size of large sales (sales valued at approximately $2.0 million or more) during any quarter can cause wide variations in our quarterly sales and earnings, as such sales are unevenly distributed throughout the year. We use a system combining estimated sales from our recurring services contracts, our backlog of committed solutions orders and our “pipeline” of solutions sales opportunities to estimate sales and trends in our business. For the quarters ended August 31, 2006 and 2005, sales were sourced as follows:

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	Three Months Ended August 31
	2006			2005
Sales from recurring services and support contracts, including contracts for hosted solutions		52	%		49	%
Sales from beginning solutions backlog		21	%		31	%
Sales from the quarter’s pipeline		27	%		20	%
		100	%		100	%

     Our service and support contracts range in original duration from one month to five years, with most hosted solutions having initial terms of two to three years and most maintenance and related contracts having initial terms of one year. Because many of the longer duration contracts give customers early cancellation privileges, we do not consider our book of services contracts to be reportable backlog, as a portion of the potential revenue reflected in the contract values may never be realized. Nevertheless, it is easier for us to estimate service and support revenues than to estimate solutions sales for the next quarter because the service and support contracts generally span multiple quarters and revenues recognized under each contract are generally similar from one quarter to the next.

     Our backlog is made up of customer orders for solutions for which we have received complete signed orders and which we generally expect to deliver within twelve months. Backlog as of the end of our last five fiscal quarters was as follows (in thousands):

Quarter Ended	Backlog
August 31, 2006	$	41,639
May 31, 2006	$	41,221
February 28, 2006	$	33,867
November 30, 2005	$	29,915
August 31, 2005	$	30,265

     The accuracy of any estimate of future sales is dependent, in part, on our ability to project the amount of revenue to be contributed from beginning solutions backlog during any fiscal quarter. Our ability to estimate the amount of backlog that will be converted to revenue in any fiscal quarter can be affected by factors outside our control, including changes in project timing requested by our customers.

     Our pipeline of opportunities for solutions sales is the aggregation of our sales opportunities for which we have not received a purchase order, with each opportunity evaluated for the date the potential customer will make a purchase decision, competitive risks, and the potential amount of any resulting sale. No matter how promising a pipeline opportunity may appear, there is no assurance it will ever result in a sale. While this pipeline may provide us some sales guidance in our business planning and budgeting, pipeline estimates are necessarily speculative and may not consistently correlate to solutions sales in a particular quarter or over a longer period of time. While we know the amount of solutions backlog available at the beginning of a quarter, we must speculate on our pipeline of solutions opportunities for the quarter. Our accuracy in estimating total solutions sales for the next fiscal quarter is, therefore, highly dependent upon our ability to successfully estimate which pipeline opportunities will close during the quarter.

     Cost of Goods Sold. Cost of goods sold was comprised of the following for the quarters and six month periods ended August 31, 2006 and 2005 (in thousands):

	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2006			2005			2006			2005
Solutions COGS	$	15,286		$	13,050		$	27,590		$	25,854
As percentage of solutions sales		63.0	%		59.3	%		63.1	%		59.6	%
Services COGS	$	7,192		$	6,273		$	14,666		$	12,385
As percentage of services sales		27.4	%		29.5	%		28.0	%		28.7	%
Total COGS	$	22,478		$	19,323		$	42,256		$	38,239
As percentage of total sales		44.5	%		44.6	%		43.9	%		44.2	%

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     A significant portion of our solutions cost of goods sold is comprised of labor costs that are fixed over the near term as opposed to direct material and license/royalty costs that vary directly with sales volumes. Cost of goods sold for the second quarter and first six months of fiscal 2007 included approximately $0.2 million and $0.5 million, respectively, of stock compensation expense resulting from our adoption of SFAS 123R, which requires us to include a compensation expense in our financials related to share-based awards.

     Research and Development Expenses.

	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2006			2005			2006			2005
Research and development expenses	$	5,239		$	3,884		$	11,021		$	8,079
(in thousands)
As percentage of total sales		10.4	%		9.0	%		11.5	%		9.3	%

     Expenses in the second quarter and first six months of fiscal 2007 included the impact of the acquisition of Edify Corporation. Expenses were also up for the same timeframe due to stock compensation expense of approximately $0.1 million and $0.3 million in the second quarter and first six months of fiscal 2007, respectively, due to our adoption of SFAS 123R which requires us to include a compensation expense in our financials related to share-based awards. Expenses for the second quarter of fiscal 2007 also included an increase in depreciation incremented by fewer research and development resources being assigned to completion of customer projects as compared to the second quarter of fiscal 2006. Expenses for the first six months of fiscal 2007 as compared to the first six months of fiscal 2006 included increases in depreciation and contract labor offset in part by more research and development resources being assigned to completion of customer projects. Research and development expenses include the design of new products and the enhancement of existing products.

     Our research and development spending is focused in five key areas. First, we are developing software tools to aid in the development and deployment of customer applications incorporating speech recognition, text-to-speech, and other rich media technologies for enterprises and wireless and wireline providers. Next, we are developing server-based application software platforms for operations and management of contact center, speech and call completion applications. These software platforms are branded under the name Media Exchange. We will use these software platforms for deployment and management of enterprise, wireless and wireline network operator applications which are designed to operate in both J2EE and Microsoft’s ^®.NET enterprise computing environments. Third, we are developing media servers, “voice browsers,” and call processing infrastructure based on open standards such as VoiceXML, CCXML and SALT. These media servers are VoIP enabled, allowing operation in soft-switch and hybrid PSTN and VoIP networks. Fourth, we are developing packaged, speech enabled applications for the network operator and enterprise markets. These include a range of vertical and horizontal applications that are designed to greatly enhance customer return-on-investment by providing many commonly used configurable functions that can be deployed more quickly than custom applications. Finally, we are developing modular productivity and communications applications for wireless and wireline applications including speech driven voice mail, voice activated dialing, and enhanced personal information management. The network products are also branded under the product name Media Exchange.

     We expect to maintain a strong commitment to research and development so that we can remain at the forefront of technology development in our markets.

     Selling, General and Administrative Expenses.

	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2006			2005			2006			2005
Selling, general and administrative expenses (in thousands)	$	20,208		$	15,367		$	41,008		$	30,800
As percentage of total sales		40.0	%		35.5	%		42.7	%		35.6	%

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     Selling, general and administrative expenses for the second quarter and the first six months of fiscal 2007 reflect significant increases. These increases primarily relate to incremental sales and marketing expenses following the acquisition of Edify. In addition, stock compensation expense of $0.9 million and $1.9 million is included in the second quarter and first six months of fiscal 2007, respectively, due to our adoption of SFAS 123R which requires us to include a compensation expense in our financials related to share-based awards.

     Amortization of Acquired Intangible Assets. We incurred expenses of approximately $0.6 million and $1.2 million related to the amortization of acquisition related intangibles in the second quarter and first six months of fiscal 2007, respectively. Intangible assets acquired in the acquisition of Edify totaled approximately $6.8 million with useful lives ranging from eighteen months to eight years. In addition, some of the intangible assets acquired in the merger with Brite Voice Systems in fiscal 2000 continue to be amortized.

     Income Taxes. For the quarter and six months ended August 31, 2006, our effective tax rate of 30% and 31%, respectively, differs from the U.S. federal statutory rate primarily due to the expected benefits to be realized from the use of state net operating losses and certain foreign deferred tax assets for which we have not previously realized a benefit due to our uncertainty related to the utilization of those tax assets, and the effect of non-U.S. tax rates.

     Given our three year history of profitability and the belief that we will continue to generate sufficient taxable income in the future to realize the benefits of certain of our remaining U.S. federal deferred tax assets, in February 2006 we reversed the valuation allowance associated with our U.S. federal deferred tax assets.

     For the quarter and six months ended August 31, 2005, our effective tax rate of 10% and 16% differs from the U.S. federal effective tax rate primarily due to expected benefits to be realized in the U.S. from previously reserved deferred tax assets, the effect of non-U.S. tax rates, and a reduction of $1.0 million and $1.2 million, respectively, as a result of favorable settlement of certain foreign tax liabilities.

     On June 13, 2006 the Financial Accounting Standards Board issued FASB Interpretation Number 48 (FIN 48), Accounting for Income Tax Uncertainties, which will be effective as of the beginning of our fiscal year ending February 29, 2008. FIN 48 defines the threshold for recognizing the financial statement benefit of tax return positions as “more-likely-than-not” to be sustained by the taxing authority. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its merits, no tax benefit can be recognized from the position.

     We have begun our evaluation of the effect of FIN 48 on our reported income tax liabilities. It is possible that we may be required to adjust our income tax liabilities as a result of our adoption of FIN 48 in the first quarter of fiscal 2008. We expect to complete our evaluation of the effects of FIN 48 on our reported income tax liabilities by the end of fiscal 2007.

     Income from Operations and Net Income. We generated operating income of $2.0 million and $0.7 million during the second quarter and first six months of fiscal 2007 compared to $4.5 million and $8.9 million for the same periods of fiscal 2006. We generated net income of $1.6 million and $1.2 million during the second quarter and first six months of fiscal 2007 compared to $4.6 million and $8.5 million for the second quarter and first six months of fiscal 2006.

     Liquidity and Capital Resources. We had approximately $32.0 million in cash and cash equivalents at August 31, 2006. Our cash balances decreased $9.5 million during the three months ended August 31, 2006, with operating activities using $5.3 million of cash, net investing activities using $4.3 million of cash and net financing activities providing $0.1 million in cash.

     Operating cash flow for the quarter ended August 31, 2006 was impacted by increases in our accounts receivable, inventory and prepaid accounts. Our days sales outstanding of accounts receivable was 57 days, unchanged from February 28, 2006, and up slightly from 50 days at May 31, 2006.

     For sales of certain of our more complex, customized systems (generally ones with a sales price of $500,000 or more), we recognize revenue based on a percentage of completion methodology. Unbilled receivables accrued under this methodology totaled $8.4 million (26.3% of total net receivables) at August 31, 2006, up from $7.5 million at May 31, 2006. We expect to bill and collect unbilled receivables as of August 31, 2006 within the next twelve months.

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     While we continue to focus on the level of our investment in accounts receivable, we generate a significant percentage of our sales, particularly sales of enhanced telecommunications services systems, outside the United States. Customers in certain countries are subject to significant economic and political challenges that affect their cash flow, and many customers outside the United States are generally accustomed to vendor financing in the form of extended payment terms. To remain competitive in markets outside the United States, we may offer selected customers such payment terms. In all cases, however, we only recognize revenue at such time as our system or service fee is fixed or determinable, collectibility is probable and all other criteria for revenue recognition have been met. In some limited cases, this policy may result in our recognizing revenue on a “cash basis,” limiting revenue recognition on certain sales of systems and/or services to the actual cash received to date from the customer, provided that all other revenue recognition criteria have been satisfied.

     We used $4.3 million of cash on investing activities during the second quarter of fiscal 2007. Approximately $0.5 million of this amount related to equipment to support our hosted solutions business, $3.0 million for costs in connection with our SAP implementation and $0.7 million primarily related to our overall computing environment. At August 31, 2006, the balance in our computer equipment and software account included approximately $13.5 million in capitalized costs associated with our SAP implementation.

     During the quarter ended August 31, 2006, our financing activities provided $0.1 million in net cash flow. Our option holders exercised options for 0.1 million shares of common stock and, in so doing, provided us with $0.1 million in cash.

     On September 1, 2006, we acquired the assets and certain liabilities of Nuasis, a California based company that provides Internet-enabled customer contact software, for approximately $2.5 million in cash. We funded the purchase form existing cash reserves.

     Adequacy of Cash Reserves. We believe our cash reserves and internally generated cash flow will be sufficient to meet our cash requirements for at least the next twelve months.

     Impact of Inflation. We do not expect any significant short-term impact of inflation on our financial condition. We presently are not bound by long-term fixed price sales contracts. The absence of such contracts reduces our exposure to inflationary effects.

Item 4 Controls and Procedures

     Evaluation of disclosure controls and procedures. Our disclosure controls and procedures are designed to provide reasonable, but not absolute, assurance that the objectives of our disclosure control system are met. A control system, no matter how well conceived and operated, is subject to inherent limitations. These limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

     Based on the evaluation by our management (with the participation of our chief executive officer and chief financial officer), as of the end of the period covered by this report, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to provide reasonable assurance that material information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Such officers also have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

     Changes in internal control. There has been no change in our internal control over financial reporting identified in connection with the evaluation that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are in the process of implementing a new company-wide ERP system. During the second quarter of fiscal 2007, we implemented the payroll module of this system for our international locations and modified certain of our internal controls related to payroll processing.

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PART II. OTHER INFORMATION

Item 1 Legal Proceedings

     See “Pending Litigation” and “Audit Committee Investigation” in Note J of Part I of this quarterly report on Form 10-Q.

Item 1A Risk Factors

     This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements” located elsewhere in this report regarding our financial position, business strategy, plans and objectives of management for future operations, future sales and industry conditions, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. In addition to important factors described elsewhere in this report, we caution current and potential investors that the following important risk factors, among others, sometimes have affected, and in the future could affect, our actual results and could cause such results during fiscal 2007, and beyond, to differ materially from those expressed in any forward-looking statements made by or on behalf of Intervoice:

• We are prone to quarterly sales fluctuations. The sales value of an individual order for our solutions and services can range from a few thousand dollars to several million dollars depending on the complexity of our customer’s business need and the size of its operations. The quantity and size of large sales (sales valued at approximately $2.0 million or more) during any quarter can cause wide variations in our quarterly sales and earnings, as such sales are often unevenly distributed throughout the fiscal year. In addition, some of our sales transactions are completed in the same fiscal quarter as ordered. Our accuracy in estimating future sales is largely dependent on our ability to successfully qualify, estimate and close solution sales from our pipeline of sales opportunities during a quarter. No matter how promising a pipeline opportunity may appear, there is no assurance it will ever result in a sale. The accuracy of our estimate of future sales is also dependent on our ability to accurately estimate the amount of revenue to be contributed from beginning backlog and revenue from cash basis customers during any fiscal quarter. This estimate can be affected by factors outside our control, including changes in project timing requested by our customers. In addition, estimating the amount of revenue which may be recognized on a percentage of completion project is complex and such estimates are subject to revision based upon a variety of factors. Accordingly, our actual sales for any fiscal reporting period may be significantly different than any estimate of sales we make for such period. See the discussion entitled “Sales” in Item 2 of Part I for a discussion of our system for estimating sales and tracking sales trends in our business.

• We are subject to potential and pending lawsuits and other claims. We are subject to certain potential and pending lawsuits and other claims discussed in Note J in Item 1 of Part I of this quarterly report on Form 10-Q. Furthermore, we may become subject to claims, including claims by the government, or other adverse consequences arising from the findings of the Audit Committee investigation and related SEC inquiries discussed in Note J. We, and certain of our current and former officers and non-officer employees are currently responding to or have responded to SEC subpoenas to produce documents and provide testimony about the transactions that were the subject of the investigation. Any adverse judgment, penalty or settlement related to any lawsuit or other such claim could have consequences that would be material to our financial position or results of operations. We may be required to indemnify certain of our current and former directors and officers under existing arrangements in connection with the indemnification we are currently providing to certain individuals in connection with the class action lawsuit and the SEC investigation. Our insurance policies provide coverage for losses and expenses incurred by us and our current and former directors and officers in connection with claims made under the federal securities laws. These policies, however, exclude losses and expenses related to the Barrie class action lawsuit discussed in Note J or to other litigation based on claims that are substantially the same as the claims in the Barrie class action and contain other customary provisions to limit or exclude coverage for certain losses and expenses.

• We may not be successful in integrating the operations and products and retaining the customers of Edify, and this could negatively impact our business. We believe we will be able to achieve certain

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	cost savings and other synergies as a result of combining Intervoice and Edify, but there can be no assurance that such synergies will be realized. Our future success will depend in part upon our ability to integrate and operate Edify successfully with our business. Any inability to integrate the products of Intervoice and Edify while maintaining or increasing the market share that such products had prior to the merger could decrease the revenues historically generated from these products. Customers of Intervoice and Edify may delay their purchase of products or services from one or both companies to consider any potential implications the acquisition may have for products and services offered by either company. In addition, the integration process will require the dedication of management resources, which may temporarily distract attention from our day-to-day business. Our future success will also depend in part on our ability to retain and assimilate certain key employees of Edify. There can be no assurance that we will be able to efficiently integrate and operate Edify and its products with our business, maintain business relationships with Edify’s customers and retain and assimilate key employees of Edify. Failure to do so could have a material adverse effect on our results of operations or our financial condition. Further, Edify provides products and services which are similar to our products and services and, accordingly, our Edify operations are generally subject to most of the other risk factors discussed in this Item 1A.
•	We may not be successful in integrating the operations and products and retaining the customers of Nuasis, and this could negatively impact our business. While our acquisition of the assets of Nuasis is a much smaller acquisition than the acquisition of Edify, our future success will depend in part upon our ability to integrate and operate Nuasis successfully with our business. Even though Nuasis products and services will initially account for a small amount of our aggregate revenues, our long term business plans are dependent on these products and services contributing more significant revenues in future fiscal years. Unlike the products of Edify which are similar to those of Intervoice, the products of Nuasis are complementary to, but substantially different from, Intervoice’s current products. For this reason, our integration of Nuasis products will not be subject to the challenges of integrating similar Intervoice and Edify products while maintaining and or increasing the market share such products had prior to the acquisition of Edify. With this exception, our Nuasis operations are generally subject to most of the risk factors associated with our Edify acquisition and the other risk factors discussed in this Item 1A.
•	We face intense competition based on product capabilities, and we experience ever increasing demands from our actual and prospective customers for our products to be compatible with a variety of rapidly proliferating computing, telephony and computer networking technologies and standards. Our success is dependent, to a large degree, on our effectiveness in allocating resources to developing and improving products compatible with those technologies, standards and functionalities that ultimately become widely accepted by our current and prospective customers. Our success is also dependent, to a large degree, on our ability to implement arrangements with vendors of complementary product offerings so that we can provide our current and prospective customers greater functionality. Our principal competitors include Genesys, Avaya, Nortel, Nuance Communications, Comverse Technology, Unisys and Lucent Technologies. Many of our competitors have greater financial, technological and marketing resources than we have, as well as greater name recognition. Although we have committed substantial resources to enhance our existing products and to develop and market new products, there is no assurance we will be successful. In addition, it is possible that new entrants to the market and strategic acquisitions and partnerships between existing companies could increase the competition in the markets in which we participate. An increase in such competition could materially adversely affect our ability to sell our products thereby adversely affecting our business, operating results and financial condition.
•	We may not be successful in transitioning our products and services to an open, standards-based business model. Intervoice has historically provided complete, bundled hardware and software solutions using internally developed components to address our customers’ total business needs. Increasingly, the markets for our products are requiring a shift to the development of products and services based on an open, standards-based architecture such as the J2EE and Microsoft’sâ.NET environments utilizing VoiceXML and/or SALT standards. Such an open, standards-based approach allows customers to independently purchase and combine hardware components, standardized software modules, and customization, installation and integration services from individual vendors deemed to offer the best value in the particular class of product or service. In such an environment, we believe we may sell less hardware and fewer bundled systems and may become increasingly dependent on our development and sale of software application packages, customized software and consulting and integration services. This shift will place new challenges on us to transition our products

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	and to hire and retain the mix of personnel necessary to respond to this business environment, to adapt to the changing expense structure that the new environment may tend to foster, and to increase sales of services, customized software and application packages to offset reduced sales of hardware and bundled solutions. Failure to develop, enhance, acquire and introduce new products and services to respond to changing market conditions or customer requirements, or lack of customer acceptance of our products will materially adversely affect our business, results of operations and financial condition.
•	We may not be able to retain our customer base, and, in particular, our more significant customers. Our success is heavily dependent on our ability to retain our significant customers, including those of Edify and Nuasis. The loss of one of our significant customers could negatively impact our operating results. Our installed base of customers generally is not contractually obligated to place further solutions orders with us or to extend their services contracts with us at the expiration of their current contracts.
•	We will be harmed if we lose key business and technical personnel. We rely upon the services of a relatively small number of key technical, project management and senior management personnel, most of whom do not have employment contracts. If we were to lose any of our key personnel, replacing them could be difficult and costly. If we were unable to successfully and promptly replace such personnel, our business could be materially harmed.
•	Our reliance on significant vendor relationships could result in significant expense or an inability to serve our customers if we lose these relationships. Although we generally use standard parts and components in our products, some of our components, including semi-conductors and, in particular, digital signal processors manufactured by Texas Instruments, are available only from a small number of vendors. Likewise, we license speech recognition technology from a small number of vendors. Two of these vendors, ScanSoft, Inc. and Nuance Communications, Inc., recently completed a merger of their organizations and now the combined company has a dominant market position. As we continue to migrate to open, standards-based systems, we will become increasingly dependent on our component suppliers and software vendors. To date, we have been able to obtain adequate supplies of needed components and licenses in a timely manner, and we expect to continue to be able to do so. Nevertheless, if our significant vendors are unable to supply components or licenses at current levels, we may not be able to obtain these items from another source or at historical prices. In such instances, we would be unable to provide products and services to our customers or generate historical operating margins, and our business and operating results would suffer.
•	If third parties assert claims that our products or services infringe on their technology and related intellectual property rights, whether the claims are made directly against us or against our customers, we could incur substantial costs in connection with these claims. We believe software and technology companies, including Intervoice and others in our industry, increasingly may become subject to infringement claims. Such claims may require us to enter into costly license agreements or result in even more costly litigation. To the extent a licensing arrangement is required, the arrangement may not be available at all, or, if available, may be very expensive or even prohibitively expensive. As with any legal proceeding, there is no guarantee we will prevail in any litigation instituted against us asserting infringement of intellectual property rights. To the extent we suffer an adverse judgment, we might have to pay substantial damages, discontinue the use and sale of infringing products, repurchase infringing products from our customers in accordance with indemnity obligations, expend significant resources to acquire non-infringing alternatives, and/or obtain licenses to the intellectual property that has been infringed upon. As with licensing arrangements, non-infringing substitute technologies may not be available and, if available, may be very expensive, or even prohibitively expensive, to implement. Accordingly, for all of the foregoing reasons, a claim of infringement could ultimately have a material adverse effect on our business, financial condition and results of operations.
•	We are exposed to risks related to our international operations that could increase our costs and hurt our business. Our products are currently sold in more than 75 countries. Our international sales were 36% and 48% of total sales for the fiscal quarter ended August 31, 2006 and 2005, respectively. International sales, personnel and property are subject to certain risks, including:

• terrorism;

• fluctuations in currency exchange rates;

• the difficulty and expense of maintaining foreign offices and distribution channels;

• tariffs and other barriers to trade;

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• greater difficulty in protecting and enforcing intellectual property rights;

• general economic and political conditions in each country;

• loss of revenue, property and equipment from expropriation;

• import and export licensing requirements; and

• additional expenses and risks inherent in conducting operations in geographically distant locations, including risks arising from differences in language and cultural approaches to the conduct of business.

• Our inability to meet contracted performance targets could subject us to significant penalties. Many of our contracts, particularly for hosted solutions, foreign contracts and contracts with telecommunication companies, include provisions for the assessment of damages for delayed project completion and/or for our failure to achieve certain minimum service levels. We have had to pay damages in the past and may have to pay additional damages in the future. Any such future damages could be significant.

• Increasing consolidation in the telecommunications and financial industries could adversely affect our revenues and profitability. The majority of our largest customers are in the telecommunications and financial industries. These industries are undergoing significant consolidation as a result of merger and acquisition activity. This activity could result in a decrease in the number of customers purchasing our products and/or in delayed purchases of our products by customers that are reviewing their strategic alternatives in light of a pending merger or acquisition. If these results occur, our revenues and profitability could decline.

• Our products are complex, and software defects could reduce our revenues and expose us to litigation. The software products we offer are complex and may contain errors or defects, even after extensive testing and quality control, particularly in early versions. Furthermore, because our products increasingly are designed around an open standards based architecture incorporating elements developed by third parties, such errors or defects may be outside of our direct ability to control or correct. Our recently introduced Media Exchange offering is an example of a complex product which includes third party elements that has and may continue to experience certain software errors in its initial customer deployments. Any defects or errors could potentially result in loss of revenues, product returns or order cancellations, and could potentially hinder market acceptance of our products and harm our reputation. Accordingly, any defects or errors could have a material adverse effect on our business, results of operations and financial condition. Our customer license agreements typically contain provisions to limit our product warranty obligations and exposure to potential liability claims.

• We are implementing a new company-wide ERP system during fiscal 2007. During fiscal 2007, we expect to complete the implementation of a new, company-wide ERP system. Our new system will affect all facets of our business including our ability to quote, receive and process orders, track inventory and work in process, ship and bill completed orders, process and apply cash receipts from our customers and summarize and report the results of our operations. If we encounter problems in the implementation of our new system, our ability to conduct our daily operations in an efficient, effective and properly controlled manner could be compromised, and our operating results could suffer. In addition, any such implementation problems could cause us to expend significant time and other resources in an effort to resolve such problems, and this diversion of management and staff time could further adversely affect our ability to serve our customers and sustain our normal operations.

