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Fair, Isaac and Company

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)


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

For the fiscal year ended September 30, 2002


	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to

Commission File Number 0-16439

Fair, Isaac and Company, Incorporated

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		94-1499887 (I.R.S. Employer Identification No.)
200 Smith Ranch Road San Rafael, California (Address of principal executive offices)		94903 (Zip Code)

Registrant’s telephone number, including area code:

(415) 472-2211

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


(Title of Class)		(Name of each exchange on which registered)
Common Stock, $0.01 par value per share		New York Stock Exchange, Inc.
Preferred Stock Purchase Rights		New York Stock Exchange, Inc.

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

None

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

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

As of October 31, 2002, the aggregate market value of the Registrant’s common stock held by nonaffiliates of the Registrant was $1,451,217,274 based on the last transaction price as reported on the New York Stock Exchange. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purposes.

The number of shares of common stock outstanding on October 31, 2002 was 50,729,166 (excluding 4,949,724 shares held by the Company as treasury stock).

Items 10, 11, 12 and 13 of Part III incorporate information by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held on February 3, 2003.

TABLE OF CONTENTS


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
	Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
EXHIBIT 3.1
EXHIBIT 10.18
EXHIBIT 10.20
EXHIBIT 10.26
EXHIBIT 10.32
EXHIBIT 10.33
EXHIBIT 10.36
EXHIBIT 10.47
EXHIBIT 10.49
EXHIBIT 10.58
EXHIBIT 10.59
EXHIBIT 10.60
EXHIBIT 21.1
EXHIBIT 23.1

TABLE OF CONTENTS


PART I
Item 1.	Business	1
Item 2.	Properties	13
Item 3.	Legal Proceedings	14
Item 4.	Submission of Matters to a Vote of the Security Holders	14
Executive Officers of the Registrant		15
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	71
PART III
Item 10.	Directors and Executive Officers of the Registrant	71
Item 11.	Executive Compensation	71
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71
Item 13.	Certain Relationships and Related Transactions	72
PART IV
Item 14.	Controls and Procedures	72
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	73
Signatures		78
Certifications		80

FORWARD LOOKING STATEMENTS

Certain statements contained in this Report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the “Act”). In addition, certain statements in our future filings with the Securities and Exchange Commission (SEC), in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; (iv) statements concerning our merger with HNC Software Inc., expected synergies, execution of integration plans and increases in shareholder value as a result of the merger; and (v) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in Item 7, Management’s Discussion and Analysis of Results of Operations and Financial Condition-Risk Factors, below. Such forward-looking statements speak only as of the date on which statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our Reports on Forms 10-Q and 8-K to be filed by the Company in fiscal year 2003.

PART I

Item 1. Business

GENERAL

Fair, Isaac and Company, Incorporated (NYSE: FIC) (together with its consolidated subsidiaries, the “Company”, which may also be referred to in this Report as “we”, “us” or “our”) provides analytic, software and data management products and services that enable businesses to automate and improve decisions. On a combined basis including HNC Software Inc., our predictive modeling, decision analytics, intelligence management, decision management systems and consulting services power more than 25 billion customer decisions a year.

We were founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, we help thousands of companies in over 60 countries target and acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses and enter new markets more profitably. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, healthcare organizations and government agencies. We also serve consumers through online services that enable people to purchase and understand their FICO® scores, the standard measure of credit risk, empowering them to manage their financial health.

On August 5, 2002, we completed our acquisition of HNC Software Inc. (HNC), a provider of sophisticated analytic and decision management software. We issued 18,780,482 shares of our common stock and the assumed options to purchase 3,897,664 shares of our common stock as a result of the merger. Results of operations of HNC are included prospectively from the date of acquisition through our year end. As of September 30, 2002, HNC was a wholly owned subsidiary of Fair, Isaac. Effective November 1, 2002, HNC was merged with and into Fair, Isaac. Accordingly, HNC is no longer a subsidiary of Fair, Isaac and ceases to exist as a separate legal entity. For the purposes of this report, descriptions of our products, segments and business organization will reflect the present, merged organization.

More information about us can be found on our principal Web site, www.fairisaac.com. Information on our Web site is not part of this report.

PRODUCTS AND SERVICES

We help businesses make better decisions in the areas of customer targeting and acquisition, customer origination and customer management. Our solutions enable users to make decisions that are more accurate, objective and consistent, and that systematically advance a business’s goals. Our products and services are designed to reduce the cost of doing business, increase revenues and profitability, reduce losses from risks and fraud, and increase customer loyalty.

Our Segments

We categorize our products and services into the following four segments; and differences from our previous operating segments are noted. We offer Analytical Solutions that we break out as Scoring Solutions and Strategy Machine Solutions, Analytic Software Tools and Professional Services as follows:


	•	Scoring Solutions. These include our scoring services distributed through major credit reporting agencies, as well as services through which we provide our credit bureau scores to lenders directly. Scoring services primarily generate revenues based on usage, and were previously included in the Scoring segment.

	•	Strategy Machine Solutions. Our Strategy Machine Solutions are industry-tailored applications designed for specific processes in customer acquisition, origination and account management. These products and services are generally licensed on a usage basis, and may often have an upfront one-time license revenue component. This segment includes the products and services that were part of our previous Strategy Machine segment, as well as software license fees and maintenance revenues related to our SEARCH™, ScoreWare, StrategyWare and TRIAD end-user products that were previously reported in our Software & Maintenance segment. It also includes most of the solutions previously offered by HNC.

	•	Analytic Software Tools. This segment is composed of our analytic software tools sold to businesses for their use in building their own decisioning applications. The principal software products in this segment are Fair, Isaac Blaze Advisor software, Fair, Isaac Blaze Decision System software (formerly Fair, Isaac Decision System™ software) and Fair, Isaac Model Builder for Decision Trees (formerly Fair, Isaac Strategy Designer™) software. These products are generally licensed to a single user for a flat fee. Previously, Fair, Isaac Blaze Decision System software and Fair, Isaac Model Builder software were included in the Software & Maintenance segment, and Blaze Advisor™ software was offered by HNC.

	•	Professional Services. This segment includes revenues from custom projects and consulting services as well as services associated with implementing and delivering our products. These services are generally offered on an hourly fee basis. Previously, revenue in our Professional Services segment was reported in our Consulting segment.

Comparative segment revenues, operating income and related financial information for fiscal years 2002, 2001 and 2000 are set forth in the tables in Note 16 to the Consolidated Financial Statements.

The following table illustrates the key solutions in each operating segment. Solutions previously offered by HNC are noted.


	*Products by Segment*


Operating Segment		Key Products and Services

Scoring Solutions		FICO® scores
		NextGen FICO® scores
		Marketing and bankruptcy scores
		Commercial credit risk scores
		Insurance scores
		ScoreNet® Service
		PreScore® Service
Strategy Machine Solutions		Fair, Isaac MarketSmart Decision System® solution
		Fair, Isaac SmartLink^TMcustomer data integration service
		LiquidCredit® service
		StrategyWare® decision engine
		Capstone® Decision Manager system (HNC)
		CreditDesk® software
		TRIAD^TMadaptive control system
		Customer Management TRIAD^TMadaptive control system
		Adaptive Control Service
		RoamEx® Roamer Data Exchanger (HNC)
		TelAdaptive® service
		Fair, Isaac Insurance Decision System^TMsoftware
		Falcon^TMFraud Manager (HNC)
		CardAlert^TMFraud Manager (HNC)
		Risk Manager (HNC)
		Profit Manager (HNC)
		Fraud Manager (HNC)
		Profitability Predictor (HNC)
		MIRA^TMClaims Advisor (HNC)
		Claims Advisor for Exceptions Management (HNC)
		Claims Advisor for Subrogation (HNC)
		Payment Optimizer (HNC)
		CompAdvisor® Medical Bill Review (HNC)
		AutoAdvisor® Medical Bill Review (HNC)
		Outsourced Cost Containment Services (HNC)
		Connectivity Manager (HNC)
		myFICO^SMservice
		Strategy Science
Analytic Software Tools		Fair, Isaac Blaze Advisor^TMsoftware (HNC)
		Fair, Isaac Blaze Decision System^TMsoftware
		Fair, Isaac Model Builder^TMsoftware
		Fair, Isaac Decision Optimizer^TMsoftware
		Business Science
Professional Services		Customer Strategy Integration
		Product Services
		Global Analytics
		Fraud Consulting (HNC)
		PreScore® Service
		Strategy Science Services

Our Solutions

Our solutions involve three fundamental disciplines:


	•	Analytics to identify the risks and opportunities associated with individual clients and prospects, as well as to improve the design of decision logic or “strategies”;


	•	Data management, profiling and text recognition that bring complete customer information to every decision; and

	•	Software such as decision engines and rules engines that implement decision strategies in a real-time environment for faster, more consistent and more accurate decisions.

All of our solutions are designed to help businesses make more accurate, consistent and objective decisions across the enterprise.

Scoring Solutions

We develop the world’s leading scores based on credit bureau data. Our FICO scores are used in most U.S. credit decisions, by most of the major credit card organizations as well as many of the mortgage and auto loan originators. These scores provide a consistent and objective measure of an individual’s credit risk. Credit grantors use the FICO scores to prescreen solicitation candidates, to evaluate applicants for new credit and to review existing accounts. The FICO scores are calculated based on proprietary scoring models. The scores produced by these models are available through each of the three major credit reporting agencies in the United States: TransUnion Corporation, Experian Information Solutions, Inc., and Equifax Inc. Users generally pay the credit reporting agencies based on usage, and the credit reporting agencies share these usage revenues with us.

Our new U.S. credit bureau products, NextGen FICO risk scores, are also now available at all three major credit-reporting agencies. NextGen risk scores provide a more refined risk assessment than the classic FICO risk scores.

In addition to our U.S. credit risk scores, we have developed marketing and bankruptcy scores offered through the U.S. credit reporting agencies; an application fraud score available in Canada; consumer risk scores offered through credit reporting agencies in Canada, South Africa and the U.K.; commercial credit scores delivered by both U.S. and U.K. credit reporting agencies; and a bankruptcy scoring service with Visa USA.

We have also developed scoring systems for insurance underwriters and marketers. Such systems use the same underlying statistical technology as our FICO risk scores, but are designed to predict applicant or policyholder insurance loss risk for automobile or homeowners’ coverage. Our insurance scores are available in the U.S. from TransUnion, Experian, Equifax and Choicepoint, Inc., and in Canada from Equifax.

We also provide credit bureau scoring services and related consulting directly to users in financial services through two U.S.-based services: PreScore Service for prescreening solicitation candidates, and ScoreNet Service for account management.

Strategy Machine Solutions

We develop Strategy Machine Solutions that apply analytics, data management and software to specific business challenges and processes. These include credit offer prescreening, medical bill review, telecommunications fraud prevention and others. Our Strategy Machine Solutions serve clients in financial services, insurance, healthcare, retail, telecommunications and government sectors.

Acquisition Strategy Machine Solutions

The chief Strategy Machine offering for marketing is our Fair, Isaac MarketSmart Decision System (“MarketSmart”). MarketSmart is a multi-channel, Web-enabled marketing solution with campaign management, data warehousing, analytic and other capabilities. MarketSmart helps financial institutions, retailers and telecommunications companies determine where, when and how to interact with their prospects and customers to build stronger relationships. MarketSmart now also includes the Fair, Isaac SmartLink customer data integration service, powered by Equifax, which enables users to quickly and accurately link data from multiple external databases to build a fuller picture of every customer and his or her relationship and potential.

We also market our list processing and data enhancement services to direct marketing organizations in many industries.

Origination Strategy Machine Solutions

We provide solutions that enable companies, typically financial services institutions such as banks, credit unions, finance companies and installment lenders, to automate and improve the processing of requests for credit from applicants. These solutions increase the speed and efficiency with which requests are handled, reduce losses and increase approval rates through analytics that assess applicant risk, and reduce the need for manual review by loan officers.

Our solutions include LiquidCredit, a Web-based service primarily focused on the credit decision and offered largely to mid-tier financial services institutions and e-commerce providers; Capstone, a solution combining both analytics and full application processing capabilities, which is offered in both end-user software and application service provider (ASP) mode to high-volume operations; StrategyWare, an end-user software product used to design and automate more complex credit decision strategies; and CreditDesk, an end-user software product combining analytics and application processing software for the mid-tier financial services market.

Account Management Strategy Machine Solutions

Our account management products and services enable businesses to automate and improve decisions on their existing customers. These solutions help businesses decide which customers to cross-sell, what additional products and services to offer, when and how much to change a customer’s credit line, what total amount of credit to extend to a customer, and how to prioritize and handle the collection of delinquent accounts.

We provide account management solutions for:


	•	Financial Services. In financial services, our leading account management product is the TRIAD adaptive control system, which is composed of behavior scoring models, software, and account management strategy consulting. TRIAD — the world’s leading credit account management system — was used to manage approximately 65% of the world’s credit card accounts for the calendar year ended December 31, 2001. As of September 30, 2002, TRIAD has more than 250 users worldwide. TRIAD is made available to our client base in many different ways, including Customer Management TRIAD, which enables lenders to manage customer relationships and credit exposure across multiple credit products. We also market and sell TRIAD multi-year software, maintenance, consulting services, and strategy design and evaluation. Additionally, we provide TRIAD and similar credit account management services through large third-party credit card processors worldwide, including the two largest processors in the U.S.: First Data Resources, Inc. and Total System Services, Inc. Customers using our adaptive control system through these two processors generally pay the processors based on usage, and we share in these usage revenues.

Netsourced TRIAD is a Web-delivered service that we offer directly to users, which enables users to access TRIAD account management capabilities in ASP mode, where we host the software. At the end of fiscal 2002, we made available transaction-based neural network models for TRIAD, an enhancement resulting from the merger with HNC.


	•	Telecommunications. Our principal solution is RoamEx Roamer Data Exchanger, which helps wireless telecommunications carriers reduce fraud. RoamEx delivers near real-time exchange of roamer call records that occur when subscribers roam outside a carrier’s home network. RoamEx was used to exchange 95% of North American wireless carriers’ roamer call detail records for the calendar year ended December 31, 2001, helping carriers combat fraud. We also offer the TelAdaptive account management system, which provides functionality similar to TRIAD as a Web-delivered service.

	•	Insurance. We provide insurers with a decisioning system that enables them to create, test and implement decision strategies for areas such as cross-selling, pricing, claims handling, retention,


		prospecting and underwriting. This system is delivered as a Web-based service, and as end-user software (Fair, Isaac Insurance Decision System).

Fraud Strategy Machine Solutions


	Our fraud products improve our customers’ profitability by intelligently predicting the accuracy and validity of transactions to protect them and their customers from fraud and similar losses. They can analyze millions of customer transactions in milliseconds and generate recommendations for immediate action which is critical to stopping fraud and abuse. These applications can also detect organized fraud schemes that are too complex and well hidden to be identified by other methods.

	Our solutions are designed to detect and prevent a wide variety of fraud and risk types across multiple industries, including credit and debit payment card fraud; identity fraud; telecommunications subscription fraud, technical fraud and bad debt; healthcare fraud; Medicaid and Medicare fraud; and property and casualty insurance fraud, including workers’ compensation fraud. They protect merchants, financial institutions, insurance companies, telecommunications carriers, government agencies and employers from losses and damaged customer relationships caused by fraud.

	Our leading fraud detection solution is Falcon Fraud Manager, recognized as the leader in global payment card fraud detection. Falcon uses neural networks and patented profiling technology, both further described below, to examine transaction, cardholder and merchant data to detect a wide range of payment card fraud quickly and accurately. Falcon analyzes payment card transactions in real-time, assesses the risk of fraud, and takes the user-defined steps to prevent fraud while expediting legitimate transactions. As of September 30, 2002, Falcon protects more than 450 million active payment card accounts worldwide, and in the calendar year ended December 31, 2001 was used in approximately 65% of all credit card transactions.

	We also market fraud and fraud-related solutions for:


	•	Financial Services: We complement our Falcon product with fraud consulting services, and with fraud and risk management solutions for merchants and others. CardAlert Fraud Manager helps card issuers and Electronic Funds Transfer (EFT) network providers effectively combat large-scale counterfeit ATM and debit card fraud. Profitability Predictor provides credit card issuers a suite of transaction-based predictions to assist them in managing their credit card accounts more profitably. Our Risk Manager for Acquirers products helps merchant acquirers assess the bankruptcy and fraud risk of merchant relationships, as well as the likelihood of merchant attrition.

	•	Insurance: Our Claims Advisor products use neural networks and data analysis to forecast appropriate claims reserves based on individual claim data, to identify opportunities for subrogation, to identify fraud, and to manage claims workflow.

	•	Healthcare: Our Payment Optimizer product detects fraud and abuse of healthcare claims before claims are paid.

	•	Telecommunications: Our Risk Manager and Fraud Manager solutions help telecommunications carriers stop complex types of fraud such as subscription fraud, internal fraud, dealer/agent fraud, calling card fraud, cloning, clip-on fraud and PBX fraud, as well as to mitigate early-life and ongoing bad debt.

Medical Bill Review Strategy Machine Solutions

We provide a number of software solutions that automate the review and repricing of medical bills for workers’ compensation and automobile medical injuries. Using these solutions, property and casualty insurers can process up to 80 percent of medical bills without the need for manual review. We also provide products that allow for electronic transmission, filing and management of mandated injury compliance reports for workers’ compensation insurance.


	Our principal solutions in this area are:


	•	Medical Bill Review: Our principal solutions are CompAdvisor, the leading medical bill review and repricing solution for workers’ compensation, and AutoAdvisor, our medical bill repricing solution for automobile medical injury claims. These solutions check each bill against an extensive database of state fee schedules, automated contracts and user-defined policies to help insurers and others get the maximum savings on every bill reviewed. Both solutions optionally include Decision Manager for Medical Bills, a module that uses rules management technology to increase the speed, accuracy and consistency of decisions and reduce labor costs. These products are available in both licensed client/server and ASP versions.

	•	Outsourced Cost Containment Services: We provide turnkey insurance bill review administration services at selected locations across the country. These branch operations offer expert medical bill and preferred provider review for workers’ compensation and auto medical insurance bills, including the additional review of complex medical, hospital and surgical bills.

	•	Injury Compliance Reporting: These connectivity solutions enable employers, risk managers, insurers, third-party administrators, self-insured firms, and state regulatory agencies to send, receive and manage injury reports and other claims data in an automated, paperless electronic flow of communications.

Consumer Strategy Machine Solutions

Through our myFICOSM service, we provide solutions based on our analytics to consumers, sold directly by us or through distribution partners. Our first consumer offering through myFICO, launched in March 2001, is the ScorePower^TM service, available at our consumer Web site, www.myfico.com. U.S. consumers can use the myFICO services to purchase their FICO scores, the credit reports underlying the scores, explanations of the factors affecting their scores, and customized advice on how to improve their scores. Customers of myFICO can also simulate how taking specific actions would affect their FICO score. The myFICO services are available online at www.myfico.com as well as through the credit reporting agency involved, lenders and financial portals.

Analytic Software Tools

We provide end-user software systems and components that businesses can use to build their own tailored decisioning applications. In contrast to our packaged applications developed for specific industry applications, we design our analytic software tools to perform a single function — such as management of the rules and policies an enterprise uses to make decisions — that users can easily integrate within a variety of specialized industry applications.

Our suite of tools enables businesses to automate and improve their business processes and strategies, creating their own customized decision network. We use these tools as a common software platform for our own offerings. We also partner with third-party providers within given industry markets and with major software companies to imbed our tools within existing applications.

Our tools include software solutions previously developed by both HNC and Fair, Isaac. The principal modules offered in fiscal 2002 were software systems that automate:


	•	Rules Management. Fair, Isaac Blaze Advisor is a rules management tool used to design, develop, execute and maintain rules-based business applications. Blaze Advisor enables businesses to more quickly develop complex applications, respond to changing customer needs, implement regulatory compliance and reduce the total cost of day-to-day operations.

	•	Strategy Execution. Fair, Isaac Blaze Decision System is an advanced “decision engine factory” which enables the enterprise to create any number of decision engines that automatically execute


		decision strategies — the various rules, criteria and calculations that determine what action to take in a given situation on a given customer. Blaze Decision System provides a mechanism for integrating multiple decision engines and analytics into a business’s IT architecture, supporting enterprise-wide customer-centric strategy management.

	•	Strategy Design. Fair, Isaac Model Builder for Decision Trees enables the user to create empirical strategies, augmenting the user’s expert judgment by applying data mining analytics to discover patterns empirically. In designing the steps and criteria of a decision strategy, the user can segment the customer base for targeted action based on the results of different performance measures, and can also simulate the performance of the designed strategy.

Professional Services

We provide a variety of custom offerings, business and technical consulting services, and technical system integration services to markets worldwide. The focus is on leveraging our industry experience and technical expertise, typically on a custom basis, to help clients address unique business challenges, to support the usage of our Strategy Machine Solutions and our analytic software tools, and to create new sales opportunities for our other offerings. This group also performs consultative selling, developing customized solution sets combining various products and capabilities to meet unique client or industry opportunities. These services are generally offered on an hourly fee basis, though some offerings, such as analytics and Strategy Science, have defined pricing structures.

Our services include:


	•	Customer Strategy Integration. We provide strategy development, analytics and systems planning for customer management and marketing. These projects include a number of packaged customer relationship management service offerings developed by Nykamp Consulting Group, which we acquired in December 2001.

	•	Product Services. We provide business consulting and technology integration services that support, complement and enhance the value of our software products. These services include installation and strategy development associated with our Strategy Machine Solutions and analytic software tools.

	•	Strategy Science. Using our Strategy Science technology and related advanced analytic methodologies, we perform decision modeling and strategy science projects for customer acquisition and customer management.