Item 4 Submission of Matters to a Vote of Security Holders

     The annual meeting of our shareholders was held at 10:00 a.m., local time, on Wednesday, July 12, 2006 in Richardson, Texas.

     Our Board of Directors solicited proxies pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to the Board of Directors nominees as listed in the proxy statement, and all such nominees were duly elected. The following persons are the nominees of the Board of Directors who were elected as directors at the annual meeting: Saj-nicole A. Joni, Gerald F. Montry, Joseph J. Pietropaolo, George C. Platt, Donald B. Reed, Jack P. Reily and Robert E. Ritchey. The number of votes cast for the election of each of the nominees for director, and the number of abstentions were as follows: 33,006,658 votes for the election of Saj-nicole A. Joni, with 1,178,956 abstentions; 31,739,693 votes for the election of Gerald F. Montry, with 2,445,921 abstentions; 30,270,394 votes for the election of Joseph J. Pietropaolo, with 3,915,220 abstentions; 33,767,503 votes for the election of George C. Platt, with 418,111 abstentions; 32,456,438 votes for the election of Donald B. Reed, with 1,729,176 abstentions; 32,320,424

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votes for the election of Jack P. Reily, with 1,865,190 abstentions; and 33,759,020 votes for the election of Robert E. Ritchey, with 426,594 abstentions. No votes were cast against the election of any nominee for director.

Item 6 Exhibits

     (a) Exhibits

3.1	Articles of Incorporation, as amended, of Registrant. (1)
3.2	Amendment to Articles of Incorporation of Registrant. (2)
3.3	Amendment to Articles of Incorporation of Registrant. (3)
3.4	Third Restated Bylaws of Registrant. (6)
4.1	Third Amended and Restated Rights Agreement dated as of May 1, 2001 between the Registrant and Computershare Investor Services, LLC, as Rights Agent. (4)
4.2	Securities Purchase Agreement, dated as of May 20, 2002, between the Registrant and the Buyers named therein (the “Securities Purchase Agreement”). (5)
4.3	Form of Warrant, dated as of May 20, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (5)
4.4	Registration Rights Agreement, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (5)
4.5	First Amendment to Third Amended and Restated Rights Agreement dated as of May 29, 2002, between Registrant and Computershare Investor Services, LLC, as Rights Agent. (5)
10.1	San Tomas Business Park Office Lease dated June 7, 2006. (7)
10.2	Amended and Restated Employment Agreement dated October 9, 2006 with Marie A. Jackson. (7)
31.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (7)
31.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (7)
32.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (7)*
32.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (7)*

(1)	Incorporated by reference to exhibits to the Company’s 1995 Annual Report on Form 10-K for the fiscal year ended February 28, 1995, filed with the SEC on May 30, 1995.
(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1999, filed with the SEC on October 14, 1999.
(3)	Incorporated by reference to exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002, filed with the SEC on October 15, 2002.
(4)	Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May 9, 2001.
(5)	Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on May 30, 2002.
(6)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2004, filed with the SEC on October 12, 2004.
(7)	Filed herewith.
*	The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

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

	INTERVOICE, INC.
Date: October 10, 2006	By:	/s/ CRAIG E. HOLMES
		Craig E. Holmes
		Executive Vice President and
		Chief Financial Officer

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Index to Exhibits

Exhibit No.	Description
3.1	Articles of Incorporation, as amended, of Registrant. (1)
3.2	Amendment to Articles of Incorporation of Registrant. (2)
3.3	Amendment to Articles of Incorporation of Registrant. (3)
3.4	Third Restated Bylaws of Registrant. (6)
4.1	Third Amended and Restated Rights Agreement dated as of May 1, 2001 between the Registrant and Computershare Investor Services, LLC, as Rights Agent. (4)
4.2	Securities Purchase Agreement, dated as of May 20, 2002, between the Registrant and the Buyers named therein (the “Securities Purchase Agreement”). (5)
4.3	Form of Warrant, dated as of May 20, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (5)
4.4	Registration Rights Agreement, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (5)
4.5	First Amendment to Third Amended and Restated Rights Agreement dated as of May 29, 2002, between Registrant and Computershare Investor Services, LLC, as Rights Agent. (5)
10.1	San Tomas Business Park Office Lease dated June 7, 2006. (7)
10.2	Amended and Restated Employment Agreement dated October 9, 2006 with Marie A. Jackson. (7)
31.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (7)
31.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (7)
32.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (7)*
32.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (7)*

(1)	Incorporated by reference to exhibits to the Company’s 1995 Annual Report on Form 10-K for the fiscal year ended February 28, 1995, filed with the SEC on May 30, 1995.
(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1999, filed with the SEC on October 14, 1999.
(3)	Incorporated by reference to exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002, filed with the SEC on October 15, 2002.
(4)	Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May 9, 2001.
(5)	Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on May 30, 2002.
(6)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2004, filed with the SEC on October 12, 2004.
(7)	Filed herewith.
*	The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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EX-10.1

Exhibit 10.1

SAN TOMAS BUSINESS PARK

OFFICE LEASE

BY AND BETWEEN

SAN TOMAS TOWER LLC,
a Delaware limited liability company
as Landlord

and

INTERVOICE, INC.,
a Texas corporation
as Tenant

Dated as of June 7, 2006

TABLE OF CONTENTS

		Page No.
ARTICLE 1	REAL PROPERTY, BUILDING AND PREMISES		1
ARTICLE 2	LEASE TERM		2
ARTICLE 3	BASE RENT		2
ARTICLE 4	ADDITIONAL RENT		3
ARTICLE 5	USE OF PREMISES		10
ARTICLE 6	SERVICES AND UTILITIES		12
ARTICLE 7	REPAIRS		16
ARTICLE 8	ADDITIONS AND ALTERATIONS		17
ARTICLE 9	COVENANT AGAINST LIENS		19
ARTICLE 10	INDEMNIFICATION AND INSURANCE		20
ARTICLE 11	DAMAGE AND DESTRUCTION		23
ARTICLE 12	CONDEMNATION		24
ARTICLE 13	COVENANT OF QUIET ENJOYMENT		25
ARTICLE 14	ASSIGNMENT AND SUBLETTING		25
ARTICLE 15	SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES		28
ARTICLE 16	HOLDING OVER		29
ARTICLE 17	ESTOPPEL CERTIFICATES		29
ARTICLE 18	SUBORDINATION		30
ARTICLE 19	TENANT’S DEFAULTS; LANDLORD’S REMEDIES		31
ARTICLE 20	SECURITY DEPOSIT		34
ARTICLE 21	COMPLIANCE WITH LAW		35
ARTICLE 22	ENTRY BY LANDLORD		35
ARTICLE 23	TENANT PARKING		36
ARTICLE 24	MISCELLANEOUS PROVISIONS		36
ARTICLE 25	EXISTING LEASE		43
EXHIBITS
A	OUTLINE OF FLOOR PLAN OF PREMISES
B	WORK LETTER
C	RULES AND REGULATIONS
D	MEMORANDUM OF LEASE TERMS
E	EXTENSION OPTION

SUMMARY OF BASIC LEASE INFORMATION

     This Summary of Basic Lease Information (“Summary”) is hereby incorporated into and made a part of the attached Office Lease. Each reference in the Office 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 Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Office Lease.

	TERMS OF LEASE
	(References are to the Office Lease)	DESCRIPTION
1.	Date:	June 7, 2006
2.	Landlord:	SAN TOMAS TOWER LLC, a Delaware limited liability company
3.	Address of Landlord (Section 24.19):	San Tomas Tower LLC
		c/o Harvest Properties, Inc.
		2200 Powell Street, Suite 210
		Emeryville, CA 94608
		Attention: San Tomas Business Park
		Property Manager
		Fax: (510) 594-2049
		with a copy to:
		BlackRock Realty Advisors
		50 California Street, Suite 200
		San Francisco, CA 94111
		Attention: San Tomas Business Park Asset Manager
		Fax: (415) 835-0972
4.	Tenant:	INTERVOICE, INC., a Texas corporation
5.	Address of Tenant (Section 24.19):	Intervoice, Inc.
		17811 Waterview Parkway
		Dallas, TX 75252
		Attention: Chief Financial Officer
		(Prior to Commencement Date)
		and
		2880 San Tomas Expressway
		Suite 201
		Santa Clara, CA 95051
		Attention: Chief Financial Officer
		(After Commencement Date)

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	TERMS OF LEASE
	(References are to the Office Lease)	DESCRIPTION
6.	Premises (Article 1):
	6.1. Premises:	23,716 rentable square feet (22,119 usable square feet) of space located on the second (2nd) floor of the Building (as defined below), as more particularly shown on Exhibit A attached hereto, commonly known as Suite 201.
	6.2. Building:	The Premises are located in the building whose address is 2880 San Tomas Expressway, Santa Clara, California.
	6.3. Project:	The Building is located in the Project known as San Tomas Business Park.
7.	Term (Article 2):
	7.1. Lease Term:	Sixty (60) months, commencing on the Commencement Date and ending at 5:00 p.m. local time on the last day of the 60th full calendar month following the Commencement Date, subject to adjustment and earlier termination as provided in the Lease, and subject to extension as provided in Exhibit E.
	7.2. Commencement Date:	The earlier to occur of (i) the date Tenant commences business operations in the Premises, or (ii) the date the Premises are Ready for Occupancy (as defined in the Tenant Work Letter attached hereto as Exhibit B), which Commencement Date is anticipated to be September 1, 2006.
	7.3. Expiration Date:	The last day of the 60th full calendar month following the Commencement Date.
8.	Base Rent (Article 3):

		Monthly Rental Rate per		Monthly Installment
Lease Month		Rentable Square Foot		of Base Rent
	1 — 12	$	0.95	$	22,530.20
	13 — 24	$	0.9785	$	23,206.11
	25 — 36	$	1.0079	$	23,902.29
	37 — 48	$	1.0381	$	24,619.36
	49 — 60	$	1.0692	$	25,357.94

As used herein, the term “Lease Month” shall mean each calendar month during the Lease Term (and if the Commencement Date does not occur on the first (1st) day of a calendar month, the period from the Commencement Date to the first (1st) day of the next calendar month shall be included in the first (1st) Lease Month for purposes of determining the duration of the Lease Term and the monthly Base Rent rate applicable for such partial month).

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	TERMS OF LEASE
	(References are to the Office Lease)	DESCRIPTION
9.	Additional Rent (Article 4):
	9.1. Tenant’s Share of Operating Expenses and Tax Expenses:	50% of the Building (based on the 23,716 rentable square feet within the Premises divided by the 47,432 rentable square feet within the Building) and 4.99% of the Real Property (based on the 23,716 rentable square feet within the Premises divided by the 475,666 rentable square feet within the Real Property). See Section 4.3.3.
10.	Security Deposit (Article 20):	$25,357.94
11.	Parking (Article 23):	Seventy-eight (78) unreserved parking passes (based on an allocation of 3.3 spaces for every 1,000 rentable square feet of the Premises).
12.	Brokers (Section 24.25):	CB Richard Ellis and Harvest Properties, Inc. representing Landlord, and CRESA Partners representing Tenant.
13.	Guarantor:	Not applicable

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OFFICE LEASE

     This Office Lease, which includes the preceding Summary and the exhibits attached hereto and incorporated herein by this reference (the Office Lease, the Summary and the exhibits to be known sometimes collectively hereafter as the “Lease”), dated as of the date set forth in Section 1 of the Summary, is made by and between SAN TOMAS TOWER LLC, a Delaware limited liability company (“Landlord”), and INTERVOICE, INC., a Texas corporation (“Tenant”).

ARTICLE 1

REAL PROPERTY, BUILDING AND PREMISES

     1.1 Real Property, Building and Premises.

          1.1.1 Premises. Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises set forth in Section 6.1 of the Summary, which Premises are located in the Building defined in Section 6.2 of the Summary constructed on the Real Property (as defined below). The outline of the floor plan of the Premises is set forth in Exhibit A attached hereto.

          1.1.2 Building and Real Property/Project. The Building is part of the Project defined in Section 6.3 of the Summary. The term “Real Property,” as used in this Lease, shall mean, collectively, (i) the Building and the Other Buildings (as defined in Section 4.3.3) (collectively, the “Buildings”), (ii) any outside plaza areas, walkways, driveways, courtyards, public and private streets, transportation facilitation areas and other improvements and facilities now or hereafter constructed surrounding and/or servicing the Buildings, including surface parking facilities and any parking structures now or hereafter servicing the Buildings (collectively, the “Parking Facilities”), which are designated from time to time by Landlord as common areas (or parking facilities, as the case may be) appurtenant to or servicing the Buildings; (iii) any additional buildings, improvements, facilities, parking areas and structures and common areas which Landlord (and/or any common area association formed by Landlord or Landlord’s assignee for the Project) may add thereto from time to time within or as part of the Project; and (iv) the land upon which any of the foregoing are situated.

     1.2 Condition of Premises. Tenant acknowledges that: (i) it has been advised by Landlord, Landlord’s broker and Tenant’s broker, to satisfy itself with respect to the condition of the Premises (including, without limitation, the Building’s systems located therein, and the security and environmental aspects thereof) and the present and future suitability of the Premises for Tenant’s intended use; (ii) Tenant has made such inspection and investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Tenant’s occupancy of the Premises; and (iii) neither Landlord nor any of Landlord’s agents has made any oral or written representations or warranties with respect to the condition, suitability or fitness of the Premises other than as may be specifically set forth in this Lease. By occupying the Premises, Tenant shall be deemed to have accepted the Premises in its then “AS IS” condition, subject to (i) completion by Landlord of the Tenant Improvements pursuant to Exhibit B attached hereto and performance of any punchlist items that remain to be performed by Landlord in conjunction with such Tenant Improvements, (ii) latent defects, and (iii) all applicable laws. Prior to occupying the Premises, Tenant shall execute and deliver to Landlord a letter substantially in the form of Exhibit D attached hereto provided by Landlord, as modified by Tenant to account for any inaccurate statements set forth in such letter, confirming the following: (1) the Commencement Date (as defined in the Summary) and the expiration date of the initial Lease Term (as defined in the Summary); (2) that Tenant has accepted the Premises, subject to latent defects; and (3) that Landlord has performed all of its obligations with respect to the Premises (except for punchlist items

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specified in such letter); however, the failure of the parties to execute such letter shall not defer the Commencement Date or otherwise invalidate this Lease. Tenant’s failure to execute such document within ten (10) business days of receipt thereof from Landlord shall be deemed Tenant’s agreement to the contents of such document.

     1.3 Rentable Square Feet. The parties hereby stipulate that the Premises contain the rentable square feet set forth in Section 6.1 of the Summary, and such square footage amount is not subject to adjustment or remeasurement by Landlord or Tenant. Accordingly, there shall be no adjustment in the Base Rent or other amounts set forth in this Lease which are determined based upon rentable square feet of the Premises.

ARTICLE 2

LEASE TERM

     2.1 Lease Term. The terms and provisions of this Lease shall be effective as of the date of this Lease except for the provisions of this Lease relating to the payment of Rent. The Lease Term shall commence on the Commencement Date and shall terminate on the Expiration Date, unless this Lease is sooner terminated or extended as hereinafter provided. If Landlord does not deliver possession of the Premises to Tenant on or before the anticipated Commencement Date (as set forth in Section 7.2(ii) of the Summary), Landlord shall not be subject to any liability nor shall the validity of this Lease nor the obligations of Tenant hereunder be affected. Notwithstanding the foregoing, if Substantial Completion of the Tenant Improvements has not occurred on or before December 29, 2006 (the “Deadline Date”) (as such Deadline Date may be extended pursuant to the terms hereof) or if Tenant is otherwise prevented from occupying the Premises by the Deadline Date as a result of Landlord’s acts or omissions, then Tenant may terminate this Lease by written notice to Landlord of such election given within five (5) days after the Deadline Date and prior to delivery of the Premises to Tenant. In the event of any such termination under the preceding sentence, neither Landlord nor Tenant shall have any rights, liabilities or obligations accruing under this Lease after the effective date of such termination, except for such rights and liabilities which, by the terms of this Lease or at law, are obligations of the Tenant or Landlord which survive the expiration or earlier termination of this Lease. Tenant acknowledges and agrees that the Deadline Date shall be extended one (1) day for each day of delay of Substantial Completion of the Premises caused by Tenant Delay (as such terms are defined in Exhibit B attached hereto) and/or Force Majeure (as defined in Section 24.17 below).

     2.2 Access. Tenant shall have access to the Premises at all times during the Term, 24 hours per day, each day of the year, subject to such after-normal business hours security procedures as Landlord may require from time to time.

ARTICLE 3

BASE RENT

     Tenant shall pay, without notice or demand, to San Tomas Tower LLC, Department 33804, P.O. Box 39000, San Francisco, California 94139, or at such other place as Landlord may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“Base Rent”) in the amounts set forth in Section 8 of the Summary, payable in advance on or before the first day of each and every month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first full month of the Lease Term shall be paid to Landlord concurrently with Tenant’s execution of this Lease. If any rental payment date (including the Commencement Date) falls on a day of the month other than the

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first day of such month or if any rental payment is for a period which is shorter than one month, then the rental for any such fractional month shall be a proportionate amount of a full calendar month’s rental based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs. Base Rent for any fractional month at the beginning of the Lease Term shall be paid on the Commencement Date. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

ARTICLE 4

ADDITIONAL RENT

     4.1 Additional Rent. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay as additional rent the sum of the following: (i) Tenant’s Share (as such term is defined below) of the annual Operating Expenses allocated to the Building (pursuant to Section 4.3.3 below); plus (ii) Tenant’s Share of the annual Tax Expenses allocated to the Building (pursuant to Section 4.3.3 below). Such additional rent, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease (including, without limitation, pursuant to Article 6), shall be hereinafter collectively referred to as the “Additional Rent.” The Base Rent and Additional Rent are herein collectively referred to as the “Rent”. All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner, time and place as the Base Rent. Without limitation on other obligations of Tenant which shall survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

     4.2 Definitions. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

          4.2.1 “Calendar Year” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires.

          4.2.2 “Expense Year” shall mean each Calendar Year, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive-month period, and, in the event of any such change, Tenant’s Share of Operating Expenses and Tax Expenses shall be equitably adjusted for any Expense Year involved in any such change.

          4.2.3 “Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord shall pay during any Expense Year because of or in connection with the ownership, management, maintenance, repair, replacement, restoration or operation of the Real Property, including, without limitation, any amounts paid for: (i) the cost of operating, maintaining, repairing, renovating and managing the utility systems, mechanical systems, sanitary and storm drainage systems, any elevator systems and all other Systems and Equipment (as defined in Section 4.2.4), and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections, and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses (but only to the extent of cost savings reasonably anticipated at the time of the expenditure), and the costs incurred in connection with implementation and operation (by Landlord or any common area association(s) formed for the Real Property) of any transportation system management program or similar program; (iii) the cost of insurance carried by Landlord, in such amounts as Landlord may reasonably determine or as may be required by any mortgagees or the lessor of any underlying or ground lease affecting the Real Property; (iv) the cost of landscaping, relamping, supplies, tools, equipment and materials, and all fees, charges and

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other costs (including consulting fees, legal fees and accounting fees) incurred in connection with the management, operation, repair and maintenance of the Real Property; (v) the cost of parking area repair, restoration, and maintenance; (vi) any equipment rental agreements; (vii) any management agreements, including the cost of any management fee, not to exceed five percent (5%) of the gross revenues from the Real Property; (viii) the fair rental value of any office space at the Real Property provided to the Project manager; (ix) wages, salaries and other compensation and benefits of all persons engaged in the operation, management, maintenance or security of the Real Property, and employer’s Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; (x) payments under any easement, license, operating agreement, declaration, restrictive covenant, underlying or ground lease (excluding rent), or instrument pertaining to the sharing of costs by the Real Property; (xi) the cost of janitorial service, alarm and security service, if any, window cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Real Property; (xiii) the cost of any capital improvements or other costs (I) which are intended as a labor-saving device, made to improve the health, safety and welfare of the Real Property and its occupants, or to effect economies in the operation or maintenance of the Real Property, or (II) made to the Real Property or any portion thereof after the Commencement Date that are required under any law or regulation hereafter promulgated by any governmental authority or any interpretation hereafter rendered with respect to any existing law or regulation; provided, however, that if any such cost described in clauses (I) or (II) above is a capital expenditure, such cost shall be amortized (including interest on the unamortized cost) over its useful life as Landlord shall reasonably determine, consistent with generally accepted accounting principles consistently applied (“GAAP”); and (xiv) utilities for the Building and the Real Property which Landlord shall pay during any Expense Year, including, but not limited to, the costs of water, sewer and electricity, and the costs of HVAC and other utilities (but excluding those charges for which tenants directly reimburse Landlord or otherwise pay directly to the utility company) as well as related fees, assessments and surcharges.

               Subject to the provisions of Section 4.3.3 below, Landlord shall have the right, from time to time, to equitably allocate some or all of the Operating Expenses (and/or Tax Expenses) between the Building and/or among different tenants of the Real Property and/or different buildings of the Real Property as and when such different buildings are constructed and added to (and/or excluded from) the Real Property or otherwise (the “Cost Pools”). Such Cost Pools may include, without limitation, the office space tenants and retail space tenant(s) of the Real Property or of one of the Buildings in the Real Property. Such Cost Pools may also include an allocation of certain Operating Expenses (and/or Tax Expenses) within or under covenants, conditions and restrictions affecting the Real Property. In addition, Landlord shall have the right from time to time, in its reasonable discretion, to include or exclude existing or future Buildings in the Real Property for purposes of determining Operating Expenses and Tax Expenses and/or the provision of various services and amenities thereto, including allocation of Operating Expenses and Tax Expenses in any such Cost Pools. In no event shall Landlord be entitled to recover the same Operating Expense more than once, by including the same expense in more than one Cost Pool or otherwise.

               Notwithstanding the foregoing, Operating Expenses shall not, however, include: (A) costs of leasing commissions, marketing costs, attorneys’ fees, space planners’ fees and other costs and expenses incurred in connection with negotiations or disputes with past, present or prospective tenants or other occupants of the Real Property; (B) costs (including permit, license and inspection costs) incurred in renovating or otherwise improving, decorating or redecorating rentable space for other tenants or vacant rentable space; (C) costs incurred due to the violation by Landlord of the terms and conditions of any lease of space in the Real Property; (D) costs of overhead or profit increment paid to Landlord or

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to subsidiaries or affiliates of Landlord for services in or in connection with the Real Property to the extent the same exceeds the costs of overhead and profit increment included in the costs of such services which could be obtained from qualified first-class unaffiliated third parties on a competitive basis; (E) except as otherwise specifically provided in this Section 4.2.3, costs of interest on debt or amortization of principal and interest on any mortgages, and rent payable under any ground lease of the Real Property; (F) Tax Expenses; (G) the cost of providing any service directly to and reimbursed directly by any tenant; (H) costs of any items (including, but not limited to, costs incurred by Landlord for the repair of damage to the Building) to the extent Landlord receives reimbursement from insurance proceeds or from a third party, except that any deductible amount under any insurance policy shall be included within the Operating Expenses of the Real Property; (I) depreciation; (J) costs of items considered capital repairs, replacements, improvements and equipment under GAAP, except as expressly included in Operating Expenses pursuant to Section 4.2.3(xiii) above; (K) costs incurred in connection with upgrading the Real Property to comply with disability, life, seismic, fire and safety codes, ordinances, statutes or other laws in effect prior to the Commencement Date, including, without limitation, the ADA, including penalties or damages incurred due to such non-compliance; (L) costs incurred to (i) comply with laws relating to the removal of any Hazardous Material, as that term is defined in Section 5.2.6 below, which were in existence on the Real Property as of the Commencement Date, and were of such a nature that a federal, state or municipal governmental authority, if it had then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions that it then existed on the Real Property, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto, and (ii) to remove, remedy, contain or treat any Hazardous Material, which Hazardous Material is brought onto the Real Property after the date hereof by Landlord or any other tenant of the Real Property or any other person, and is of such a nature, at that time, that a federal, state or municipal governmental authority, if it had then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions, that it then exists on the Real Property, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto; provided, however, that Operating Expenses may include the costs attributable to those actions taken by Landlord in connection with the ordinary operation and maintenance of the Real Property, including costs incurred to remove limited amounts of Hazardous Materials from the Real Property when such removal is directly related to such ordinary maintenance and operation; (M) costs incurred in connection with the original construction, permitting and development of the Real Property; (N) marketing costs, legal fees, space planners’ fees and advertising and promotional expenses incurred in connection with the original development and subsequent improvement of the Real Property; (O) any bad debt loss, rent loss, or reserves for bad debts or rent loss or any reserves of any kind; (P) costs associated with the operation of the business of the entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Real Property, including partnership, corporation or limited liability company accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord ’s interest in the Real Property, and costs incurred in connection with any disputes between Landlord and its employees or between Landlord and Real Property management; (Q) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Real Property unless such wages and benefits are prorated to reflect time spent on operating and managing the Real Property vis-a-vis time spent on matters unrelated to operating and managing the Real Property; provided that in no event shall Operating Expenses include wages and/or benefits attributable to personnel above the level of Project manager; (R) late charges, liquidated damages, penalties and default interest not caused by late payments made by Tenant; (S) costs of correcting construction defects in the Real Property (including without limitation, construction defects discovered as a result of earthquake damage and any other patent or latent construction defects in the Real Property); (T) expenses in connection with services or other benefits which are not offered or made available to Tenant or for which Tenant is charged directly but which are provided to another tenant or occupant of the Real Property without a separate charge; (U) electric power costs or other utility costs for which any tenant directly contracts with the local public

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service company; (V) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art; (W) tax penalties incurred as a result of Landlord’s negligence, inability or unwillingness to make payments when due; (X) costs due to violations by Landlord of any documents or instruments recorded against the Real Property; (Y) costs arising from the gross negligence or willful misconduct of Landlord or its agents, employees, vendors or contractors; (Z) costs arising from Landlord’s charitable or political contributions; (AA) in-house legal and/or accounting fees; and (BB) advertising and promotional expenditures, and costs of signs in or on the Real Property identifying the owner of the Real Property or other tenants’ signs, except for Real Property directories or Real Property standard signage.

          4.2.4 “Systems and Equipment” shall mean any plant, machinery, transformers, duct work, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Building and/or any other building in the Real Property in whole or in part.

          4.2.5 “Tax Expenses” shall mean all federal, state, county or local governmental or municipal taxes, fees, assessments, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit assessments, fees and taxes, child care subsidies, fees and/or assessments, job training subsidies, fees and/or assessments, open space fees and/or assessments, housing subsidies and/or housing fund fees or assessments, public art fees and/or assessments, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Real Property), which Landlord shall pay during any Expense Year because of or in connection with the ownership, leasing and operation of the Real Property or Landlord’s interest therein. For purposes of this Lease, Tax Expenses shall be calculated as if the tenant improvements in the Building were fully constructed and the Real Property, the Building and all tenant improvements in the Building were fully assessed for real estate tax purposes.

               4.2.5.1 Tax Expenses shall include, without limitation:

                    (i) Any tax on Landlord’s rent, right to rent or other income from the Real Property or as against Landlord’s business of leasing any of the Real Property;

                    (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“Proposition 13”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for purposes of this Lease;

                    (iii) Any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income

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tax upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof;

                    (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and

                    (v) Any reasonable expenses incurred by Landlord in attempting to protest, reduce or minimize Tax Expenses.

               4.2.5.2 Notwithstanding anything to the contrary contained in this Section 4.2.5, there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state net income taxes, and other taxes to the extent applicable to Landlord’s net income (as opposed to rents, receipts or income attributable to operations at the Real Property), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.4 of this Lease.

          4.2.6 “Tenant’s Share” shall mean the applicable percentages set forth in Section 9.1 of the Summary; i.e., 50% with respect to Operating Expenses applicable solely to the Building and 4.99% with respect to Operating Expenses applicable to the entire Real Property. With respect to any Operating Expenses allocated to specific Cost Pools as permitted by Section 4.2.3 above, Tenant’s Share of such Operating Expenses shall be adjusted to a fraction (expressed as a percentage), the numerator of which fraction is the number of rentable square feet in the Premises and the denominator of which fraction is the number of rentable square feet comprising the applicable Cost Pool, so that only those expenses applicable to the area(s) included in the denominator of Tenant’s Share shall be included in the Operating Expenses charged to Tenant. Landlord shall have the right from time to time to redetermine the rentable square feet of the Building and/or the Real Property, and Tenant’s Share shall be appropriately adjusted to reflect any such redetermination. If Tenant’s Share is adjusted pursuant to the foregoing, as to the Expense Year in which such adjustment occurs, Tenant’s Share for such year shall be determined on the basis of the number of days during such Expense Year that each such Tenant’s Share was in effect.

     4.3 Payment of Additional Rent.

          4.3.1 Statement of Estimated Operating Expenses and Tax Expenses. Landlord shall endeavor to give Tenant a yearly expense estimate statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable estimate (the “Estimate”) of what the total amount of Operating Expenses and Tax Expenses allocated to the Building pursuant to Section 4.3.3 below for the then-current Expense Year (or portion thereof) shall be. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Additional Rent due under this Article 4. Tenant shall pay to Landlord, with its next installment of Base Rent due, Tenant’s Share of a fraction of the Estimate for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.3.1). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year to the month of such payment, both months inclusive, and shall have twelve (12) as its denominator. Until a new Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to Tenant’s Share of one-twelfth (1/12) of the total Estimate set forth in the previous Estimate Statement delivered by Landlord to Tenant.

          4.3.2 Statement of Actual Operating Expenses and Tax Expenses and Payment by Tenant. Landlord shall give to Tenant on or before the first day of May following the end of each

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Expense Year, a statement (the “Statement”) which shall state the Operating Expenses and Tax Expenses incurred or accrued for such preceding Expense Year. If Tenant’s estimated payments made pursuant to Section 4.3.1 above for the year covered by the Statement exceed Tenant’s Share of such items as indicated in the Statement, then Landlord shall promptly credit or reimburse Tenant for such excess; likewise, if Tenant’s estimated payments made pursuant to Section 4.3.1 for such year are less than Tenant’s Share of such items as indicated on the Statement, then Tenant shall pay Landlord such deficiency within ten (10) business days after written demand therefor. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of the Operating Expenses and Tax Expenses for the Expense Year in which this Lease terminates, if an amount is owing, Tenant shall pay to Landlord, within ten (10) business days after written demand therefor, an amount as calculated pursuant to the provisions of this Section 4.3, and if an overpayment is revealed, Landlord shall refund the amount of such overpayment to Tenant within thirty (30) days after the final determination.. The provisions of this Section 4.3.2 shall survive the expiration or earlier termination of the Lease Term.

          4.3.3 Allocation of Operating Expenses and Tax Expenses to the Building. The parties acknowledge that the Building is part of a multi-office building project consisting of the Building and ten (10) other buildings located on the Real Property (collectively, the “Other Buildings”), and that certain of the costs and expenses incurred in connection with the Real Property (i.e., the Operating Expenses and Tax Expenses) shall be shared among the Building and/or such Other Buildings, while certain other costs and expenses which are solely attributable to the Building and such Other Buildings, as applicable, shall be allocated directly to the Building and the Other Buildings, respectively. Accordingly, as set forth in Sections 4.1 and 4.2 above, Operating Expenses and Tax Expenses are determined annually for the Real Property as a whole, and a portion of the Operating Expenses and Tax Expenses, which portion shall be determined by Landlord on an equitable basis, shall be allocated to the Building (as opposed to the tenants of the Other Buildings), and such portion so allocated to the Building shall be the amount of Operating Expenses and Tax Expenses payable with respect to the Building upon which Tenant’s Share shall be calculated. Such portion of the Operating Expenses and Tax Expenses allocated to the Building shall include all Operating Expenses and Tax Expenses which are attributable solely to the Building, and an equitable portion of the Operating Expenses and Tax Expenses attributable to the Real Property as a whole.

     4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible. Tenant shall reimburse Landlord within thirty (30) days after Tenant’s receipt of written demand from Landlord for any and all taxes or assessments required to be paid by Landlord (except to the extent included in Tax Expenses by Landlord), excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when:

          4.4.1 said taxes are measured by or reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds the cost or value of a building standard build-out as determined by Landlord regardless of whether title to such improvements shall be vested in Tenant or Landlord;

          4.4.2 said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Real Property (including the Parking Facilities); or

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          4.4.3 said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

     4.5 Late Charges. If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee by the due date therefor, then Tenant shall pay to Landlord a late charge equal to ten percent (10%) of the amount due plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid by the date that they are due shall thereafter bear interest until paid at a rate (the “Interest Rate”) equal to the lesser of (i) the “Prime Rate” or “Reference Rate” announced from time to time by Bank of America (or such reasonable comparable national banking institution selected by Landlord in the event Bank of America ceases to exist or publish a Prime Rate or Reference Rate), plus two percent (2%), or (ii) the highest rate permitted by applicable law.

     4.6 Tenant Audit Right. Tenant shall have the right to object to a Statement during the one hundred twenty (120)-day period following delivery of such Statement to Tenant (the “Audit Election Period”). In the event Tenant delivers a written notice to Landlord that Tenant objects to a Statement (the “Objection Notice”) during the Audit Election Period, then Tenant shall have the right, during the time periods specified below, at Tenant’s sole cost, to review Landlord’s records relevant to such Statement, subject to the following conditions: (1) there is no uncured Event of Default under this Lease; (2) the audit shall be prepared by an independent certified public accounting firm of recognized national standing; (3) in no event shall any audit be performed by a firm retained on a “contingency fee” basis; (4) the audit shall commence within twenty (20) days after Landlord makes Landlord’s books and records available to Tenant’s auditor and shall conclude within sixty (60) days after commencement; (5) the audit shall be conducted where Landlord maintains its books and records and shall not unreasonably interfere with the conduct of Landlord’s business; and (6) Tenant and its accounting firm shall treat any audit in a confidential manner and shall each execute Landlord’s confidentiality agreement for Landlord’s benefit prior to commencing the audit. If during the Audit Election Period Tenant shall not have objected to the Statement in writing, then such Statement shall be final and binding upon Landlord and Tenant, and Tenant shall have no further right to object to such Statement. If Tenant timely delivers a written Objection Notice and, within the time periods specified above, Tenant conducts an audit and delivers to Landlord a written statement specifying objections to such Statement, then Tenant and Landlord shall meet to attempt to resolve such objection within ten (10) days after delivery of the objection statement. If such objection is not resolved within such ten (10)-day period, then either party shall have the right, at any time within sixty (60) days after the expiration of such ten (10)-day period, to require that the dispute be submitted to binding arbitration under the rules of the American Arbitration Association. If neither Landlord nor Tenant commences an arbitration proceeding within such sixty (60)-day period, then the Statement in question shall be final and binding on Landlord and Tenant. Notwithstanding that any such dispute remains unresolved, Tenant shall be obligated to pay Landlord all amounts payable in accordance with this Article 4. The audit and arbitration procedures set forth in this Section 4.6 shall be Tenant’s exclusive remedy with respect to the calculation of the amount of Tenant’s obligations under this Article 4. In the event that it is finally determined that Landlord over-billed Tenant by more than ten percent (10%), then, provided that Tenant delivers to Landlord a written statement setting forth in reasonable detail the expenses actually incurred by Tenant in conducting such audit, Landlord shall reimburse Tenant for reasonable expenses incurred in connection with such audit. Landlord shall include such reimbursement amount with the overpayment amount being credited against Rent or refunded to Tenant, as the case may be.

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ARTICLE 5

USE OF PREMISES

     5.1 Use of Premises. Tenant shall use the Premises solely for general office purposes, electronics laboratory purposes, research and development laboratory purposes, software development purposes and storage, all consistent with the character of the Building as a first-class office/R&D building (the “Permitted Use”), and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever. Tenant further covenants and agrees that it shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of Exhibit C, attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Real Property. Tenant shall comply with all recorded covenants, conditions and restrictions (if any) of which Landlord has delivered a copy to Tenant, and the provisions of all ground or underlying leases (if any) of which Landlord has delivered a copy to Tenant, now or hereafter affecting the Real Property. Tenant, at its sole cost and expense, shall obtain and keep in effect during the Lease Term, all permits, licenses, and other authorizations necessary to permit Tenant to use and occupy the Premises for the Permitted Use in accordance with applicable law.

     5.2 Hazardous Materials. During the Lease Term, Tenant shall comply with all Environmental Laws (as defined in Section 5.2.6(b) below) applicable to the operation or use of the Premises, will cause all other persons occupying or using the Premises to comply with all such Environmental Laws, and will immediately pay or cause to be paid all costs and expenses incurred by reason of such compliance. Tenant shall not generate, use, treat, store, handle, release or dispose of, or permit the generation, use, treatment, storage, handling, release or disposal of Hazardous Materials (as defined in Section 5.2.6(a) hereof) on the Premises or the Project or transport or permit the transportation of Hazardous Materials to or from the Premises or the Project except for limited quantities of household cleaning products and office supplies used or stored at the Premises and required in connection with the routine operation and maintenance of the Premises, and in compliance with all applicable Environmental Laws. At any time and from time to time during the Lease Term, provided that there exists a reasonable basis for Landlord to believe that Tenant is using or storing Hazardous Materials at the Premises in violation of this Lease or otherwise in the context of a proposed sale or refinancing of the Building or the Real Property or any portion thereof, Landlord may perform, at Landlord’s sole cost and expense, upon at least five (5) business days’ notice to Tenant, an environmental site assessment report concerning the Premises, prepared by an environmental consulting firm chosen by Landlord, indicating the presence or absence of Hazardous Materials caused or permitted by Tenant and the potential cost of any compliance, removal or remedial action in connection with any such Hazardous Materials on the Premises. Tenant shall grant and hereby grants to Landlord and its agents access to the Premises and specifically grants Landlord an irrevocable non-exclusive license to undertake such an assessment. If such assessment report indicates the presence of Hazardous Materials caused or permitted by Tenant which is in violation of this Lease, then the cost of such assessment shall be due and payable by Tenant within thirty (30) days of receipt of an invoice therefor.

          5.2.1 Tenant will immediately advise Landlord in writing of any of the following: (1) any pending or threatened Environmental Claim (as defined in Section 5.2.6(c) below) against Tenant relating to the Premises or the Project; (2) any condition or occurrence on the Premises or the Project that (a) results in noncompliance by Tenant with any applicable Environmental Law, or (b) could reasonably be anticipated to form the basis of an Environmental Claim against Tenant or Landlord or the Premises; (3) any condition or occurrence on the Premises or any property adjoining the Premises that could reasonably be anticipated to cause the Premises to be subject to any restrictions on the ownership,

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occupancy, use or transferability of the Premises under any Environmental Law; and (4) the actual or anticipated taking of any removal or remedial action by Tenant in response to the actual or alleged presence of any Hazardous Material on the Premises or the Project. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and Tenant’s response thereto. In addition, Tenant will provide Landlord with copies of all communications regarding the Premises with any governmental agency relating to Environmental Laws, all such communications with any person relating to Environmental Claims, and such detailed reports of any such Environmental Claim as may reasonably be requested by Landlord.

          5.2.2 Tenant will not change or permit to be changed the Permitted Use of the Premises.

          5.2.3 Tenant agrees to indemnify, defend and hold harmless the Landlord Parties (as defined in Section 10.1) from and against all obligations (including removal and remedial actions), losses, claims, suits, judgments, liabilities, penalties, damages (including consequential and punitive damages), costs and expenses (including reasonable attorneys’ and consultants’ fees and expenses) of any kind or nature whatsoever that may at any time be incurred by, imposed on or asserted against such Landlord Parties directly or indirectly based on, or arising or resulting from (a) the actual or alleged presence of Hazardous Materials on the Project which is caused or permitted by Tenant or any employee, agent, contractor or invitee of Tenant, and (b) any Environmental Claim relating in any way to Tenant’s operation or use of the Premises (the “Hazardous Materials Indemnified Matters”). The provisions of this Section 5.2 shall survive the expiration or sooner termination of this Lease.

          5.2.4 To the extent that the undertaking in the preceding paragraph may be unenforceable because it is violative of any law or public policy, Tenant will contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Hazardous Materials Indemnified Matters incurred by the Landlord Parties.

          5.2.5 All sums paid and costs incurred by Landlord with respect to any Hazardous Materials Indemnified Matter shall bear interest at the Interest Rate from the date so paid or incurred until reimbursed by Tenant, and all such sums and costs shall be due and payable by Tenant within thirty (30) days of demand therefor.

          5.2.6 (a) “Hazardous Materials” means: (i) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and radon gas; (ii) any substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants” or “pollutants,” or words of similar import, under any applicable Environmental Law; and (iii) any other substance exposure which is regulated by any governmental authority; (b) “Environmental Law” means any federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, including without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801 et seq.; the Clean Water Act, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; the Clean Air Act, 42 U.S.C. §§ 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq.; the Atomic Energy Act, 42 U.S.C. §§ 2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq.; the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq.; and (c) “Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters,

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claims, liens, notices of non-compliance or violation, investigations, proceedings, consent orders or consent agreements relating in any way to any Environmental Law or any Environmental Permit, including without limitation (i) any and all Environmental Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and all Environmental Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment.

ARTICLE 6

SERVICES AND UTILITIES

     6.1 Standard Tenant Services. Landlord shall provide the following services on all days during the Lease Term, unless otherwise stated below.

          6.1.1 Subject to reasonable changes implemented by Landlord and to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating and air conditioning when necessary for normal comfort for normal office use in the Premises, from Monday through Friday, during the period from 8:00 a.m. to 6:00 p.m., except for the date of observance of New Year’s Day, Presidents’ Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and other locally or nationally recognized holidays as designated by Landlord (collectively, the “Holidays”).

          6.1.2 Landlord shall provide adequate electrical wiring and facilities and power for normal general office use as determined by Landlord.

          6.1.3 As part of Operating Expenses, Landlord shall replace lamps, starters and ballasts for Building standard lighting fixtures within the Premises. In addition, Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises.

          6.1.4 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes.

          6.1.5 Landlord shall provide janitorial services five (5) days per week, except the date of observance of the Holidays, in and about the Premises and window washing services in a manner consistent with other comparable buildings in the vicinity of the Project.

          6.1.6 Landlord shall provide nonexclusive automatic passenger elevator service at all times.

     6.2 Overstandard Tenant Use. Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the need for water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If Tenant uses water or heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, or if Tenant’s consumption of electricity shall exceed its pro rata share of the Building’s electrical capacity as reasonably determined by Landlord, Tenant shall pay to Landlord, within ten (10) business days after billing and as additional rent, the cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption.

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Furthermore, if after Landlord’s delivery to Tenant of written notice of such excess consumption and providing Tenant at least thirty (30) days to cure such excess consumption, Tenant fails to cure such excess consumption (as reasonably determined by Landlord), Landlord may install devices to separately meter Tenant’s electrical use or any such increased use, and in such event Tenant shall pay, as additional rent, the increased cost directly to Landlord, within ten (10) business days after demand, including the cost of such additional metering devices. In all events, in the case of a multi-tenant building, Landlord shall have the right at its own expense to submeter the Premises and bill Tenant directly for any utilities used by Tenant, and in such event Tenant shall pay Landlord for such utility usage, as additional rent, within ten (10) business days of Tenant’s receipt of a bill therefor. If Tenant desires to use heat, ventilation or air conditioning during hours other than those for which Landlord is obligated to supply such utilities pursuant to the terms of Section 6.1 of this Lease, (i) Tenant shall give Landlord such prior notice, as Landlord shall from time to time establish as appropriate, of Tenant’s desired use, (ii) Landlord shall supply such utilities to Tenant at such hourly cost to Tenant as Landlord shall from time to time establish (which, as of the Commencement Date, is set at $35.00 per hour, but is subject to change by Landlord at any time), and (iii) Tenant shall pay such cost within ten (10) business days after billing, as additional rent.

     6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Real Property after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6. Notwithstanding the foregoing, if Tenant is prevented from using, and does not use, the Premises or any portion thereof, or if Tenant’s ability to conduct its business operations from the Premises is materially impaired, as a result of any failure to provide services to the Premises, and such failure did not result from a casualty covered by Article 11 below and was not caused by the negligence of Tenant, its employees, agents, visitors, guests, invitees or licensees (a “Services Failure Event”), then Tenant shall give written notice of such Services Failure Event to Landlord. If the Services Failure Event continues for five (5) consecutive business days (the “Services Failure Period”) after Landlord’s receipt of Tenant’s written notice, then Base Rent and Additional Rent shall be abated or reduced after expiration of the Services Failure Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises, provided that Base Rent and Additional Rent shall be abated completely if the portion of the Premises that Tenant is prevented from using, and does not use, is so significant as to make it impractical for Tenant to conduct its business in the Premises and Tenant does not, in fact, for that reason, conduct its business in the Premises. Notwithstanding the foregoing, (i) if the Services Failure Event results from Landlord’s gross negligence or willful misconduct and is reasonably within Landlord’s control to rectify, the abatement set forth in the preceding sentence shall commence immediately following the occurrence of the Services Failure Event.

     6.4 Additional Services. Landlord shall also have the exclusive right, but not the obligation, to provide any additional services which may be required by Tenant, including, without limitation,

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locksmithing, lamp replacement, additional janitorial service, and additional repairs and maintenance, provided that Tenant shall pay to Landlord upon billing, the sum of all costs to Landlord of such additional services plus an administration fee equal to four percent (4%) of such costs. Charges for any utilities or service for which Tenant is required to pay from time to time hereunder, shall be deemed Additional Rent hereunder and shall be billed on a monthly basis.

     6.5 Common Areas. Tenant is hereby granted the right to the non-exclusive use of the common corridors and hallways, stairwells, elevator, restrooms and other public or common areas located within the Building (if any), and the non-exclusive use of the areas located on the Real Property designated by Landlord from time to time as common areas for the Building (collectively, the “Common Areas”); provided, however, that (i) Tenant’s use thereof shall be subject to (A) the provisions of any covenants, conditions and restrictions regarding the use thereof now or hereafter recorded against the Real Property, and (B) such reasonable, non-discriminatory rules, regulations and restrictions as Landlord may make from time to time (which shall be provided in writing to Tenant), and (ii) Tenant may not go on the roof of the Building or in any way utilize the roof of the Building without Landlord’s prior consent (which may be withheld in Landlord’s sole and absolute discretion) and without otherwise being accompanied by a representative of Landlord. Landlord reserves the right from time to time to use any of the common areas of the Real Property, and the roof, risers and conduits of the Building for telecommunications and/or any other purposes, and to do any of the following: (1) make any changes, additions, improvements, repairs and/or replacements in or to the Real Property or any portion or elements thereof, including, without limitation, (x) changes in the location, size, shape and number of driveways, entrances, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways, public and private streets, plazas, courtyards, transportation facilitation areas and common areas, parking spaces, parking structures and parking areas, and (y) expanding or decreasing the size of the Real Property and any common areas and other elements thereof, including adding or deleting buildings thereon and therefrom; (2) close temporarily any of the common areas while engaged in making repairs, improvements or alterations to the Real Property; (3) form a common area association or associations under covenants, conditions and restrictions to own, manage, operate, maintain, repair and/or replace all or any portion of the landscaping, driveways, walkways, parking areas, public and private streets, plazas, courtyards, transportation facilitation areas and/or other common areas located outside of the Building and, subject to Article 4 above, include the common area assessments, fees and taxes charged by the association(s) and the cost of maintaining, managing, administering and operating the association(s), in Operating Expenses; and (4) perform such other acts and make such other changes with respect to the Real Property as Landlord may, in the exercise of good faith business judgment, deem to be appropriate.