	•	Global Analytics. We perform custom analytic projects, primarily predictive model development for the credit and insurance industries. This work leverages our analytic methodologies and expertise to solve risk management and marketing challenges for a single business, using that business’s data and industry best practices to develop a highly customized solution.

COMPETITION

The market for our advanced solutions is intensely competitive and is constantly changing. Our competitors vary in size and in the scope of the products and services they offer. We encounter competition from a number of sources, including:


	•	in-house analytic and systems developers;

	•	scoring model builders;

	•	providers of credit reports and credit scores;

	•	providers of automated application processing services;

	•	data vendors;

	•	neural network developers and artificial intelligence system builders;


	•	third-party professional services and consulting organizations;

	•	network and telecommunications switch manufacturers, and service providers that seek to enhance their value-added services;

	•	managed care organizations; and

	•	software tools companies supplying modeling, rules, or analytic development tools.

We believe that none of our competitors offers the same mix of products as we do, or has the same expertise in predictive analytics. However, certain competitors may have larger shares of particular geographic or product markets.

Scoring Solutions

In the marketing of products in this segment we compete with both outside suppliers and in-house analytics and computer systems departments for scoring business. Major competitors among outside suppliers of scoring models include the three major credit-reporting agencies, which are also our partners in offering our Scoring Solutions, and also include credit reporting agencies outside the United States. In the consumer market we compete with companies that provide consumers with their credit reports, credit scores other than FICO scores, and related monitoring and score analysis services. FICO scores are used as a part of the credit decision process by the overwhelming majority of financial institutions to make the credit decisions that impact consumers, and we believe that this provides us an advantage over our competition in this market.

Strategy Machine Solutions

Products in our Strategy Machine Solutions segment help our customers acquire, originate and manage their customers. Within the customer acquisition market, we have experienced competition from our customers’ internal IT departments, Acxiom Corporation, Experian and Harte-Hanks Inc, among others.

Within the origination market, we have experienced competition from American Management Systems Inc., Experian, Automatic Data Processing, Inc., Lightbridge, Inc., Appro Systems, Inc. and First American Credit Management Solutions, Inc. (CMSI), among others.

We have experienced competition from American Management Systems, Inc., Experian, Insurance Services Organization, Inc., Choicepoint, Inc. and Lightbridge, Inc., among others, within the account management market.

In the marketing of our fraud analytics products, we have experienced competition mainly from Retail Decisions and ACI Worldwide, a division of Transaction Systems Architects, Inc., in the financial services market; ECTel Ltd., Hewlett Packard Company, Cerebrus Solutions Limited and Neural Technologies in the telecommunications market; International Business Machines, Inc. and ViPS, Inc. in the healthcare segment; and Infoglide Software Corporation, NetMap Analytics LLC and Magnify, Inc. in the property and casualty and workers’ compensation insurance market.

Analytic Software Tools

In our Analytic Software Tools segment, we develop, market and support analytic model building and decisioning software tools that enable our customers to develop their own Enterprise Decision Management applications. Our primary competitors in this segment include SAS Institute, SPSS Inc., Angoss Software Corporation, iLog S.A., Computer Associates International, Inc., and Pegasystems Inc.

Professional Services

We compete with a variety of organizations that offer services similar to the consulting services that we offer. In addition, a client may use its own resources rather than engage an outside firm for these services. Our competitors include information technology product and services vendors, management and strategy consulting firms, smaller specialized information technology consulting firms and analytical services firms.


	*Competitive Factors*

We believe the principal competitive factors affecting our markets include: technical performance; access to unique proprietary databases; availability in ASP format; product attributes like adaptability, scalability, interoperability, functionality and ease-of-use; product price; customer service and support; the effectiveness of sales and marketing efforts; existing market penetration; and our reputation. Although we believe our products and services compete favorably with respect to these factors, we may not be able to maintain our competitive position against current and future competitors.

MARKETS AND CUSTOMERS

Our products and services serve clients in multiple industries, including financial services, insurance, retail, telecommunications, healthcare and governmental agencies. During fiscal 2002, end users of our products who purchased directly from us included approximately 75 of the 100 largest banks in the United States; several of the largest banks in Canada; approximately 40 banks in the United Kingdom; over 300 insurers; more than 70 retailers; seven oil companies; major travel and entertainment card companies; and more than 40 finance companies. The scoring, application processing and account management services offered through credit reporting agencies and third-party processors extend the availability of our technology to smaller credit issuers.

We also market our services to a wide variety of businesses engaged in direct marketing. These include banks, insurance companies and retailers, among others. Our consumer services are marketed to an estimated 190 million U.S. consumers whose credit relationships are reported to the three major credit reporting agencies.

In the United States, we market our products and services primarily through our own direct sales organization. Sales groups are based in our headquarters and in field offices strategically located both in and outside the United States. We also market our products through indirect channels including alliance partners and other resellers.

In fiscal 2002, TransUnion accounted for approximately 8% of our revenues; Equifax, approximately 12%; and Experian, approximately 7%. In fiscal 2001, TransUnion, Equifax, and Experian accounted for approximately 9%, 11% and 7% of our revenues, respectively, and in fiscal 2000, 12%, 10% and 7% of our revenues, respectively.

Outside the United States, we market our products and services primarily through our subsidiary sales organizations. Our subsidiaries license and support our products in their local countries as well as within other foreign countries where we do not operate through a direct sales subsidiary. We also market our products through resellers and independent distributors in international territories not covered by our subsidiaries’ direct sales organizations.

Our largest market segments outside the United States are the United Kingdom and Canada. Mexico, South Africa, a number of countries in South America and almost all of the Western European countries are represented in our user base. We have delivered products to users in over 60 countries.

Revenues from international customers, including end users and resellers, amounted to 19%, 18% and 19% of our total revenues in fiscal 2002, 2001 and 2000, respectively. See Note 16 to the Consolidated Financial Statements for a summary of our operating segments and geographic information.

TECHNOLOGY

We specialize in analytics, software and data management technologies that analyze data and drive business processes and decision strategies. We maintain active research in a number of fields for the purposes of deriving greater insight and predictive value from data, making various forms of data more usable and valuable to the model-building process, and automating and applying analytics to the various processes involved in making high-volume decisions in real time. Because of our pioneering work in credit scoring and

fraud detection, we are widely recognized as the leader in predictive technology. In all our work, we believe that our tools and processes are among the very best commercially available, and that we are uniquely able to integrate advanced analytic, software and data technologies into mission-critical business solutions that offer superior returns on investment. Some of our longer-term research projects are partially funded through contracts with the U.S. Government or members of the U.S. intelligence community.

Our areas of expertise encompass:


	Predictive modeling. Predictive modeling identifies and mathematically represents underlying relationships in historical data in order to explain the data and make predictions or classifications about future events. Our models summarize large quantities of data to amplify its value. Predictive models typically analyze current and historical data on individuals to produce easily understood metrics such as scores. These scores rank-order individuals by likely future performance, e.g., their likelihood of making credit payments on time, or of responding to a particular offer for services. We also include in this category models that detect the likelihood of a transaction being fraudulent. Our predictive models are frequently operationalized in mission-critical transactional systems and drive decisions and actions in near real time.

	While we employ a wide range of analytic methodologies and tools in this area, we have two principal technologies behind most of our predictive models:


	•	INFORM. This is our proprietary predictive modeling technology. It is unique in its ability to account for business rules, legal environments, and real-world biased or missing values. Fair, Isaac has continuously evolved INFORM since the late 1950s, adding new algorithms and processes. The name, INFORM, was coined to reflect its information theory root. Although the modeling component is proprietary and closely protected, the present version of INFORM — INFORM 11 — is based upon a linear goal programming approach. As such, it allows for such operations research capabilities as linear constrained optimization. The latest generation of INFORM — INFORM-NLP — utilizes a non-linear constrained optimization algorithm. It provides the foundation for an extensible modeling technology that can accommodate an even wider variety of objective functions, still subject to business and data constraints. This reflects our focus on analytic solutions that address real-world problems.

	•	Neural Networks. The term “neural network” refers to a family of nonlinear, statistical modeling techniques, which were derived from the work of scientists engaged in understanding biological intelligence. We use neural network techniques to build models of complex transaction patterns such as consumer credit card fraud. These models are created through a process called “training.” Training involves exposing a neural network algorithm to a large data set of examples of transaction patterns. Often hundreds of thousands to millions of examples are provided. The neural network processes this data to identify patterns in the data that are predictive of the transaction patterns being modeled. Once training is complete, the neural network uses these learned patterns to predict the probability that a new individual will exhibit the modeled transaction patterns.

Decision Analysis and Optimization. Decision analysis refers to the broad quantitative field, that overlaps the fields of operations research and statistics, that deals with modeling, optimizing and analyzing decisions made by individuals, groups and organizations. Whereas predictive models analyze multiple aspects of individual behavior to forecast future behavior, decision analysis analyzes multiple aspects of a given decision to identify the most effective action to take to reach a desired result. We have developed an integrated approach to decision analysis that incorporates the development of a decision model that mathematically maps the entire decision structure; proprietary optimization technology that identifies the most effective strategies, given both the performance objective and constraints; the development of designed testing required for active, continuous learning; and the robust extrapolation of an optimized strategy to a wider set of scenarios than historically encountered. This technology is behind our Strategy Science solutions.


	Transaction Profiling. Many of our products operate on transactional data, such as credit card purchase transactions, or other types of data that change over time, such as workers’ compensation claims. In its raw form, this data is very difficult to use in predictive models for several reasons: First, a single transaction contains very little information about the transaction patterns of the individual that generated the transaction. Second, transaction patterns change rapidly over time. Finally, this type of data can often be incomplete. To overcome these data problems, we have developed a set of proprietary techniques that transform raw transactional data into a representation that reveals latent information, and which make the data more usable by predictive models. This profiling technology accumulates data across multiple transactions to create and update profiles of transaction patterns. These profiles enable our neural network models to make accurate assessments of fraud and risk within real-time transaction streams.

	Customer Data Integration. Decisions made on customers or prospects can benefit from data stored in multiple sources, both inside and outside the enterprise. We have focused on developing data integration processes that are able to assemble and integrate those disparate data sources into a unified view of the customer or household for real-time decision-making. As an advance on our own internal tools for merge/purge processes using multiple match keys, we have co-developed a proprietary matching logic with Equifax. Using this logic, we quickly integrate customer data from many different enterprise touchpoints, and append data from external sources, including demographic databases, opt-out lists and the more than 1 billion consumer records in Equifax’s comprehensive database.

	Decision Management Software. In order to make a decision strategy operational, the various steps and rules need to be programmed or exported into the business’s software infrastructure, where it can communicate with front-end, customer-facing systems and back-end systems such as billing systems. We have developed software systems, sometimes known as decision engines and rules management systems, that perform the necessary functions to execute a decision strategy. Our software includes very efficient programs for these functions, facilitating, for example, user definition of extremely complex decision strategies using GUI interfaces; simultaneous testing of hundreds of decision strategies in test/control mode; high-volume processing and analysis of transactions in real time; and integration of multiple data sources and predictive metrics for improved behavior forecasts and finer segmentation.

	Research and Development Activities. Our research and development expenses were $33.8 million in fiscal 2002, $28.3 million in fiscal 2001, and $29.8 million in fiscal 2000. We believe that our future success depends on our ability to continually maintain and improve our core technologies, enhance our existing products, and develop new products and technologies that meet an expanding range of markets and customer requirements. In the development of new products and enhancements to existing products, we use our own development tools extensively.

We have traditionally relied primarily on the internal development of our products. Based on timing and cost considerations, however, we have acquired, and in the future may consider acquiring, technology or products from third parties.

In some cases, external funding (e.g., government grants) is used to develop initial concepts. For example, the Defense Advanced Research Projects Agency, or DARPA, funds our development of advanced computational intelligence algorithms to detect patterns in genomic and medical literature data. Another long-term research project is aimed at developing computer models of brain functions in order to develop more intelligent, interactive computing systems and new types of analytic algorithms.

The information set forth in the line entitled “Research and development” in the Consolidated Statement of Income, and the information set forth under the caption “Software costs” in Note 1 to the Consolidated Financial Statements are incorporated herein by reference.

PRODUCT PROTECTION AND TRADEMARKS

We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality procedures to protect our proprietary rights.

We retain the title to and protect the suite of models and software used to develop scoring models as a trade secret. We also restrict access to our source code and limit access to and distribution of our software, documentation and other proprietary information. We have generally relied upon the laws protecting trade secrets and upon contractual non-disclosure safeguards and restrictions on transferability to protect our software and proprietary interests in our product methodology and know-how. Our confidentiality procedures include invention assignment and proprietary information agreements with our employees and independent contractors, and nondisclosure agreements with our distributors, strategic partners and licensees. We also claim copyright protection for certain proprietary software and documentation.

We have patents on many of our technologies and have patent applications pending on other technologies. The patents we hold may not be upheld as valid and may not prevent the development of competitive products. In addition, patents may never issue on our pending patent applications or on any future application that we may submit.

Despite our precautions, it may be possible for competitors or users to copy or reproduce aspects of our software or to obtain information that we regard as trade secrets. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Patents and other protections for our intellectual property are important, but we believe our success and growth will depend principally on such factors as the knowledge, ability, experience and creative skills of our personnel, new products, frequent product enhancements, and name recognition.

We have developed technologies for research projects conducted under agreements with various United States Government agencies or their subcontractors. Although we have acquired commercial rights to these technologies, the United States Government typically retains ownership of intellectual property rights and licenses in the technologies that we develop under these contracts. In some cases, the United States Government can terminate our rights to these technologies if we fail to commercialize them on a timely basis. In addition, under United States Government contracts, the government may make the results of our research public, which could limit our competitive advantage with respect to future products based on funded research.

We have used, registered and/or applied to register certain trademarks and service marks for our technologies, products and services.

PERSONNEL

As of September 30, 2002, we employed 2,388 persons worldwide. Of these, 498 full-time employees were located in our San Rafael, California office, 461 full-time employees were located in our Arden Hills, Minnesota office, and 407 full-time employees were located in our San Diego, California offices. None of our employees are covered by a collective bargaining agreement and no work stoppages have been experienced.

Information regarding our officers is included in “Executive Officers of The Registrant” at the end of Part I of this report.

Item 2. Properties

Our properties consist primarily of leased office facilities for sales, data processing, research and development, consulting and administrative personnel. Our principal office is located in San Rafael, California, approximately 15 miles north of San Francisco.

Our leased properties include


	•	approximately 225,500 square feet of office space in San Rafael, California in three buildings under leases expiring in 2006 or later.


	•	approximately 166,500 square feet of office and data processing space in Arden Hills, Minnesota in four buildings under leases expiring in 2012 or later.

	•	approximately 162,500 square feet of office space in San Diego, California in three buildings at that location under leases expiring in 2003 or later.

	•	an aggregate of approximately 313,500 square feet of office and data center space in Alpharetta, GA; Arden Hills, MN; Arlington, VA; Atlanta, GA; Austin, TX; Baltimore, MD; Birmingham, UK; Boston, MA; Brentford, UK; Brookings, SD; Chestnut Hill, MA; Chicago, IL; Coppell, TX; Cranbury, NJ; Dallas, TX; Denver, CO; Emeryville, CA; Englewood, CO; Exton, PA; Irvine, CA; Kennett Square, PA; London, UK; Madrid, Spain; Mooresville, NC; Nanuet, NY; New Castle, DE; New York, NY; Oakbrook Terrace, IL; Paris, France; Peabody, MA; Petaluma, CA; Reston, VA; San Jose, CA; Sao Paulo, Brazil; Sarasota, FL; Singapore, Singapore; South Norwalk, CT; Tokyo, Japan; Toronto, Canada; Walpole, MA; and Warrenville, IL.

See Note 18 to the Consolidated Financial Statements for information regarding our obligations under leases. We believe that suitable additional space will be available to accommodate future needs.

Item 3. Legal Proceedings

On April 30, 2002, Douglas Tidwell, seeking to act on behalf of a class of all holders of common stock of HNC Software Inc., filed suit in the Superior Court of the State of California, County of San Diego, and named as defendants all of the then current directors of HNC. The complaint alleges, among other things, that HNC’s directors breached their fiduciary duties to HNC’s stockholders by approving the Agreement and Plan of Merger that HNC entered into with Fair, Isaac on April 28, 2002 and that the individual defendants engaged in self-dealing in connection with the transaction. The complaint seeks injunctive relief, including enjoining consummation of the merger transaction with Fair, Isaac. The complaint also seeks an award of attorneys’ and experts’ fees. On July 18, 2002, HNC announced that it had entered into a memorandum of understanding with plaintiff’s counsel setting forth the terms of a proposed settlement of the suit. A Stipulation of Settlement implementing the terms of the memorandum of understanding has been entered into by which the case will be dismissed and HNC will pay $492,000 in attorneys’ fees to plaintiffs subject to approval by the court. A substantial portion of HNC’s costs in connection with the pending settlement will be reimbursed by HNC’s directors’ and officers’ insurance carrier. The settlement has been preliminarily approved by the court and a hearing before the court for final approval of the settlement is currently scheduled for December 11, 2002.

We are also subject to various other legal proceedings in the ordinary course of business, none of which is required to be disclosed under this Item 3.

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

At the special meeting of our stockholders on July 23, 2002, the stockholders voted on the proposed issuance of common stock to stockholders of HNC in connection with the merger between HNC and a wholly-owned subsidiary of the Company under the Agreement and Plan of Merger among Fair, Isaac and Company, Incorporated, Northstar Acquisition Inc., and HNC, dated as of April 28, 2002. Proxies representing 25,746,694 shares of Fair, Isaac common stock, representing 79.1% of the total outstanding shares on the June 13, 2002 record date, were tabulated in the following manner:


FOR	AGAINST		ABSTAIN

25,295,666		429,977		21,051

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers as of September 30, 2002 were as follows:


Name	Positions Held	Age

Thomas G. Grudnowski	President and Chief Executive Officer since joining us in December 1999. Also became a Director of the Company in December 1999. Partner at Andersen Consulting from 1983 until December 1999.		52

Chad L. Becker	Vice President, Strategy Machines — Life-Cycle Solutions since August 2002. From October 2000 to August 2002, was Vice President, Global Financial Services. Held various other senior and executive positions from 1991 until October 2000.		34

Michael Chiappetta	Vice President, Strategy Machines — Fraud Analytics since the time of the Company’s merger with HNC Software Inc. in August 2002. After joining HNC in 1993, held various senior positions from 1993 through 2002, most recently as Executive Vice President, Analytic Solutions.		38

Russell C. Clark	Vice President and Controller since the time of the Company’s merger with HNC Software Inc. in August 2002. Vice President, Corporate Finance of HNC from January 2000 until April 2002 and Senior Vice President, Corporate Finance from April 2002 to August 2002. From August 1990 until January 2000, held various positions with PricewaterhouseCoopers LLP’s Technology Industry Group, including Senior Manager in the audit and business advisory services group.		34

Richard S. Deal	Vice President, Human Resources since joining the Company in January 2001. Vice President, Human Resources at Arcadia Financial, Ltd., from March 1998 until January 2001. Managed broad range of human resources corporate and line consulting functions at U.S. Bancorp, from 1993 until March 1998.		35

Sean M. Downs	Vice President, Healthcare and Insurance Solutions since the time of the Company’s merger with HNC Software, Inc. in August 2002. Since joining HNC in April 1998 has held various executive positions including, President, HNC Insurance Solutions; Senior Vice President, Predictive Software Solutions; and Senior Vice President, Strategic Development. From February 1990 to March 1998 held various executive positions with Risk Data Corporation, including Senior Vice President, Sales and Marketing.		42

Eric J. Educate	Vice President, Global Sales since joining the Company in July 2000. Vice President of Global Sales for Imation Corporation, 1999 — 2000. Key sales executive at EMC Corporation, 1997 — 1999. Silicon Graphics, 1987 — 1997.		50


Name	Positions Held	Age

Henk J. Evenhuis	Vice President, Chief Accounting Officer since August 2002. Vice President, Chief Financial Officer since joining the Company in October 1999 until August 2002. Corporate Secretary from November 2001 until February 2002. Executive Vice President and Chief Financial Officer of Lam Research Corporation, from April 1987 until May 1997, and Vice President, Finance from May 1997 to September 1998.		59

Andrea M. Fike	Vice President, General Counsel and Secretary since February 2002. Vice President and General Counsel from February 2001 to January 2002. Senior Counsel from October 1999 to February 2001. Partner at Faegre & Benson, LLP, from January 1998 to September 1999. Associate at Faegre & Benson, from 1989 to December 1997.		42

W. Thomas McEnery	Vice President, Marketing since joining the Company in May 2001. Group Director at Fallon Worldwide, 1993-2001.		40

Mark P. Pautsch	Vice President and Chief Information Officer since August 2000. Managing Partner for the CIO Technology Services Organization of Andersen Consulting, August 1999 to August 2000. Managing Partner for the Teleworks Solution Center September 1995 to August 1999. Joined Andersen Consulting in 1979.		46

Larry E. Rosenberger	Vice President, Research & Development/Analytics since December 1999. President and Chief Executive Officer from March 1991 to December 1999. First named an officer in 1983. A Director from 1983 — 1999. Joined the Company in 1974.		56

Kenneth J. Saunders	Vice President, Chief Financial Officer since joining the Company at the time of the merger with HNC in August 2002. Chief Financial Officer and Secretary of HNC from January 2000 until August 2002. Vice President and Chief Financial Officer of HNC from December 1999 to August 2002. After joining HNC in January 1997 and prior to August 2002, held various financial positions including Treasurer, Corporate Controller, and Vice President Corporate Finance.		41

Steven A. Sjoblad	Vice President, Consumer Solutions since August 2002. Vice President, Corporate Development from May 2001 until August 2002. Managing Director and President of Fallon McElligott from 1981 until May 2001.		53

PART II


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*

Our common stock trades on the New York Stock Exchange under the symbol: FIC. According to records of our transfer agent, at October 31, 2002, we had 514 shareholders of record of our common stock.