     6.6 Telecommunications Equipment. Subject to Tenant obtaining and maintaining all required governmental licenses and other approvals, Tenant shall have the right to install, at Tenant’s sole cost and expense, one (1) satellite dish (of approximately eighteen inches (18”) in diameter) and related telecommunications equipment (collectively, the “Telecommunications Equipment”) upon the roof of the Building. Prior to any installation, Landlord shall approve Tenant’s plans for the Telecommunications Equipment, which approval shall not be unreasonably withheld or delayed, provided that Landlord may limit the height of Tenant’s Telecommunications Equipment. Landlord and Tenant shall mutually and reasonably agree upon the location on the roof where Tenant shall install the Telecommunications Equipment, provided that Tenant shall be responsible for determining the sufficiency of the roof structure to support the added load. Any roof penetrations must be performed by or in consultation with Landlord’s roofing contractor and so as not to void Landlord’s roof warranty. Tenant shall maintain all such Telecommunications Equipment at Tenant’s sole cost and may access the Building roof from time to time, at its sole risk, solely for such purpose. The Telecommunications Equipment shall be only for Tenant’s use in connection with the conduct of Tenant’s business in the Premises. Tenant shall use the Telecommunications Equipment so as not to cause any interference to

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other tenants in the Building or to other tenants at the Real Property or with any other tenant’s telecommunications equipment, and so as not to damage the Real Property or interfere with the normal operation of the Real Property. Tenant hereby agrees to indemnify, defend and hold Landlord harmless from and against any and all claims, costs, damages, expenses and liabilities (including attorneys’ fees) arising out of Tenant’s failure to comply with the provisions of this Section 6.6, except to the extent same is caused by the gross negligence or willful misconduct of Landlord and which is not covered by the insurance carried by Tenant under this Lease (or which would not be covered by the insurance required to be carried by Tenant under this Lease). Should any interference occur, Tenant shall take all necessary steps as soon as reasonably possible and no later than three (3) calendar days following such occurrence to correct such interference. If such interference continues after such three (3)-day period, Tenant shall immediately cease operating its Telecommunications Equipment until such interference is corrected or remedied to Landlord’s satisfaction. Tenant acknowledges that Landlord has granted and/or may grant telecommunications rights to other tenants and occupants of the Building and to telecommunication service providers and in no event shall Landlord be liable to Tenant for any interference of the same with Tenant’s Telecommunications Equipment; provided however, Landlord shall include in its agreements with any parties to whom it grants such telecommunications rights after the date of this Lease, terms providing that such parties’ telecommunications equipment must not unreasonably interfere with Tenant’s Telecommunications Equipment. Should Tenant notify Landlord that such interference is occurring, Landlord will cause such parties to correct such interference within three (3) calendar days, failing which such parties will be required to cease operation of their telecommunications equipment until such correction is achieved. Landlord makes no representation that the Telecommunications Equipment will be able to receive or transmit communication signals without interference or disturbance. Tenant shall (i) be solely responsible for any damage caused as a result of the Telecommunications Equipment, (ii) promptly pay any tax, license or permit fees charged pursuant to any laws or regulations in connection with the installation, maintenance or use of the Telecommunications Equipment and comply with all precautions and safeguards recommended by all governmental authorities, and (iii) pay for all necessary repairs, replacements to or maintenance of Tenant’s Telecommunications Equipment. Tenant, at Tenant’s sole cost, shall remove all of the Telecommunications Equipment by the expiration or earlier termination of this Lease and repair any damage to the roof, the Building and the Real Property caused by such removal.

     6.7 Supplemental HVAC Units. Tenant shall have the right, at Tenant’s sole cost and expense, to install up to four (4) supplemental heating, ventilation and air conditioning units (collectively, the “Supplemental Units”) in a location to be mutually and reasonably agreed upon by Landlord and Tenant. The Supplemental Units shall be separately metered to measure the amount of heating, ventilation and/or air conditioning used thereby. The installation of the Supplemental Units and meter(s) shall be performed in accordance with the terms of Article 8 below. Tenant agrees to pay to the local utility service provider all charges for heating, ventilation and/or air conditioning incurred by Tenant in connection with the use of the Supplemental Units, plus all applicable taxes. Tenant shall repair and maintain the Supplemental Units at Tenant’s sole cost. Upon Landlord’s request, Tenant shall remove such Supplemental Units by the expiration or earlier termination of this Lease and repair any damage to the Premises, the Building or the Real Property resulting therefrom.

     6.8 Tenant’s Security System. Subject to Landlord’s approval as to the method of installation and type of security system, Tenant shall have the right to install its own security system for the Premises provided the same does not interfere with the Building’s systems or equipment. Upon Landlord’s request, Tenant shall remove such security system by the expiration or earlier termination of this Lease and repair any damage to the Premises, the Building or the Real Property caused by such removal.

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ARTICLE 7

REPAIRS

     7.1 Tenant’s Repairs. Subject to Landlord’s repair obligations in Sections 7.2 and 11.1 below, Tenant shall, at Tenant’s own expense, keep the Premises and all building systems located therein, including all improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term, which repair obligations shall include, without limitation, the obligation to promptly and adequately repair all damage to the Premises and replace or repair all damaged or broken fixtures and appurtenances. Landlord reserves the right, following written notice to Tenant, to perform any of the foregoing maintenance or repair obligations or require that such obligations be performed by a contractor approved by Landlord, all at Tenant’s expense. All work shall be performed in accordance with the rules and procedures described in Article 8. If Tenant fails to make any repairs to the Premises for more than thirty (30) days after notice from Landlord (although notice shall not be required if there is an emergency, or if the area to be repaired is visible from the exterior of the Building), Landlord may, in addition to any other remedy available to Landlord, make the repairs, and Tenant shall pay the reasonable cost of the repairs to Landlord, together with an administrative charge in an amount equal to ten percent (10%) of the cost of the repairs. It is generally understood that mold spores are present essentially everywhere and that mold can grow in most any moist location. Emphasis is properly placed on prevention of moisture and on good housekeeping and ventilation practices. Tenant acknowledges the necessity of housekeeping, ventilation, and moisture control (especially in kitchens, janitor’s closets, bathrooms, break rooms and around outside walls) for mold prevention. In signing this Lease, Tenant has first inspected the Premises and certifies that it has not observed mold, mildew or moisture within the Premises. Tenant agrees to immediately notify Landlord if it observes mold/mildew and/or moisture conditions (from any source, including leaks), and allow Landlord to evaluate and make recommendations and/or take appropriate corrective action. Tenant relieves Landlord from any liability for any bodily injury or damages to property caused by or associated with moisture or the growth of or occurrence of mold or mildew on the Premises; provided, however, that Landlord, as part of its maintenance and repair obligations under Section 7.2 below, shall be responsible for the removal of any mold or mildew in the Premises and the repair of any damage caused thereby; provided further, however, that if any such maintenance and repairs are caused in part or in whole by the act, neglect, fault of or omission of any duty by Tenant, its agents, servants, employees or invitees, Tenant shall pay to Landlord as additional rent, the reasonable cost of such maintenance and repairs, together with an administrative charge in an amount equal to ten percent (10%) of the cost of the repairs. In addition, execution of this Lease constitutes acknowledgment by Tenant that control of moisture and mold prevention are integral to its Lease obligations.

     7.2 Landlord’s Repairs. This Lease is intended to be a net lease. Accordingly, subject to Articles 11 and 12 of this Lease, Landlord’s maintenance and repair obligations shall be limited to the structural portions of the Building and the Systems and Equipment, including the heating, ventilating and air conditioning systems serving the Building (other than any Supplemental Units serving the Premises); provided, however, if any such maintenance and repairs are caused in part or in whole by the act, neglect, fault of or omission of any duty by Tenant, its agents, servants, employees or invitees, Tenant shall pay to Landlord as additional rent, the reasonable cost of such maintenance and repairs, together with an administrative charge in an amount equal to ten percent (10%) of the cost of the repairs. Except to the extent expressly set forth to the contrary in this Lease, 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 any portion of the Real Property, Building or the Premises or in or to fixtures, appurtenances and equipment therein. Except to the extent expressly set forth to the contrary in Section 7.3 below, Tenant hereby waives and releases its right to make repairs at Landlord’s expense under Sections 1941 and 1942 of the California Civil Code; or under any similar law,

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statute, or ordinance now or hereafter in effect, and the right to terminate the Lease under Section 1932(1) of the California Civil Code, and any other laws, statutes or ordinances now or hereafter in effect of like import.

     7.3 Tenant’s Right to Make Repairs. If Tenant provides written notice to Landlord of an event or circumstance which requires the action of Landlord with respect to a specific obligation of Landlord under the terms of this Lease (hereinafter, a “Required Action”), and Landlord fails to proceed to take such action as required by the terms of this Lease within ten (10) days (and thereafter to proceed with due diligence to complete the Required Action) after receipt of such notice from Tenant, then if Landlord still fails to take such action as required by the terms of this Lease (and thereafter to proceed with due diligence to complete the Required Action) after receipt by Landlord of an additional five (5) days’ written notice from Tenant to Landlord specifying that Tenant will take such Required Action, Tenant may proceed to take the Required Action; if such action was required under the terms of this Lease to be taken by Landlord, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant’s reasonable, out-of-pocket costs and expenses in taking such action plus interest at the Interest Rate from the date of Landlord’s receipt of Tenant’s invoice, accompanied by reasonable supportive documentation for the expenditures, until paid; provided, however, that in no event shall Landlord be obligated to reimburse Tenant for (i) above-market expenditures or (ii) sums in excess of $5,000.00 per Required Action. In no event may Tenant offset the cost of any Required Action against Rent due hereunder. In the event Tenant takes such action and such work will affect the Systems and Equipment, the structure of the Building or the exterior appearance of the Project, Tenant shall use only those contractors used by Landlord in the Project for such work unless such contractors are unwilling or unable to perform such work, in which event Tenant may utilize the services of any other qualified, licensed and reputable contractor which normally and regularly performs similar work in comparable projects. Any such work shall be performed so as to minimize interference with the business operations of other tenants in the Building.

ARTICLE 8

ADDITIONS AND ALTERATIONS

     8.1 Landlord’s Consent to Alterations. Tenant may not make any improvements, alterations, additions or changes to the Premises (collectively, the “Alterations”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than fifteen (15) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord; provided, however, Landlord may withhold its consent in its sole and absolute discretion with respect to any Alterations which may affect the structural components of the Building or the Systems and Equipment or which can be seen from outside the Premises. Notwithstanding the foregoing, Tenant shall not be obligated to receive the written consent of Landlord for interior cosmetic Alterations to the Premises if said Alterations do not in any way affect the Building’s structure or the Building’s Systems and Equipment, do not exceed the total amount of Twenty-Five Thousand Dollars ($25,000.00) in the aggregate in any twelve (12)-month period, and Tenant is not required by applicable law to obtain a permit to perform the Alteration (a “Cosmetic Alteration”). Tenant shall give Landlord at least ten (10) days’ advance written notice of any such Cosmetic Alteration, which shall be performed in compliance with all applicable laws. Tenant shall pay for all overhead, general conditions, fees and other costs and expenses of Tenant’s Alterations, and shall pay to Landlord a Landlord supervision fee of ten percent (10%) of the cost of the Alterations; provided, however, that no supervision fee shall be charged for Cosmetic Alterations. The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8, except for Section 8.4 regarding the Wi-Fi Network which shall be a part of the initial improvements.

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     8.2 Manner of Construction. Landlord may impose, as a condition of its consent to all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen reasonably approved by Landlord; provided, however, Landlord may impose such requirements as Landlord may determine, in its sole and absolute discretion, with respect to any work affecting the structural components of the Building or Systems and Equipment (including designating specific contractors to perform such work). Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable rules and regulations of any federal, state, county or municipal code or ordinance and pursuant to a valid building permit, issued by the City of Santa Clara, and in conformance with Landlord’s construction rules and regulations. Landlord’s approval of the plans, specifications and working drawings for Tenant’s Alterations shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Tenant shall have the work performed in such manner as not to obstruct access to the Building or Real Property or the common areas for any other tenant of the Real Property, and as not to obstruct the business of Landlord or other tenants of the Real Property, or interfere with the labor force working at the Real Property. If Tenant makes any Alterations, Tenant agrees to carry “Builder’s All Risk” insurance in a commercially reasonable amount covering the construction of such Alterations, and such other insurance as Landlord may require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, in conjunction with Alterations costing in excess of $50,000.00 (but in no event with respect to Cosmetic Alterations), Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. Upon completion of any Alterations (but expressly excluding Cosmetic Alterations), Tenant shall (i) cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Real Property is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, (ii) deliver to the management office of the Real Property a reproducible copy of the “as built” drawings of the Alterations, and (iii) deliver to Landlord evidence of payment, contractors’ affidavits and full and final waivers of all liens for labor, services or materials.

     8.3 Landlord’s Property. All Alterations, improvements, fixtures and/or equipment which may be installed or placed in or about the Premises, and all signs installed in, on or about the Premises, from time to time, shall be at the sole cost of Tenant, and all of the foregoing shall be and become the property of Landlord (except that Tenant’s computers, Supplemental Units, trade fixtures, and any other personal property of Tenant shall not become Landlord’s property hereunder). Furthermore, subject to Article 15 below, Landlord may require that Tenant remove any Alteration, improvement, fixture, equipment and/or sign upon the expiration or earlier termination of the Lease Term, and repair any damage to the Premises and Building caused by such removal. Notwithstanding the foregoing, upon Tenant’s request at the time it seeks Landlord’s consent to an Alteration, Landlord agrees to indicate in writing whether or not it will require such Alteration to be removed upon the expiration or earlier termination of the Lease. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alteration, improvement, fixture, equipment and/or sign by the Expiration Date or earlier termination of the Lease, Landlord may do so and may charge the cost thereof to Tenant, together with an administrative charge in an amount equal to ten percent (10%) of such costs.

     8.4 Wi-Fi Network. Without limiting the generality of the foregoing, in the event Tenant desires to install wireless intranet, Internet and communications network (“Wi-Fi Network”) in the Premises for the use by Tenant and its employees, then the same shall be subject to the provisions of this

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Section 8.4 (in addition to the other provisions of this Article 8). In the event Landlord consents to Tenant’s installation of such Wi-Fi Network, Tenant shall, in accordance with Article 15 below, remove the Wi-Fi Network from the Premises prior to the termination of the Lease. Tenant shall use the Wi-Fi Network so as not to cause any interference to other tenants in the Building or to other tenants at the Real Property or with any other tenant’s communication equipment, and not to damage the Real Property or interfere with the normal operation of the Real Property and Tenant hereby agrees to indemnify, defend and hold Landlord harmless from and against any and all claims, costs, damages, expenses and liabilities (including attorneys’ fees) arising out of Tenant’s failure to comply with the provisions of this Section 8.4, except to the extent same is caused by the gross negligence or willful misconduct of Landlord and which is not covered by the insurance carried by Tenant under this Lease (or which would not be covered by the insurance required to be carried by Tenant under this Lease). Should any interference occur, Tenant shall take all necessary steps as soon as reasonably possible and no later than three (3) calendar days following such occurrence to correct such interference. If such interference continues after such three (3)-day period, Tenant shall immediately cease operating such Wi-Fi Network until such interference is corrected or remedied to Landlord’s satisfaction. Tenant acknowledges that Landlord has granted and/or may grant telecommunication rights to other tenants and occupants of the Building and to telecommunication service providers and in no event shall Landlord be liable to Tenant for any interference of the same with such Wi-Fi Network; provided, however, Landlord shall include in its agreements with any parties to whom it grants such telecommunications rights after the date hereof, terms providing that such parties’ telecommunications equipment must not unreasonably interfere with Tenant’s Wi-Fi Network. Should Tenant notify Landlord that such interference is occurring, Landlord will cause such parties to correct such interference within three (3) calendar days, failing which such parties must cease operation of their telecommunications equipment until such correction is achieved. Landlord makes no representation that the Wi-Fi Network will be able to receive or transmit communication signals without interference or disturbance. Tenant shall (i) be solely responsible for any damage caused as a result of the Wi-Fi Network, (ii) promptly pay any tax, license or permit fees charged pursuant to any laws or regulations in connection with the installation, maintenance or use of the Wi-Fi Network and comply with all precautions and safeguards recommended by all governmental authorities, and (iii) pay for all necessary repairs, replacements to or maintenance of the Wi-Fi Network.

ARTICLE 9

COVENANT AGAINST LIENS

     Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Real Property, Building or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant’s interest only. Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Real Property, the Building or the Premises with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be bonded over to Landlord’s reasonable satisfaction or released and removed of record, in either event within ten (10) days following the earlier of (i) Tenant’s actual knowledge of the lien or (ii) Tenant’s receipt of written notice from Landlord of such lien (the “Lien Removal Date”). Notwithstanding anything to the contrary set forth in this Lease, if any such lien is not released and removed on or before the Lien Removal Date, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys’ fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under

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this Lease and shall be due and payable by Tenant within ten (10) business days after written demand therefor.

ARTICLE 10

INDEMNIFICATION AND INSURANCE

     10.1 Indemnification and Waiver. (a) Prior to the Commencement Date and during Tenant’s early entry into the Premises pursuant to Section 6.1 of the Work Letter attached hereto (the “Early Entry Period”), Tenant hereby assumes all risk of damage to Tenant’s personal property, fixtures and equipment and injury to any Tenant Party, in, on, or about the Premises from any cause whatsoever and agrees that Landlord, and its partners and members, and their respective officers, agents, advisors, property managers, employees, and independent contractors (collectively, the “Landlord Parties”) shall not be liable for, and are hereby released from any responsibility for, any such damage to Tenant’s personal property, fixtures and equipment or injury to any Tenant Party except to the extent caused by the gross negligence or willful misconduct of Landlord or Landlord’s Contractor (as defined in the Work Letter) or any of Landlord’s subcontractors. Subject to Section 10.4 below, Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) incurred in connection with or arising from any cause in, on or about the Premises as a result of Tenant’s exercise of its early entry rights pursuant to Section 6.1 of the Work Letter, and any acts, omissions or negligence of Tenant or any Tenant Party during the Early Entry Period; provided, however, that the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of Landlord or Landlord’s Contractor or any of Landlord’s subcontractors. As used herein, “Tenant Party” shall mean Tenant and any of its agents, contractors, subcontractors, employees or invitees.

     (b) On and after the Commencement Date, Tenant hereby assumes all risk of damage to property and injury to persons, in, on or about the Premises from any cause whatsoever and agrees that the Landlord Parties shall not be liable for, and are hereby released from any responsibility for, any damage to property or injury to persons or resulting from the loss of use thereof, which damage or injury is sustained by Tenant or by other persons claiming through Tenant except to the extent caused by the gross negligence or willful misconduct of Landlord. Subject to Section 10.4 below, on and after the Commencement Date Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) incurred in connection with or arising from any cause in, on or about the Premises (including, without limitation, Tenant’s installation, placement and removal of Alterations, improvements, fixtures and/or equipment in, on or about the Premises, and Tenant’s installation, placement and removal of the Telecommunications Equipment), and any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant or any Tenant Party or any such person, in, on or about the Premises, the Building or the Real Property; provided, however, that the terms of the foregoing indemnity shall not apply to the gross negligence or willful misconduct of Landlord.

     (c) Tenant’s agreement to indemnify Landlord pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease, to the extent such policies cover the matters subject to Tenant’s indemnification obligations; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability accruing prior to such expiration or termination.

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     10.2 Tenant’s Compliance with Landlord’s Fire and Casualty Insurance. Tenant shall, at Tenant’s expense, comply as to the Premises with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies, then, provided that Tenant has previously been provided with written notice of such premium increase and a reasonable opportunity (not to exceed five (5) business days) to cure the conduct or activity triggering such increase, Tenant shall reimburse Landlord for any such increase within ten (10) business days of demand therefor. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

     10.3 Tenant’s Insurance. Tenant shall procure and maintain the following coverages in the following amounts.

          10.3.1 Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant’s operations, assumed liabilities or use of the Premises, including a Broad Form Commercial General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, (and with liquor liability coverage in the event alcoholic beverages are served on the Premises) for limits of liability not less than $3,000,000.00 combined single limit per occurrence and $5,000,000.00 combined single limit annual aggregate.

          10.3.2 Physical Damage Insurance covering (i) all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, (ii) the Tenant Improvements (as defined in Exhibit B), including any Tenant Improvements which Landlord permits to be installed above the ceiling of the Premises or below the floor of the Premises, and (iii) all other improvements, alterations and additions to the Premises, including any improvements, alterations or additions installed at Tenant’s request above the ceiling of the Premises or below the floor of the Premises. Such insurance shall be written on a “physical loss or damage” basis under a “special form” policy, for the full replacement cost value new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage.

          10.3.3 Workers’ compensation insurance as required by law.

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

          10.3.5 Tenant shall carry comprehensive automobile liability insurance having a combined single limit of not less than $1,000,000.00 per occurrence and insuring Tenant against liability for claims arising out of ownership, maintenance or use of any owned, hired or non-owned automobiles.

          10.3.6 The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall: (i) name Landlord, BlackRock Realty Advisors, Harvest Properties, Inc., and any other party it so specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and

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provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant except that the automobile liability insurance coverage required by Section 10.3.5 is not required to be written as non-contributing; (v) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee or ground or underlying lessor of Landlord; and (vi) with respect to the insurance required in Sections 10.3.1 and 10.3.2 above, have deductible amounts not exceeding $10,000.00. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Commencement Date and at least fifteen (15) days before the expiration dates thereof. The insurance required under this Section 10.3 may be satisfied by any combination of primary insurance and umbrella insurance maintained by Tenant. If Tenant shall fail to procure such insurance, or to deliver such policies or certificate, within such time periods, Landlord may, at its option, in addition to all of its other rights and remedies under this Lease, and without regard to any notice and cure periods set forth in Section 19.1 but allowing Tenant at least three (3) business days’ notice and opportunity to cure, procure such policies for the account of Tenant, and the cost thereof, plus an administrative fee of ten percent (10%), shall be paid to Landlord as Additional Rent within ten (10) days after delivery of bills therefor.

     10.4 Subrogation. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance carried by Landlord and Tenant, respectively, is not invalidated thereby. As long as such waivers of subrogation are contained in their respective insurance policies, Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, public liability, or other similar insurance.

     10.5 Additional Insurance Obligations. Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10, and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord provided that such increased amounts and other types of insurance are required by comparable landlords of comparable buildings in the vicinity of the Building.

     10.6 Landlord’s Insurance. Landlord shall procure and maintain at all times during the Term a policy or policies of insurance covering loss or damage to the Building in the amount of the full replacement value thereof (which may be exclusive of foundations), providing protection against all perils included within the classification of fire and extended coverage, vandalism coverage and malicious mischief, and such endorsements as Landlord may require, with such deductibles as shall be determined by Landlord from time to time. Additionally, Landlord shall carry commercial general liability insurance and/or excess liability coverage insurance in such amount(s) as Landlord may require, but not less than that typically carried by prudent landlords of comparable buildings in Santa Clara, California; and Landlord may carry (i) earthquake and/or flood damage insurance; (ii) rental income insurance; and (iii) any other forms of insurance Landlord may reasonably deem commercially reasonable and appropriate or any lender may reasonably require. Landlord reserves the right to self-insure the Building so long as a financial institution such as an insurance company, bank, savings and loan association or pension fund having a net worth of at least $100,000,000.00 owns an interest in the Project of fifty percent (50%) or more. Landlord also reserves the right to provide the insurance required hereunder as part of a blanket policy. The costs of all insurance carried by Landlord shall be included in Operating Expenses, and payments for losses thereunder shall be made solely to Landlord or any mortgagee of Landlord as their interests shall appear.

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ARTICLE 11

DAMAGE AND DESTRUCTION

     11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any common areas of the Building or Real Property serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore the base, shell, and core of the Premises and such common areas. Such restoration shall be to substantially the same condition of the base, shell, and core of the Premises and common areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Real Property, or the lessor of a ground or underlying lease with respect to the Real Property and/or the Building, or any other modifications to the common areas deemed desirable by Landlord, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.3 of this Lease covering damage to the Tenant Improvements or other Alterations installed by Tenant, and Landlord shall repair any injury or damage to the tenant improvements and alterations installed in the Premises and shall return such tenant improvements and alterations to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the excess cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s repair of the damage. In connection with such repairs and replacements, Tenant shall, prior to the commencement of construction, submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord in consultation with Tenant shall select the contractor to perform such improvement work (which contractor shall be selected pursuant to a competitive bidding process with at least three (3) contractors, one of whom shall be selected by Tenant). Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or common areas necessary to Tenant’s occupancy, Landlord shall allow Tenant a proportionate abatement of Base Rent and Tenant’s Share of Operating Expenses and Tax Expenses to the extent Landlord is reimbursed from the proceeds of rental interruption insurance purchased by Landlord as part of Operating Expenses, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof.

     11.2 Landlord’s Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, the Building and/or any other portion of the Real Property and instead terminate this Lease (provided that Landlord terminates the leases of other similarly situated tenants, if any) by notifying Tenant in writing of such termination within sixty (60) days after the date of damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) repairs cannot reasonably be completed within one hundred twenty (120) days of the date of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Real Property or ground or underlying lessor with respect to the Real Property and/or the Building shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground or underlying lease, as the case may be; or (iii) the damage is not fully covered, except for deductible amounts, by Landlord’s insurance policies. In addition, if the Premises or the Building is destroyed or damaged to any substantial extent during the last twelve (12)

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months of the Lease Term, then notwithstanding anything contained in this Article 11, Landlord and Tenant shall each have the option to terminate this Lease by giving written notice to the other of the exercise of such option within thirty (30) days after such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice. Upon any such termination of this Lease pursuant to this Section 11.2, Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term.

     11.3 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or any other portion of the Real Property, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Real Property.

ARTICLE 12

CONDEMNATION

     12.1 Permanent Taking. If the whole or any part of the Premises, Building or Real Property shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Real Property, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease upon thirty (30) days’ notice, provided such notice is given no later than thirty (30) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, Tenant shall have the option to terminate this Lease upon thirty (30) days’ notice, provided such notice is given no later than thirty (30) days after the date of such taking. Landlord shall be entitled to receive the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for loss of goodwill, for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claim does not diminish the award available to Landlord, its ground lessor with respect to the Real Property or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Base Rent and Tenant’s Share of Operating Expenses and Tax Expenses shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure.

     12.2 Temporary Taking. Notwithstanding anything to the contrary contained in this Article 12, in the event of a temporary taking of all or any portion of the Premises for a period of ninety (90) days or less, then this Lease shall not terminate but the Base Rent and Tenant’s Share of Operating Expenses and Tax Expenses shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

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ARTICLE 13

COVENANT OF QUIET ENJOYMENT

     Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

     14.1 Transfers. Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment or other such foregoing transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as “Transfers” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”). In no event may Tenant Transfer this Lease or any portion of the Premises if Tenant will share in any income or profits of the Transferee that would cause any amount received or accrued by Landlord under this Lease not to be “rents from real property” pursuant to Section 856(d) of the Code (or to be “unrelated business taxable income” within the meaning of Section 512 of the Code). The parties further agree that it shall be reasonable for Landlord to withhold consent if any such proposed Transfer would cause a breach of the ERISA representations set forth in Section 24.30 below, and any Transferee shall be required to make all such ERISA representations to Landlord in writing. If Tenant shall desire Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “Transfer Notice”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “Subject Space”), (iii) all of the terms of the proposed Transfer, the name and address of the proposed Transferee, and a copy of all existing and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, (iv) current financial statements of the proposed Transferee certified by a certified public accountant or an officer, partner or owner of Transferee, and (v) such other information as Landlord may reasonably require. Any Transfer made without Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed (subject to Section 14.2 below) and which shall be provided or denied within fifteen (15) days after Landlord’s receipt of items (i) through (v) above, shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute an Event of Default by Tenant under this Lease. Whether or not Landlord shall grant consent, within thirty (30) days after written request by Landlord, Tenant shall pay to Landlord One Thousand Five Hundred Dollars ($1,500.00) to reimburse Landlord for its review and processing fees, and Tenant shall also reimburse Landlord for any reasonable legal fees incurred by Landlord in connection with Tenant’s proposed Transfer, up to a maximum of One Thousand Dollars ($1,000.00).

     14.2 Landlord’s Consent. Landlord shall not unreasonably withhold, condition or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the

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Transfer Notice. The parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply, without limitation as to other reasonable grounds for withholding consent:

          14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

          14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;

          14.2.3 The Transferee is either a governmental agency or instrumentality thereof;

          14.2.4 The Transfer will result in more than a reasonable and safe number of occupants per floor within the Subject Space;

          14.2.5 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the Lease on the date consent is requested;

          14.2.6 The proposed Transfer would cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give an occupant of the Real Property a right to cancel its lease;

          14.2.7 The terms of the proposed Transfer will allow the Transferee to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the Transferee to occupy space leased by Tenant pursuant to any such right); or

          14.2.8 Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Project at the time of the request for consent, (ii) is negotiating with Landlord to lease space in the Project at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice and Landlord has or will have available within sixty (60) days substantially comparable space to the Subject Space.

          If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be substantially more favorable to the Transferee than the terms set forth in Tenant’s original Transfer Notice (i.e., five percent (5%) or more favorable with respect to economic terms), Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture under Section 14.4 of this Lease).

     14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3, received by Tenant from such Transferee. “Transfer Premium” shall mean all rent, additional rent or other consideration payable by such Transferee in excess of the Rent and Additional Rent payable by Tenant under this Lease on a per rentable square

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foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any reasonable changes, alterations and improvements to the Premises in connection with the Transfer (but only to the extent approved by Landlord, except for any Cosmetic Alterations, which do not require Landlord’s consent), and (ii) any reasonable brokerage commissions and attorneys’ fees in connection with the Transfer (collectively, the “Subleasing Costs”). “Transfer Premium” shall also include, but not be limited to, key money and bonus money paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer.

     14.4 Landlord’s Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14, Landlord shall have the option, by giving written notice to Tenant within fifteen (15) days after receipt of any Transfer Notice (including receipt of items (i) through (v) enumerated in Section 14.1), to recapture the Subject Space; provided, however, that such recapture right shall not apply to a proposed sublease of 5,000 rentable square feet or less. Such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer until the last day of the term of the Transfer as set forth in the Transfer Notice. If this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee, subject to provisions of the last paragraph of Section 14.2 of this Lease.

     14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (iv) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and Landlord’s costs of such audit.

     14.6 Additional Transfers. For purposes of this Lease, but subject to Section 14.7 below, the term “Transfer” shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of twenty-five percent or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant, (B) the sale or other transfer of more than an aggregate of fifty percent (50%) of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of more than an aggregate of fifty percent (50%) of the value of the unencumbered assets of Tenant within a twelve (12)-month period.

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     14.7 Permitted Transfers. Notwithstanding the foregoing, Tenant may Transfer all or part of its interest in this Lease or all or part of the Premises (a “Permitted Transfer”) to the following types of entities (each, an “Affiliate”) without the written consent of Landlord:

          (i) an entity which is controlled by, controls or is under common control with Tenant;

          (ii) any entity in which or with which Tenant is merged or consolidated, in accordance with applicable statutory provisions governing merger and consolidation of business entities, so long as (A) Tenant’s obligations hereunder are assumed by the entity surviving such merger or created by such consolidation and (B) the Tangible Net Worth of the surviving or created entity is not less than the Tangible Net Worth of Tenant as of the date of such merger or consolidation; or

          (iii) any entity acquiring all or substantially all of Tenant’s assets and/or shares of stock if such entity’s Tangible Net Worth after such acquisition is not less than the Tangible Net Worth of Tenant as of the date of such acquisition.

Tenant shall promptly notify Landlord of any such Permitted Transfer. Tenant shall remain liable for the performance of all of the obligations of Tenant hereunder, or if Tenant no longer exists because of a merger, consolidation or acquisition, the surviving or acquiring entity shall expressly assume in writing the obligations of Tenant hereunder. Additionally, the Affiliate shall comply with all of the terms and conditions of this Lease, including the Permitted Use, and the use of the Premises by the Affiliate may not violate any other agreements affecting the Premises, the Building or the Project, Landlord or other tenants of the Project. No later than five (5) business days after the effective date of any Permitted Transfer (or as soon thereafter as reasonably practicable), Tenant agrees to furnish Landlord with (A) copies of the instrument effecting any of the foregoing Transfers, (B) documentation establishing Tenant’s satisfaction of the requirements set forth above applicable to any such Transfer, and (C) evidence of insurance as required under this Lease with respect to the Affiliate. The occurrence of a Permitted Transfer shall not waive Landlord’s rights as to any subsequent Transfers. “Tangible Net Worth” means the excess of total assets over total liabilities, in each case as determined in accordance with GAAP, excluding, however, from the determination of total assets all assets which would be classified as intangible assets under GAAP including goodwill, licenses, patents, trademarks, trade names, copyrights, and franchises. “Control” as used in Section 14.7(i) above shall mean the ownership, directly or indirectly, of at least fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of a least fifty percent (50%) of the voting interest, in an entity. Any subsequent Transfer by an Affiliate shall be subject to the terms of this Article 14.

     14.8 Waiver. Tenant hereby waives any suretyship defenses it may now or hereafter have to an action brought by Landlord including those contained in Sections 2787 through 2856, inclusive, 2899 and 3433 of the California Civil Code, as now or hereafter amended, or similar laws of like import.

ARTICLE 15

SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

     15.1 Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such

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keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises.

     15.2 Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear, damage due to a casualty, and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all telephone, data, and other cabling and wiring (including any cabling and wiring associated with the Wi-Fi Network, if any) installed or caused to be installed by Tenant (including any cabling and wiring, installed above the ceiling of the Premises or below the floor of the Premises), all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal. In no event shall Tenant be required to remove (i) any Cosmetic Alterations installed by Tenant or (ii) any of the initial Tenant Improvements installed pursuant to Exhibit B.

ARTICLE 16

HOLDING OVER

     If Tenant fails to vacate the Premises at the end of the Lease Term and does not have Landlord’s express written consent to hold over in the Premises, then Tenant shall be a tenant at sufferance and, in addition to all other damages and remedies to which Landlord may be entitled for such holding over, (a) Base Rent shall be payable at a monthly rate equal to two hundred percent (200%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease, and (b) Tenant shall otherwise continue to be subject to all of Tenant’s obligations under this Lease. Landlord hereby expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender, and any lost profits to Landlord resulting therefrom. Notwithstanding the foregoing, if Tenant holds over with Landlord’s express written consent, then Tenant shall be a month-to-month tenant and Tenant shall pay, in addition to the other Rent, Base Rent equal to one hundred twenty-five percent (125%) of the Base Rent payable during the last month of the Lease Term.

ARTICLE 17

ESTOPPEL CERTIFICATES

     Within ten (10) business days following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate certifying the following information (but not limited to the following information in the event further information is requested by Landlord): (i) that this Lease is

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unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as modified, is in full force and effect); (ii) the dates to which the rental and other charges are paid in advance, if any; (iii) the amount of Tenant’s security deposit, if any; and (iv) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord and no events or conditions then in existence which, with the passage of time or notice or both, would constitute a default on the part of either party, or specifying such defaults, events or conditions, if any are claimed. Failure of Tenant to timely execute and deliver such estoppel certificate shall constitute an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. Failure by Tenant to so deliver such estoppel certificate shall be an Event of Default under this Lease subject to Section 19.1.4 below. In addition, Tenant shall be liable to Landlord, and shall indemnify Landlord from and against any loss, cost, damage or expense, incidental, consequential, or otherwise, including attorneys’ fees, arising or accruing directly or indirectly, from any failure of Tenant to execute or deliver to Landlord any such estoppel certificate.

ARTICLE 18

SUBORDINATION

     18.1 Subordination. Landlord represents that as of the date of this Lease, there is no mortgage or trust deed, or ground or underlying lease in force against the Real Property. This Lease is subject and subordinate to all future ground or underlying leases of the Real Property and to the lien of any mortgages or trust deeds hereafter in force against the Real Property, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage, or if any ground or underlying lease is terminated, provided that such purchaser provides Tenant with such purchaser’s standard nondisturbance agreement, to attorn, without any deductions or set-offs whatsoever, to the purchaser upon any such foreclosure sale, or to the lessor of such ground or underlying lease, as the case may be, if so requested to do so by such purchaser or lessor, and to recognize such purchaser or lessor as the lessor under this Lease. Tenant shall, within ten (10) business days of request by Landlord, execute such further commercially reasonable instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases, provided the same are in form reasonably acceptable to Tenant. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

     18.2 Notice to Landlord’s Mortgagee. Tenant shall not seek to enforce any remedy it may have for any default on the part of Landlord without first giving written notice by certified mail, return receipt requested, specifying the default in reasonable detail, to any Landlord’s mortgagee whose address has been given to Tenant, and affording such Landlord’s mortgagee a reasonable opportunity to perform Landlord’s obligations hereunder.

     18.3 Landlord’s Mortgagee’s Protection Provisions. If Landlord’s mortgagee shall succeed to the interest of Landlord under this Lease, Landlord’s mortgagee shall not be: (1) liable for any act or omission of any prior lessor (including Landlord), it being understood, however, that the foregoing is not intended to relieve such mortgagee of any liability arising by reason of its acts or omissions from and after the date it succeeds to the interests of the Landlord, including a continuation of the failure of the prior Landlord to perform its obligations under the Lease, in which case the mortgagee shall have a

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reasonable period of time to remedy same; (2) bound by any rent or additional rent or advance rent which Tenant might have paid for more than one (1) month in advance to any prior lessor (including Landlord), other than the payments of Additional Rent that Tenant is required to make to Landlord pursuant to this Lease, and any other prepayments required under this Lease; and all such rent shall remain due and owing, notwithstanding such advance payment; (3) bound by any security or advance rental deposit made by Tenant which is not delivered or paid over to Landlord’s mortgagee and with respect to which Tenant shall look solely to Landlord for refund or reimbursement; (4) bound by any termination, amendment or modification of this Lease made without Landlord’s mortgagee’s consent and written approval, except for those terminations, amendments and modifications permitted to be made by Landlord without Landlord’s mortgagee’s consent pursuant to the terms of the loan documents between Landlord and Landlord’s mortgagee, and except for written instruments which merely confirm rights and obligations already set forth in this Lease (including, without limitation, Tenant’s rights under Exhibit E), and except for communications between Landlord and Tenant of an administrative nature relating to the ordinary course of operation or tenancy of the Premises, the Building or the Project; (5) subject to the defenses which Tenant might have against any prior lessor (including Landlord) except to the extent Tenant independently has such defenses against the mortgagee; and (6) subject to the offsets which Tenant might have against any prior lessor (including Landlord) except for those offset rights which (A) are expressly provided in this Lease, (B) relate to periods of time following the acquisition of the Building by Landlord’s mortgagee, and (C) Tenant has provided written notice to Landlord’s mortgagee and provided Landlord’s mortgagee a reasonable opportunity to cure the event giving rise to such offset event. Landlord’s mortgagee shall have no liability or responsibility under or pursuant to the terms of this Lease or otherwise after it ceases to own an interest in the Building. Nothing in this Lease shall be construed to require Landlord’s mortgagee to see to the application of the proceeds of any loan, and Tenant’s agreements set forth herein shall not be impaired on account of any modification of the documents evidencing and securing any loan.

ARTICLE 19

TENANT’S DEFAULTS; LANDLORD’S REMEDIES

     19.1 Events of Default by Tenant. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent. The occurrence of any of the following shall constitute a default of this Lease by Tenant (each, an “Event of Default”):

          19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, within five (5) business days following Tenant’s receipt of Landlord’s written notice that the same is due; provided, however, Landlord shall not be obligated to provide written notice of monetary default more than two (2) times in any calendar year, and each subsequent monetary default shall be an Event of Default if not received within three (3) business days after the same is due; provided further, such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 or any similar or successor law; or

          19.1.2 Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) 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 Section 1161 or any similar or successor law; and provided further that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30)-day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default as soon as possible; or

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          19.1.3 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 three (3) business days or longer while in default of any provision of this Lease; or

          19.1.4 Tenant fails to provide: (i) any estoppel certificate after Landlord’s written request therefor pursuant to Article 17; or (ii) any financial statement after Landlord’s written request therefor pursuant to Section 24.33, and in each case such failure shall continue for five (5) business days after Landlord’s second (2^nd) written notice thereof to Tenant; or

          19.1.5 The filing of a petition by or against Tenant (the term “Tenant” shall include, for the purpose of this Section 19.1.5, any guarantor of Tenant’s obligations hereunder): (i) in any bankruptcy or other insolvency proceeding; (ii) seeking any relief under any state or federal debtor relief law; (iii) for the appointment of a liquidator or receiver for all or substantially all of Tenant’s property or for Tenant’s interest in this Lease; or (iv) for the reorganization or modification of Tenant’s capital structure; however, if such a petition is filed against Tenant, then such filing shall not be an Event of Default unless Tenant fails to have the proceedings initiated by such petition dismissed within sixty (60) calendar days after the filing thereof.

     19.2 Landlord’s Remedies Upon Default. Upon the occurrence of any such Event of Default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

          19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

                    (i) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

                    (ii) 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

                    (iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

                    (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

                    (v) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

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The term “rent” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(i) and (ii), above, the “worth at the time of award” shall be computed by allowing interest at the Interest Rate set forth in Section 4.5 of this Lease. As used in Section 19.2.1(iii) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

          19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

          19.2.3 Landlord may, but shall not be obligated to, make any such payment or perform or otherwise cure any such obligation, provision, covenant or condition on Tenant’s part to be observed or performed (and may enter the Premises for such purposes). In the event of Tenant’s failure to perform any of its obligations or covenants under this Lease, and such failure to perform poses a material risk of injury or harm to persons or damage to or loss of property, then Landlord shall have the right to cure or otherwise perform such covenant or obligation at any time after such failure to perform by Tenant, whether or not any such notice or cure period set forth in Section 19.1 above has expired. Any such actions undertaken by Landlord pursuant to the foregoing provisions of this Section 19.2.3 shall not be deemed a waiver of Landlord’s rights and remedies as a result of Tenant’s failure to perform and shall not release Tenant from any of its obligations under this Lease.

          19.2.4 Following the occurrence of any Event of Default hereunder, Landlord shall use its commercially reasonable efforts to mitigate its damages consistent with applicable California law.

     19.3 Payment by Tenant. Tenant shall pay to Landlord, within fifteen (15) days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with Landlord’s performance or cure of any of Tenant’s obligations pursuant to the provisions of Section 19.2.3 above; and (ii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant’s obligations under this Section 19.3 shall survive the expiration or sooner termination of the Lease Term.

     19.4 Sublessees of Tenant. Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

     19.5 Waiver of Default. No waiver by Landlord of any violation or breach by Tenant of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach by Tenant of the same or any other of the terms, provisions, and covenants herein contained. Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon a default by Tenant shall not be deemed or construed to constitute a

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waiver of such default. The acceptance of any Rent hereunder by Landlord following the occurrence of any default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a default in the payment of the Rent so accepted.

     19.6 Efforts to Relet. For the purposes of this Article 19, Tenant’s right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord’s interests hereunder. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant’s right to possession.

     19.7 Landlord’s Default. Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice is delivered by Tenant to Landlord and to the holders of any mortgages or deeds of trust (collectively, “Lender”) covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying the obligation which Landlord has failed to perform; provided, however, that if the nature of Landlord’s obligation is such that more than thirty (30) days are reasonably required for performance, then Landlord shall not be in default if Landlord or Lender commences performance within such thirty (30)-day period and thereafter diligently prosecutes the same to completion.

ARTICLE 20

SECURITY DEPOSIT

     Concurrent with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “Security Deposit”) in the amount set forth in Section 10 of the Summary. The Security Deposit shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Lease Term. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, Landlord may, but shall not be required to, use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or for the payment of any amount that Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, Tenant shall, within five (5) business days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant’s failure to do so shall be an Event of Default under this Lease. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit, or any balance thereof, shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within thirty (30) days following the expiration of the Lease Term. Tenant shall not be entitled to any interest on the Security Deposit. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all other provisions of law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant.

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ARTICLE 21

COMPLIANCE WITH LAW

     Tenant shall not do anything or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall promptly comply with all such governmental measures, other than the making of structural changes or changes to the Building’s life safety system (collectively the “Excluded Changes”) except to the extent such Excluded Changes are required due to Tenant’s Alterations to or to Tenant’s particular manner of use of the Premises. Notwithstanding anything in this Lease to the contrary, as between Landlord and Tenant: (a) Tenant shall bear the risk of complying with Title III of the Americans With Disabilities Act of 1990, any state laws governing handicapped access or architectural barriers, and all rules, regulations and guidelines promulgated under such laws, as amended from time to time (the “Disabilities Acts”) in the Premises to the extent required because of Tenant’s Alterations or particular use of the Premises; and (b) Landlord shall bear the risk of complying with the Disabilities Acts in the Common Areas (subject to reimbursement as set forth in Article 4), other than compliance that is necessitated by virtue of Tenant’s particular use of the Premises or as a result of any Alterations or additions made by Tenant (which risk and responsibility shall be borne by Tenant). In addition, Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Real Property, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.

ARTICLE 22

ENTRY BY LANDLORD

     Landlord reserves the right at all reasonable times and upon at least twenty-four (24) hours’ written or oral notice to Tenant to enter the Premises to: (i) inspect them; (ii) show the Premises to prospective purchasers or mortgagees, or to the ground or underlying lessors; (iii) during the last six (6) months of the Lease Term, to show the Premises to prospective tenants; (iv) to post notices of nonresponsibility; or (v) alter, improve or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building, or as Landlord may otherwise reasonably desire or deem necessary. Notwithstanding anything to the contrary contained in this Article 22, Landlord may enter the Premises at any time, without notice to Tenant, in emergency situations and/or to perform janitorial or other services required of Landlord pursuant to this Lease. Except to the extent expressly set forth to the contrary in this Lease, any such entries shall be without the abatement of Rent and shall include the right to take such reasonable steps as required to accomplish the stated purposes. During any such entry by Landlord, Landlord shall use commercially reasonable efforts to minimize any interference with Tenant’s business operations in the Premises. Tenant hereby waives any claims for damages or for any injuries occasioned by such entry, except to the extent caused by the gross negligence or willful misconduct of Landlord. Tenant further waives any claims for damages for interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises occasioned by such entry. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have

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the right to enter without notice and use any means that Landlord may deem proper to open the doors in and to the Premises (provided that Landlord shall be liable for any damage to the Premises or any personal property of Tenant located therein to the extent caused by the gross negligence or willful misconduct of Landlord). Any entry into the Premises in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.

ARTICLE 23

TENANT PARKING

     Throughout the Lease Term, Tenant shall be entitled to use the number of unreserved parking spaces set forth in Section 11 of the Summary, located in those portions of the Parking Facilities as may be designated by Landlord from time to time, at no additional charge. Landlord may elect to distribute parking passes for the Parking Facilities but shall have no obligation to monitor or supervise parking by Tenant, other tenants of the Project, or their invitees. Tenant’s continued right to use the parking spaces is conditioned upon Tenant abiding by all reasonable, non-discriminatory rules and regulations which are prescribed from time to time for the orderly operation and use of the Parking Facilities and upon Tenant’s cooperation in seeing that Tenant’s employees and visitors also comply with such rules and regulations. In addition, at no cost to Tenant, Landlord may assign any parking spaces and/or make all or a portion of such spaces reserved or institute an attendant-assisted tandem parking program and/or valet parking program if Landlord determines in its sole discretion that such is necessary or desirable for orderly and efficient parking. Landlord specifically reserves the right, from time to time, to change the size, configuration, design, layout, location and all other aspects of the Parking Facilities, and Tenant acknowledges and agrees that Landlord, from time to time, may, without incurring any liability to Tenant and without any abatement of Rent under this Lease temporarily close-off or restrict access to the Parking Facilities, or temporarily relocate Tenant’s parking spaces to other parking structures and/or surface parking areas within a reasonable distance from the Parking Facilities, for purposes of permitting or facilitating any such construction, alteration or improvements or to accommodate or facilitate renovation, alteration, construction or other modification of other improvements or structures located on the Real Property. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to Landlord. Tenant shall be solely responsible for any parking tax or other charges imposed by governmental authorities in connection with the use of Tenant’s parking spaces at the Parking Facilities, or, if directly imposed against Landlord, Tenant shall reimburse Landlord for all such taxes and/or charges within ten (10) days after Tenant’s receipt of an invoice from Landlord. The parking passes provided to Tenant pursuant to this Article 23 (if any) are provided solely for use by Tenant’s own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord’s prior approval, except to an Affiliate of Tenant or to a Transferee of Tenant approved by Landlord.

ARTICLE 24

MISCELLANEOUS PROVISIONS

     24.1 Terms; Captions. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

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     24.2 Binding Effect. Each of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

     24.3 No Waiver. No waiver of any provision of this Lease shall be implied by any failure of a party to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, any waiver by a party of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than the one specified in such waiver and that one only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

     24.4 Intentionally Deleted.

     24.5 Transfer of Landlord’s Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Real Property, the Building and/or in this Lease, and Tenant agrees that in the event of any such transfer, provided that such transferee assumes, in writing, Landlord’s obligations under this Lease, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer. The liability of any transferee of Landlord shall be limited to the interest of such transferee in the Real Property and such transferee shall be without personal liability under this Lease, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.

     24.6 Prohibition Against Recording. Except as provided in Section 24.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord’s election.

     24.7 Landlord’s Title; Air Rights. Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.

     24.8 Tenant’s Signs. Tenant shall be entitled, at its sole cost and expense, to install (i) one (1) identification sign on or near the interior entry doors of the Premises, and (ii) one (1) exterior Building sign at a location to be designated by Landlord. Such signs shall be installed by a signage contractor designated by Landlord. The location, quality, design, style, lighting and size of such signs shall be consistent with Landlord’s Project signage program, shall be subject to approval by the City of Santa Clara, and shall be subject to Landlord’s prior written approval, in its reasonable discretion. Tenant shall maintain its sign(s) throughout the Lease Term at Tenant’s sole cost. Upon the expiration or earlier termination of this Lease, Tenant shall be responsible, at its sole cost and expense, for the removal of such signage and the repair of all damage to the Building caused by such removal. Except for such approved

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identification signage, Tenant may not install any signs on the exterior or roof of the Building or the common areas of the Building or the Real Property. Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building are subject to the prior approval of Landlord, in its sole and absolute discretion.

     24.9 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant.

     24.10 Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

     24.11 Time of Essence. Time is of the essence of this Lease and each of its provisions.

     24.12 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

     24.13 No Warranty. In executing and delivering this Lease, Tenant has not relied on any representation, including, but not limited to, any representation whatsoever as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

     24.14 Landlord Exculpation. It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of the Landlord Parties hereunder (including Landlord and any successor landlord) and any recourse by Tenant against the Landlord Parties shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Real Property, and neither Landlord, nor any of the other Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.