The following table shows the high and low closing prices for our stock, as listed on the New York Stock Exchange and adjusted to give retroactive effect to the three-for-two stock splits effected in each of June 2002 and June 2001, for each quarter in the last two fiscal years:


	High		Low

Fiscal 2001
October 1 — December 31, 2000	$	22.67	$	17.06
January 1 — March 31, 2001	$	28.45	$	20.64
April 1 — June 30, 2001	$	41.21	$	25.01
July 1 — September 30, 2001	$	46.47	$	29.87

Fiscal 2002
October 1 — December 31, 2001	$	43.33	$	25.19
January 1 — March 31, 2002	$	43.67	$	31.79
April 1 — June 30, 2002	$	44.00	$	32.87
July 1 — September 30, 2002	$	39.40	$	29.48

Dividends

We paid quarterly dividends of 2 cents per share, or 8 cents per year, during the 2000, 2001 and 2002 fiscal years. Our dividend rate is set by the Board of Directors on a quarterly basis taking into account a variety of factors, including among others, our operating results and cash flows, general economic and industry conditions, the Company’s obligations and other factors deemed relevant by the Board. Although we expect to continue to pay dividends at the current rate, our dividend rate is subject to change from time to time based on the Board’s business judgment with respect to these and other relevant factors. On June 5, 2002 and June 4, 2001, we effected three-for-two common stock splits, each in the form of a stock dividend. Unless specifically noted, all share numbers in this report reflect these stock dividends.


Item 6.	*Selected Financial Data*



		Fiscal Years Ended September 30,

		2002		2001		2000		1999		1998


		(In thousands, except per share data)
Revenues		$	392,418	$	329,148	$	298,630	$	277,041	$	245,545
Operating income			47,112		72,107		44,614		46,375		40,432
Income before income taxes			53,098		76,853		47,070		50,600		42,105
Net income			17,884		46,112		27,631		29,980		24,327
Earnings per share:
	Basic	$	.49	$	1.40	$	.86	$	.95	$	.79
	Diluted	$	.48	$	1.33	$	.84	$	.93	$	.75
Dividends declared per share		$	.08	$	.08	$	.08	$	.08	$	.08



	At September 30,

	2002		2001		2000		1999		1998

Working capital	$	337,965	$	94,624	$	100,694	$	55,885	$	54,852
Total assets		1,212,513		317,013		241,288		210,353		189,614
Convertible subordinated notes, net of discount		139,922		—		—		—		—
Long-term capital lease obligations		—		—		—		364		789
Stockholders’ equity		973,472		271,772		199,001		156,499		133,451

In April 2002 and May 2001, our Board of Directors authorized three-for-two stock splits, each effected in the form of a stock dividend, with cash paid in lieu of fractional shares. As a result of the two stock splits, stockholders of record at the close of business on May 15, 2002 and May 14, 2001, respectively, received an additional share of Fair, Isaac stock for every two shares owned, which was distributed on June 5, 2002 and June 4, 2001, respectively. All share and earnings per share amounts are restated to reflect these two stock splits.

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

RESULTS OF OPERATIONS

Overview

We provide analytic, software and data management products and services that enable businesses to automate and improve decisions. On a combined basis including HNC, our predictive modeling, decision analysis, intelligence management, decision management systems and consulting services power more than 25 billion customer decisions a year. We help companies acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses and enter new markets more profitably. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, healthcare organizations and government agencies. We also serve consumers through online services that enable people to purchase and understand their FICO® scores, the standard measure of credit risk, to manage their financial health.

On August 5, 2002, we completed our acquisition of HNC, a provider of analytic and decision management software. Results of operations of HNC are included prospectively from the date of acquisition. Accordingly, our financial results in fiscal 2002 are not directly comparable to those in fiscal 2001.

Following our acquisition of HNC, we changed our reportable business segments to reflect the new primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance. Our current reportable segments include: Scoring Solutions, Strategy Machine Solutions, Professional Services and Analytic Software Tools. Information for fiscal 2001

and 2000 has been restated to conform to the fiscal 2002 presentation for comparability. Comparative segment revenues, operating income, and related financial information for fiscal 2002, 2001 and 2000 are set forth in Note 16 to the Consolidated Financial Statements.

A certification with respect to this report on Form 10-K by our Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002, has been submitted to the Securities and Exchange Commission (SEC) as additional correspondence accompanying this report.

Revenues

The following table displays (a) the percentage of revenues by segment and (b) the percentage change in revenues from the prior fiscal year for the fiscal periods indicated.



										Period-to-Period
										Percentage
										Change
	Percentage of Revenues
	Fiscal Year									2002			2001
										to			to
Segment	2002			2001			2000			2001			2000

Scoring Solutions		32	%		37	%		37	%		4	%		9	%
Strategy Machine Solutions		49	%		49	%		49	%		17	%		11	%
Professional Services		16	%		12	%		13	%		65	%		(2	)%
Analytic Software Tools		3	%		2	%		1	%		87	%		286	%

Total Revenues		100	%		100	%		100	%		19	%		10	%

The growth in Scoring Solutions segment revenues in fiscal 2002 over fiscal 2001 was due primarily to an increase in revenues derived from risk and insurance scoring services at the credit reporting agencies, offset by a decrease in PreScore and ScoreNet services. The growth in risk scoring services resulted primarily from increased sales of scores for account review and increased online scores for auto financing, as well as a continued strong market for mortgage originations and refinancing. The increase in Scoring Solutions revenues in fiscal 2001 as compared to fiscal 2000 resulted primarily from an increase in revenues derived from risk scoring services at the credit reporting agencies, driven predominantly by increased marketing efforts of credit card issuers, and in part by a stronger market for mortgage refinancing in fiscal 2001 as compared to fiscal 2000.

While we have been successful in extending or renewing our agreements with credit reporting agencies and credit card processors in the past, and believe we will likely be able to do so in the future, the loss of one or more such alliances or an adverse change in terms could have a material adverse effect on revenues and operating margins. In fiscal 2002, revenues generated from our alliances with Experian, TransUnion and Equifax accounted for approximately 12%, 8%, and 7% of our revenues, respectively. In fiscal 2001, Equifax, TransUnion and Experian accounted for approximately 11%, 9% and 7% of total revenues, respectively, and in fiscal 2000, TransUnion, Equifax and Experian accounted for approximately 12%, 10% and 7% of total revenues, respectively.

The increase in Strategy Machine Solutions segment revenues in fiscal 2002 over fiscal 2001 was due primarily to increased revenues derived from MarketSmart, consumer score service revenues through myFICO.com and strategic alliance partners’ Web sites, our Strategy Science offering, Netsourced and Processor TRIAD products, and the addition of products previously offered by HNC, offset by a decrease in revenues from List Processing, maintenance on retired products, CreditDesk and StrategyWare. Revenues derived from the Strategy Machine Solutions segment increased in fiscal 2001 as compared to fiscal 2000, due primarily to the addition of consumer score service revenues through myFICO.com and increased revenues from Liquid Credit, StrategyWare and Processor TRIAD.

The increase in Professional Services revenues in fiscal 2002 over fiscal 2001 was due primarily to increased revenues resulting from the acquisitions of the Nykamp and HNC businesses as well as increased revenues derived from consulting services related to TRIAD, MarketSmart, Strategy Science, Blaze Decision

System, and StrategyWare. Revenues derived from the Professional Services segment in fiscal 2001 decreased slightly as compared to fiscal 2000, due mainly to a decrease in consulting related to Strategy Machines Solutions products, offset by an increase in analytic consulting.

The increase in Analytic Software Tools segment revenues in fiscal 2002 over fiscal 2001 was due primarily to the addition of Blaze Advisor revenues previously offered by HNC and to additional revenues from Blaze Decision System (formerly Fair, Isaac Decision System), offset by a decrease in the sale of Model Builder for Decision Trees. Tools revenues increased in fiscal 2001 compared to fiscal 2000 due principally to increased revenues from Blaze Decision System and Strategy Designer products.

Revenues derived from clients outside the United States totaled $76.2 million, $60.0 million and $57.1 million in fiscal 2002, 2001 and 2000, respectively, representing 19%, 18% and 19% of total consolidated revenues in these years, respectively. The increase in international revenues in fiscal 2002 resulted primarily from increased sales of our TRIAD and Decision System products and Strategy Science services, offset by a decrease in international credit bureau scoring revenue. In fiscal 2001, the increase in international revenues resulted primarily from increased sales of our Strategy Machines Solutions products, including StrategyWare and the increased usage of our Processor TRIAD product. Fluctuations in currency exchange rates have not had a significant effect on revenues to date. In October 2001, we initiated a hedging program to reduce our exposure to fluctuations in certain foreign currency translation rates resulting from holding receivables and cash denominated in foreign currencies within our U.S. reporting entities.

Operating Expenses and Other Income (Expense)

The following table sets forth for the fiscal periods indicated (a) the percentage of revenues represented by certain line items in our Consolidated Statements of Income and (b) the percentage change in the amount of each such line item from the prior fiscal year.



											Period-to-Period
											Percentage
											Change
		Percentage of Revenues
		Fiscal Year									2002			2001
											to			to
		2002			2001			2000			2001			2000

Revenues			100	%		100	%		100	%		19	%		10	%
Operating expenses:
	Cost of revenues		45	%		44	%		43	%		18	%		15	%
	Research and development		9	%		9	%		10	%		19	%		(5	)%
	Sales, general and administrative		21	%		24	%		30	%		7	%		(13	)%
	Amortization of intangibles		1	%		1	%		1	%		109	%		—
	In-process research and development		10	%		—			—			100	%		—
	Restructuring and merger-related		2	%		—			1	%		100	%		(100	)%

Total operating expenses			88	%		78	%		85	%		34	%		1	%

Operating income			12	%		22	%		15	%		(35	)%		62	%

Interest income			2	%		2	%		1	%		10	%		41	%
Interest expense on convertible subordinated notes			—			—			—			(100	)%		—
Other income (expense), net			—			—			(1	)%		(204	)%		(37	)%

Income before income taxes			14	%		23	%		16	%		(31	)%		63	%
Provision for income taxes			9	%		9	%		7	%		15	%		58	%

Net income			5	%		14	%		9	%		(61	)%		67	%

Cost of Revenues

Cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in creating, installing and supporting revenue products; travel and related overhead costs; costs of computer service bureaus; and our payments made to credit reporting agencies for scores, related outside support in connection with the ScoreNet Service and expenses related to our consumer score services through myFICO.com.

Cost of revenues, as a percentage of revenues, increased in each of fiscal 2002 and 2001 over the prior fiscal year. In fiscal 2002, the increase was primarily due to the acquisition of the Nykamp and HNC businesses and to an increase in direct materials expenses associated with our consumer score services through myFICO.com, offset by a reduction in the use of outside consultants and contractors that are relatively more expensive than internal resources. In fiscal 2001, the increase was primarily due to higher operating costs incurred for telecommunications services, planning and compliance functions and software and consulting services related to the North American market.

Research and Development

Research and development expenses include the personnel and related overhead costs incurred in development of new products and services, including research of mathematical and statistical models, and the development of other Strategy Machines Solutions and Analytic Software tools.

Research and development expenses as a percentage of revenues were consistent between fiscal 2002 and fiscal 2001. As a percentage of revenues, the decrease in fiscal 2001 as compared to the prior year was due primarily to the redeployment of research and development personnel to support roles for our new products, particularly within our Strategy Machine Solutions segment.

Sales, General and Administrative

Sales, general and administrative expenses consist principally of employee salaries and benefits, travel, overhead, advertising and other promotional expenses, corporate facilities expenses, legal expenses, business development expenses, and the cost of operating computer systems.

As a percentage of revenues, sales, general and administrative expenses in fiscal 2002 were lower than in fiscal 2001, due primarily to a reduction in personnel, consulting, sales commission, conference and trade show expenses, offset in part by increased personnel and other expenses resulting from the HNC acquisition. As a percentage of revenues, sales, general and administrative expenses in fiscal 2001 were lower than in fiscal 2000, due primarily to reductions in personnel, consulting and travel expenses as a result of our cost containment efforts.

Amortization of Intangibles

Amortization of intangibles consists of amortization expense that we have recorded on intangible assets recorded in connection with acquisitions accounted for by the purchase method of accounting. Amortization expense in fiscal 2002 totaled $4.4 million as compared to amortization expense of $2.1 million in each of fiscal 2001 and 2000. The increase in fiscal 2002 is attributable primarily to the incremental amortization of intangible assets recorded in connection with the HNC acquisition on August 5, 2002, and to a lesser degree the amortization of intangible assets resulting from our acquisition of assets from Nykamp Consulting Group, Inc. (Nykamp) in December 2001. Our intangible assets are being amortized using the straight-line method over periods ranging from three to fifteen years. See Notes 1 and 2 to the Consolidated Financial Statements for additional information.

In-process Research and Development

During fiscal 2002, we recorded in-process research and development (IPR&D) expense of $40.2 million in connection with our acquisition of HNC. IPR&D represents the present value of the estimated after-tax cash flows expected to be generated by purchased technologies that, as of the acquisition dates, had not yet

reached technological feasibility. The classification of the technology as complete or under development was made in accordance with the guidelines of Statement of Financial Accounting Standards No. 86: Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, and Financial Accounting Standards Board Interpretation No. 4: Applicability of SFAS No. 2 to Business Combinations Accounted for by the Purchase Method. In addition, the Fair Value, as defined below, of the IPR&D projects was determined in accordance with Statement of Financial Accounting Standards No. 141: Business Combinations, and SFAS No. 142: Goodwill and Other Intangible Assets.

We used an independent appraisal firm to assist us with our valuation of the fair value of the assets purchased from HNC. Fair value is defined as the price at which property would expect to be exchanged between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.

HNC’s IPR&D projects consisted of projects within HNC’s three legacy suites of software, consisting of the Efficiency, Risk and Opportunity suites, as well as its development of a new software platform technology. The current Efficiency Suite products under development as of the acquisition date were Roamex 5.0, which replaces 60% of the existing Roamex code and adds additional capabilities, and Blaze Advisor 4.5, a business rules product that adds additional rules management features to this product line. The current Risk Suite products under development were Falcon 5.0, which will be the first project in a series to replace the legacy Falcon product code base with new Java and platform technology, and Payment Optimizer, a payment optimizer tool that incorporates new platform modeling and profiling components. The current Opportunity Suite product under development was Opportunity Suite Development (“OSD”). OSD was the core engine for this suite, and was a build out of the Optimization and Simulation Environment (“OSE”) application version 2.0 UNIX based running on a web browser. At the time of acquisition, HNC was also in the process of developing a new software platform technology that enables efficient deployment and installation of multiple products while significantly reducing implementation and development costs.

The IPR&D projects were valued through the application of discounted cash flow analyses, taking into account many key characteristics of HNC as well as its future prospects, the rate of technological change in the industry, product life cycles, risks specific to each project, and various projects’ stage of completion. Stage of completion was estimated by considering the time, cost, and complexity of tasks completed prior to the acquisition, verses the project’s overall expected cost, effort and risks required for achieving technological feasibility. In the application of the discounted cash flow analyses, HNC’s management provided distinct revenue forecasts for each IPR&D project. The projections were based on the expected date of market introduction, an assessment of customer needs, the expected pricing and cost structure of the related product(s), product life cycles, and the importance of the existing technology relative to the in-process technology. In addition, the costs expected to complete each project were added to the operating expenses to calculate the operating income for each IPR&D project. As certain other assets contribute to the cash flow attributable to the assets being valued, returns to these other assets were calculated and deducted from the pre-tax operating income to isolate the economic benefit solely attributable to each of the in-process technologies. The present value of IPR&D was calculated based on discount rates recommended by the American Institute of Certified Public Accountants IPR&D Practice Aid, which depend on the stage of completion and the additional risk associated with the completion of each of the IPR&D projects. As a recommended basis for the valuation of technology under development, we considered venture capital rates of return as an appropriate measure of the discount rates associated with each IPR&D project. As a result, the earnings associated with the incomplete technology were discounted at a rate ranging from 25% to 60%.

Restructuring and Merger-related

During fiscal 2002, in connection with our acquisition of HNC, we incurred charges totaling $7.2 million, consisting of the following: (i) $5.0 million in restructuring charges, including $3.2 million in charges associated with our abandonment of a Fair, Isaac facility lease concurrent with the merger, representing future cash obligations under the lease net of estimated sublease income, and $1.8 million in severance costs associated with a reduction in Fair, Isaac staff in connection with the merger, and (ii) $2.2 million in other

non-recurring merger related costs, consisting primarily of retention bonuses earned through September 30, 2002 by employees with future severance dates and employee outplacement costs.

In October 1999, we announced the discontinuance of our Healthcare Receivables Management System product line, and in connection therewith recorded a restructuring charge totaling $1.9 million during fiscal 2000. We also recorded a restructuring charge totaling $1.0 million related to a reduction in staff during fiscal 2000. These restructuring actions were completed during fiscal 2000 and resulted in a combined restructuring charge of $2.9 million in fiscal 2000, $0.3 million of which related to the write-down of operating assets. At September 30, 2000, we had an outstanding restructuring liability of $0.4 million related to these charges, which was included in other accrued liabilities. During fiscal 2001, we made cash payments of $0.2 million and wrote off $0.2 million in remaining operating assets such that no remaining restructuring liability existed at September 30, 2001.

Interest Income

Interest income increased to $6.4 million in fiscal 2002, as compared to $5.8 million in fiscal 2001 and $4.1 million in fiscal 2000. Interest income is derived primarily from the investment of funds in excess of our immediate operating requirements. Interest income increased in both fiscal 2002 and 2001, due primarily to higher average cash and investment balances, partially offset by lower interest and investment income yields due to market conditions. Also contributing to the increase in interest income in fiscal 2002 was the contribution of HNC’s cash and investment balances as a result of our acquisition of HNC on August 5, 2002.

Interest Expense on Convertible Subordinated Notes

As a result of the HNC acquisition and subsequent liquidation of the HNC entity, we are the issuer of $150.0 million in 5.25% convertible subordinated notes due in September 2008. The notes were recorded at their fair value of $139.7 million on the acquisition date, as determined based on their quoted market price, which resulted in our recognition of a $10.3 million note discount. The carrying amount of the notes is being accreted to $150.0 million over their remaining term using the effective interest method, resulting in an effective interest rate of approximately 6.64% per annum. Interest expense on the notes recorded by us totaled $1.5 million during fiscal 2002.

Other Income (Expense), Net

Other income (expense), net consists primarily of realized investment gains/ losses, exchange rate gains/ losses resulting from re-measurement of foreign-denominated receivable and cash balances held by our U.S. reporting entities into the U.S. dollar functional currency at period-end market rates, net of the impact of offsetting forward exchange contracts, and other non-operating items. Other income (expense), net was $1.1 million in fiscal 2002 as compared to $(1.0) million in fiscal 2001 and $(1.7) million in fiscal 2000. Other income (expense), net in fiscal 2002 includes $2.7 million in realized gains on the sale of investments, whereas investment gains/losses were insignificant in fiscal 2001 and 2000. In fiscal 2002 and 2001, we also recorded our share of losses in an early-stage development company accounted for using the equity method, as well as net foreign currency losses.

In fiscal 1998, we entered into a lease arrangement to construct an office complex in San Rafael, California to accommodate future growth. During fiscal 2000, we decided not to build out the site as planned following a five-month study of our options. Under an agreement with the San Rafael City Government, we were released from our obligation to occupy buildings on the site. As a result of the transaction, we recorded a loss of approximately $1.4 million, which is reflected in other income (expense), net in fiscal 2000.

Provision for Income Taxes

Our effective tax rate was 66.3%, 40.0%, and 41.3% in fiscal 2002, 2001 and 2000, respectively. The increase in fiscal 2002 compared to fiscal 2001 was due primarily to a $40.2 million non-deductible IPR&D charge, offset by the reduction of valuation allowance on capital loss carryovers and an increased level of research and development tax credits. The effective tax rate net of the IPR&D adjustment would have been

37.7%. The decrease in fiscal 2001 compared to fiscal 2000 was due to the implementation of an “extraterritorial income exclusion” tax structure and relatively more income generating activities in states with lower tax rates.

Operating Income

Operating income in fiscal 2002 decreased as compared to fiscal 2001, primarily as a result of the IPR&D charge and other merger-related costs recorded in connection with the HNC acquisition. Excluding these charges, operating income in fiscal 2002 increased, due principally to increased segment operating income derived from our Strategy Machines Solutions, Scoring Solutions and Analytic Software Tools segments, offset by a decrease in Professional Services segment operating income.

The fiscal 2002 increase in Strategy Machines Solutions segment operating income was due primarily to the increase in revenues from consumer score services through myFICO.com and strategic alliance partners’ Web sites. The increase in Scoring Solutions segment operating income was due primarily to the growth in risk and insurance scoring revenues from the credit reporting agencies. The increase in Analytic Software Tools segment operating income was due primarily to an increase in Blaze Decision System and Blaze Advisor revenues in fiscal 2002, the latter of which resulted from the HNC acquisition. The decrease in the Professional Services segment operating income resulted primarily from the acquisitions of Nykamp and HNC, which contributed to lower professional services margins, offset by the increase in professional service revenue contributions from these acquisitions.

Operating income in fiscal 2001 increased as compared to fiscal 2000, primarily as a result of increased segment operating income within our Strategy Machines Solutions and Scoring Solutions segments, and to a decline in the Analytic Software Tools segment operating loss. The increased Strategy Machines Solutions segment operating income was attributable primarily to the introduction in fiscal 2001 of consumer score services through myFICO.com and to the elimination of lower operating margins associated with our former Healthcare Receivables Management System line of business, which was discontinued in fiscal 2000. The increase in the Scoring Solutions segment operating income was due primarily to increased revenues related to risk scores from the credit reporting agencies. The decline in the Analytic Software Tools segment operating loss was due principally to increased revenues from Blaze Decision System products and to a lower percentage increase of segment operating expenses.

Capital Resources and Liquidity

Our working capital at September 30, 2002 and 2001 totaled $338.0 million and $94.6 million, respectively. The increase in working capital year over year is attributable mainly to an increase in cash and cash equivalents, short-term marketable securities and accounts receivable, primarily resulting from our acquisition of HNC.

Our primary method for funding operations and growth has been through cash flows generated from operations. Net operating cash flows increased from $70.5 million in fiscal 2001 to $103.1 million in fiscal 2002, reflecting primarily an increase in net earnings before merger-related IPR&D and other non-cash charges, partially offset by the effect of net working capital changes excluding the impact of the HNC and Nykamp acquisitions. Net operating cash flows increased from $36.7 million in fiscal 2000 to $70.5 million in fiscal 2001, reflecting primarily an increase in net earnings before non-cash charges, partially offset by net working capital changes.

Net cash provided by investing activities totaled $92.5 million in fiscal 2002, compared to net cash used in investing activities of $98.1 million in fiscal 2001 and $27.6 million in fiscal 2000. The increase in cash flows from investing activities in fiscal 2002 as compared to fiscal 2001 is attributable primarily to the acquisition of $143.1 million of HNC cash and cash equivalents and a reduction in purchases of marketable securities, net of sales and maturities year over year, partly offset by cash paid to effect the Nykamp acquisition in fiscal 2002. The increase in cash used in investing activities in fiscal 2001 as compared to fiscal 2000 was attributable primarily to an increase in purchases of marketable securities, net of sales and maturities, partially offset by a decline in purchases of property and equipment year over year.

Net cash used in financing activities totaled $123.4 million in fiscal 2002, compared to net cash provided by financing activities of $12.7 million in fiscal 2001 and $9.7 million in fiscal 2000. The increase in net cash used in financing activities in fiscal 2002, as compared to fiscal 2001, is attributable primarily to a increase in stock repurchases, a decrease in proceeds from issuances of common stock and an increase in cash dividends paid year over year. The increase in net cash provided by financing activities in fiscal 2001 as compared to fiscal 2000 was attributable primarily to an increase in proceeds from issuances of common stock, partially offset by an increase in stock repurchases year over year.

From time to time, we repurchase our common stock in the open market pursuant to programs approved by our Board of Directors. During fiscal 2002, 2001 and 2000, we expended $144.4 million, $19.9 million and $0.1 million, respectively, in connection with our repurchase of common stock under such programs. In August 2002, we announced a 6.0 million share repurchase program. When the current program was announced, we stated an expectation that the volume of repurchases would be made in amounts consistent with the previous quarter’s free cash flow and that the program would have a term of up to three years. In November 2002, our board of Directors determined that it is in the Company’s best interest to have the discretion to accelerate the rate of repurchase activity and that the Company should not be subject to restrictions on the rate of repurchases or the duration of the program. As of September 30, 2002, approximately 1.1 million shares of our common stock had been repurchased under the current program. We anticipate that we will continue to repurchase shares in accordance with this program.

We paid quarterly dividends of two cents per share, or eight cents per year, during each of fiscal 2002, 2001 and 2000. Our dividend rate is set by the Board of Directors on a quarterly basis taking into account a variety of factors, including among others, our operating results and cash flows, general economic and industry conditions, our obligations and other factors deemed relevant by the Board. Although we expect to continue to pay dividends at the current rate, our dividend rate is subject to change from time to time based on the Board’s business judgment with respect to these and other relevant factors.

In connection with our merger with HNC and the subsequent liquidation of the HNC entity, we are the issuer of $150,000 of 5.25% Convertible Subordinated Notes that mature on September 1, 2008. The notes are convertible into shares of Fair, Isaac common stock at a conversion rate of approximately 18.02 shares of Fair, Isaac common stock per $1,000 principal amount of the notes, subject to anti-dilution adjustment. The notes are general unsecured obligations of Fair, Isaac and are subordinated in right of payment to all existing and future senior indebtedness of Fair, Isaac. Interest on the notes is payable on March 1 and September 1 of each year until maturity. We may redeem the notes on or after September 5, 2004, or earlier if the price of Fair, Isaac common stock reaches certain levels. If we redeem the notes prior to September 1, 2007, we will also be required to pay a redemption premium as prescribed by the indenture.

As of September 30, 2002, we had $421.6 million in cash, cash equivalents and marketable security investments. We believe that these balances, including interest to be earned thereon, and anticipated cash flows from operating activities will be sufficient to fund our working and other capital requirements over the course of the next twelve months and for the foreseeable future. In the normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or investing in these businesses. We may elect to use available cash and cash equivalents and marketable security investments to fund such activities in the future. In the event additional needs for cash arise, we may raise additional funds from a combination of sources including the potential issuance of debt or equity securities. Additional financing might not be available on terms favorable to us, or at all, particularly in light of the current decline in the capital markets. If adequate funds were not available or were not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.

We are party to a credit agreement with a financial institution that provides for a $15.0 million revolving line of credit through February 2004. Under the agreement we are required to comply with various financial covenants which include but are not limited to, minimum levels of domestic liquidity, parameters for treasury stock repurchases, dividend payments, and merger and acquisition requirements. At our option, borrowings under this agreement bear interest at the rate of LIBOR plus 1.25% or at the financial institution’s Prime

Rate, payable monthly. This agreement, executed in November 2002, replaces a former $15.0 million revolving credit facility that was held by HNC. As of September 30, 2002, the former HNC credit facility served to collateralize certain letters of credit aggregating $0.7 million, made by us in the normal course of business. These letters of credit are now collateralized by the new facility. Our available borrowings under this facility are reduced by the principal amount of letters of credit collateralized by this credit agreement.

We are a limited partner in Azure Capital Partners L.P., a venture capital investment management fund. We are committed to invest an additional $2.2 million into this fund, and we expect to make this additional investment in fiscal 2003.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. generally accepted accounting principles. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We periodically evaluate our estimates including those relating to revenue recognition, the allowance for doubtful accounts, goodwill and other intangible assets, capitalized software development costs, income taxes and contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies impact the most significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

We recognize software license revenue upon delivery, provided all significant obligations have been met, persuasive evidence of an arrangement exists, fees are fixed and determinable, collections are probable, and we are not involved in significant production, customization, or modification of the software or services that are essential to the functionality of the software.

If the arrangement involves (1) development of custom scoring systems or (2) significant production, customization, or modification of software or service essential to the functionality of the software, the revenue is generally recognized under the percentage-of-completion method of contract accounting. Progress toward completion is generally measured by achieving certain standards and objectively verifiable milestones present in each project. In order to apply the percentage of completion of method, management is required to estimate the number of hours needed to complete a particular project. As a result, recognized revenues and profits are subject to revisions as the contract progresses to completion.

Revenues from multiple element arrangements are allocated to each element based on the relative fair values of the elements. The determination of fair value is based on objective evidence that is specific to our business. If such evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each element does exist or until all elements of the arrangement are delivered. If in a multiple element arrangement, fair value does not exist for one or more of the delivered elements in the arrangement, but fair value does exist for all of the undelivered elements, then the residual method of accounting is applied. Under the residual method, the fair value of the undelivered elements is deferred, and the remaining portion of the arrangement fee is recognized as revenue.

Revenue determined by the percentage-of-completion method in excess of contract billings is recorded as unbilled work in progress. Such amounts are generally billable upon reaching certain performance milestones as defined by individual contracts. Billings received in advance of performance under contracts are recorded as billings in excess of earned revenues.

obligations have been met, persuasive evidence of an arrangement exists, fees are fixed and determinable, and collections are probable.

Transactional-based license fees under software license arrangements, network service and internally-hosted software agreements are recognized as revenue based on system usage or when fees based on system usage exceed monthly minimum license fees.

Revenues from post-contract customer support, such as maintenance, are recognized on a straight-line basis over the term of the contract.

Allowance for Doubtful Accounts

We make estimates regarding the collectibility of our accounts receivables. When we evaluate the adequacy of our allowance for doubtful accounts, we closely analyze specific accounts receivable balances, historical bad debts, customer creditworthiness, current economic trends and changes in our customer payment cycles. Material differences may result in the amount and timing of expense for any period if we were to make different judgments or utilize different estimates. If the financial condition of our customers deteriorates resulting in an impairment of their ability to make payments, or if payments from customers are significantly delayed, additional allowances might be required.

Business Acquisitions; Valuation of Goodwill and Other Intangible Assets

Our business acquisitions typically result in the recognition of goodwill and other intangible assets, and in certain cases one-time charges associated with the write-off of in-process research and development, which affect the amount of current and future period charges and amortization expense. The determination of value of these components of a business combination, as well as associated asset useful lives, requires management to make various estimates and assumptions. Estimates using different, but each reasonable, assumptions could produce significantly different results.

We continually review the events and circumstances related to our financial performance and economic environment for factors that would provide evidence of the impairment of enterprise-level goodwill. If factors suggesting impairment exist, we use the market value method to determine the extent of the impairment. We will adopt the provisions of Statement of Financial Accounting Standards No. 142 in the first quarter of fiscal 2003, and as a result we will cease to amortize all goodwill. In lieu of amortization, we will be required to perform an initial impairment review based on the estimated fair value of our goodwill and intangible assets as of October 1, 2002 and on a periodic basis thereafter. There are many management assumptions and estimates underlying the determination of an impairment loss, and estimates using different, but each reasonable, assumptions could produce significantly different results. Therefore, the timing and recognition of impairment losses by us in the future, if any, may be highly dependent upon our estimates and assumptions. We have not yet determined whether any impairment loss will result from our initial impairment review in fiscal 2003.

Capitalized Software Development Costs

We capitalize certain software development costs after establishment of a product’s technological feasibility. Such costs are then amortized over the estimated life of the related product. Periodically, we compare a product’s unamortized capitalized cost to the product’s estimated net realizable value. To the extent unamortized capitalized costs exceed net realizable value based on the product’s estimated future gross revenues, reduced by the estimated future costs of completing and disposing of the product, the excess is written off. This analysis requires us to estimate future gross revenues associated with certain products, and the future costs of completing and disposing of certain products. If these estimates change, write-offs of capitalized software costs could result.

Internal-use Software

costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. We assess potential impairment to capitalized internal-use software whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows that are expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Income Taxes

We use the asset and liability approach to account for income taxes. This methodology recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax base of assets and liabilities. We then record a valuation allowance to reduce deferred tax assets to an amount that likely will be realized. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If we determine during any period that we could realize a larger net deferred tax asset than the recorded amount, we would adjust the deferred tax asset to increase income for the period. Conversely, if we determine that we would be unable to realize a portion of our recorded deferred tax asset, we would adjust the deferred tax asset to record a charge to income for the period.

Contingencies and Litigation

We are subject to various proceedings, lawsuits and claims relating to product, technology, labor, shareholder and other matters. We are required to assess the likelihood of any adverse outcomes and the potential range of probable losses in these matters. The amount of loss accrual, if any, is determined after careful analysis of each matter, and is subject to adjustment if warranted by new developments or revised strategies.

New Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and certain intangibles with indefinite lives are no longer amortized, but instead are tested for impairment at least annually or more frequently if impairment circumstances arise. SFAS No. 142 is required to be applied starting with fiscal years beginning after December 15, 2001; therefore, the Company will adopt SFAS 142 beginning October 1, 2002. We are currently evaluating the impact that the adoption of SFAS No. 142 will have on our financial position and results of its operations. Annual goodwill amortization was approximately $2.1 million for each of the fiscal years 2002, 2001 and 2000.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 revises the accounting for specified employee and contract terminations that are part of restructuring activities and allows recognition of a liability for the cost associated with an exit or disposal activity only when the liability is incurred and can be measured at fair value. This Statement only applies to termination benefits offered for a specific termination event or a specified period. We are required to adopt this statement for exit or disposal activities initiated after December 31, 2002. We do not expect the adoption of this statement to have a significant impact on our financial position and results of operations.

RISK FACTORS

Although we expect that the recently completed merger between Fair, Isaac and HNC will benefit us, we may not realize those benefits because of integration and other challenges.

On August 5, 2002, we completed the acquisition of HNC, previously announced on April 29, 2002. Our failure to meet the challenges involved in successfully integrating the operations of Fair, Isaac and HNC or

otherwise to realize any of the anticipated benefits of the recently completed merger, including anticipated cost savings, could seriously harm our results of operations. Realizing the benefits of the recently completed merger will depend in part on the continued integration of products, technologies, operations, and personnel. Although we have made progress since the merger was completed, the continued integration is a complex, time-consuming and expensive process that, even with proper planning and implementation, could significantly disrupt our business. In many recent mergers, especially mergers involving technology companies, merger partners have experienced difficulties integrating the combined businesses, and we have not previously faced an integration challenge as substantial as the one presented by the recently completed merger. The challenges involved in this integration include the following:


	•	continuing to persuade employees that the business cultures of Fair, Isaac and HNC are compatible, maintaining employee morale and retaining key employees;

	•	managing a workforce over expanded geographic locations;

	•	demonstrating to our customers that the merger will not lower client service standards, interfere with business focus, adversely affect product quality or alter current product development plans;

	•	consolidating and rationalizing corporate IT and administrative infrastructures;

	•	combining product offerings;

	•	coordinating sales and marketing efforts to effectively communicate our capabilities to current and prospective customers;

	•	coordinating and rationalizing research and development activities to enhance introduction of well designed new products and technologies;

	•	preserving our marketing or other important relationships and resolving potential conflicts that may arise;

	•	minimizing the diversion of management attention from other ongoing business concerns; and

	•	coordinating and combining overseas operations, relationships and facilities, which may be subject to additional constraints imposed by local laws and regulations.

We may not successfully integrate the operations of Fair, Isaac and HNC in a timely manner, or at all. Moreover, we may not realize the anticipated benefits or synergies of the merger to the extent, or in the time frame, anticipated. The anticipated benefits and synergies relate to cost savings associated with anticipated restructurings and other operational efficiencies, greater economies of scale and revenue growth opportunities through expanded markets and cross-sell opportunities. However, these anticipated benefits and synergies are based on projections and assumptions, not actual experience, and assume a successful integration.

Charges to earnings resulting from the application of the purchase method of accounting may cause the market value of our common stock to decline.

In accordance with United States generally accepted accounting principles, we are accounting for the merger using the purchase method of accounting. Under the purchase method of accounting, we have allocated the total estimated purchase price to HNC’s net tangible assets, amortizable intangible assets, intangible assets with indefinite lives and in-process research and development, based on their fair values as of the date of completion of the merger on August 5, 2002. We have recorded the excess of the purchase price over those fair values as goodwill. We have expensed approximately $40.2 million of the estimated purchase price allocated to in-process research and development in the fourth quarter. We will incur additional depreciation and amortization expense over the useful lives of certain of the net tangible and intangible assets acquired in connection with the merger. Annual amortization of intangible assets is currently estimated at $13.3 million, as compared to our amortization expense for such items during our most recent completed fiscal year of $2.1 million. In addition, to the extent the value of goodwill or intangible assets with indefinite lives becomes impaired in the future, we may be required to incur material charges relating to the impairment of

those assets. These depreciation, amortization, in-process research and development and potential impairment charges could seriously harm our results of operations.

We may incur significant liabilities and merger-related charges resulting from integration of the two companies following the recently completed restructuring.

We recognized approximately $7.2 million of merger-related and restructuring costs in the fourth quarter of our fiscal year 2002. However, additional liabilities ultimately will be recorded for severance, retention or relocation costs, costs of vacating some facilities, or other costs associated with ceasing certain activities. These liabilities and charges may be significant and could seriously harm our operating results in future periods.

Customer uncertainties related to the recently completed merger could harm our businesses and results of operations.

Since the merger we have been communicating our future plans to our customers. Despite these efforts there may be customer uncertainty, causing our customers to delay or defer purchasing decisions or elect to switch to other suppliers. In particular, prospective customers could be reluctant to purchase our products due to uncertainty about the direction of our product offerings and our willingness to support and service existing products. Prospective and current clients may worry about how integration of the two companies’ technologies may affect current and future products. To the extent that the recently completed merger creates uncertainty among those persons and organizations contemplating product purchases such that one large customer, or a significant group of smaller customers, delays, defers or changes purchases, our results of operations would be seriously harmed. Further, we may have to make additional customer assurances and assume additional obligations to address our customers’ uncertainty about the direction of our products and related support offerings. Accordingly, our quarterly results of operations could be substantially below expectations of market analysts, potentially decreasing our stock price.

Our effective tax rate after the recently completed merger is uncertain, and any increase in tax liability would harm our operating results.

The impact of the recently completed merger on our overall effective tax rate is uncertain. Although we will attempt to optimize our overall effective tax rate, it is difficult to predict our effective tax rate following the recently completed merger. The combination of the operations of Fair, Isaac and HNC may result in an overall effective tax rate that is higher than our currently reported tax rate, and it is possible that our combined effective tax rate on a consolidated basis may exceed the average of the pre-merger separate tax rates of Fair, Isaac and HNC.

We may not be able to sustain the revenue growth rates previously experienced by HNC and Fair, Isaac individually.

We cannot assure you that we will experience the same rate of revenue growth following the recently completed merger as HNC and Fair, Isaac experienced individually because of the difficulty of maintaining high percentage increases as the base of revenue increases. If our revenue does not increase at or above the rate analysts expect, the trading price for our common stock may decline.

Any failure to recruit and retain additional qualified personnel, more challenging in light of uncertainty following the recent acquisition, could hinder our ability to successfully manage our business.

Our future success will likely depend in large part on our ability to attract and retain experienced sales, research and development, marketing, technical support and management personnel. Employee retention may be particularly challenging in connection with the recently completed acquisition as a result of employee uncertainty about their future roles, the distractions of integration, and morale challenges posed by workforce reductions that occurred after completion of the acquisition. Moreover, the complexity of our products requires highly trained customer service and technical support personnel to assist customers with product

installation and deployment. The labor market for these persons is very competitive due to the limited number of people available with the necessary technical skills and understanding. We have experienced difficulty in recruiting qualified personnel, especially technical and sales personnel, and we may need additional staff to support new customers and/or increased customer needs. We may also recruit and employ skilled technical professionals from other countries to work in the United States. Limitations imposed by federal immigration laws and the availability of visas could hinder our ability to attract necessary qualified personnel and harm our business and future operating results. There is a risk that even if we invest significant resources in attempting to attract, train and retain qualified personnel, we will not succeed in our efforts, and our business could be harmed.

Since our revenues depend, to a great extent upon conditions in the consumer credit, financial services and insurance industries, and to some extent on general economic conditions, an industry specific or general downturn may harm our results of operations.

During fiscal 2002, approximately 90% of our revenues were derived from sales of products and services to the consumer credit, financial services and insurance industries. A downturn in the consumer credit, the financial services or the insurance industry, including a downturn caused by increases in interest rates or a tightening of credit, among other factors, could harm our results of operations. Since 1990, while the rate of account growth in the U.S. bankcard industry has been slowing and many of our large institutional clients have merged and consolidated, we have generated most of our revenue growth from our bankcard-related scoring and account management businesses by selling and cross-selling our products and services to large banks and other credit issuers. As this industry continues to consolidate, we may have fewer opportunities for revenue growth due to changing demand for our products and services that support clients’ customer acquisition programs. In addition, industry consolidation could affect the base of recurring revenues derived from contracts in which we are paid on a per-transaction basis if consolidated customers combine their operations under one contract. We cannot assure you that we will be able effectively to promote future revenue growth in our businesses.

In addition, a softening of demand for our decisioning solutions or other products and services caused by a weakening of the economy generally may result in decreased revenues or lower growth rates. Due to the current slowdown in the economy generally, we believe that many of our existing and potential customers are reassessing or reducing their planned technology investments and deferring purchasing decisions. As a result, there is increased uncertainty with respect to our expected revenues. Further delays or reductions in business spending for business analytics could seriously harm our revenues and operating results.

Quarterly revenues and operating results have varied in the past and this unpredictability may continue in the future and could lead to substantial declines in the market price for our common stock.

Our revenues and operating results varied in the past and future fluctuations in our operating results are possible. Consequently, we believe that you should not rely on period-to-period comparisons of financial results as an indication of future performance. Our future operating results may fall below the expectations of market analysts and investors, and in this event the market price of our common stock would likely fall. In addition, most of our operating expenses will not be affected by short-term fluctuations in revenues; thus, short-term fluctuations in revenues may significantly impact operating results. Factors that will affect our revenues and operating results include the following:


	•	variability in demand from our existing customers;

	•	the lengthy and variable sales cycle of many products;

	•	consumer dissatisfaction with, or problems caused by, the performance of our products;

	•	the relatively large size of orders for our products and our inability to compensate for unanticipated revenue shortfalls;

	•	the timing of new product announcements and introductions in comparison with our competitors;


	•	the level of our operating expenses;

	•	changes in competitive conditions in the consumer credit, financial services and insurance industries;

	•	fluctuations in domestic and international economic conditions;

	•	our ability to complete large installations on schedule and within budget;

	•	acquisition-related expenses and charges; and

	•	timing of orders for and deliveries of software systems.