     24.15 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease and any side letter or separate agreement executed by Landlord and Tenant in connection with this Lease and dated of even date herewith contain all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises, shall be considered to be the only agreement between the parties hereto and their representatives and agents, and none of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties, and all reliance

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with respect to representations is based totally upon the representations and agreements contained in this Lease.

     24.16 Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Building and/or in the Other Buildings as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space within the Project.

     24.17 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except with respect to Tenant’s obligations under the Tenant Work Letter (collectively, the “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

     24.18 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant and for all those claiming under Tenant all right now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

     24.19 Notices. All notices, demands, statements or communications (collectively, “Notices”) given or required to be given by either party to the other hereunder shall be in writing, shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, or delivered personally (i) to Tenant at the appropriate address set forth in Section 5 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section 3 of the Summary, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given on the date it is mailed as provided in this Section 24.19 or upon the date personal delivery is made. If Tenant is notified of the identity and address of Landlord’s mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant’s exercising any remedy available to Tenant (not to exceed the period of time set forth in this Lease which is granted to Landlord to cure such default).

     24.20 Joint and Several. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several, and all notices, payments and agreements given or made by, with or to any one of the Tenant parties shall be deemed to have been given or made by, with or to all of them.

     24.21 Authority. If Tenant is a corporation or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the State of California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so.

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     24.22 Attorneys’ Fees. In the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys’ fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment.

     24.23 Governing Law. This Lease shall be construed and enforced in accordance with the laws of the State of California.

     24.24 Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

     24.25 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers. Landlord agrees to pay a brokerage commission to Landlord’s broker pursuant to a separate written agreement.

     24.26 Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, then, except to the extent expressly set forth to the contrary in this Lease, including without limitation, in Section 7.3 above, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building, Real Property or any portion thereof, of whose address Tenant has theretofore been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above, consistent with the terms of Section 19.7 above (not to exceed the period of time set forth in this Lease which is granted to Landlord to cure such violations).

     24.27 Building Name and Signage. Landlord shall have the right at any time to change the name(s) of the Building and/or the Project and to install, affix and maintain any and all signs on the exterior and on the interior of the Building and any portion of the Project as Landlord may, in Landlord’s sole discretion, desire, including without limitation tenant directory signage on the Project monument signs. In the event of such a change altering the name of the Building or the Project, Landlord shall reimburse Tenant for its replacement stationery setting forth the new name of the Building and/or the Project (if Tenant had such information on its stationery), up to a maximum amount of $1,000. Tenant shall not use the names of the Building or the Project or use pictures or illustrations of the Building or the Project in advertising or other publicity, without the prior written consent of Landlord, not to be unreasonably withheld.

     24.28 Building Directory. At Tenant’s cost, Landlord shall include Tenant’s name and location in the Building on one (1) line on the Building directory.

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     24.29 Confidentiality. Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants.

     24.30 ERISA. Tenant hereby represents and warrants to Landlord that:

          24.30.1 Tenant is not now, and will not at any time during the Lease Term become, a “party in interest” (within the meaning of Section 3(14) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) or a “disqualified person” (within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”)) with respect to the Metropolitan Life Retirement Plan for United States Employees or any other 10% or greater investor in the Tower Fund, taking into account the assets of any other plan maintained by the same employer or employee organization in the Tower Fund; (b) neither Landlord or any person controlling or controlled by Landlord owns a 25% or greater interest in Tenant; and (c) no portion of or interest in the Lease will be treated as the asset of any (i) “employee benefit plan” (within the meaning of Section 3(3) of ERISA), (ii) “plan” (within the meaning of Section 4975(e)(1) of the Code) or (iii) entity whose underlying assets include “plan assets” by reason of a plan’s investment in such entity; and

          24.30.2 Neither Tenant nor any ten percent (10%) or greater owner of Tenant owns, directly or indirectly, more than ten percent (10%) of (i) any class of stock of Metropolitan Life Insurance Company or any affiliate of Metropolitan Life Insurance Company; or (ii) any class of stock of BlackRock Realty Corporation or any affiliate of BlackRock Realty Corporation (including PNC Bank).

     24.31 REIT Qualifications. Landlord and Tenant agree that all Rent paid to Landlord under this Lease shall qualify as “rents from real property” as defined in Code Section 856(d) and as further defined in Treasury Regulation Section 1.856-4, as each is amended from time-to-time. Should the requirements of the said Code Section or Treasury Regulation Section be amended so that any rent no longer qualifies as “rents from real property” for the purposes of the Code or the Treasury Regulation, the Rent payable to Landlord shall be adjusted so that such Rent will qualify as “rents from real property” under the Code and Treasury Regulation; provided that such adjustments required pursuant to the provisions of this Section 24.31 shall not increase the monetary obligations of Tenant. In the event of any adjustment of Rent under this Section 24.31, or if Landlord in good faith determines that its status as a real estate investment trust under the provisions of the Internal Revenue Code or the Treasury Regulation will be jeopardized because of any provision of this Lease, Tenant shall, without charge therefor and within ten (10) business days after Landlord’s written request therefor, execute and deliver to Landlord such amendments to this Lease as may be reasonably required by Landlord to avoid such jeopardy; provided such amendments do not increase the monetary obligations of Tenant or in any other manner materially increase Tenant’s obligations or materially decrease Tenant’s rights under this Lease.

     24.32 Waiver of Jury Trial. LANDLORD AND TENANT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THE PREMISES (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS LEASE OR ANY CLAIMS OR DEFENSES ASSERTING THAT THIS LEASE WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LANDLORD TO ENTER INTO AND ACCEPT THIS LEASE. Landlord and Tenant agree and intend

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that this paragraph constitutes a written consent to waiver of trial by jury within the meaning of California Code of Civil Procedure Section 631(d)(2). Each party hereby authorizes and empowers the other to file this Section 24.32 and this Lease with the clerk or judge of any court of competent jurisdiction as a written consent to waiver of jury trial.

     24.33 Financial Reports. Within fifteen (15) business days after Landlord’s request, Tenant will furnish Tenant’s most recent audited financial statements (including any notes to them) to Landlord, or, if no such audited statements have been prepared, such other financial statements (and notes to them) as may have been prepared by an independent certified public accountant or, failing those, Tenant’s internally prepared financial statements. If Tenant is a publicly traded corporation, Tenant may satisfy its obligations hereunder by providing to Landlord Tenant’s most recent annual and quarterly reports. Tenant will discuss its financial statements with Landlord at Landlord’s request. Landlord will not disclose any aspect of Tenant’s financial statements that are not made available to the public by Tenant except: (1) to Landlord’s mortgagee or prospective mortgagees or purchasers of the Building; (2) to Landlord’s advisors; (3) in litigation between Landlord and Tenant; and (4) if required by court order. Tenant shall not be required to deliver the financial statements required under this Section 24.33 more than once in any twelve (12)-month period unless requested by Landlord’s mortgagee or a prospective buyer or lender of the Building or an Event of Default occurs.

     24.34 OFAC Compliance.

          24.34.1 As used herein “Blocked Party” shall mean any party or nation that (a) is listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the U.S. Treasury (“OFAC”) pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) or other similar requirements contained in the rules and regulations of OFAC (the “Order”) or in any enabling legislation or other Executive Orders in respect thereof (the Order and such other rules, regulations, legislation or orders are collectively called the “Orders”) or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the “Lists”); or (b) has been determined by competent authority to be subject to the prohibitions contained in the Orders.

          24.34.2 As a material inducement for Landlord entering into this Lease, Tenant warrants and represents that none of Tenant, any affiliate of Tenant, any partner, member or stockholder in Tenant or any affiliate of Tenant, or any beneficial owner of Tenant, any affiliate of Tenant or any such partner, member or stockholder of Tenant (collectively, a “Tenant Owner”): (a) is a Blocked Party; (b) is owned or controlled by, or is acting, directly or indirectly, for or on behalf of, any Blocked Party; or (c) has instigated, negotiated, facilitated, executed or otherwise engaged in this Lease, directly or indirectly, on behalf of any Blocked Party. Tenant shall immediately notify Landlord if any of the foregoing warranties and representations becomes untrue during the Lease Term.

          24.34.3 Tenant shall not: (a) transfer or permit the transfer of any interest in Tenant or any Tenant Owner to any Blocked Party; or (b) make a Transfer to any Blocked Party or party who is engaged in illegal activities.

          24.34.4 If at any time during the Lease Term (a) Tenant or any Tenant Owner becomes a Blocked Party or is convicted, pleads nolo contendere, or is indicted, arraigned or custodially detained on charges involving money laundering or predicate crimes to money laundering; (b) any of the representations or warranties set forth in this Section become untrue; or (c) Tenant breaches any of the covenants set forth in this Section, the same shall constitute an Event of Default. In addition to any other remedies to which Landlord may be entitled on account of such Event of Default, Landlord may

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immediately terminate this Lease and refuse to pay any improvement allowance or other disbursements due to Tenant under this Lease.

ARTICLE 25

EXISTING LEASE

     Landlord and Tenant acknowledge that Tenant is currently a tenant at 2840 San Tomas Expressway, one of the Other Buildings located on the Real Property (the “Existing Space”) pursuant to an Office Lease dated June 11, 1990, as amended and assigned (the “Existing Lease”). The Existing Lease is hereby extended from the expiration date thereof, i.e., March 31, 2006, through the fifth (5^th) business day following the Commencement Date hereunder (the “Existing Space Holdover Period”). Notwithstanding anything to the contrary in the Existing Lease, Tenant’s Base Rent for the Existing Space for the entirety of the Existing Space Holdover Period (but excluding the five (5) business days following the Commencement Date for which Base Rent shall not be charged on the Existing Space) shall be Fifty-Three Thousand Three Hundred Sixty-One and 00/100 Dollars ($53,361.00) per month. Tenant shall continue to be liable for its proportionate share of Direct Expenses and any other additional rent amounts accruing under the Existing Lease until its expiration as provided herein. Tenant shall surrender the Existing Space in accordance with the terms of the Existing Lease. In the event of termination of this Lease for any reason prior to Tenant’s relocation from the Existing Space to the Premises, the Existing Space Holdover Period shall terminate thirty (30) days following the date of such Lease termination and Tenant shall surrender the Premises by the end of such extended Existing Space Holdover Period. If Tenant fails to timely surrender the Existing Space as required hereunder, Tenant shall be liable for holdover rent as originally provided in the Existing Lease. In the event the Commencement Date does not occur by September 29, 2006 as a result of Landlord Delay (hereinafter defined), the Base Rent for the Existing Space during the remainder of the Existing Space Holdover Period thereafter occurring (but excluding the five (5) business days following the Commencement Date for which Base Rent shall not be charged on the Existing Space) shall be reduced to $22,530.20 per month (payable on a per diem basis). The term “Landlord Delay” shall mean only an actual delay in the Substantial Completion of the Tenant Improvements in the Premises which is caused by the failure of Landlord to (i) provide authorizations or

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approvals within the time periods set forth in the Tenant Work Letter, (ii) make payments due by Landlord under the Tenant Work Letter on a timely basis, or (iii) make the Premises available to the Contractor (as defined in Exhibit B attached hereto) on a timely basis. Any delays triggered by Tenant’s early access to and/or work in the Premises, pursuant to Section 6.1 of the Tenant Work Letter shall in no event be construed as Landlord Delay hereunder.

     WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

“Landlord”:	SAN TOMAS TOWER LLC, a Delaware limited liability company
	By:	/s/ Hiroe Takeuchi
	Name:	Hiroe Takeuchi
	Its:	Vice President
“Tenant”:	INTERVOICE, INC., a Texas corporation
	By:	/s/ H. Don Brown
	Name:	H. Don Brown
	Its:	Senior Vice President, Human Resources & Real Estate
	By:	/s/ Dean Howell
	Name:	Dean Howell
	Its:	Senior Vice President, General Counsel & Secretary

***    If Tenant is a CORPORATION, the authorized officers must sign on behalf of the corporation and indicate the capacity in which they are signing. The Lease must be executed by the president or vice president and the secretary or assistant secretary, unless the bylaws or a resolution of the board of directors shall otherwise provide, in which event, the bylaws or a certified copy of the resolution, as the case may be, must be attached to this Lease.

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EXHIBIT A

OUTLINE OF FLOOR PLAN OF PREMISES

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EXHIBIT B

TENANT WORK LETTER

     This Tenant Work Letter (“Tenant Work Letter”) sets forth the terms and conditions relating to the construction of improvements for the Premises. All references in this Tenant Work Letter to the “Lease” shall mean the relevant portions of the Lease to which this Tenant Work Letter is attached as Exhibit B.

SECTION 1

BASE, SHELL AND CORE

     Landlord has previously constructed the base, shell and core (i) of the Premises and (ii) of the floor of the Building on which the Premises are located (collectively, the “Base, Shell and Core”), and Tenant shall accept the Base, Shell and Core in its current “As-Is” condition existing as of the date of the Lease and the Commencement Date. Except for the Tenant Improvement Allowance and the Supplemental Allowance described below, Landlord shall not be obligated to make or pay for any alterations or improvements to the Premises, the Building or the Real Property. Landlord hereby agrees to cause the Tenant Improvements (as defined below) to be constructed in compliance with all applicable laws, rules, regulations and building codes (collectively, “Codes”) and agrees that, upon the Substantial Completion of the Tenant Improvements, the Premises shall be delivered to Tenant in compliance with all applicable Codes, including, without limitation, the Americans with Disabilities Act of 1990, as well as the regulations and accessibility guidelines promulgated thereunder (collectively, “ADA”), or any laws, ordinances or statutes of the City of Santa Clara or State of California based upon or similar to ADA. To the extent Tenant or any governmental authority notifies Landlord of any non-compliance with any Codes or ADA, Landlord, shall, at Landlord’s sole cost and expense, rectify the same to the extent required by applicable Codes and ADA.

SECTION 2

TENANT IMPROVEMENTS

     2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the “Tenant Improvement Allowance”) in the amount of up to, but not exceeding, Seventeen and 00/100 Dollars ($17.00) per rentable square foot of the Premises (i.e., up to Four Hundred Three Thousand One Hundred Seventy-Two and 00/100 Dollars ($403,172.00), based on 23,716 rentable square feet in the Premises), for the costs relating to the initial design and construction of Tenant’s improvements which are permanently affixed to the Premises (the “Tenant Improvements”). Subject to Section 2.3 of this Tenant Work Letter, in no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. Tenant shall not be entitled to receive any cash payment or credit against Rent or otherwise for any portion of the Tenant Improvement Allowance which is not used to pay for the Tenant Improvement Allowance Items (as such term is defined below).

     2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursement shall be made pursuant to Landlord’s standard disbursement process), only for the following items and costs (collectively, the “Tenant Improvement Allowance Items”):

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          2.2.1 payment of the fees of the “Architect” and the “Engineers”, as those terms are defined in Section 3.1 of this Tenant Work Letter, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the “Construction Drawings”, as that term is defined in Section 3.1 of this Tenant Work Letter;

          2.2.2 the payment of plan check, permit and license fees relating to construction of the Tenant Improvements;

          2.2.3 the cost of construction of the Tenant Improvements, including, without limitation, contractors’ fees and general conditions, testing and inspection costs, costs of utilities, trash removal, parking and hoists, and the costs of after-hours elevator usage;

          2.2.4 the cost of any changes in the Base, Shell and Core when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

          2.2.5 the cost of any changes to the Construction Drawings or Tenant Improvements required by Code or any other applicable laws;

          2.2.6 sales and use taxes and Title 24 fees;

          2.2.7 the “Landlord Supervision Fee,” as that term is defined in Section 4.3.2 of this Tenant Work Letter; and

          2.2.8 all other costs to be expended by Landlord in connection with the construction of the Tenant Improvements.

     2.3 Supplemental Allowance. In addition to the Tenant Improvement Allowance, Landlord agrees to make available to Tenant an additional sum of up to, but not exceeding, Twenty-Five and 00/100 Dollars ($25.00) per usable square foot of the Premises (i.e., up to Five Hundred Fifty-Two Thousand Nine Hundred Seventy-Five and 00/100 Dollars ($552,975.00), based on 22,119 usable square feet in the Premises) as a supplemental allowance (the “Supplemental Allowance”) to be applied toward the costs of the Tenant Improvement Allowance Items and/or the costs of Tenant’s furniture, fixtures and equipment (FF&E) in excess of the Tenant Improvement Allowance. The Supplemental Allowance shall be made available for this purpose only upon Tenant’s written request to Landlord therefor received on or before the Cost Proposal Delivery Date (as hereinafter defined). Such written request shall specify the maximum amount of the Supplemental Allowance desired. Landlord shall have no obligation to disburse any portion of the Supplemental Allowance in excess of the amount so requested by Tenant. The Supplemental Allowance shall be disbursed in the same manner and upon the same conditions as the Tenant Improvement Allowance. Landlord shall first disburse all portions of the Tenant Improvement Allowance prior to disbursing any portions of the Supplemental Allowance. Following Substantial Completion of the Tenant Improvements, Landlord shall advise Tenant of the amount of the Supplemental Allowance disbursed and the payment schedule for repayment thereof. Tenant shall only be obligated to pay Landlord for the Supplemental Allowance actually disbursed (the “Amortized Payment”) and not the maximum amount requested (unless such maximum amount shall have been actually disbursed). The Amortized Payment shall be made by Tenant to Landlord in equal monthly installments over the five (5) years of the initial Lease Term (commencing from the Commencement Date), amortized at ten percent (10%) per annum, simple interest, as additional Rent, payable at the same time and in the same manner as Base Rent, prepayable at any time (without premium, penalty or future

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interest). If Landlord has not advised Tenant of the payment schedule prior to the Commencement Date (for any reason whatsoever, including without limitation, as a result of the Supplemental Allowance not having then been fully disbursed), Tenant shall make those payments of the Amortized Payment which would have been due as of the Commencement Date within ten (10) business days after notification thereof. Tenant shall not be entitled to receive any cash payment or credit against Rent or otherwise for any unused portion of the Supplemental Allowance.

     2.4 Specifications for Building Standard Components. Landlord has established specifications (the “Specifications”) for the Building standard components to be used in the construction of the Tenant Improvements in the Premises, which Specifications will be provided to Tenant no later than two (2) business days after full execution of this Lease. Unless otherwise agreed to by Landlord, the Tenant Improvements shall comply with the Specifications. Landlord may make changes to the Specifications from time to time.

SECTION 3

CONSTRUCTION DRAWINGS

     3.1 Selection of Architect/Construction Drawings. Landlord hereby approves and shall retain Tenant’s chosen architect, RMW Architecture & Interiors (the “Architect”), to prepare the “Construction Drawings,” as that term is defined in this Section 3.1. Landlord shall retain Landlord’s engineering consultants (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety and sprinkler work in the Premises. The plans and drawings to be prepared by the Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings.” Notwithstanding that any Construction Drawings are reviewed by Landlord or prepared by its Engineers, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s Engineers and other consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant’s waiver and indemnity set forth in Article 10 of the Lease shall specifically apply to the Construction Drawings.

     3.2 Final Space Plan. Within five (5) business days of the full execution and delivery of the Lease by Landlord and Tenant, Tenant shall provide to Landlord for Landlord’s approval the final space plan for Tenant Improvements in the Premises prepared by the Architect (collectively, the “Final Space Plan”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. Landlord shall have ten (10) business days to review, comment upon, disapprove and/or approve of the proposed Final Space Plan, provided that Landlord shall have the right to disapprove if the proposed Final Space Plan contains a Design Problem. As used herein, “Design Problem” is defined as a Tenant Improvement which (i) materially adversely affects the exterior appearance of the Building; (ii) materially adversely affects the structural components of the Building; (iii) materially adversely affects any of the Building’s Systems and Equipment; (iv) in Landlord’s sole but reasonable discretion is an improvement to the Premises that would not be of value to or readily usable by succeeding tenant(s) of the Premises; or (v) fails to comply with applicable Codes.

     3.3 Final Working Drawings. Based on the Final Space Plan, Landlord shall cause the Architect and the Engineers to complete the architectural and engineering drawings for the Premises, and the Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Working Drawings”) and shall submit the same to Tenant for Tenant’s approval. The Final Working Drawings shall incorporate modifications to the

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Final Space Plan as necessary to comply with the floor load and other structural and system requirements of the Building. To the extent that the finishes and specifications are not completely set forth in the Final Space Plan for any portion of the Tenant Improvements depicted thereon, the actual specifications and finish work shall be in accordance with the Specifications. Tenant shall approve or reasonably disapprove the Final Working Drawings or any revisions thereto within five (5) business days after Landlord delivers the Final Working Drawings or any revisions thereto to Tenant; provided, however, that Tenant may only disapprove the Final Working Drawings to the extent the same are not (subject to changes reasonably required by Landlord) in substantial conformance with the Final Space Plan (“Working Drawing Design Problem”). Tenant’s failure to reasonably disapprove the Final Working Drawings or any revisions thereto by written notice to Landlord (which notice shall specify in detail the reasonable reasons for Tenant’s disapproval pertaining to any Working Drawing Design Problem) within said five (5)-business day period shall be deemed to constitute Tenant’s approval of the Final Working Drawings or such revisions.

     3.4 Approved Working Drawings. The Final Working Drawings shall be approved or deemed approved by Tenant (the “Approved Working Drawings”) prior to the commencement of the construction of the Tenant Improvements. Landlord shall cause the Architect to submit the Approved Working Drawing to the applicable local governmental agency for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1 of this Tenant Work Letter, to commence and fully complete the construction of the Tenant Improvements (the “Permits”). No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, provided that Landlord may withhold its consent, in its sole discretion, to any change in the Approved Working Drawings, if such change would directly or indirectly delay the Substantial Completion of the Premises and/or would increase the cost of the construction of the Tenant Improvements; provided, however, Landlord shall not be permitted to withhold its consent if Tenant agrees, in writing, to incur the Tenant Delay or added cost, as the case may be.

     3.5 Time Deadlines. Tenant shall use its best efforts to cooperate with Architect, the Engineers, and Landlord to complete all phases of the Construction Drawings and the permitting process and to receive the Permits, and with Contractor, for approval of the “Cost Proposal,” as that term is defined in Section 4.2 below as soon as possible after the execution of the Lease and, in this regard, to the extent Landlord considers such meeting(s) to be reasonably necessary, Tenant shall meet with Landlord on a weekly basis to discuss Tenant’s progress in connection with the same.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

     4.1 Contractor. Landlord shall competitively bid the construction of the Tenant Improvements to at least three (3) contractors. One (1) of such contractors shall be DPR Construction, Inc. The three (3) contractors shall submit their bids on a “sealed bid” basis to Landlord and Tenant at the same time. Landlord and Tenant shall thereafter meet to review said bids and attempt to mutually agree upon the contractor to be selected to perform the Tenant Improvements. The contractor selected by Landlord and Tenant shall be the qualified contractor that submits the lowest bid (if such contractor’s bid encompasses the full scope of the Tenant Improvements and has been revised for inconsistent assumptions), as determined by Landlord and Tenant. The selected contractor shall be referred to herein as the “Contractor”.

     4.2 Cost Proposal. After the Approved Working Drawings are signed by Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Working Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement

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Allowance Items to be incurred by Tenant in connection with the construction of the Tenant Improvements (the “Cost Proposal”). Notwithstanding the foregoing, portions of the cost of the Tenant Improvements may be delivered to Tenant as such portions of the Tenant Improvements are priced by Contractor (on an individual item-by-item or trade-by-trade basis), even before the Approved Working Drawings are completed (the “Partial Cost Proposal”). Tenant shall approve or disapprove and deliver the Cost Proposal to Landlord within seven (7) business days of the receipt of the same (or, as to a Partial Cost Proposal, within four (4) business days of receipt of the same). If Tenant disapproves the Cost Proposal, then the Cost Proposal shall be adjusted in accordance with Tenant’s comments and resubmitted to Tenant for its review and approval until the same shall be approved by Tenant. The date by which Tenant must approve and deliver the Cost Proposal, or the last Partial Cost Proposal to Landlord, as the case may be, shall be known hereafter as the “Cost Proposal Delivery Date”. The total of all Partial Cost Proposals, if any, shall be known as the Cost Proposal.

     4.3 Construction of Tenant Improvements by Contractor under the Supervision of Landlord.

          4.3.1 Over-Allowance Amount. On the Cost Proposal Delivery Date, Tenant shall deliver to Landlord cash in an amount (the “Over-Allowance Amount”) equal to the difference between (i) the amount of the Cost Proposal and (ii) the aggregate amount of the Tenant Improvement Allowance and the Supplemental Allowance requested by Tenant (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the Cost Proposal Delivery Date). The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any then remaining portion of the Tenant Improvement Allowance or Supplemental Allowance, and such disbursement shall be pursuant to the same procedure as the Tenant Improvement Allowance. In the event that, after the Cost Proposal Date, any revisions, changes or substitutions shall be made to the Construction Drawings or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions shall be added to the Cost Proposal and shall be paid by Tenant to Landlord immediately upon Landlord’s request to the extent such additional costs increase any existing Over-Allowance Amount or result in an Over-Allowance Amount. Following completion of the Tenant Improvements, Landlord shall deliver to Tenant a final cost statement which shall indicate the final costs of the Tenant Improvement Allowance Items, and if such cost statement indicates that Tenant has underpaid or overpaid the Over-Allowance Amount, then within ten (10) business days after receipt of such statement, Tenant shall deliver to Landlord the amount of such underpayment or Landlord shall return to Tenant the amount of such overpayment, as the case may be.

          4.3.2 Landlord Supervision. Landlord shall retain Contractor to construct the Tenant Improvements in accordance with the Approved Working Drawings and the Cost Proposal, and Landlord shall supervise the construction by Contractor, and Tenant shall pay a construction supervision and management fee (the “Landlord Supervision Fee”) to Landlord in an amount equal to the product of (i) five percent (5%) and (ii) an amount equal to the Tenant Improvement Allowance plus the Supplemental Allowance plus the Over-Allowance Amount (as such Over-Allowance Amount may increase pursuant to the terms of this Tenant Work Letter).

          4.3.3 Contractor’s Warranties and Guarantees. Landlord hereby assigns to Tenant all warranties and guarantees by Contractor relating to the Tenant Improvements, which assignment shall be on a non-exclusive basis such that the warranties and guarantees may be enforced by Landlord and/or Tenant, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements, except to the extent such claims arise out of the gross negligence or willful misconduct of Landlord. Landlord agrees to assist Tenant, at no cost to Landlord, in enforcing such warranties and guaranties.

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SECTION 5

SUBSTANTIAL COMPLETION; COMMENCEMENT DATE

     5.1 Substantial Completion. For purposes of the Lease, including for purposes of determining the Commencement Date (as set forth in Section 7.2 of the Summary), the Premises shall be “Ready for Occupancy” upon Substantial Completion of the Premises. For purposes of this Lease, “Substantial Completion” of the Premises shall occur upon (i) the completion of construction of the Tenant Improvements in the Premises pursuant to the Approved Working Drawings, with the exception of any punchlist items and any tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant or under the supervision of Contractor, and (ii) receipt by Landlord of a certificate of occupancy for the Premises or the equivalent sign-off by the local building inspector.

     5.2 Tenant Delays. If there shall be a delay or there are delays in the Substantial Completion of the Premises (as a direct, indirect, partial, or total result of any of the following (collectively, “Tenant Delays”):

          5.2.1 Tenant’s failure to timely approve any matter requiring Tenant’s approval, including a Partial Cost Proposal or the Cost Proposal and/or Tenant’s failure to timely perform any other obligation or act required of Tenant hereunder;

          5.2.2 a breach by Tenant of the terms of this Tenant Work Letter or the Lease;

          5.2.3 Tenant’s request for changes in the Construction Drawings, including without limitation the Approved Working Drawings under Section 3.4 of this Tenant Work Letter;

          5.2.4 Tenant’s requirement for materials, components, finishes or improvements which are not available in a reasonable time (based upon the anticipated date of the Commencement Date) or which are different from, or not included in, the Specifications;

          5.2.5 changes to the Base, Shell and Core required by the Approved Working Drawings; or

          5.2.6 any other acts or omissions of Tenant, or its agents or employees;

then, notwithstanding anything to the contrary set forth in the Lease and regardless of the actual date of the Substantial Completion of the Premises, the Commencement Date (as set forth in Section 7.2 of the Summary) shall be deemed to be the date the Commencement Date would have occurred if no Tenant Delay or Delays, as set forth above, had occurred.

Notwithstanding the foregoing, no Tenant Delay shall be deemed to have occurred unless and until Landlord has provided a factually correct notice to Tenant specifying the act or omission by Tenant, or its agents, employees, contractors, subcontractors or licensees, which Landlord contends constitutes a Tenant Delay under any of this Section 5.2. Furthermore, Tenant shall have one (1) day of delay forgiven as a grace period in connection with any Tenant Delay.

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SECTION 6

MISCELLANEOUS

     6.1 Tenant’s Entry Into the Premises Prior to Substantial Completion. Subject to the terms hereof and provided that Tenant and its agents do not interfere with, or delay, Contractor’s work in the Building and the Premises, at Landlord’s reasonable discretion, Contractor shall allow Tenant access to the Premises at least forty-five (45) days prior to the Substantial Completion of the Premises for the purpose of Tenant installing its furniture, equipment and fixtures (including Tenant’s data and telephone equipment) in the Premises. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant’s entry. In connection with any such entry, Tenant acknowledges and agrees that Tenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall fully cooperate, work in harmony and not, in any manner, interfere with Landlord or Landlord’s Contractor, agents or representatives in performing work in the Building and the Premises, or interfere with the general operation of the Building and/or the Real Property. If at any time any such person representing Tenant shall not be cooperative or shall otherwise cause or threaten to cause any such disharmony or interference, including, without limitation, labor disharmony, and Tenant fails to immediately institute and maintain corrective actions as directed by Landlord, then Landlord may revoke Tenant’s entry rights upon twenty-four (24) hours’ prior written notice to Tenant. Tenant acknowledges and agrees that any such entry into and occupancy of the Premises or any portion thereof by Tenant or any person or entity working for or on behalf of Tenant shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Lease, excluding only the covenant to pay Rent (until the occurrence of the Commencement Date). Tenant shall be liable to Landlord for any damage to any portion of the Premises, including the Tenant Improvement work, caused by Tenant or any of Tenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees. In the event that the performance of Tenant’s work in connection with such entry causes extra costs to be incurred by Landlord or requires the use of any Building services, Tenant shall promptly reimburse Landlord for such extra costs and/or shall pay Landlord for such Building services at Landlord’s standard rates then in effect.

     6.2 Tenant’s Representative. Tenant has designated John Linn as its sole representative with respect to the matters set forth in this Tenant Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

     6.3 Landlord’s Representative. Landlord has designated Denise Rock as its sole representative with respect to the matters set forth in this Tenant 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 Tenant Work Letter.

     6.4 Time of the Essence in This Tenant Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord’s sole option, at the end of said period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.

     6.5 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in the Lease, if an Event of Default by Tenant as described in Section 19.1 of the Lease or any default by Tenant under this Tenant Work Letter which is not cured within three (3) days following written notice from Landlord has occurred at any time on or before the Substantial Completion of the Premises, then (i) in

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addition to all other rights and remedies granted to Landlord pursuant to the Lease, at law and/or in equity, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and the Supplemental Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in Section 5.2 of this Tenant Work Letter), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such inaction by Landlord). In addition, if the Lease is terminated prior to the Commencement Date, for any reason due to an Event of Default by Tenant as described in Section 19.1 of the Lease or under this Tenant Work Letter, in addition to any other remedies available to Landlord under the Lease, at law and/or in equity, Tenant shall pay to Landlord, as Additional Rent under the Lease, within five (5) business days of receipt of a statement therefor, any and all costs incurred by Landlord (including any portion of the Tenant Improvement Allowance and the Supplemental Allowance already disbursed by Landlord) and not reimbursed or otherwise paid by Tenant through the date of such termination in connection with the Tenant Improvements to the extent planned, installed and/or constructed as of such date of termination, including, but not limited to, any costs related to the removal of all or any portion of the Tenant Improvements and restoration costs related thereto.

     6.6 Punchlist. After the Substantial Completion of the Tenant Improvements (excepting punchlist items), Landlord shall cause the Contractor to inspect the Premises with representatives of Tenant and Landlord and complete a punchlist of unfinished, non-functioning or malfunctioning items of the Tenant Improvements. The authorized representatives for Landlord and Tenant shall execute said punchlist to indicate their approval thereof, not to be unreasonably withheld. The items listed on such punchlist shall be completed by the Contractor within thirty (30) days after the approval of such punchlist or as soon thereafter as reasonably practicable. Notwithstanding the foregoing, provided Tenant notifies Landlord in writing of any additional punchlist items which constitute unfinished, non-functioning or malfunctioning Tenant Improvements within ten (10) days after Tenant’s move into the Premises, Landlord shall cause the Contractor to complete said additional items as soon as reasonably practicable.

     6.7 No Charge for Freight Elevator Usage. Landlord agrees that Tenant may use the Building freight elevators at no charge to Tenant during Tenant’s move into the Premises.

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EXHIBIT C

RULES AND REGULATIONS

     Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Building or the Real Property.

     1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a cost to be established by Landlord equal to the actual costs to Landlord of reproducing same.

     2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises, unless electrical hold backs have been installed.

     3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the vicinity of the Building. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register when so doing. After-hours access by Tenant’s authorized employees may be provided by card-key access or other procedures adopted by Landlord from time to time; Tenant shall pay for the costs of all access cards provided to Tenant’s employees and all replacements thereof for lost, stolen or damaged cards. Access to the Building and/or Real Property may be refused unless the person seeking access has proper identification or has a previously arranged pass for such access. Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building and/or Real Property of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building and/or Real Property during the continuance of same by any means it deems appropriate for the safety and protection of life and property.

     4. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. All damage done to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility of Tenant and any expense of said damage or injury shall be borne by Tenant.

     5. No furniture, freight, packages, supplies, equipment or merchandise will be brought into or removed from the Building or carried up or down in the elevators, except upon prior notice to Landlord, and in such manner, in such specific elevator, and between such hours as shall be designated by Landlord. Tenant shall provide Landlord with not less than twenty-four (24) hours’ prior notice of the need to utilize an elevator for any such purpose, so as to provide Landlord with a reasonable period to schedule such use and to install such padding or take such other actions or prescribe such procedures as are appropriate to protect against damage to the elevators or other parts of the Building.

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     6. Landlord shall have the right to control and operate the public portions of the Building and Real Property, the public facilities, the heating and air conditioning, and any other facilities furnished for the common use of tenants, in such manner as is customary for comparable buildings in the vicinity of the Building.

     7. The requirements of Tenant will be attended to only upon application at the management office of the Real Property or at such other location as may be designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

     8. Tenant shall not disturb, solicit, or canvass any occupant of the Building or Real Property and shall cooperate with Landlord or Landlord’s agents to prevent same.

     9. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it.

     10. Tenant shall not overload the floor of the Premises. Tenant shall not mark, drive nails or screws, or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof without Landlord’s consent first had and obtained; provided, however, Landlord’s prior consent shall not be required with respect to Tenant’s placement of pictures and other normal office wall hangings on the interior walls of the Premises (but at the end of the Lease Term, Tenant shall repair any holes and other damage to the Premises resulting therefrom).

     11. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines of any description other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

     12. Tenant shall not use any method of heating or air conditioning other than that which may be supplied by Landlord, without the prior written consent of Landlord.

     13. Tenant shall not use or keep in or on the Premises, the Building or Real Property any kerosene, gasoline or other inflammable or combustible fluid or material. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building or Real Property by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therewith.

     14. Tenant shall not bring into or keep within the Real Property, the Building or the Premises any animals, birds, bicycles or other vehicles.

     15. No cooking shall be done or permitted by Tenant on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations, and does not cause odors which are objectionable to Landlord and other tenants.

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     16. Landlord will approve where and how telephone and data cabling and wires are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Landlord. The location of telephone, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord.

     17. Landlord reserves the right to exclude or expel from the Building and/or Real Property any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

     18. Tenant, its employees and agents shall not loiter in the entrances or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or elevators, and shall use the same only as a means of ingress and egress for the Premises.

     19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls.

     20. Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city in which the Real Property is located without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate.

     21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

     22. Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed, when the Premises are not occupied.

     23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord.

     24. The washing and/or detailing of or, the installation of windshields, radios, telephones in or general work on, automobiles shall not be allowed on the Real Property.

     25. Food vendors shall be allowed in the Building upon receipt of a written request from the Tenant. The food vendor shall service only the tenants that have a written request on file in the management office of the Real Property. Under no circumstance shall the food vendor display their products in a public or common area including corridors and elevator lobbies. Any failure to comply with this rule shall result in immediate permanent withdrawal of the vendor from the Building.

     26. Tenant must comply with requests by Landlord concerning the informing of their employees of items of importance to the Landlord.

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     27. Tenant shall comply with any non-smoking ordinance adopted by any applicable governmental authority. Without limiting the generality of the foregoing, Tenant, its employees and invitees are prohibited from smoking in the Building or within twenty (20) feet of any entrances to the Building. Landlord reserves the right to designate approved smoking areas within the Project.

     28. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Building and/or Real Property. Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable, non-discriminatory Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building and Real Property, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord shall not be responsible to Tenant or to any other person for the nonobservance of the Rules and Regulations by another tenant or other person, provided that upon written notice to Landlord, Landlord shall use commercially reasonable efforts (which shall in no event be construed to include the initiation of legal proceedings) to cause such non-observing tenant to comply with the Rules and Regulations. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

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EXHIBIT D

MEMORANDUM OF LEASE TERMS

                                        , 2006

__________________________

__________________________

__________________________

__________________________

     Re: Office Lease (the “Lease”) dated as of June 7, 2006, between SAN TOMAS TOWER LLC, a Delaware limited liability company (“Landlord”), and INTERVOICE, INC., a Texas corporation (“Tenant”). Capitalized terms used herein but not defined shall be given the meanings assigned to them in the Lease.

Ladies and Gentlemen:

     1. Condition of Premises. Tenant has accepted possession of the Premises pursuant to the Lease, subject to latent defects. Any improvements required by the terms of the Lease to be made by Landlord have been completed to the full and complete satisfaction of Tenant in all respects except for the punchlist items described on Exhibit A hereto (the “Punchlist Items”), if any, and, except for such Punchlist Items, Landlord has fulfilled all of its duties under the Lease with respect to such initial tenant improvements. Furthermore, Tenant acknowledges that the Premises are suitable for the Permitted Use.

     2. Commencement Date. The Commencement Date of the Lease is ___, 2006.

     3. Expiration Date. The Lease Term is scheduled to expire on the last day of the 60^th full calendar month of the Lease Term, which date is ___, 201_.

     4. Contact Person. Tenant’s contact person in the Premises is:

Attention:

Telephone:

Facsimile:

Email:

     5. Ratification. Tenant hereby ratifies and confirms its obligations under the Lease, and represents and warrants to Landlord that it has no defenses thereto. Additionally, Tenant further confirms and ratifies that, as of the date hereof, (a) the Lease is and remains in good standing and in full force and effect, and (b) Tenant has no claims, counterclaims, set-offs or defenses against Landlord arising out of the Lease or in any way relating thereto or arising out of any other transaction between Landlord and Tenant.

     6. Binding Effect; Governing Law. Except as modified hereby, the Lease shall remain in full force and effect and this letter shall be binding upon Landlord and Tenant and their respective successors and assigns. If any inconsistency exists or arises between the terms of this letter and the terms of the Lease, the terms of this letter shall prevail. This letter shall be governed by the laws of the State of California.

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     Please indicate your agreement to the above matters by signing this letter in the space indicated below and returning an executed original to us.

Sincerely,
	[Property Manager]	,
a
By:
Name:
Title:

Agreed and accepted:

INTERVOICE, INC.,
a Texas corporation

By:

Name:

Title:

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EXHIBIT E

EXTENSION OPTION

     1. Option Right. Landlord hereby grants Tenant one (1) option to extend the Lease Term for a period of five (5) years (the “Option Term”), which option shall be exercisable only by written Exercise Notice (as defined below) delivered by Tenant to Landlord as provided below. Upon the proper exercise of such option to extend, the Lease Term shall be extended for the Option Term. Notwithstanding the foregoing, at Landlord’s option, in addition to any other remedies available to Landlord under this Lease, at law or in equity, Tenant shall not have the right to extend the Lease Term for the Option Term if as of the date of delivery of the Exercise Notice by Tenant, or as of the end of the initial Lease Term, Tenant is in default under this Lease after expiration of any applicable notice and cure period. The rights contained in this Exhibit E shall be personal to the original Tenant named herein and may only be exercised (i) by the original Tenant and/or its Affiliate (and not any assignee, sublessee or other Transferee of Tenant’s interest in the Lease) and (ii) if the original Tenant and/or its Affiliate occupies at least seventy-five percent (75%) of the Premises as of the date of the Exercise Notice.

     2. Option Rent. The annual Base Rent payable by Tenant during the Option Term (the “Option Rent”) shall be equal to the greater of: (i) the annual Base Rent payable by Tenant during the last year of the initial Lease Term; or (ii) the Fair Market Rental Rate for the Premises. As used herein, the “Fair Market Rental Rate” for purposes of determining the annual Base Rent for the Option Term shall mean the annual Base Rent at which tenants, as of the commencement of the Option Term, will be leasing non-sublease space comparable in size, location and quality to the Premises for a comparable term, which comparable space is located in the Building, the Other Buildings (if any) and in other comparable first class office buildings in the general vicinity of the Building in the City of Santa Clara, taking into consideration all free rent and other out-of-pocket concessions generally being granted at such time for such comparable space for the Option Term (including, without limitation, any tenant improvement allowance provided for such comparable space, with the amount of such tenant improvement allowance to be provided for the Premises during the Option Term to be determined after taking into account the age, quality and layout of the tenant improvements in the Premises as of the commencement of the Option Term with consideration given to the fact that the improvements existing in the Premises are specifically suitable to Tenant). All other terms and conditions of the Lease shall apply throughout the Option Term and the Premises shall be delivered in their “as is” condition; however, Tenant shall, in no event, have the option to extend the Lease Term beyond the Option Term described in Section 1 above.

     3. Exercise of Option. The option contained in this Exhibit E shall be exercised by Tenant, if at all, only in the following manner: (i) Tenant shall deliver written notice (“Interest Notice”) to Landlord not more than twelve (12) months nor less than nine (9) months prior to the expiration of the initial Lease Term stating that Tenant may be interested in exercising its option; (ii) Landlord, after receipt of Tenant’s notice, shall deliver notice (the “Option Rent Notice”) to Tenant not less than eight (8) months prior to the expiration of the initial Lease Term setting forth the Option Rent; and (iii) if Tenant wishes to exercise such option, Tenant shall, on or before the date (the “Exercise Date”) which is seven (7) months prior to the expiration of the initial Lease Term, exercise the option by delivering written notice (“Exercise Notice”) thereof to Landlord. Tenant’s failure to deliver the Interest Notice or Exercise Notice on or before the applicable delivery dates therefor specified hereinabove shall be deemed to constitute Tenant’s waiver of its extension right hereunder.

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     4. Determination of Option Rent.

          (i) If Tenant accepts Landlord’s determination of the Option Rent as set forth in the Option Rent Notice, Tenant shall so indicate in Tenant’s Exercise Notice whereupon the Option Rent set forth in the Option Rent Notice shall be the Base Rent for the Option Term. At Landlord’s request, Tenant and Landlord shall memorialize such agreement in a letter agreement or lease amendment prepared by Landlord.

          (ii) If Tenant does not accept Landlord’s determination of the Option Rent as set forth in the Option Rent Notice, Tenant shall so indicate in Tenant’s Exercise Notice and shall therein state Tenant’s determination of the Option Rent, following which the parties shall attempt to reach agreement on the Option Rent. Any agreement so reached by the parties following (or prior to) the Exercise Date shall be memorialized in a letter agreement or lease amendment prepared by Landlord.

          (iii) If Landlord and Tenant fail to reach agreement by that date which is six (6) months prior to the expiration of the initial Lease Term (the “Outside Agreement Date”), then within five (5) business days of the Outside Agreement Date, Landlord and Tenant shall each simultaneously submit to the other in a sealed envelope its final good faith estimate of the Fair Market Rental Rate. If either Landlord or Tenant fails to propose a Fair Market Rental Rate, then the Fair Market Rental Rate proposed by the other party shall prevail. If the higher of such estimates is not more than one hundred five percent (105%) of the lower, then the Fair Market Rental Rate shall be the average of the two. Otherwise, the dispute shall be resolved by arbitration in accordance with the remainder of this Section 4(iii). Within seven (7) days after the exchange of estimates, the parties shall select as an arbitrator a licensed real estate broker with at least ten (10) years of experience leasing premises in Class A office buildings in the City of Santa Clara (a “Qualified Arbitrator”). If the parties cannot agree on a Qualified Arbitrator, then within a second period of seven (7) days, each shall select a Qualified Arbitrator and within ten (10) days thereafter the two appointed Qualified Arbitrators shall select a third Qualified Arbitrator (which third Qualified Arbitrator shall not previously have represented either party hereto) and the third Qualified Arbitrator shall be the sole arbitrator (the “Sole Arbitrator”). If one party shall fail to select a Qualified Arbitrator within the second seven (7)-day period, then the Qualified Arbitrator chosen by the other party shall be the Sole Arbitrator. Within thirty (30) days after submission of the matter to the Sole Arbitrator, the Sole Arbitrator shall determine the Fair Market Rental Rate by choosing whichever of the estimates submitted by Landlord and Tenant the Sole Arbitrator judges to be more accurate. The Sole Arbitrator shall notify Landlord and Tenant of his or her decision, which shall be final and binding. If the Sole Arbitrator believes that expert advice would materially assist him or her, the Sole Arbitrator may retain one or more qualified persons to provide expert advice. The fees of the arbitrator selected by each party shall be borne by that party. The fees of the Sole Arbitrator and the expenses of the arbitration proceeding, including the fees of any expert witnesses retained by the Sole Arbitrator, shall be shared equally by Landlord and Tenant. Upon conclusion of the arbitration proceeding, the Option Rent shall be memorialized in a letter agreement or lease amendment prepared by Landlord.

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EX-10.2

EXHIBIT 10.2

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     This Amended and Restated EMPLOYMENT AGREEMENT (this “Agreement”) executed on October 9, 2006 between Intervoice, Inc., a Texas corporation (“Intervoice”), and Marie A. Jackson (the “Employee”).

     WHEREAS, in connection with the Employee’s recent promotion to the position of Senior Vice President Corporate Marketing, Intervoice and Employee desire to amend and restate Employee’s prior Employment Agreement dated as of December 5, 2005;

     WHEREAS, Intervoice desires to continue to employ the Employee, and the Employee desires to be employed by Intervoice, on the terms and conditions hereinafter set forth;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Intervoice and the Employee hereby agree as follows:

1. Employment.

     Intervoice agrees to continue to employ the Employee, and the Employee agrees to enter the employ of Intervoice under the terms of this Agreement through December 30, 2007, (the “Initial Employment Term”). Following the expiration of the Initial Employment Term, the Employee’s continued employment by Intervoice shall be at will, subject to the general policies and practices of Intervoice as shall apply to a person having such position as the Employee may then and thereafter from time to time hold.

2. Position and Duties.

     (a) During the Initial Employment Term, the Employee shall devote her full time, skill, and attention, and her best efforts during normal business hours to the business and affairs of Intervoice, to the extent necessary to discharge faithfully and efficiently the duties and responsibilities delegated and assigned to the Employee herein or pursuant hereto, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability.

     (b) All services that the Employee may render to Intervoice or any of its subsidiaries or affiliates in any capacity during the Initial Employment Term shall be deemed to be services required by this Agreement and consideration for the compensation provided for herein.

     (c) The Employee shall perform her duties and responsibilities in the capacity of a senior vice president level position.

3. Compensation and Related Matters.

     (a) Base Salary. During the Initial Employment Term, Intervoice shall continue to pay to the Employee for her services hereunder a base salary (“Base Salary”) at the rate of $215,000 per year, payable in semi-monthly installments in accordance with the general payroll practices (including payroll withholding requirements) of Intervoice in effect at the time such payment is made. The Base Salary may be increased, as determined to be appropriate by Intervoice, following Intervoice’s annual review of the Employee’s performance.

     (b) Employee Benefits. During the Initial Employment Term, the Employee shall be entitled to receive all employee benefits which are from time to time generally made available by Intervoice to its other similarly situated employees.

     (c) Annual Bonus. Effective for Intervoice’s fiscal year beginning March 1, 2006, and continuing with respect to the fiscal year ending February 28, 2008, the Employee will participate in the bonus plan provided to the Employee by Intervoice for the applicable time period, according to the terms of such plan. The Employee will participate under the plan at the senior vice president level with an incentive target at plan of 40 percent of the Employee’s annual base salary rate.

     (d) Vacations and Other Authorized Absences. During the Initial Employment Term, the Employee shall be entitled to paid vacations and such other paid absences for holidays, illness, personal time, or other authorized reasons, in accordance with the policies, practices, and procedures of Intervoice from time to time in effect. The Employee agrees to utilize her vacation at such time or times as are (i) consistent with the proper performance of her duties and responsibilities hereunder, and (ii) mutually convenient for Intervoice and the Employee.