We may not be able to forecast our revenues accurately because our products have a long and variable sales cycle.

We cannot predict the timing of the recognition of our revenues accurately because the length of our sales cycles makes it difficult for us to predict the quarter in which sales to expected customers will occur. The long sales cycle for our products may cause license revenue and operating results to vary significantly from period to period. The sales cycle to license our products can typically range from 60 days to 18 months. Customers are often cautious in making decisions to acquire our products, because purchasing our products typically involves a significant commitment of capital, and may involve shifts by the customer to a new software and/or hardware platform or changes in the customer’s operational procedures. Delays in completing sales can arise while customers complete their internal procedures to approve large capital expenditures and test and accept our applications. Consequently, we face difficulty predicting the quarter in which sales to expected customers will occur. This has contributed, and we expect it to continue to contribute, to fluctuations in our operating results.

We derive a substantial portion of our revenues from a small number of products and services, and our revenue will decline if the market does not continue to accept these products and services.

We expect that revenues from some or all of our Falcon Fraud Manager, Decision Manager for Medical Bill Review and Outsourced Bill Review products and services, and agreements with TransUnion, Equifax and Experian, will account for a substantial portion of our total revenues for the foreseeable future. Our revenue will decline if the market does not continue to accept these products and services. Factors that might affect the market acceptance of these products and services include the following:


	•	changes in the business analytics industry;

	•	technological change;

	•	our inability to obtain or use state fee schedule or claims data in our insurance products;

	•	saturation of market demand;

	•	loss of key customers;

	•	industry consolidation;

	•	factors that reduce the effectiveness of or need for fraud detection capabilities; and

	•	reduction of the use of credit and other payment cards as payment methods.

We will continue to depend upon major contracts with credit reporting agencies, and our future revenue could decline if the terms of these relationships change.

We will continue to derive a substantial portion of our revenues from contracts with the three major credit reporting agencies. These contracts, which normally have a term of five years or less, accounted for approximately 27% of our revenues in fiscal 2002. If we are unable to renew any of these contracts on the same or similar terms, our revenues and results of operations would be harmed.

Our revenue growth could decline if any major customer cancels, reduces or delays a purchase of our products.

Most of our customers are relatively large enterprises, such as banks, insurance companies, healthcare firms, retailers and telecommunications carriers. Our future success will depend upon the timing and size of future licenses, if any, from these customers and new customers. Many of our customers and potential customers are significantly larger than we are and may have sufficient bargaining power to demand reduced prices and favorable nonstandard terms. The loss of any major customer, or the delay of significant revenue from these customers, could reduce or delay our recognition of revenue.

Our ability to increase our revenues will depend to some extent upon introducing new products and services, and if the marketplace does not accept these new products and services, our revenues may decline.

We will have a significant share of the available market in our Scoring segment and for certain services in our Strategy Machine Solutions segment (specifically, account management services at credit card processors and in the market for credit card fraud detection software through our Falcon products). To increase our revenues, we must enhance and improve existing products and continue to introduce new products and new versions of existing products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance. We believe much of our future growth prospects will rest on our ability to continue to expand into newer markets for our products and services, such as direct marketing, insurance, small business lending, retail, telecommunications, personal credit management, the design of business strategies using Strategy Science technology and internet services. These areas are relatively new to our product development and sales and marketing personnel, and completely new to some personnel integrated as a result of the merger. Products that we plan to market in the future are in various stages of development. We cannot assure you that the marketplace will accept these products. If our current or potential customers are not willing to switch to or adopt our new products and services, our revenues will decrease.

Defects, failures and delays associated with our introduction of new products could seriously harm our business.

Significant undetected errors or delays in new products or new versions of products, especially in the area of customer relationship management, may affect market acceptance of our products and could harm our business, results of operations or financial position. If we were to experience delays in commercializing and introducing new or enhanced products, if our customers were to experience significant problems with implementing and installing our products, or if our customers were dissatisfied with our products’ functionality or performance, our business, results of operations or financial position could be harmed. In the past, we have experienced delays while developing and introducing new products and product enhancements, primarily due to difficulties developing models, acquiring data and adapting to particular operating environments. Errors or defects in our products that are significant, or are perceived to be significant, could result in the rejection of our products, damage to our reputation, lost revenues, diverted development resources, potential product liability claims and increased service and support costs and warranty claims.

If we fail to keep up with rapidly changing technologies, our products could become less competitive or obsolete.

In our markets, technology changes rapidly, and there are continuous improvements in computer hardware, network operating systems, programming tools, programming languages, operating systems, database technology and the use of the Internet. If we fail to enhance our current products and develop new products in response to changes in technology or industry standards, our products could rapidly become less competitive or obsolete. For example, the rapid growth of the Internet environment creates new opportunities, risks and uncertainties for businesses, such as ours, which develop software that must also be designed to

operate in Internet, intranet and other online environments. Our future success will depend, in part, upon our ability to:


	•	internally develop new and competitive technologies;

	•	use leading third-party technologies effectively;

	•	continue to develop our technical expertise;

	•	anticipate and effectively respond to changing customer needs;

	•	initiate new product introductions in a way that minimizes the impact of customers delaying purchases of existing products in anticipation of new product releases; and

	•	influence and respond to emerging industry standards and other technological changes.

New product introductions and pricing strategies by our competitors could decrease our product sales and market share, or could pressure us to reduce our product prices in a manner that reduces our margins.

We may not be able to compete successfully against our competitors, and this inability could impair our capacity to sell our products. The market for business analytics is new, rapidly evolving and highly competitive, and we expect competition in this market to persist and intensify. Our competitors vary in size and in the scope of the products and services they offer, and include:


	•	in-house analytics departments; credit reporting agencies;

	•	computer service providers;

	•	regional risk management, marketing, systems integration and data warehousing competitors;

	•	application software companies, including enterprise software vendors;

	•	management information system departments of our customers and potential customers, including financial institutions, insurance companies and telecommunications carriers;

	•	third-party professional services and consulting organizations;

	•	internet companies;

	•	hardware suppliers that bundle or develop complementary software;

	•	network and telecommunications switch manufacturers, and service providers that seek to enhance their value-added services;

	•	neural network tool suppliers; and

	•	managed care organizations.

We expect to experience additional competition from other established and emerging companies, as well as from other technologies. For example, our Falcon Fraud Manager and Falcon Fraud Manager for Merchants products compete against other methods of preventing credit card fraud, such as credit cards that contain the cardholder’s photograph, smart cards, cardholder verification and authentication solutions and other card authorization techniques. Many of our anticipated competitors have greater financial, technical, marketing, professional services and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources than we can to develop, promote and sell their products. Many of these companies have extensive customer relationships, including relationships with many of our current and potential customers. Furthermore, new competitors or alliances among competitors may emerge and rapidly gain significant market share. If we are unable to respond as quickly or effectively to changes in customer requirements as our competition, our ability to expand our business and sell our products will be negatively affected.

Our competitors may be able to sell products competitive to ours at lower prices individually or as part of integrated suites of several related products. This ability may cause our customers to purchase products of our competitors that directly compete with our products. Price reductions by our competitors could negatively impact our margins and results of operations, and could also harm our ability to obtain new long-term contracts and renewals of existing long-term contracts on favorable terms.

We will continue to rely upon proprietary technology rights, and if we are unable to protect them, our business could be harmed.

Our success will depend, in part, upon our proprietary technology and other intellectual property rights. To date, we have relied primarily on a combination of copyright, patent, trade secret, and trademark laws, and nondisclosure and other contractual restrictions on copying and distribution to protect our proprietary technology. Because the protection of our proprietary technology is limited, our proprietary technology could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. We cannot assure you that our means of protecting our intellectual property rights in the United States or abroad will be adequate or that others, including our competitors, will not use our proprietary technology without our consent. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could harm our business, operating results and financial condition.

In addition, some of our technologies were developed under research projects conducted under agreements with various United States government agencies or subcontractors. Although we have commercial rights to these technologies, the United States government typically retains ownership of intellectual property rights and licenses in the technologies developed by us under these contracts, and in some cases can terminate our rights in these technologies if we fail to commercialize them on a timely basis. Under these contracts with the United States government, the results of research may be made public by the government, limiting our competitive advantage with respect to future products based on our research.

We may be subject to possible infringement claims that could harm our business.

With recent developments in the law that permit patenting of business methods, we expect that products in the industry segments in which we will compete, including software products, will increasingly be subject to claims of patent infringement as the number of products and competitors in our industry segments grow and the functionality of products overlaps. We will have to defend claims made against our products, and such claims may require us to:


	•	incur significant defense costs or substantial damages;

	•	cease the use or sale of infringing products;

	•	expend significant resources to develop or license a substitute non-infringing technology;

	•	discontinue the use of some technology; or

	•	obtain a license under the intellectual property rights of the third party claiming infringement, which license may not be available or might require substantial royalties or license fees that would reduce our margins.

Security is important to our business, and breaches of security, or the perception that e-commerce is not secure, could harm our business.

Internet-based, business-to-business electronic commerce requires the secure transmission of confidential information over public networks. Several of our products are accessed through the Internet, including our

new consumer services accessible through the www.myfico.com website. Consumers using the Internet to access their personal information will demand the secure transmission of such data. Security breaches in connection with the delivery of our products and services, including our netsourced products and consumer services, or well-publicized security breaches affecting the Internet in general, could significantly harm our business, operating results and financial condition. We cannot be certain that advances in computer capabilities, new discoveries in the field of cryptography, or other developments will not compromise or breach the technology protecting the networks that access our netsourced products, consumer services and proprietary database information.

We may incur risks related to acquisitions or significant investment in businesses.

We have made in the past, and may make in the future, acquisitions of, or significant investments in, businesses that offer complementary products, services and technologies. Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses. Such risks include:


	•	the possibility that we will pay more than the acquired companies or assets are worth;

	•	the difficulty of assimilating the operations and personnel of the acquired businesses;

	•	the potential product liability associated with the sale of the acquired companies’ products;

	•	the potential disruption of our ongoing business;

	•	the potential dilution of our existing stockholders and earnings per share;

	•	unanticipated liabilities, legal risks and costs;

	•	the distraction of management from our ongoing business; and

	•	the impairment of relationships with employees and clients as a result of any integration of new management personnel.

These factors could harm our business, results of operations or financial position, particularly in the event of a significant acquisition.

If our products do not comply with government regulations that apply to us or to our customers, we could be exposed to liability or our products could become obsolete.

Legislation and governmental regulation inform how our business is conducted. Both our core businesses and our newer consumer initiatives are affected by regulation. Significant regulatory areas include:


	•	federal and state regulation of consumer report data and consumer reporting agencies, such as the Fair Credit Reporting Act, or FCRA;

	•	regulation designed to insure that lending practices are fair and non-discriminatory, such as the Equal Credit Opportunity Act;

	•	privacy law, such as provisions of the Financial Services Modernization Act of 1999 and the Health Insurance Portability and Accountability Act of 1996;

	•	regulations governing the extension of credit to consumers and by Regulation E under the Electronic Fund Transfers Act, as well as non-governmental VISA and MasterCard electronic payment standards;

	•	Fannie Mae and Freddie Mac regulations, among others, for our mortgage services products;

	•	insurance regulations related to our insurance products; and

	•	consumer protection laws, such as federal and state statutes governing the use of the Internet and telemarketing.

In connection with our core activities, these statutes will continue, to some degree, to directly govern our operations. For example, the Financial Services Modernization Act restricts our use and transmittal of nonpublic personal information, grants consumers opt out rights, requires us to make disclosures to consumers about our collection and use of personal information and governs when and how we may deliver credit score explanation services to consumers. Many foreign jurisdictions relevant to our business will also regulate our operations. For example, the European Union’s Privacy Directive creates minimum standards for the protection of personal data. In addition, some EU member states have enacted protections which go beyond the requirements of the Privacy Directive. We will be subject to the risk of possible regulatory enforcement actions if we fail to comply with any of the statutes governing our operations.

Additionally, existing regulation and legislation is subject to change or more restrictive interpretation by enforcement agencies, and new restrictive legislation might pass. For example, new legislation might restrict the sharing of information by affiliated entities, mandate providing credit scores to consumers, or narrow the permitted uses of consumer report data. Currently, the permitted uses of consumer report data in connection with customer acquisition efforts are governed primarily by the FCRA, whose federal preemption provisions effectively expire in 2004. Unless extended, this expiration could lead to greater state regulation, increasing the cost of customer acquisition activity. State regulation could cause financial institutions to pursue new strategies, reducing the demand for our products. In addition, in many states, including California, there have been periodic legislative efforts to reform workers’ compensation laws in order to reduce workers’ compensation insurance costs and to curb abuses of the workers’ compensation system. Simplifying state workers’ compensation laws, regulations or fee schedules could diminish the need for, and the benefits provided by our Decision Manager for Medical Bill Review products and Outsourced Bill Review services. Any changes to existing regulation or legislation, new regulation or legislation, or more restrictive interpretation of existing regulation could harm our business, results of operations and financial condition.

Finally, governmental regulation influences our current and prospective clients’ activities, as well as their expectations and needs in relation to our products and services. For example, our clients include credit reporting agencies, credit card processors, telecommunications companies, state and federally chartered banks, savings and loan associations, credit unions, consumer finance companies, insurance companies and other consumer lenders, all of which are subject to extensive and complex federal and state regulations, and often international regulations. Moreover, industries of our future clients may also be subject to extensive regulations. We must appropriately design products and services to function in regulated industries or risk liability to our customers for our products’ non-compliance.

Failure to obtain data from our clients to update and re-develop or to create new models could harm our business.

To develop, install and support our products, including consumer credit, financial services, predictive modeling, decision analysis, intelligence management, credit card fraud control and profitability management, loan underwriting and insurance products, we will require periodic updates of our technologies and models. We must develop or obtain a reliable source of sufficient amounts of current and statistically relevant data to analyze transactions and update our models. In most cases, these data must be periodically updated and refreshed to enable our products to continue to work effectively in a changing environment. We do not own or control much of the data that we require, most of which are collected privately and maintained in proprietary databases. Generally, our customers agree to provide us the data we require to analyze transactions, report results and build new models. If we fail to maintain good relationships with our customers, or if they decline to provide such data due to legal privacy concerns or a lack of permission from their own customers, we could lose access to required data and our products might become less effective. In addition, our Decision Manager for Medical Bill Review products use data from state workers’ compensation fee schedules adopted by state regulatory agencies. Third parties have previously asserted copyright interests in these data. These assertions, if successful, could prevent us from using these data. Any interruption of our supply of data could seriously harm our business, financial condition or results of operations.

Our operations outside the United States subject us to unique risks that may harm our results of operations.

A growing portion of our revenues is derived from international sales. During fiscal 2002, approximately 19% of our revenues were derived from business outside the United States. As part of our growth strategy, we plan to continue to pursue opportunities outside the United States. Accordingly, our future operating results could be negatively affected by a variety of factors arising out of international commerce, some of which are beyond our control. These factors include:


	•	the general economic and political conditions in countries where we sell our products and services;

	•	incongruent tax structures;

	•	difficulty in staffing our operations in various countries;

	•	the effects of a variety of foreign laws and regulations;

	•	import and export licensing requirements;

	•	longer payment cycles;

	•	potentially reduced protection for intellectual property rights;

	•	currency fluctuations;

	•	changes in tariffs and other trade barriers; and

	•	difficulties and delays in translating products and related documentation into foreign languages.

We cannot assure you that we will be able to successfully address each of these challenges in the near term.

Additionally, some of our business will be conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses are not currently material to our financial position, results of operations or cash flows. However, an increase in our foreign revenues could subject us to increased foreign currency transaction risks in the future.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We believe that our equity risks are not material. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity

We maintain an investment portfolio consisting mainly of income securities with an average maturity of less than five years. These available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase. We have the ability to hold our fixed income investments until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio.

The following table presents the principal amounts and related weighted-average yields for our fixed rate investment portfolio at September 30, 2002 and 2001:



	September 30, 2002							September 30, 2001

	Cost		Carrying		Average			Cost		Carrying		Average
	Basis		Amounts		Yield			Basis		Amounts		Yield


	(in thousands)
Cash and cash equivalents	$	76,195	$	76,189		1.66	%	$	16,918	$	16,918		2.87	%
Short-term investments		184,434		184,377		2.39	%		13,800		13,800		2.57	%
Long-term investments		135,788		136,971		3.27	%		110,709		110,709		3.78	%

	$	396,417	$	397,537		2.55	%	$	141,427	$	141,427		3.55	%

Forward Foreign Currency Contracts

Beginning October 2001, we initiated a hedging program to manage our foreign currency exchange rate risk on existing foreign currency receivable and bank balances by entering into forward contracts to sell or buy foreign currency. At period end, foreign-denominated receivables and cash balances held by our U.S. reporting entities are remeasured into the U.S. dollar functional currency at current market rates. The change in value from this remeasurement is then reported as a foreign exchange gain or loss for that period and the resulting gain or loss on the forward contract mitigates the exchange rate risk of the associated assets. All of our forward foreign currency contracts have maturity periods of less than six months. Such derivative financial instruments are subject to market risk.

The following table summarizes our outstanding forward foreign currency contracts, by currency, with contract amounts representing the expected payments to be made under these instruments as of September 30, 2002:



		Contract Amount

		Foreign				Fair Value
		Currency		US$		US$


		(in thousands)
Sell foreign currency:
	EURO (EUR)		EUR 4,000	$	3,915	$	3,917
	Japanese Yen (YEN)		YEN 22,000		180		181
	British Pound (GBP)		GBP 1,500		2,339		2,346

				$	6,434	$	6,444

Item 8. Financial Statements and Supplementary Data

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders of

Fair, Isaac and Company, Incorporated

We have audited the accompanying consolidated balance sheets of Fair, Isaac and Company, Incorporated, and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the three-year period ended September 30, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fair, Isaac and Company, Incorporated, and subsidiaries as of September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective July 1, 2001, Fair, Isaac and Company, Incorporated adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and certain provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001.

/s/ KPMG LLP

San Francisco, California

October 25, 2002, except as to note 20, which is as of November 18, 2002

FAIR, ISAAC AND COMPANY, INCORPORATED

CONSOLIDATED BALANCE SHEETS



			September 30,

			2002			2001


			(In thousands)
Assets
Current assets:
	Cash and cash equivalents		$	96,834		$	24,608
	Marketable securities available for sale			184,377			13,800
	Receivables, net			121,456			80,071
	Other current assets			17,498			10,565
	Deferred income taxes			8,009			5,217

		Total current assets		428,174			134,261
Marketable securities available for sale				140,398			114,835
Other investments				9,804			1,308
Property and equipment, net				63,898			49,383
Goodwill, net				430,739			6,530
Intangibles, net				89,375			—
Deferred income taxes				45,384			5,504
Other assets				4,741			5,192

			$	1,212,513		$	317,013

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable		$	7,603		$	1,415
	Accrued compensation and employee benefits			28,153			18,233
	Other accrued liabilities			36,532			9,959
	Deferred revenue			17,921			10,030

		Total current liabilities		90,209			39,637
	Convertible subordinated notes, net of discount			139,922			—
	Other liabilities			8,910			5,604

		Total liabilities		239,041			45,241

Commitments and contingencies (Notes 18 and 19)
Stockholders’ equity:
	Preferred stock ($0.01 par value; 1,000 authorized; none issued and outstanding)			—			—
	Common stock ($0.01 par value; 100,000 and 35,000 shares authorized, 55,619 and 34,880 shares issued, and 50,665 and 33,957 shares outstanding at September 30, 2002 and 2001, respectively)			507			340
	Paid in capital in excess of par value			927,169			97,920
	Treasury stock, at cost			(163,038	)		(26,439	)
	Unearned compensation			(7,128	)		(2,161	)
	Retained earnings			216,041			200,739
	Accumulated other comprehensive income (loss)			(79	)		1,373

		Total stockholders’ equity		973,472			271,772

			$	1,212,513		$	317,013

See accompanying notes to consolidated financial statements.

FAIR, ISAAC AND COMPANY, INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME



			Years Ended September 30,

			2002			2001			2000


			(In thousands, except per share data)
Revenues			$	392,418		$	329,148		$	298,630

Operating expenses:
	Cost of revenues			176,029			148,559			128,961
	Research and development			33,840			28,321			29,817
	Sales, general and administrative			83,633			78,061			90,215
	Amortization of intangibles			4,380			2,100			2,100
	In-process research and development			40,200			—			—
	Restructuring and merger-related			7,224			—			2,923

		Total operating expenses		345,306			257,041			254,016

Operating income				47,112			72,107			44,614
Interest income				6,374			5,785			4,110
Interest expense on convertible subordinated notes				(1,471	)		—			—
Other income (expense), net				1,083			(1,039	)		(1,654	)

Income before income taxes				53,098			76,853			47,070
Provision for income taxes				35,214			30,741			19,439

Net income			$	17,884		$	46,112		$	27,631

Earnings per share:
	Basic		$	0.49		$	1.40		$	0.86

	Diluted		$	0.48		$	1.33		$	0.84

Shares used in computing earnings per share:
	Basic			36,534			32,979			32,085

	Diluted			37,550			34,589			32,928

See accompanying notes to consolidated financial statements.