     (e) Stay Bonus. Within 15 days after satisfactory completion of her employment through December 30, 2006, Intervoice shall pay to the Employee a retention bonus of $30,000, and within 15 days after satisfactory completion of the remaining Initial Employment Term, Intervoice shall pay to the Employee an additional retention bonus of $20,000 (collectively, the “Stay Bonus”), less applicable withholding and otherwise according to the general payroll practices of Intervoice, in consideration of the Employee’s continued satisfactory service, according to the good-faith determination of Intervoice, during each year of the Initial Employment Term of this Agreement. If the Employee voluntarily terminates employment with Intervoice during the Initial Employment Term for any reason (including, without limitation, to accept a new job or to retire) other than for Good Reason (as defined in Paragraph 4 herein), or if the Employee’s employment with Intervoice is terminated for Cause (as defined in Paragraph 4 herein) or because of her death or Disability (as defined in Paragraph 4 herein) in accordance with this Agreement, then the Employee shall not be entitled to receive any portion of the Stay Bonus not already earned according to the criteria stated above. However, if the Employee’s employment is terminated by Intervoice prior to the completion of the Initial Employment Term for any reason other than for Cause, death, Disability, or pursuant to the provisions of Paragraph 1(b) hereof, then the portion of the Stay Bonus for the first or second year of the Initial Employment Term, as applicable

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according to whether the termination occurs during the first or second year of the Initial Employment Term, shall be payable in full as soon as practicable following the Employee’s termination; provided, however, that in the event such payment constitutes deferred compensation that may not be paid before the date that is six months after the date of the Employee’s separation from service (or, if earlier, the date of death of the Employee) as provided in Section 409A(a)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) in order to meet the requirements of Section 409A of the Code, as determined by Intervoice in its sole judgment, the Stay Bonus shall be paid in full as soon as administratively practicable following the date that is six months after the date of the Employee’s separation from service (or, if earlier, the date of death of the Executive).

4. Termination of Employment.

     (a) Events of Termination. The Employee’s employment hereunder shall terminate automatically upon the first to occur of the Employee’s death, Disability (as herein defined), termination by Intervoice for Cause (as herein defined), or termination by the Employee for Good Reason (as herein defined).

     (b) Certain Definitions. For purposes of this Agreement:

     (i) The “Disability” of the Employee shall be deemed to have occurred if the Employee shall have been unable to perform her duties hereunder, despite any reasonable accommodation required by law, on a full-time basis for 60 consecutive days, or for an aggregate of 90 days within any given period of 180 consecutive days (excluding any leaves of absence approved by Intervoice) as a result of her physical or mental incapacity.

     (ii) “Cause” shall mean any of the following.

     (A) conduct by the Employee that, in the good-faith opinion of the Employee’s supervising officer, an executive officer, or the Board of Directors of Intervoice is materially detrimental to Intervoice or reflects unfavorably on Intervoice or the Employee to such an extent that Intervoice’s best interest reasonably requires the Employee’s discharge;

     (B) conduct by the Employee that constitutes willful misconduct or gross negligence in the performance of her duties hereunder;

     (C) conduct by the Employee that constitutes fraud or a criminal act, whether or not related to Intervoice or the Employee’s duties hereunder;

     (D) the continued failure by the Employee to substantially perform her duties hereunder (other than any such failure resulting from illness of or injury to the Employee or the Employee’s physical or mental incapacity), after demand for substantial performance is delivered by

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Intervoice that specifically identifies the manner in which Intervoice believes the Employee has not substantially performed her duties; or

     (E) any material breach by the Employee of any of the material provisions of this Agreement.

     (iii) “Good Reason” shall mean any of the following (without the Employee’s consent).

     (A) the assignment to the Employee by Intervoice of any significant duties materially inconsistent with the Employee’s position with Intervoice at the time of such assignment, or the Employee is required by Intervoice to permanently office at a location which is more than 30 miles from Intervoice’s current facility in Santa Clara, California;

     (B) the removal by Intervoice from the Employee of a significant and material portion of those duties usually appertaining to the Employee’s position with Intervoice at the time of such removal;

     (C) a reduction by Intervoice of the Employee’s Base Salary as then in effect pursuant to the provisions hereof, or the failure of Intervoice to pay such Base Salary to the Employee substantially at the time and in the manner specified in Paragraph 3(a) of this Agreement; or

     (D) any failure by Intervoice to otherwise comply with any material provision of this Agreement in any material respect after receiving 30 days’ written notice from the Employee.

(c) Date of Termination. For purposes of this Agreement, “Date of Termination” shall mean the effective date of termination of the Employee’s employment hereunder, which date shall be (i) if the Employee’s employment is terminated by her death, the date of her death, (ii) if the Employee’s employment is terminated because of her Disability, the 30th day following Intervoice’s notice that the Employee’s employment is being terminated due to Disability, (iii) if the Employee’s employment is terminated by Intervoice for Cause, the third day following the date on which Intervoice gives notice that the Employee’s employment is being terminated for Cause, (iv) if the Employee’s employment is terminated by the Employee for Good Reason, the fifth day following the date on which the Employee gives notice that she is terminating her employment for Good Reason, and (v) if the Employee’s employment is terminated for any other reason, the date specified in the notice of termination, which date shall in no event be earlier than the date such notice is given.

5. Obligations of Intervoice Upon Termination of Employment.

     (a) Death. If the Employee’s employment hereunder is terminated by reason of the Employee’s death, Intervoice shall pay to the Employee’s estate, in a lump sum in cash, the sum of (i) the Employee’s Base Salary through the Date of Termination, to the extent not theretofore paid, and (ii) an amount equal to the Base Salary the Employee

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would have been entitled to receive had the Employee remained in Intervoice’s employ through the end of the calendar month during which her employment terminated.

     (b) Disability. If the Employee’s employment hereunder is terminated by reason of the Employee’s Disability, Intervoice shall pay to the Employee, in a lump sum in cash, the sum of (i) the Employee’s Base Salary through the Date of Termination, to the extent not theretofore paid, and (ii) an amount equal to the Base Salary the Employee would have been entitled to receive had the Employee remained in Intervoice’s employ through the end of the calendar month during which her employment terminated.

     (c) Termination for Cause. If the Employee’s employment hereunder is terminated for Cause, Intervoice shall pay to the Employee, in a lump sum in cash, the Employee’s Base Salary through the Date of Termination, to the extent not theretofore paid, and, thereafter, Intervoice shall have no further obligations to the Employee under this Agreement.

     (d) Termination by the Employee Other than for Good Reason. If the Employee’s employment hereunder is terminated by the Employee other than for Good Reason, Intervoice shall pay to the Employee, in a lump sum in cash, the Employee’s Base Salary through the Date of Termination, to the extent not theretofore paid.

     (e) Termination by Company Other Than for Cause, Etc., or by the Employee for Good Reason. If the Employee’s employment hereunder is terminated by Intervoice other than for Cause, Death, Disability, or pursuant to the provisions of Paragraph 1(b), or if the Employee’s employment hereunder is terminated by the Employee for Good Reason, Intervoice shall pay to the Employee, in a lump sum in cash, the aggregate of the following amounts:

     (i) the Employee’s Base Salary through the Date of Termination to the extent not theretofore paid; and

     (ii) an amount equal to the Employee’s Base Salary for the period of time commencing on the Date of Termination and continuing through the last to occur of (A) 180 days, or (B) expiration of the Initial Employment Term of this Agreement pursuant to Paragraph 1(a) hereof.

     (f) Time of Payment. The Base Salary payments provided for under clause (ii) of subparagraphs (a), (b), and (e) of this Paragraph 5 shall be paid at the time and in the manner such Base Salary would have been paid had there been no termination of employment (except as otherwise required by applicable law) unless such payments constitute deferred compensation that may not be paid before the date that is six months after the date of the Employee’s separation from service (or, if earlier, the date of death of the Employee) as provided in Section 409A(a)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) in order to meet the requirements of Section 409A of the Code, as determined by Intervoice in its sole judgment, in which case the sum of the payments that otherwise would have been made during such six-month period shall be paid in a single lump-sum payment as soon as administratively

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practicable following the date that is six months after the date of the Employee’s separation from service (or, if earlier, the date of death of the Executive) and any remaining payments provided for under this Paragraph 5 shall be paid at the time and in the manner such Base Salary would have been paid had there been no termination of employment.

     (g) Sole Remedy. The right to receive the payments and other benefits provided for under this Paragraph 5 shall be the Employee’s sole and exclusive remedy for the termination of her employment and shall be in lieu of any claim that she might otherwise have against Intervoice arising from such termination.

6. Confidential Information.

     (a) “Confidential Information” means, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans, and opportunities; and customer, vendor, and supplier information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by the Employee.

     (b) The Employee acknowledges and agrees that (i) Intervoice is engaged in a highly competitive business; (ii) Intervoice has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information; (iii) Intervoice must continue to prevent the dilution of its goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (iv) in the voice and data solutions business (including particularly, but without limitation, the segments of interactive voice response/portal solutions, messaging solutions, payment solutions, maintenance and related services, and managed services provided for customers on an outsourced or managed service provider basis), her participation in or direction of Intervoice’s day-to-day financial activities, operations, and strategic planning are an integral part of Intervoice’s continued success and goodwill; (v) given her position and responsibilities, she necessarily will be creating Confidential Information that belongs to Intervoice and enhances Intervoice’s goodwill, and in carrying out her responsibilities she in turn will be relying on Intervoice’s goodwill and the disclosure by Intervoice to her of Confidential Information; and (vi) she will have access to Confidential Information that could be used by any Competitor of Intervoice in a manner that would irreparably harm Intervoice’s competitive position in the marketplace and dilute its goodwill.

     (c) Intervoice acknowledges and agrees that the Employee must have and continue to have throughout her employment the benefits and use of its goodwill and Confidential Information in order to properly carry out her responsibilities. Intervoice accordingly promises upon execution and delivery of this Agreement to provide the Employee immediate access to new and additional Confidential Information and to authorize her to engage in activities that will create new and additional Confidential Information.

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     (d) Intervoice and the Executive thus acknowledge and agree that during the Employee’s employment with Intervoice and upon execution and delivery of this Agreement she (i) has received, will receive, and will continue to receive, Confidential Information that is unique, proprietary, and valuable to Intervoice; (ii) has created, will create, and will continue to create, Confidential Information that is unique, proprietary, and valuable to Intervoice; and (iii) has benefited, will benefit, and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill Intervoice has generated and from the Confidential Information.

     (e) Accordingly, the Employee acknowledges and agrees that at all times during her employment by Intervoice and/or any of its subsidiaries and thereafter:

     (i) all Confidential Information shall remain and be the sole and exclusive property of Intervoice and/or its Affiliates;

     (ii) she will protect and safeguard all Confidential Information;

     (iii) she will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of, or legal counsel for, Intervoice or its subsidiaries, to the extent necessary for the proper performance of her responsibilities unless authorized to do so by Intervoice or compelled to do so by law or valid legal process;

     (iv) if she believes she is compelled by law or valid legal process to disclose or divulge any Confidential Information, she will notify Intervoice in writing sufficiently in advance of any such disclosure to allow Intervoice the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

     (v) at the end of her employment with Intervoice for any reason or at the request of Intervoice at any time, she will return to Intervoice all Confidential Information and all copies thereof, in whatever tangible form or medium, including electronic; and

     (vi) absent the promises and representations of the Employee in this Paragraph 6 and in Paragraph 7, Intervoice would require her immediately to return any tangible Confidential Information in her possession, would not provide the Employee with new and additional Confidential Information, would not authorize the Employee to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement.

7. Nonsolicitation and Nondisparagement Obligations. In consideration of Intervoice’s promises to provide the Employee with new and additional Confidential Information and to authorize her to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of Intervoice in this Agreement, the Employee

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agrees that, while she is employed by Intervoice and/or any of its subsidiaries and for a six-month period following the end of that employment for any reason, she shall not engage in any of the following activities (the “Restricted Activities”):

     (a) She will not directly or indirectly disparage Intervoice or its subsidiaries, any products, services, or operations of Intervoice or its subsidiaries, or any of the former, current, or future officers, directors, or employees of Intervoice or its subsidiaries;

     (b) She will not, whether on her own behalf or on behalf of any other individual, partnership, firm, corporation, or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then employed by or otherwise engaged to perform services for Intervoice or its subsidiaries to leave that employment or cease performing those services;

     (c) She will not, whether on her own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of Intervoice or any of its subsidiaries to cease being a customer, supplier, or vendor of Intervoice or any of its subsidiaries or to divert all or any part of such person’s or entity’s business from Intervoice or any of its subsidiaries; and

     (d) The Employee acknowledges and agrees that the restrictions contained in this Paragraph 7 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in Paragraph 6; that Intervoice’s promises and undertakings set forth in Paragraph 7 and the Employee’s position and responsibilities with Intervoice give rise to Intervoice’s interest in restricting the Employee’s post-employment activities; that such restrictions are designed to enforce the Employee’s promises and undertakings set forth in this Paragraph 7 and her common-law obligations and duties owed to Intervoice and its subsidiaries; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect Intervoice’s goodwill, Confidential Information, and other legitimate business interests; that she will immediately notify Intervoice in writing should she believe or be advised that the restrictions are not, or likely are not, valid or enforceable under Texas law or the law of any other state that she contends or is advised is applicable; that the mutual promises and undertakings of Intervoice and the Employee under Paragraphs 6 and 7 are not contingent on the duration of the Employee’s employment with Intervoice; and that absent the promises and representations made by the Employee in this Paragraph 7 and in Paragraph 6, Intervoice would require her to return any Confidential Information in her possession, would not provide the Employee with new and additional Confidential Information, would not authorize the Employee to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement.

8. Business Records. Given the secretive and competitive environment in which Intervoice does business and the fiduciary relationship that the Employee will have with

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Intervoice hereunder, the Employee agrees to promptly deliver to Intervoice, upon termination of her employment, or at any other time when Intervoice so requests, all memoranda, notes, records, drawings, manuals, and other documents (and all copies thereof and therefrom) in any way relating to the business or affairs of Intervoice or any of its subsidiaries or any of their clients, whether made or compiled by the Employee or furnished to her by Intervoice or any of its employees, customers, clients, consultants, or agents, which the Employee may then possess or have under her control. The Employee confirms that all such memoranda, notes, records, drawings, manuals, and other documents (and all copies thereof and therefrom) constitute the exclusive property of Intervoice. The obligation of confidentiality set forth in Paragraph 6 shall continue notwithstanding the Employee’s delivery of any such documents to Intervoice. The provisions of this Paragraph 8 shall continue in effect notwithstanding termination of the Employee’s employment hereunder for any reason.

9. Intellectual Property.

     (a) Disclosure. The Employee shall promptly disclose to Intervoice all ideas, inventions, discoveries, processes, designs, methods, substances, articles, computer programs, and improvements, whether or not patentable or copyrightable (all of the foregoing being hereinafter collectively called “Intellectual Property”), which the Employee conceives, invents, discovers, creates, or develops, alone or with others, during the Initial Employment Term, if such conception, invention, discovery, creation, or development (i) occurs in the course of the Employee’s employment with Intervoice, or (ii) occurs with the use of Intervoice’s or any of its subsidiaries’ time, materials, or facilities, or (iii) relates or pertains in any way to Intervoice’s or any of its subsidiaries’ purposes, activities, or affairs.

     (b) Assignment. The Employee hereby assigns and agrees to assign to Intervoice, its successors, assigns, or designees, all of the Employee’s right, title, and interest in and to all Intellectual Property that the Employee is obligated to disclose to Intervoice pursuant to Paragraph 9(a).

     (c) Assistance. The Employee shall assist Intervoice in the preparation of and shall execute and deliver all disclosures, applications for patents or reissue of patents, rights of priority, assignments, and other documents, give all testimony, and in general do all lawful things requested by Intervoice to obtain, maintain, and enforce United States and foreign patents and to obtain, maintain, and enforce on behalf of Intervoice or its designee legal title and all rights in and to all Intellectual Property referred to in the preceding provisions of this Paragraph 9.

     (d) Records. The Employee shall prepare and maintain adequate and current written records of all Intellectual Property within the scope of Paragraphs 9(a) and (b) in the form of notes, sketches, drawings, memoranda, or reports, all of which shall be promptly submitted by the Employee to Intervoice and shall be owned exclusively by Intervoice.

     (e) Consideration and Expenses. The Employee shall perform her obligations under this Paragraph (at Intervoice’s expense), but without any additional compensation

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other than that which the Employee receives by reason of her employment with Intervoice or pursuant to any separate agreement between Intervoice and the Employee that may be in effect from time to time during the Initial Employment Term.

     (f) Power of Attorney. If Intervoice or its designee is unable for any reason whatsoever to obtain the Employee’s signature to any documents that Intervoice is entitled to require her to sign pursuant to this Paragraph 9, the Employee hereby irrevocably designates and appoints Intervoice as her agent and attorney-in-fact to act for and on behalf of her and in her stead to execute, deliver, and file all such documents (including, without limitation, all applications for United States and foreign patents or for the reissue of such patents) and to do all other lawful acts that Intervoice is entitled to require the Employee to do pursuant to this Paragraph 9.

     (g) Survival. The provisions of this Paragraph 9 shall continue in effect for two years following the termination of the Employee’s employment hereunder for any reason.

10. Assistance in Litigation. During the Initial Employment Term and for a period of five years thereafter, the Employee shall, upon reasonable notice, furnish such information and proper assistance to Intervoice as may reasonably be required by Intervoice in connection with any litigation in which Intervoice or any of its subsidiaries or affiliates is, or may become, a party. The Employee promises that any testimony she may give in any such litigation shall be truthful. The Company shall reimburse the Employee for all reasonable out-of-pocket expenses incurred by the Employee in rendering such assistance. The provisions of this Paragraph 10 shall continue in effect notwithstanding termination of the Employee’s employment hereunder for any reason.

11. Withholding Taxes. The Company shall withhold from any payments to be made to the Employee hereunder such amounts (including Social Security contributions and federal income taxes) as shall be required by federal, state, and local withholding tax laws.

12. CONDITIONS TO EMPLOYMENT. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE EMPLOYEE’S EMPLOYMENT BY THE COMPANY AND THE EFFECTIVENESS OF THIS AGREEMENT ARE SUBJECT TO (i) A BACKGROUND CHECK, AND (ii) THE EMPLOYEE’S COMPLETION OF A DRUG TEST. THE COMPANY MAY CHOOSE TO WITHDRAW ITS PREVIOUS CONDITIONAL OFFER OF EMPLOYMENT TO THE EMPLOYEE IF THE RESULTS OF EITHER OF THE FOREGOING CONDITIONS ARE DETERMINED BY THE COMPANY, IN ITS SOLE DISCRETION, TO BE UNSATISFACTORY.

13. Compliance with Code Section 409A. Any provision of this Agreement to the contrary notwithstanding, all compensation payable pursuant to this Agreement that is determined by Intervoice in its sole judgment to be subject to Section 409A of the Code shall be paid in a manner that Intervoice in its sole judgment determines meets the requirements of Section 409A of the Code and any related rules, regulations, or other guidance, even if meeting such requirements would result in a delay in the time of payment of such compensation.

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14. Attorneys’ Fees and Costs. In the event there is any litigation between the parties hereto with respect to this Agreement, the prevailing party in such litigation shall be entitled to recover all attorneys’ fees and costs incurred by such party in connection with such litigation.

15. Injunctive Relief. In recognition of the fact that a breach by the Employee of any of the provisions of Paragraphs 6, 7, 8, and 9 will cause irreparable damage to Intervoice for which monetary damages alone will not constitute an adequate remedy, Intervoice shall be entitled as a matter of right (without being required to prove damages or furnish any bond or other security) to obtain a restraining order, an injunction, an order of specific performance, or other equitable or extraordinary relief from any court of competent jurisdiction, restraining any further violation of such provisions by the Employee or requiring her to perform her obligations hereunder. Such right to equitable or extraordinary relief shall not be exclusive but shall be in addition to all other rights and remedies to which Intervoice may be entitled at law or in equity, including without limitation the right to recover monetary damages for the breach by the Employee of any of the provisions of this Agreement.

16. Jurisdiction and Venue. In respect of any action or proceeding arising out of or relating to this Agreement, each of the parties hereto consents to the jurisdiction and venue of any federal or state court located within Dallas County, Texas, waives personal service of any and all process upon it or her, consents that all such service of process may be made by first class registered or certified mail, postage prepaid, return receipt requested, directed to it or her at the address specified in Paragraph 19, agrees that service so made shall be deemed to be completed upon actual receipt thereof, and waives any objection to jurisdiction or venue of, and waives any motion to transfer venue from, any of the aforesaid courts. This provision does not prevent Intervoice from removing to an appropriate federal court any action brought in state court. THE EMPLOYEE HEREBY CONSENTS TO, AND WAIVES ANY OBJECTIONS TO, REMOVAL TO FEDERAL COURT BY INTERVOICE OF ANY ACTION BROUGHT AGAINST IT BY THE EMPLOYEE.

17. JURY TRIAL WAIVER. IN THE EVENT THAT ANY DISPUTE ARISING FROM OR RELATED TO THIS AGREEMENT OR THE EMPLOYEE’S EMPLOYMENT WITH INTERVOICE RESULTS IN A LAWSUIT, BOTH INTERVOICE AND THE EMPLOYEE MUTUALLY WAIVE ANY RIGHT THEY MAY OTHERWISE HAVE FOR A JURY TO DECIDE THE ISSUES IN THE LAWSUIT, REGARDLESS OF THE PARTY OR PARTIES ASSERTING CLAIMS IN THE LAWSUIT OR THE NATURE OF SUCH CLAIMS. INTERVOICE AND THE EMPLOYEE IRREVOCABLY AGREE THAT ALL ISSUES IN SUCH A LAWSUIT SHALL BE DECIDED BY A JUDGE RATHER THAN A JURY.

18. Survival. Neither the expiration nor the termination of the term of the Employee’s employment hereunder shall impair the rights or obligations of either party hereto which shall have accrued hereunder prior to such expiration or termination. The provisions of Paragraphs 6, 7, 8, 9, 10, 14, and 15, and the rights and obligations of the parties

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thereunder, shall survive the expiration or termination of the term of the Employee’s employment hereunder.

19. Notices. All notices, requests, demands, and other communications required or permitted to be given or made hereunder by either party hereto shall be in writing and shall be deemed to have been duly given or made (i) when delivered personally, (ii) when sent by telefacsimile transmission, or (iii) three days after being deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice):

If to Intervoice, at:

Intervoice, Inc.
17811 Waterview Parkway
Dallas, Texas 75252
Fax No. (972) 454-8070
Attention: Senior Vice President Human Resources

If to the Employee, at:

20. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto concerning the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to such subject matter. The Employment Agreement dated as of December 5, 2005 between Intervoice and Employee is terminated upon execution and delivery of this Agreement.

21. Binding Effect; Assignment, No Third Party Benefit. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, and assigns; provided, however, that the duties and responsibilities of the Employee hereunder may not be assumed by, or delegated to, any other person. Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

22. Amendment. This Agreement may not be modified or amended in any respect except by an instrument in writing signed by both parties hereto.

23. Waiver. Any term or condition of this Agreement may be waived at any time by the party hereto which is entitled to have the benefit thereof, but such waiver shall only be effective if evidenced by a writing signed by such party, and a waiver on one

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occasion shall not be deemed to be a waiver of the same or any other type of breach on a future occasion. No failure or delay by a party hereto in exercising any right or power hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right or power.

24. Severability. If any provision of this Agreement is held to be unenforceable, (i) this Agreement shall be considered divisible, (ii) such provision shall be deemed inoperative to the extent it is deemed unenforceable, and (iii) in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by applicable law.

25. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas without regard to the principles of conflicts of laws thereof.

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     IN WITNESS WHEREOF, Intervoice has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Employee has executed this Agreement, as of the date first set forth above.

INTERVOICE, INC.
By:
Name:	H. Don Brown
Title:	Senior Vice President Human Resources
EMPLOYEE
	/s/ Marie A. Jackson
Marie A. Jackson

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EX-31.1

Exhibit 31.1
CERTIFICATIONS

I, Robert E. Ritchey, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Intervoice, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 10, 2006

/s/ Robert E. Ritchey  

Robert E. Ritchey 

President and Chief Executive Officer 

EX-31.2

Exhibit 31.2
CERTIFICATIONS

I, Craig E. Holmes, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Intervoice, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 10, 2006

/s/ Craig E. Holmes  

Craig E. Holmes 

Executive Vice President and Chief Financial Officer 

EX-32.1

Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Intervoice, Inc. (the “Company”) on Form 10-Q for the period ended August 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert E. Ritchey, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     This Certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for the purposes of Section 18 of the Exchange Act.

Date: October 10, 2006

/s/ Robert E. Ritchey  

Robert E. Ritchey 

President and Chief Executive Officer 

EX-32.2

Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Intervoice, Inc. (the “Company”) on Form 10-Q for the period ended August 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig E. Holmes, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     This Certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act.

Date: October 10, 2006

/s/ Craig E. Holmes  

Craig E. Holmes 

Executive Vice President and Chief Financial Officer