FAIR, ISAAC AND COMPANY, INCORPORATED

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

Years Ended September 30, 2000, 2001 and 2002


							Paid In												Accumulated
	Common Stock						Capital												Other
							in Excess												Comprehensive			Total			Comprehensive
				Par			of Par			Treasury			Unearned			Retained			Income			Stockholders’			Income
	Shares			Value			Value			Stock			Compensation			Earnings			(Loss)			Equity			(Loss)


	(In thousands)
Balance at September 30, 1999		31,455		$	315		$	38,551		$	(11,290	)	$	(364	)	$	129,458		$	(171	)	$	156,499		$	—
Exercise of stock options		1,087			11			11,223			—			—			—			—			11,234
Tax benefit from exercised stock options		—			—			1,786			—			—			—			—			1,786
Issuance of compensatory stock options		—			—			3,990			—			(3,990	)		—			—			—
Amortization of unearned compensation		—			—			—			—			870			—			—			870
Cancellation of restricted stock grant		—			—			27			(352	)		325			—						—
Repurchase of common stock		1			—			—			(41	)		—			—			—			(41	)
Issuance of ESPP and ESOP shares from treasury		170			2			(255	)		2,888			—			—			—			2,635
Net income		—			—			—			—			—			27,631			—			27,631			27,631
Dividends paid		—			—			—			—			—			(1,140	)		—			(1,140	)		—
Unrealized losses on investments, net of tax of $59		—			—			—			—			—			—			(84	)		(84	)		(84	)
Cumulative translation adjustments, net of tax of $274		—			—			—			—			—			—			(389	)		(389	)		(389	)

Balance at September 30, 2000		32,713			328			55,322			(8,795	)		(3,159	)		155,949			(644	)		199,001			27,158

Exercise of stock options		2,078			21			34,224			—			—			—			—			34,245
Tax benefit from exercised stock options		—			—			8,449			—			—			—			—			8,449
Amortization of unearned compensation		—			—			—			—			998			—			—			998
Repurchase of common stock		(957	)		(10	)		—			(19,854	)		—			—			—			(19,864	)
Issuance of ESPP and ESOP shares from treasury		123			1			(26	)		2,210			—			—			—			2,185
Net income		—			—			—			—			—			46,112			—			46,112			46,112
Dividends paid		—			—			—			—			—			(1,322	)		—			(1,322	)		—
Cash paid in lieu of fractional shares in effecting stock split		—			—			(49	)		—			—			—			—			(49	)		—
Unrealized gain on investments, net of tax of $(1,346)		—			—			—			—			—			—			1,954			1,954			1,954
Cumulative translation adjustments, net of tax of $(42)		—			—			—			—			—			—			63			63			63

Balance at September 30, 2001		33,957			340			97,920			(26,439	)		(2,161	)		200,739			1,373			271,772			48,129

Issuance of stock in HNC acquisition		18,780			188			719,857			—			—			—			—			720,045
Options assumed in HNC acquisition		—			—			68,705			—			(1,827	)		—			—			66,878
Restricted stock in escrow — Nykamp acquisition		87			1			2,817			—			—			—			—			2,818
Exercise of stock options		1,383			14			23,662			—			—			—			—			23,676
Tax benefit from exercised stock options		—			—			14,350			—			—			—			—			14,350
Amortization of unearned compensation		—			—			—			—			1,418			—			—			1,418
Forfeiture of stock options assumed in HNC acquisition		—			—			(237	)		—			237			—			—			—
Repurchase of common stock		(3,800	)		(38	)		—			(144,313	)		—			—			—			(144,351	)
Issuance of ESPP and ESOP shares from treasury		102			1			462			2,693			—			—			—			3,156
Issuance of restricted stock to employees from treasury, net of forfeitures		156			1			(227	)		5,021			(4,795	)		—			—			—
Net income		—			—			—			—			—			17,884			—			17,884			17,884
Dividends paid		—			—			—			—			—			(2,582	)		—			(2,582	)		—
Cash paid in lieu of fractional shares in effecting stock split		—			—			(140	)		—			—			—			—			(140	)		—
Unrealized losses on investments, net of tax of $2,040		—			—			—			—			—			—			(1,304	)		(1,304	)		(1,304	)
Cumulative translation adjustments, net of tax of $94		—			—			—			—			—			—			(148	)		(148	)		(148	)

Balance at September 30, 2002		50,665		$	507		$	927,169		$	(163,038	)	$	(7,128	)	$	216,041		$	(79	)	$	973,472		$	16,432

See accompanying notes to consolidated financial statements.

FAIR, ISAAC AND COMPANY, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS



				Years Ended September 30,

				2002			2001			2000


				(In thousands)
Cash flows from operating activities
Net income				$	17,884		$	46,112		$	27,631
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				30,985			25,074			21,461
	In process research and development				40,200			—			—
	Share of equity losses and write-off of equity investments				1,045			871			95
	Gain on sale of investments				(2,662	)		(54	)		—
	Amortization of unearned compensation				1,418			998			870
	Deferred income taxes				5,315			2,429			(2,487	)
	Tax benefit from exercise of stock options				14,350			8,449			1,786
	Amortization of premium on investments				510			285			213
	Allowance for doubtful accounts				2,285			2,542			304
	Loss on sale of fixed assets				271			166			68
	Other				(18	)		11			—
	Changes in operating assets and liabilities, net of acquisition effect:
		Receivables			(4,111	)		(14,474	)		(5,734	)
		Other assets			4,084			(7,149	)		1,857
		Accounts payable			114			1,182			(1,707	)
		Accrued compensation and employee benefits			13,076			4,668			(6,531	)
		Other accrued liabilities and other liabilities			(21,208	)		(497	)		(2,380	)
		Deferred revenue			(418	)		(74	)		1,206

			Net cash provided by operating activities		103,120			70,539			36,652

Cash flows from investing activities
Purchases of property and equipment					(23,386	)		(24,004	)		(22,595	)
Cash and cash equivalents acquired in HNC acquisition					143,092			—			—
Cash paid in Nykamp acquisition, net of cash acquired					(2,593	)		—			—
Purchases of marketable securities					(189,858	)		(125,169	)		(14,432	)
Proceeds from sale of marketable securities					140,045			27,083			—
Proceeds from maturities of marketable securities					25,203			23,969			9,447

			Net cash provided by (used in) investing activities		92,503			(98,121	)		(27,580	)

Cash flows from financing activities
Principal payments on capital lease obligations					—			(364	)		(429	)
Proceeds from issuances of common stock					23,676			34,283			11,329
Dividends paid					(2,582	)		(1,322	)		(1,140	)
Repurchase of common stock					(144,351	)		(19,864	)		(41	)
Cash paid in lieu of fractional shares for stock-split					(140	)		(49	)		—

			Net cash provided by (used in) financing activities		(123,397	)		12,684			9,719

Increase (decrease) in cash and cash equivalents					72,226			(14,898	)		18,791
Cash and cash equivalents, beginning of year					24,608			39,506			20,715

Cash and cash equivalents, end of year				$	96,834		$	24,608		$	39,506

See accompanying notes to consolidated financial statements.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

1. Nature of Business and Summary of Significant Accounting Policies

Fair, Isaac and Company, Incorporated

Incorporated under the laws of the State of Delaware, Fair, Isaac and Company, Incorporated is a provider of analytic, software and data management products and services that enable businesses to automate and improve decisions. Fair, Isaac provides a range of analytical solutions, credit scoring and credit account management products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers, telecommunications providers, healthcare organizations and government agencies. In this report, Fair, Isaac is referred to as “we,” “us,” “our,” the “Company” and “Fair, Isaac.” HNC Software Inc., which we acquired in August 2002 (see Note 2), is referred to as “HNC.” Effective November 1, 2002, HNC Software Inc. was merged with and into Fair, Isaac. Accordingly, HNC is no longer a subsidiary of Fair, Isaac, and ceases to exist as a separate legal entity.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Fair, Isaac and its subsidiaries. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements.

Use of Estimates

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

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and investments with an original maturity of 90 days or less at time of purchase.

Fair Value of Financial Instruments

The fair values of cash and cash equivalents are approximately equal to their carrying amounts because of the short-term maturity of these instruments. The fair values of our marketable security investments are disclosed in Note 3. The fair value of our convertible subordinated notes is disclosed in Note 8.

Investments

Investments in U.S. government obligations and marketable equity and debt securities are classified as “available-for-sale” and are carried at market value. Investments with remaining maturities over one year are classified as long-term investments. Realized gains and losses are included in other income, net. The cost of investments sold is based on the specific identification method.

Our investments in equity securities of companies over which we do not have significant influence are accounted for under the cost method. We use the equity method to account for investments in which we have a voting interest of 20% to 50%, or over which we otherwise have the ability to exercise significant influence.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

Under the equity method, the investment is originally recorded at cost and adjusted to recognize our share of net earnings or losses of the investee, limited to the extent of our investment in, advances to, and financial guarantees for the investee. Management periodically reviews cost-basis investments for instances where fair value is less than cost and the decline in value is determined to be other than temporary. If the decline in value is judged to be other than temporary, the cost basis of the security is written down to fair value and the resulting loss is charged to operations.

Concentration of Risk

Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable, which are generally not collateralized. Our policy is to place our cash, cash equivalents, and marketable securities with high credit quality financial institutions, commercial companies and government agencies in order to limit the amount of credit exposure. We have established guidelines relative to diversification and maturities for maintaining safety and liquidity. We generally do not require collateral from our customers, but our credit extension and collection policies include analyzing the financial condition of potential customers, establishing credit limits, monitoring payments, and aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation and amortization. Major renewals and improvements are capitalized, while repair and maintenance costs are expensed as incurred. Depreciation and amortization charges are calculated using the straight-line method over the following estimated useful lives:


		Estimated Useful Life

Data processing equipment and software		2 to 3 years
Office furniture, vehicles and equipment		3 to 7 years
Leasehold improvements and capitalized leases		Shorter of estimated useful life or lease term

The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are removed from the accounts and resulting gains or losses are recorded in operations.

Intangible Assets and Goodwill

We amortize our intangible assets and goodwill, which result from our acquisitions accounted for under the purchase method of accounting (see Note 2), using the straight-line method over the following estimated useful lives:


		Estimated Useful Life

Goodwill — acquisitions prior to July 1, 2001		4 to 15 years
Goodwill — acquisitions after July 1, 2001		Not amortized
Completed technology		5 years
Customer contracts and relationships		3 to 15 years
Tradename		4 to 5 years
Other		5 years

Amortization expense totaled $4,380, $2,100, and $2,100 during fiscal 2002, 2001 and 2000, respectively, of which $2,096, $2,100 and $2,100, respectively, related to the amortization of goodwill.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

Goodwill represents the excess of the purchase price over the fair value of net assets assumed, including identified intangible assets, in connection with our business and asset acquisitions accounted for by the purchase method of accounting. We continually review the events and circumstances related to our financial performance and economic environment for factors that would provide evidence of the impairment of enterprise-level goodwill. If this review indicates that goodwill may not be recoverable, impairment would be measured by comparing the carrying value of the goodwill to its fair value, as determined based on discounted cash flows. To date, no indications of impairment have been identified.

Effective July 1, 2001, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, and certain provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but will reviewed annually for impairment (or more frequently if impairment indicators arise). Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 applied immediately to goodwill and intangible assets acquired after June 30, 2001. We will adopt all other provisions of SFAS No. 142 in the first quarter of fiscal 2003. We have not yet determined the impact that our full adoption of SFAS No. 142 will have on our financial position and results of operations.

Revenue Recognition

If the arrangement involves (1) development of custom scoring systems, or (2) significant production, customization, or modification of software or services essential to the functionality of the software, the revenue is generally recognized under the percentage-of-completion method of contract accounting. Progress toward completion is generally measured by achieving certain standard and objectively verifiable milestones present in each project.

Revenues from multiple element arrangements are allocated to each element based on the relative fair values of the elements. The determination of fair value is based on objective evidence that is specific to us. If such evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each element does exist or until all elements of the arrangement are delivered. If in a multiple element arrangement, fair value does not exist for one or more of the delivered elements in the arrangement, but fair value does exist for all of the undelivered elements, then the residual method of accounting is applied. Under the residual method, the fair value of the undelivered elements is deferred, and the remaining portion of the arrangement fee is recognized as revenue.

Revenues recognized from our credit scoring, data processing, data management, internet delivery services and consulting are generally recognized as these services are performed, provided all significant obligations have been met, persuasive evidence of an arrangement exists, fees are fixed and determinable, and collections are probable.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

Revenues from post-contract customer support, such as maintenance, are recognized on a straight-line basis over the term of the contract.

Software Costs

We may either create a detailed program design when introducing new technology or a working model for the modification to existing technologies. All costs incurred prior to the resolution of unproven functionality and features, including new technologies, are expensed as research and development. After the uncertainties have been tested and the development issues have been resolved and technological feasibility is achieved, subsequent costs such as coding, debugging and testing are capitalized. Capitalized costs are amortized using the straight-line method over two years.

Internal-use Software

Costs incurred to develop internal-use software during the application development stage are capitalized and reported at the lower of cost or net realizable value. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized costs are amortized using the straight-line method over two years.

Income Taxes

Income taxes are recognized during the year in which transactions enter into the determination of financial statement income, with deferred taxes being provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities as well as the expected future tax benefit to be derived from tax loss and tax credit carry-forwards. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount “more likely than not” to be realized in future tax returns. Tax rate changes and tax credit reinstatements are reflected in income during the period the changes are enacted.

Comprehensive Income (Loss)

Comprehensive income (loss) is the change in our equity (net assets) during each period from transactions and other events and circumstances from non-owner sources. It includes net income (loss), foreign currency translation adjustments and unrealized gains and losses, net of tax, on our investments in marketable securities.

Foreign Currency

We have determined that the functional currency of each foreign operation is the local currency. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate on the balance sheet date, while revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments are accumulated as a separate component of stockholders’ equity.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

Hedging

From time to time, we utilize forward contract instruments in balance sheet hedging to manage market risks associated with fluctuations in certain foreign currency exchange rates as they relate to specific balances of cash and accounts receivable in denominated in foreign currencies. It is our policy to use derivative financial instruments to protect against market risks arising in the normal course of business. Our policies prohibit the use of derivative instruments for the sole purpose of trading for profit on price fluctuations or to enter into contracts that intentionally increase our underlying exposure. The criteria we use for designating an instrument as a hedge include the instrument’s risk reduction and the direct matching of the financial instrument to the underlying balance of cash or accounts receivable.

We manage our foreign currency exchange rate risk on existing foreign currency receivable and bank balances held by our U.S. corporate entities by entering into forward contracts to sell or buy foreign currency. At the end of the reporting period, foreign currency receivable and cash balances are remeasured into the functional currency of the reporting entities at current market rates. The change in value from this remeasurement is then reported as a foreign exchange gain or loss for that period in other income (expense) on the Consolidated Statements of Income. This resulting gain or loss on the forward contract mitigates the exchange rate risk of the associated assets. All of our forward foreign currency contracts have maturity periods of less than six months. Such derivative financial instruments are subject to market risk.

Stock-based Compensation

We measure compensation expense for our employee stock-based compensation awards using the intrinsic value method and provide pro forma disclosures of net income and earnings per share as if a fair value method had been applied. Therefore, compensation cost for employee stock awards is measured as the excess, if any, of the fair value of our common stock at the grant date over the amount an employee must pay to acquire the stock. Compensation expense is amortized over the related service periods using the straight-line method. Compensation expense for awards that are forfeited is reversed against compensation expense in the period of forfeiture.

Stock-based awards issued to non-employees are accounted for using a fair value method and are marked to fair value at each period end until the earlier of the date at which a performance commitment has been obtained or the awards are fully vested. Fair value of stock-based awards is determined using the Black-Scholes option pricing model with weighted average assumptions for dividend yield, risk-free interest rate, expected volatility, and expected life.

Earnings Per Share

Diluted earnings per share are based on the weighted-average number of common shares outstanding and common stock equivalent shares. Common stock equivalent shares result from the assumed exercise of outstanding stock options or other potentially dilutive equity instruments, including HNC’s outstanding convertible subordinated notes, that have a dilutive effect when applying the treasury stock method. Basic earnings per share are computed on the basis of the weighted average number of common shares outstanding.

Impairment of Long-lived Assets

We assess potential impairment to long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred. Advertising and promotion costs totaled $1,549, $1,117 and $1,087 in fiscal 2002, 2001 and 2000, respectively, and are included in sales, general and administrative expense in our consolidated statements of income.

2. Acquisitions

HNC Software Inc.

On August 5, 2002, we completed our acquisition of HNC Software Inc. (“HNC”), a provider of high-end analytic and decision management software. Under the merger agreement, the stockholders of HNC received 0.519 of a newly issued share of the Fair, Isaac common stock for each share of HNC stock held, and we assumed outstanding HNC stock options based on the same ratio. Results of operations of HNC have been included in our results prospectively from August 5, 2002. We acquired HNC primarily to offer a broader product footprint addressing customer acquisition, origination and management as well as to increase our industry and international presence.

We accounted for this transaction using the purchase method of accounting. The transaction resulted in the issuance of approximately 18,780 shares of Fair, Isaac’s common stock and the assumption of options to purchase approximately 3,898 shares of Fair, Isaac common stock. The total consideration paid for the acquisition of HNC was calculated as follows:


Fair value of 18,780 shares of Fair, Isaac common stock	$	720,045
Acquisition related costs		8,545
Fair value of options to purchase Fair, Isaac common stock, less $1,827 representing the portion of the intrinsic value of HNC’s unvested options		66,878

Total consideration paid	$	795,468

The fair value of the common stock issued in the transaction was valued at approximately $38.34 per share, which is equal to the weighted average closing sale price per share, by volume, of Fair, Isaac’s common stock as reported on the New York Stock Exchange for the five-day trading period beginning two days before and ending two days after the merger announcement date of April 29, 2002.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

This total consideration paid was allocated to the acquired assets and assumed liabilities as follows:


Assets
	Cash, cash equivalents, and investments		325,562
	Receivables		37,935
	Property, plant, and equipment		17,802
	Goodwill		423,598
	Intangible assets:
		Trade name	8,600
		Completed technology	42,000
		Customer contracts and relationships	39,700
		In-process research and development	40,200
	Other assets		56,531

	Total assets		991,928

Liabilities
	Current liabilities		52,931
	Non-current liabilities		3,831
	Convertible subordinated notes		139,698

	Total liabilities		196,460

Net assets			795,468

Of the acquired intangible assets, $40,200 pertained to in-process research and development and was written off by our recognition of a one-time charge to operations on the acquisition date. The remaining acquired intangible assets have a weighted average useful life of approximately 9 years and are being amortized using the straight-line method over their estimated useful lives as follows: trade name, five-years; completed technology, 15 years; and customer contracts and relationships, five years. The goodwill recorded in this transaction has not yet been allocated to our four operating segments. None of this goodwill will be deductible for tax purposes.

In-process research and development (“IPR&D”) recorded in connection with the acquisition of HNC represents the present value of the estimated after-tax cash flows expected to be generated by purchased technologies that, as of the acquisition dates, had not yet reached technological feasibility. The classification of the technology as complete or under development was made in accordance with the guidelines of SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, and Financial Accounting Standards Board Interpretation No. 4, Applicability of SFAS No. 2 to Business Combinations Accounted for by the Purchase Method. In addition, the Fair Value, as defined below, of the IPR&D projects was determined in accordance with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.

HNC’s IPR&D projects were valued through the application of discounted cash flow analyses, taking into account many key characteristics of HNC as well as its future prospects, the rate technology changes in the industry, product life cycles, risks specific to each project, and various projects’ stage of completion. Stage of completion was estimated by considering the time, cost, and complexity of tasks completed prior to the acquisition verses the project’s overall expected cost, effort and risks required for achieving technological feasibility. In the application of the discounted cash flow analyses, HNC’s management provided distinct revenue forecasts for each IPR&D project. The projections were based on the expected date of market

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

introduction, an assessment of customer needs, the expected pricing and cost structure of the related product(s), product life cycles, and the importance of the existing technology relative to the in-process technology. In addition, the costs expected to complete each project were added to the operating expenses to calculate the operating income for each IPR&D project. As certain other assets contribute to the cash flow attributable to the assets being valued, returns to these other assets were calculated and deducted from the pre-tax operating income to isolate the economic benefit solely attributable to each of the in-process technologies. The present value of IPR&D was calculated based on discount rates recommended by the American Institute of Certified Public Accountants IPR&D Practice Aid, which depend on the stage of completion and the additional risk associated with the completion of each of the IPR&D projects. As a recommended basis for the valuation of technology under development, we considered venture capital rates of return as an appropriate measure of the discount rates associated with each IPR&D project. As a result, the earnings associated with the incomplete technology were discounted at a rate ranging from 25% to 60%.

Two of our officers are former HNC employees that were party to agreements with HNC providing for payment in the event of a change in control of HNC, 80% of which was payable immediately and 20% of which was payable after three months of service following the acquisition date. As a result of our acquisition of HNC, these employees were paid the first installment in August 2002, and we assumed the obligation to make aggregate cash payments of $321 to these employees in November 2002. During fiscal 2002, we recorded expense of $214 relating to these agreements. This amount was included in other accrued liabilities at September 30, 2002.

Nykamp Consulting Group, Inc.

On December 17, 2001, we acquired substantially all of the assets of Nykamp Consulting Group, Inc. (“Nykamp”), a privately-held company that provides customer relationship management (“CRM”) strategy and implementation services. We accounted for this transaction using the purchase method of accounting. Purchase consideration under the agreement included cash consideration of $2,821, including $406 that we placed into escrow to secure specifically identified receivable balances, and the issuance of $3,000 in restricted Fair, Isaac common stock. We placed 87 shares of our common stock into escrow to securitize the restricted stock obligation. The restricted stock is to be issued in installments of $1,000 each on the first, second and third anniversaries from the acquisition, beginning on December 17, 2002, subject to indemnification claims made by us, if any. The number of shares to be issued on each anniversary date will be determined by dividing $1,000 by the average market price of our common stock for the ten consecutive trading days leading up to the issuance dates. We recorded the restricted stock at a discounted amount of $2,817 within our consolidated statement of stockholders’ equity. Results of operations of Nykamp have been included in our results prospectively from December 17, 2002. Our rationale for acquiring Nykamp was to expand our CRM consulting and implementation offerings.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

This total consideration paid was allocated to the acquired assets and assumed liabilities as follows:


Assets
	Current assets	2,033
	Property, equipment and other assets	327
	Intangible assets (including trade name, non-compete agreement, and customer base, amortizable between 3 and 5 years)	1,359
	Goodwill	2,706

	Total assets	6,425
Liabilities		(787	)

Net assets		5,638

The total goodwill of $2,706 was allocated entirely to our Professional Services operating segment, all of which is expected to be deductible for tax purposes.

Unaudited Pro Forma Results of Operations

The following unaudited pro forma results of operations present the impact on our results of operations for fiscal 2002 and 2001 as if the HNC and Nykamp acquisitions had occurred on October 1, 2000:



	2002				2001

			Proforma				Proforma
	Historical		Combined		Historical		Combined

			(Unaudited)				(Unaudited)
Revenues	$	392,418	$	579,438	$	329,148	$	562,926
Net income		17,884		57,906		46,112		47,795
Basic net income per share	$	0.49	$	1.11	$	1.40	$	0.92
Diluted net income per share	$	0.48	$	1.08	$	1.33	$	0.90

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

3. Marketable Securities Available for Sale

The following is a summary of marketable securities available for sale at September 30, 2002 and 2001:



	2002									2001

			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized					Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value

Short-term:
U.S. government obligations	$	85,748	$	75	$	(32	)		85,791	$	13,646	$	154	$	—		$	13,800
U.S. corporate debt		98,686		94		(194	)		98,586		—		—		—			—

	$	184,434	$	169	$	(226	)	$	184,377	$	13,646	$	154	$	—		$	13,800

Long-term:
U.S. government obligations	$	109,730	$	1,213	$	(87	)	$	110,856	$	106,861	$	3,847	$	—		$	110,708
U.S. corporate debt		26,058		61		(4	)		26,115		—		—		—			—
Marketable equity securities		4,588		—		(1,161	)		3,427		4,755		—		(628	)		4,127

	$	140,376	$	1,274	$	(1,252	)	$	140,398	$	111,616	$	3,847	$	(628	)	$	114,835

Short-term marketable securities mature at various dates over the course of the next twelve months. Our long-term U.S. government obligations and U.S. corporate debt investments mature at various dates over the next one to five years. During fiscal 2002 and 2001, we recognized gross realized gains on the sale of investments totaling $2,662 and $54, respectively, which are included in other income (expense), net in the accompanying consolidated statements of operations.

The long-term marketable equity securities represent securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees.

4. Other Investments

Other long-term investments include the following at September 30, 2002 and 2001:


	2002		2001

Cost basis equity investments	$	9,519	$	—
Other		285		1,308

	$	9,804	$	1,308

As a result of our acquisition of HNC, we maintain two investments that are being accounted for using the cost method as follows: i) we hold an approximate 4.8% ownership interest in Open Solutions Inc. (“OSI”), a developer of client/ server core data processing solutions for community banks and credit unions, and ii) we are a limited partner in Azure Capital Partners L.P (“Azure”), a venture capital investment management fund. The OSI and Azure investments were recorded by us at their estimated fair values of $7,469 and $2,050, respectively, in connection with the HNC acquisition, and such carrying amounts have not changed through September 30, 2002. We are committed to invest an additional $2,200 into the Azure fund,

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

which we anticipate making in fiscal 2003. Including this commitment, our percentage ownership in this fund will not exceed two percent of the total fund ownership.

We are also the holder of a $500 secured promissory note receivable from OSI that originated from HNC’s sale to OSI of certain product line assets prior to our acquisition of HNC. This note bears interest at the rate of 6.0% per annum and all principal and interest is payable in full in March 2004. As discussed in Note 20, we received an additional $950 secured promissory note from OSI in November 2002, in connection with our sale of additional product line assets to OSI.

On June 1, 2000, we entered into a joint venture, OptiFI, Inc., with MarketSwitch Corporation (“MarketSwitch”). Fair, Isaac and MarketSwitch each held a 50% voting interest in the joint venture. We accounted for the investment on an equity basis and recorded our equity share of the joint venture’s operating gain/loss each period. During fiscal 2002, the joint venture wound down its business operations, reverted certain rights in its intangible assets to MarketSwitch and us, and distributed its remaining assets among its creditors. Pursuant to a separation agreement executed by us, MarketSwitch and the joint venture, we agreed to pay the joint venture $5 in consideration for the rights assigned by the separation agreement. We have no further obligation to fund the joint venture or to discharge any of its remaining indebtedness. During fiscal 2002, we wrote off our remaining investment balance of $210, and recorded our share of the equity loss of the joint venture and the investment write-off within other income, net. During fiscal 2002, 2001 and 2000, we recorded in other income, net our equity share of the operating loss from the joint venture totaling $866, $854 and $70 respectively.

5. Receivables

Receivables at September 30, 2002 and 2001 consist of the following:


	2002			2001

Billed	$	91,415		$	54,133
Unbilled		31,250			28,452

		122,665			82,585
Less allowance		(1,209	)		(2,514	)

Receivables, net	$	121,456		$	80,071

Unbilled receivables represent revenue recorded in excess of amounts billable pursuant to contract provisions and generally become billable at contractually specified dates or upon the attainment of milestones. Unbilled amounts are expected to be realized within one year.

During fiscal 2002, 2001 and 2000, we increased our allowance by $2,285, $2,542 and $304, respectively, and wrote off (net of recoveries) $3,590, $1,158 and $448, respectively.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

6. Property and Equipment

Property and equipment at September 30, 2002 and 2001 consist of the following:


	2002			2001

Data processing equipment and software	$	116,748		$	89,166
Office furniture, vehicles and equipment		26,331			21,649
Leasehold improvements		20,392			19,836
Capitalized leases		—			2,841
Less accumulated depreciation and amortization		(99,573	)		(84,109	)

Net property and equipment	$	63,898		$	49,383

We capitalized $6,729, $2,910, and $2,775 of software costs during fiscal 2002, 2001 and 2000, respectively, which has been included within data processing equipment and software. Such capitalized costs are amortized over a two-year period.

Depreciation and amortization expense on property and equipment totaled $26,605, $22,974, and $19,361 for fiscal years 2002, 2001 and 2000, respectively, of which $3,279, $3,060, and $301 related to the amortization of capitalized software costs during such fiscal years.

We maintained a capital lease for a building bearing an interest rate of 7% that matured in June 2001. Capital lease amortization expense totaled $237 and $2,604 during fiscal 2001 and 2000, respectively. The amount of accumulated amortization of the assets under capital leases was $2,841 at September 30, 2001. We did not maintain any capital leases during fiscal 2002.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

7. Composition of Certain Financial Statement Captions



		September 30,

		2002			2001

Goodwill, net:
	Goodwill	$	442,020		$	15,716
	Less accumulated amortization		(11,281	)		(9,186	)

		$	430,739		$	6,530

Intangible assets, net:
	Completed technology	$	42,000		$	—
	Customer contracts and relationships		39,855			—
	Tradename		9,090			—
	Other		714			—

			91,659			—
	Less accumulated amortization		(2,284	)		—

		$	89,375		$	—

Other accrued liabilities:
	Investment banking fees payable — HNC acquisition related	$	12,058		$	—
	Accruals related to abandoned facility lease obligations		6,858			—
	Other		17,616			9,959

		$	36,532		$	9,959

8. Convertible Subordinated Notes

In connection with our merger with HNC and the subsequent liquidation of the HNC entity, we are the issuer of $150,000 of 5.25% Convertible Subordinated Notes (the “Notes”) that mature on September 1, 2008. In connection with the HNC merger, the Notes became convertible into shares of Fair, Isaac common stock at a conversion rate of approximately 18.02 shares of Fair, Isaac common stock per $1,000 principal amount of the Notes, subject to anti-dilution adjustment. The Notes are general unsecured obligations of Fair, Isaac and are subordinated in right of payment to all existing and future senior indebtedness of Fair, Isaac. Interest on the Notes is payable on March 1 and September 1 of each year until maturity. We may redeem the Notes on or after September 5, 2004, or earlier if the price of Fair, Isaac common stock reaches certain levels. If we redeem the Notes prior to September 1, 2007, we will also be required to pay a redemption premium as prescribed by the indenture.

In connection with the HNC merger, we recorded the Notes at their fair market value of $139,698, as determined by reference to quoted market prices on August 5, 2002, which resulted in a note discount of $10,302. We are accreting this amount over the remaining term of the notes to their $150,000 maturity value via the effective interest method. We recorded interest expense of $1,471 and made cash interest payments of $3,938 related to the Notes during fiscal 2002. The carrying amount of the Notes at September 30, 2002 was $139,922. The fair value of the Notes at September 30, 2002, as determined based upon quoted market prices, was $140,719.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

9. Credit Agreement

At September 30, 2002, HNC was party to a credit agreement with a financial institution that provided for a $15,000 revolving line of credit through July 2003. Borrowings under this agreement bore interest at the rate of LIBOR plus 0.5%, payable monthly (which would have amounted to approximately 2.3% at September 30, 2002). The agreement contained covenants that, among other things, restricted HNC’s ability to pay cash dividends and make loans, advances or investments, or to effect certain asset transfers without the consent of the financial institution. As of September 30, 2002 no borrowings were outstanding under this agreement and HNC was in compliance with all related covenants, with the exception of a covenant pertaining to asset transfers which the financial institution waived following our acquisition of HNC. As of September 30, 2002, this credit facility also served to collateralize certain letters of credit aggregating $683, made by us in the normal course of business. Available borrowings under this credit agreement were reduced by the principal amount of letters of credit collateralized by the facility.

As discussed in Note 20, this credit agreement was replaced upon Fair, Isaac’s execution of a new credit agreement in November 2002.

10. Restructuring and Merger-Related Expenses


	*Fiscal 2002 restructuring and merger-related expenses*

During fiscal 2002, in connection with our acquisition of HNC, we incurred charges totaling $7,224, consisting of the following: (i) $5,015 in restructuring charges, including $3,221 in charges associated with our abandonment of a Fair, Isaac facility lease concurrent with the merger, representing future cash obligations under the lease net of estimated sublease income, and $1,794 in severance costs associated with a reduction in Fair, Isaac staff in connection with the merger, and (ii) $2,209 in other non-recurring merger related costs, consisting primarily of retention bonuses earned through September 30, 2002 by employees with future severance dates and employee outplacement costs.

The following table summarizes our fiscal 2002 restructuring activity related to the above actions:


	2002		Cash			Remaining Accrual at
	Expense		Payments			September 30, 2002

Facilities charges	$	3,221	$	(145	)	$	3,076
Employee separation		1,794		(264	)		1,530

	$	5,015	$	(409	)	$	4,606


	*Fiscal 2000 restructuring expenses*

In October 1999, we announced the discontinuance of our Healthcare Receivables Management System product line, and in connection therewith recorded a restructuring charge totaling $1,935 during fiscal 2000. We also recorded a restructuring charge totaling $988 related to a reduction in staff during fiscal 2000. These restructuring actions were completed during fiscal 2000 and resulted in a combined restructuring charge of $2,923 in fiscal 2000, $263 of which related to the write-down of operating assets. At September 30, 2000, we had an outstanding restructuring liability of $385 related to these charges, which was included in other accrued liabilities. During fiscal 2001, we made cash payments of $221 and wrote off $164 in remaining operating assets such that no remaining restructuring liability existed at September 30, 2001.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

11. Income Taxes

The provision for income taxes consisted of the following during fiscal 2002, 2001 and 2000:


	2002		2001		2000

Current:
Federal	$	23,754	$	22,638	$	17,755
State		4,933		5,310		3,954
Foreign		1,212		364		217

		29,899		28,312		21,926

Deferred:
Federal		4,371		2,150		(2,188	)
State		944		279		(299	)

		5,315		2,429		(2,487	)

Total	$	35,214	$	30,741	$	19,439

During fiscal 2002, 2001 and 2000, we realized certain tax benefits related to nonqualified and incentive stock options in the amounts of $14,350, $8,449 and $1,786, respectively. The tax benefits from these stock option tax deductions were credited directly to paid-in-capital.

The tax effects of significant temporary differences resulting in deferred tax assets and liabilities at September 30, 2002 and 2001 are as follows:


		2002			2001

Deferred tax assets:
	Net operating loss carryforwards	$	39,021		$	—
	Research and development credit carryforwards		15,953			—
	Depreciation		18,568			891
	Accrued lease costs		3,318			75
	Compensated absences		3,860			2,767
	Employee benefit plans		1,760			1,838
	Deferred revenue		—			2,131
	Investments		2,412			—
	Deferred compensation		2,382			536
	Bad debt provision		2,096			1,005
	Other		1,581			3,076

			90,951			12,319
Less valuation allowance			(11,167	)		(222	)

			79,784			12,097

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)


			2002			2001

Deferred tax liabilities:
		Amortization		(23,439	)		—
	Convertible subordinated notes			(2,263	)		—
	Other			(689	)		(1,376	)

				(26,391	)		(1,376	)

Deferred tax assets, net			$	53,393		$	10,721

We acquired net operating losses and research credits in connection with our acquisition of HNC. As of September 30, 2002, we had available federal and state net operating loss carryforwards of approximately $104,974 and $43,854, respectively. We also have available federal and California research and development tax credit carryforwards of approximately $10,803 and $7,923, respectively. The federal net operating loss and credit carryforwards will expire at various dates beginning in fiscal 2019 through fiscal 2021, if not utilized. The state net operating loss carryforwards will begin to expire in fiscal 2004 through fiscal 2021, if not utilized. Utilization of our net operating loss carryforwards and credits may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions.

Based upon the level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowance, at September 30, 2002. In connection with the HNC acquisition, we recorded a valuation allowance of $11,167 against acquired deferred tax assets. If these deferred tax assets are later realized, the release of the related valuation allowance will result in a credit to goodwill.

The reconciliation between the federal statutory income tax rate of 35% and the our effective tax rate is shown below for fiscal 2002, 2001 and 2000:


	2002			2001			2000

Income tax provision at federal statutory rates	$	18,584		$	26,898		$	16,475
State income taxes, net of federal benefit		3,820			3,633			2,376
In-process research and development charge		14,070			—			—
Research and development credits		(1,442	)		(216	)		—
Increase (decrease) in valuation allowance		(222	)		7			(196	)
Other		404			419			784

Recorded income tax provision	$	35,214		$	30,741		$	19,439

Cash paid for income tax payments totaled $17,791, $18,490 and $17,518 during fiscal 2002, 2001 and 2000, respectively.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

12. Earnings Per Share

The following reconciles the numerators and denominators of basic and diluted earnings per share (“EPS”) for fiscal 2002, 2001 and 2000:


		2002		2001		2000

Numerator — net income		$	17,884	$	46,112	$	27,631

Denominator — shares:
	Basic weighted-average shares		36,534		32,979		32,085
	Effect of dilutive securities		1,016		1,610		843

	Diluted weighted-average shares		37,550		34,589		32,928

Earnings per share
	Basic	$	0.49	$	1.40	$	0.86

	Diluted	$	0.48	$	1.33	$	0.84

The computation of diluted EPS for fiscal 2002, 2001 and 2000, excludes stock options to purchase 1,424, 76 and 189 shares of common stock, respectively, because the exercise prices for such options were greater than the respective average market prices of the common shares and their inclusion would be antidilutive. The computation of diluted EPS for fiscal 2002 also excludes 2,703 shares of common stock issuable upon conversion of our convertible subordinated notes, as the inclusion of such shares would have been antidilutive after adjusting interest expense, net of tax, in the numerator of the diluted EPS calculation.

13. Stockholders’ Equity

Common Stock

On April 22, 2002, our Board of Directors authorized a three-for-two stock split effected in the form of a 50% stock dividend with cash payment in lieu of fractional shares, payable on June 5, 2002 to holders of our common stock on record on May 15, 2002 at the close of business. On May 1, 2001, our Board of Directors authorized a three-for-two stock split effected in the form of a 50% stock dividend with cash payment in lieu of fractional shares, payable on June 4, 2001 to holders of our common stock on record on May 14, 2001 at the close of business. All share and per share amounts within the accompanying consolidated financial statements and notes have been restated to reflect these stock splits that occurred in fiscal 2002 and 2001.

During fiscal 2002, our stockholders approved an amendment to our Restated Certificate of Incorporation, as previously amended, to increase the number of shares of common stock authorized for issuance from 35,000 shares to 100,000 shares.

We paid quarterly dividends on common stock of two cents per share, or eight cents per year, during each of fiscal 2002, 2001 and 2000.

Stockholder Rights Plan

In August 2001, our Board of Directors adopted a stockholder rights plan pursuant to which one right to purchase preferred stock was distributed for each outstanding share of common stock held of record on August 21, 2001. Since this distribution, all newly issued shares of common stock, including the shares issued in connection with the acquisition of HNC Software, have been accompanied by a preferred stock purchase right. In general, the rights will become exercisable and trade independently from the common stock if a person or group acquires or obtains the right to acquire 15 percent or more of the outstanding shares of

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

common stock or commences a tender or exchange offer that would result in that person or group acquiring 15 percent or more of the outstanding shares of common stock, either event occurring without the consent of the Board of Directors. Each right represents a right to purchase Series A Participating Preferred Stock in an amount and at an exercise price which are subject to adjustment. The person or group who acquired 15 percent or more of the outstanding shares of common stock would not be entitled to make this purchase. The rights will expire in August 2011, or they may be redeemed by the Company at a price of $0.001 per right prior to that date.

14. Employee Benefit Plans

Defined Contribution Plans

We sponsor a Fair, Isaac 401(k) plan for eligible employees. Under this plan, eligible employees may contribute up to 15% of compensation, not to exceed statutory limits. We also provide a company matching contribution. In connection with the HNC merger, we also assumed the HNC 401(k) plan, which we froze and consolidated into the Fair, Isaac 401(k) plan in September 2002. Our contributions into all 401(k) plans, including other former company sponsored plans that have since merged into the Fair, Isaac 401(k) plan or have been frozen, totaled $4,457, $3,799 and $3,618 during fiscal 2002, 2001 and 2000, respectively.

Employee Stock Ownership Plans

Prior to fiscal 2000, we made annual contributions into a domestic Employee Stock Ownership Plan (“Domestic ESOP”) that covered eligible employees, as determined annually by our Board of Directors. Effective at the beginning of fiscal 2000, we stopped accepting new participants into the Domestic ESOP and during fiscal 2000 and subsequent years we made no provisions for contributions into this plan. Effective October 31, 2001, the Domestic ESOP was formally terminated and during fiscal 2002 we distributed the assets held in the plan. The Internal Revenue Service issued a Favorable Determination Letter regarding this plan termination.

We maintain a Non-U.S. Employee Stock Ownership Plan (“Non-U.S. ESOP”) that covers eligible employees working in the United Kingdom and contributions into the Non-U.S. ESOP are determined annually by our Board of Directors. During fiscal 2002, we recorded a provision of $154 for contributions into this plan. During fiscal 2001 and 2000, no contribution provisions were made into this plan.

Employee Incentive Plans

We maintain various employee incentive plans for the benefit of eligible employees, including officers. Awards under these plans have been calculated and awarded quarterly during fiscal 2002 and 2001, and annually in fiscal 2000. Awards are based on the achievement of certain financial and performance objectives. We also maintained a separate incentive plan through fiscal 2000 for the benefit of officers. This officers’ incentive plan was consolidated with our employee incentive plans during fiscal 2000. Total expenses under our employee incentive plans were $4,915, $4,841 and $1,661 during fiscal 2002, 2001 and 2000, respectively. Total expenses under the officers’ incentive plan during fiscal 2000 were $1,348.

Employee Stock Purchase Plans

Under the 1999 Employee Stock Purchase Plan (the “Purchase Plan”), we are authorized to issue up to 3,375 shares of common stock to eligible employees. Employees may have up to 10% of their base salary withheld through payroll deductions to purchase Fair, Isaac common stock during semi-annual offering periods. The purchase price of the stock is the lower of 85% of (i) the fair market value of the common stock on the enrollment date (the first day of the offering period), or (ii) the fair market value on the exercise date

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

(the last day of each offering period). Offering period means approximately six-month periods commencing (a) on the first trading day on or after January 1 and terminating on the last trading day in the following June, and (b) on the first trading day on or after July 1 and terminating on the last trading day in the following December.

A total of 102, 123 and 50 shares of our common stock with a weighted average fair value of $30.82, $17.48 and $16.62 per share were issued under the Purchase Plan during fiscal 2002, 2001 and 2000, respectively. At September 30, 2002, 3,102 shares remained available for issuance.

In connection with our acquisition of HNC, we agreed to assume HNC’s Employee Stock Purchase Plan (the “HNC Purchase Plan”) for the remaining semi-annual purchase period ending on January 31, 2003. In connection with this plan assumption, we became authorized to issue up to 793 shares of our common stock to eligible employee participants, which consisted of former HNC employees that participated in the HNC Purchase Plan prior to the acquisition. This plan will be terminated by us at the end of the final purchase period on January 31, 2003. Until its termination, existing participants may contribute up to 10% of their base salary into this plan to purchase Fair, Isaac stock at the lower of 85% of (i) the fair market value of HNC common stock at the beginning of the applicable offering period, adjusted to reflect the merger exchange ratio into Fair, Isaac stock, and (ii) the fair market value of Fair, Isaac common stock on January 31, 2003. None of our common stock was issued under the HNC Purchase Plan during fiscal 2002.

15. Stock Option Plans

We maintain a Fair, Isaac stock option plan under which we may grant stock options, stock appreciation rights, restricted stock and common stock to officers, key employees and non-employee directors. Under this plan, a number of shares equal to 4% of the number of shares of Fair, Isaac common stock outstanding on the last day of the preceding fiscal year is added to the shares available under the plan each fiscal year, provided that the number of shares for grants of incentive stock options for the remaining term of the plan shall not exceed 3,375 shares. As of September 30, 2002, 363 shares remained available for grant under this plan. We maintain individual stock option plans for certain of our officers and the chairman of the board. There are no shares available for future grant under these plans. Granted awards generally have a maximum term of ten years and vest over four years.

We also assumed all outstanding stock options held by former employees and non-employee directors of HNC, who as of our acquisition date, held unexpired and unexercised stock option grants under the various HNC stock option plans. As of September 30, 2002, 1,087 shares remained available for future grant under these option plans, however, the issuance of these shares may be subject to further approval by our stockholders under proposed New York Stock Exchange corporate governance rules.

During the fourth quarter of fiscal 2002, we granted 163 shares of restricted stock to various key employees, for which we recorded deferred compensation of $5,000 based upon the aggregate market value of the shares at the grant date. The shares of the restricted stock vest in 25% increments at each annual anniversary from the grant date. We are amortizing this deferred compensation on a straight-line basis over the total four-year vesting period. Amortization of deferred compensation related to these grants totaled $198 during fiscal 2002, and is recorded in cost of revenues, research and development, and sales, general and administrative expense within the accompanying statement of operations.

During fiscal 2000, we granted 945 stock options to an officer and recorded associated deferred compensation of $3,990. The deferred compensation is being amortized on a straight-line basis over the four-year vesting period of the options. Amortization of deferred compensation related to these options totaled $998, $998 and $831 during fiscal 2002, 2001 and 2000, respectively, and is recorded in sales, general and administrative expense in the accompanying statement of operations.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

Option activity under our plans during fiscal 2002, 2001 and 2000 is summarized as follows:



	2002					2001					2000

				Weighted-					Weighted-					Weighted-
				average					average					average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price

Outstanding at beginning of year		6,422		$	19.60		6,597		$	16.47		5,333		$	14.76
Granted		1,946		$	38.19		2,287		$	25.36		3,432		$	17.27
Assumption of HNC options		3,898		$	32.87		—			—		—			—
Exercised		(1,383	)	$	17.10		(2,078	)	$	16.48		(1,089	)	$	10.31
Forfeited		(841	)	$	28.78		(384	)	$	17.01		(1,079	)	$	16.80

Outstanding at end of year		10,042		$	27.93		6,422		$	19.60		6,597		$	16.47

Options exercisable at year end		3,675		$	24.54		1,388		$	16.90		1,253		$	15.91

The weighted-average fair value of options granted during fiscal 2002, 2001 and 2000 was $16.88, $15.96 and $11.82, respectively.

The following table summarizes information about stock options outstanding at September 30, 2002:



	Options outstanding						Options exercisable

			Weighted-
			average		Weighted-				Weighted-
			Remaining		average				average
	Number		Contractual		Exercise		Number		Exercise
	Outstanding		Life		Price		Outstanding		Price

$ 0.21 to $16.33		2,049		6.04	$	14.38		1,157	$	13.97
$16.42 to $21.81		1,907		6.21	$	18.91		927	$	18.43
$21.93 to $30.40		1,996		7.06	$	27.90		539	$	26.98
$30.58 to $38.73		1,769		7.08	$	33.33		455	$	33.16
$38.88 to $44.92		1,866		7.56	$	40.96		425	$	42.75
$45.88 to $64.55		455		5.04	$	52.45		172	$	53.13

$ 0.21 to $64.55		10,042		6.70	$	27.93		3,675	$	24.54

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions during fiscal 2002, 2001 and 2000:


	2002			2001			2000

Expected life (years)		4			5			5
Interest rate		3.3	%		5.1	%		6.4	%
Volatility		51	%		49	%		41	%
Dividend yield		0	%		0	%		0	%

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

Stock-based compensation under SFAS No. 123 would have had the following pro forma effects for fiscal 2002, 2001 and 2000:


		2002			2001		2000

Net income, as reported		$	17,884		$	46,112	$	27,631

Pro forma net income (loss)		$	(554	)	$	33,573	$	19,010

Earnings per share, as reported:
	Basic	$	0.49		$	1.40	$	0.86

	Diluted	$	0.48		$	1.33	$	0.84

Pro forma earnings (loss) per share:
	Basic	$	(0.02	)	$	1.02	$	0.59

	Diluted	$	(0.02	)	$	0.97	$	0.58

16. Segment Information

As a result of the merger with HNC on August 5, 2002, we reorganized into four reportable segments worldwide to align with the new internal management of our business operations based on products. The reportable segments are Scoring Solutions, Strategy Machine Solutions, Professional Services, and Analytic Software Tools.

The Scoring Solutions segment includes scoring services distributed through major credit reporting agencies and through ChoicePoint; the ScoreNet service; the PreScore services; and insurance bureau scoring services sold through credit reporting agencies and ChoicePoint. It consists of products previously reported in our Scoring segment. These products and services were previously reported in the Global Data Repositories & Processors segment in fiscal year 2001.

The Strategy Machine Solutions segment includes the following Strategy Machine products: TRIAD credit account management services distributed through third-party bankcard processors and Fair, Isaac MarketSmart Decision System (MarketSmart), LiquidCredit, TelAdaptive, consumer services available through our myFICO.com Web site and strategic alliance partners’ Web sites, List Processing and Strategy Science products. The Strategy Machine Solutions segment also includes products we acquired with the HNC merger, notably Falcon Fraud Manager, CompAdvisor/ AutoAdvisor Medical Bill Review, and CardAlert Fraud Manager. The Strategy Machine Solutions segment includes the products and services that were part of our previous Strategy Machines segment, as well as software license fees and maintenance revenues related to our SEARCH, ScoreWare, StrategyWare and TRIAD end-user products. Our TRIAD credit account management services distributed through third-party bankcard processors were included under the Global Data Repositories & Processors segment in fiscal year 2001, and the remaining products in this new segment were included in either the Global Financial Services segment or the Other segment in fiscal 2001.

The Professional Services segment includes all consulting and custom analytics services, which were previously reported as part of our Consulting segment. In fiscal 2001, custom analytics were included in the Other segment and most other consulting services were reported in the segment in which the revenues from the related products and services were reported.

The Analytic Software Tools segment principally includes the Fair, Isaac Blaze Decision system (formerly Fair, Isaac Decision System software), the Fair, Isaac Model Builder software products and the

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

Fair, Isaac Blaze Advisor software. These products were previously reported under our Software & Maintenance segment, while the Blaze Advisor product was previously offered by HNC.

Our Chief Executive and Operating Officers evaluate segment financial performance based on segment revenues and operating income. Segment operating expenses consist principally of personnel, facilities, consulting, travel and other expenses both directly related and allocated to the segments. The Chief Executive and Operating Officers do not evaluate the financial performance of each segment based on their respective assets or capital expenditures.

Segment information for fiscal 2001 and 2000 has been restated to conform to the fiscal 2002 presentation.



		Fiscal 2002

					Strategy			Professional			Analytic
		Scoring			Machines			Services			SW Tools			Total

Revenues		$	126,626		$	190,007		$	63,941		$	11,844		$	392,418
Operating expenses			(62,942	)		(162,856	)		(60,981	)		(11,103	)		(297,882	)

	Segment operating income		63,684			27,151			2,960			741			94,536

Unallocated merger-related expenses															(47,424	)

Operating income															47,112
Unallocated interest expense — convertible subordinated notes															(1,471	)
Unallocated interest and other income, net															7,457

Income before income taxes														$	53,098

Depreciation and amortization		$	7,027		$	19,016		$	4,051		$	891		$	30,985



			Fiscal 2001

						Strategy			Professional			Analytic
			Scoring			Machines			Services			SW Tools			Total

Revenues			$	122,144		$	161,828		$	38,847		$	6,329		$	329,148
	Operating expenses			(67,316	)		(146,580	)		(34,927	)		(8,218	)		(257,041	)

		Segment operating income (loss)		54,828			15,248			3,920			(1,889	)		72,107

	Unallocated interest and other income, net															4,746

	Income before income taxes														$	76,853

	Depreciation and amortization		$	6,532		$	15,661		$	2,472		$	409		$	25,074

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)



			Fiscal 2000

						Strategy			Professional			Analytic
			Scoring			Machines			Services			SW Tools			Total

Revenues			$	111,692		$	145,631		$	39,668		$	1,639		$	298,630
	Operating expenses			(61,506	)		(151,216	)		(36,399	)		(4,895	)	$	(254,016	)

		Segment operating income (loss)		50,186			(5,585	)		3,269			(3,256	)		44,614

	Unallocated interest and other income, net															2,456

	Income before income taxes														$	47,070

Depreciation and amortization			$	6,337		$	12,895		$	2,080		$	149		$	21,461

Our revenues and percentage of revenues by reportable market segments are as follows for fiscal 2002, 2001 and 2000, the majority of which are derived from the sale of products and services within the consumer credit, financial services and insurance industries:



	2002


					2001


									2000

Scoring Solutions	$	126,626	32	%	$	122,144	37	%	$	111,692	37	%
Strategy Machine Solutions		190,007	49	%		161,828	49	%		145,631	49	%
Professional Services		63,941	16	%		38,847	12	%		39,668	13	%
Analytic SW Tools		11,844	3	%		6,329	2	%		1,639	1	%

	$	392,418	100	%	$	329,148	100	%	$	298,630	100	%

In addition, our revenues and percentage of revenues on a geographical basis are summarized below for fiscal 2002, 2001 and 2000. No individual country outside of the United States accounted for 10% or more of revenue in any of these years.



	2002


					2001


									2000

United States	$	316,241	81	%	$	269,161	82	%	$	241,487	81	%
International		76,177	19	%		59,987	18	%		57,143	19	%

	$	392,418	100	%	$	329,148	100	%	$	298,630	100	%

The following table presents summary information regarding significant customers whose revenues contributed to 10% or more of our total consolidated revenues during fiscal 2002, 2001 and 2000:



	Percent of Revenue

	2002			2001			2000

Customer A		12	%		11	%		10	%
Customer B		—			—			12	%

At September 30, 2002, no individual customer contributed to 10% or more of total consolidated receivables. At September 30, 2001, receivables due from one customer accounted for 12% of total consolidated receivables.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)

17. Related Party Transaction

We are party to a consulting service agreement with Cherry Tree Development, in which a director of Fair, Isaac holds a 50% beneficial equity interest. The agreement expires in November 2002. During fiscal 2002 and 2001, we recorded $404 and $159 in sales, general and administrative expenses related to this agreement. Accounts payable under this agreement totaled $60 at September 30, 2002. No payable amounts were outstanding under this agreement at September 30, 2001.


18.	Commitments

Minimum future commitments under non-cancelable operating leases are as follows as of September 30, 2002:


	Future Minimum
Fiscal Year	Lease Payments

2003	$	18,383
2004		14,688
2005		13,080
2006		11,933
2007		10,457
Thereafter		8,098

	$	76,639

The above amounts will be reduced by contractual sublease commitments totaling $844, $498, $194, $194 and $145 in fiscal 2003 through 2007, respectively. We occupy the majority of our facilities under non-cancelable operating leases with lease terms in excess of one year. Such facility leases generally provide for annual increases based upon the Consumer Price Index or fixed increments. Rent expense under operating leases, including month-to-month leases, totaled $11,992, $10,260 and $9,135 during fiscal 2002, 2001 and 2000, respectively.

In fiscal 2001, we entered into a fixed-price mainframe service agreement that expires in fiscal 2005. Expense recorded by us under this agreement totaled $12,352 during fiscal 2002. No expense was recorded by us under this agreement in fiscal 2001 as the service period had not yet commenced. Future commitments under this service agreement are as follows as of September 30, 2002:


Fiscal Year

2003	$	12,498
2004		12,498
2005		1,042

	$	26,038

We are party to employment agreements with three of our executive officers that stipulate, among other things, base salary levels and performance-based incentive bonus targets. In the event that we terminate employment with any of these executive officers without cause, as defined, we would be obligated to pay certain severance amounts to the executive officers. These agreements also contain change in control provisions that could require us, or an entity acquiring us, to make cash payments to the executive officers in certain instances.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)


19.	Contingencies

We are involved in various claims and legal actions arising in the ordinary course of business. We believe that these claims and actions will not result in a material adverse impact to our results of operations, liquidity or financial condition. However, the amount of the liabilities associated with these claims and actions, if any, cannot be determined with certainty.

On April 30, 2002, Douglas Tidwell, seeking to act on behalf of a class of all holders of common stock of HNC Software Inc., filed suit in the Superior Court of the State of California, County of San Diego, and named as defendants all of the then current directors of HNC. The complaint alleges, among other things, that HNC’s directors breached their fiduciary duties to HNC’s stockholders by approving the Agreement and Plan of Merger that HNC entered into with Fair, Isaac on April 28, 2002 and that the individual defendants engaged in self-dealing in connection with the transaction. The complaint seeks injunctive relief, including enjoining consummation of the merger transaction with Fair, Isaac. The complaint also seeks an award of attorneys’ and experts’ fees. On July 18, 2002, HNC announced that it had entered into a memorandum of understanding with plaintiff’s counsel setting forth the terms of a proposed settlement of the suit. A Stipulation of Settlement implementing the terms of the memorandum of understanding has been entered into by which the case will be dismissed and HNC will pay $492 in attorneys’ fees to plaintiffs subject to approval by the court. A substantial portion of HNC’s costs in connection with the pending settlement will be reimbursed by HNC’s directors’ and officers’ insurance carrier, and we have accrued estimated incremental costs that will be borne by us. The settlement has been preliminarily approved by the court and a hearing before the court for final approval of the settlement is currently scheduled for December 11, 2002.


20.	Subsequent Events

In October 2002, we executed an asset purchase agreement with OSI pursuant to which we sold to OSI HNC’s former Profit Vision product line, associated customer base, intellectual property rights and other related assets in exchange for a $950 secured promissory note from OSI and OSI’s assumption of certain related product line liabilities. The promissory note received bears interest at the rate of 4.75% per annum and all principal and interest is payable in full in October 2005. The note is secured by the assets sold to OSI.

In November 2002, we executed an asset purchase agreement with Bridium, Inc. (“Bridium”) pursuant to which we sold to Bridium HNC’s former Connectivity Manager product line, associated customer base, intellectual property rights and other related assets in exchange for $3,000 in cash and a $3,000 secured promissory note from Bridium, as well as Bridium’s assumption of certain related product line liabilities. The promissory note received bears interest at the rate of 7.0% per annum and is due and payable in twelve quarterly installments commencing in April 2003 and ending in April 2006. The note is secured by the assets sold to Bridium.

In November 2002, we executed a credit agreement with a financial institution that provides for a $15,000 revolving line of credit through February 2004. Under the agreement we are required to comply with various financial covenants which include but are not limited to, minimum levels of domestic liquidity, parameters for treasury stock repurchases, dividend payments, and merger and acquisition requirements. At our option, borrowings under this agreement bear interest at the rate of LIBOR plus 1.25% (which would have amounted to 3.1% at September 30, 2002) or at the financial institution’s Prime Rate (which would have amounted to 4.75% at September 30, 2002), payable monthly. This agreement replaces a former $15,000 revolving credit facility that was held by HNC (see Note 9). The agreement also includes a letter of credit subfeature that allows us to issue commercial and standby letters of credit up to maximum amount of $5,000 and a foreign exchange facility that allows us to enter into contracts with the financial institution to purchase and sell certain currencies, subject to a maximum aggregate amount of $20,000 and other specified limits.

FAIR, ISAAC AND COMPANY, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except per share amounts)


21.	Supplementary Financial Data (Unaudited)

The following table presents selected unaudited consolidated financial results for each of the eight quarters in the two-year period ended September 30, 2002. In the opinion of management, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the consolidated financial information for the period presented.


		Dec. 31,		Mar. 31,		Jun. 30,		Sept. 30,
		2001		2002		2002		2002(1)


		(In thousands, except per share data)
Revenues		$	85,061	$	87,050	$	91,014	$	129,293
Cost of revenues			38,585		39,127		40,724		57,593

Gross profit		$	46,476	$	47,923	$	50,290	$	71,700

Net income (loss)		$	13,547	$	14,185	$	14,352	$	(24,200	)

Earnings (loss) per share(3):
	Basic	$	0.40	$	0.41	$	0.43	$	(0.55	)

	Diluted	$	0.38	$	0.39	$	0.41	$	(0.55	)

Shares used in computing earnings (loss) per share:
	Basic		34,190		34,532		33,629		43,717

	Diluted		35,946		36,287		35,233		43,717


		Dec. 31,		Mar. 31,		Jun. 30,		Sept. 30,
		2000		2001		2001		2001(2)


		(In thousands, except per share data)
Revenue		$	77,123	$	81,331	$	84,233	$	86,461
Cost of revenues			35,265		37,458		37,991		37,845

Gross profit		$	41,858	$	43,873	$	46,242	$	48,616

Net income		$	8,817	$	10,659	$	12,352	$	14,284

Earnings per share(3):
	Basic	$	0.26	$	0.33	$	0.37	$	0.42

	Diluted	$	0.27	$	0.32	$	0.35	$	0.40

Shares used in computing earnings per share:
	Basic		33,702		32,316		33,192		33,698

	Diluted		33,252		33,666		34,956		35,793


(1)	Results of operations for the quarter ended September 30, 2002 include HNC of results of operations since the merger date of August 5, 2002. Results also include a $40.2 million charge associated with the write-off of in-process research and development in connection with the merger and $7.2 million in restructuring and other merger-related charges.

(2)	During the quarter ended September 30, 2001, we recognized $6.2 million of revenue related to the resolution of usage fees associated with a large client account. Associated costs of sales were insignificant.

(3)	Net income (loss) per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts does not equal the totals for the respective years.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosures*

Not applicable.

PART III


Item 10.	*Directors and Executive Officers of the Registrant*

The required information regarding our Directors is incorporated by reference from the information under the caption “Election of Directors — Nominees” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 3, 2003.

The required information regarding our Executive Officers is contained in Part I of this Form 10-K.

The required information regarding compliance with Section 16(a) of the Securities Exchange Act is incorporated by reference from the information under the caption “Section 16(a) Beneficial Ownership Reporting Employer Compliance” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 3, 2003.


Item 11.	*Executive Compensation*

Incorporated by reference from the information under the captions “Directors Compensation,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Certain Relationships And Related Transactions” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 3, 2003.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Incorporated by reference from the information under the caption “Security Ownership Of Certain Beneficial Owners And Management” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 3, 2003.

The following table provides certain information as of September 30, 2002 with respect to our equity compensation plans:

Number of

Number of Securities

Securities to be

Remaining Available

Issued upon

Weighted Average

for Future Issuance

Exercise of

Exercise Price of

Under Equity

Plan Category

Outstanding Options

Compensation Plans

Equity compensation plans approved by security holders(1)

7,687,438

28.68

362,792

(2)

Equity compensation plans not approved by security holders(3)

2,354,182

(4)

25.48

—

(5)

Total

10,041,620

27.93

362,792


(1)	Includes compensation plans approved by security holders of entities acquired by us.

(2)	Under the 1992 Long-Term Incentive Plan, a number of shares equal to 4% of the number of shares of our common stock outstanding on the last day of the preceding fiscal year is available for grant under the Plan in each fiscal year. The amount shown in the table does not include (i) the additional shares that became available for grant on October 1, 2002, or (ii) options to purchase 1,016,198 shares available for issuance under plans assumed by us in connection with the HNC acquisition, the issuance of which may be subject to further approval by our stockholders under proposed New York Stock Exchange corporate governance rules.


(3)	The equity compensation plans not approved by security holders consist of (i) individual option grants to some of our executive officers and our Chairman of the Board and (ii) grants under the 1998 Stock Option Plan of HNC which has been assumed by us in connection with the acquisition of HNC. Under each of the individual option grants, the exercise price of the options was equal to the fair market value on the date of grant and, except in one case noted below, the options vest in equal installments over four years. The recipients of these options, the grant date and the number of outstanding shares covered by the options are as follows: Thomas Grudnowski, August 1999, 795,000 shares (options vest 25% on the first anniversary of the grant date and in equal monthly installments thereafter during ensuing three years); Thomas Grudnowski; May and November 2001, 150,000 shares; Mark Pautsch, August 2000, 194,062 shares; Henk Evenhuis, October 1999, 56,250 shares; Kenneth Saunders, August 2002, 200,000 shares; and A. George Battle, February 2002, 11,250 shares. The 1998 Stock Option Plan of HNC covers 947,620 shares. All options granted under the Plan must have an exercise price equal to the fair market value on the date of grant and generally vest over four years.

(4)	Includes outstanding options to purchase 1,406,562 shares under individual option agreements and 947,620 shares under the 1998 Stock Option Plan of HNC, which has been assumed by us.

(5)	Excludes options to purchase 70,454 shares under the 1998 Stock Option Plan of HNC, the issuance of which may be subject to further approval by our stockholders under proposed New York Stock Exchange corporate governance rules.

For additional information concerning our equity compensation plans, refer to the discussion in Note 15 to the consolidated financial statements.


Item 13.	*Certain Relationships and Related Transactions*

Incorporated by reference from the information under the captions “Certain Relationships And Related Transactions” and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 3, 2003.

PART IV


Item 14.	*Controls and Procedures*

Within 90 days prior to the date of this report, an evaluation was carried out under the supervision and with the participation of Fair, Isaac’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Fair, Isaac’s disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that Fair, Isaac’s disclosure controls and procedures are effective to ensure that information required to be disclosed by Fair, Isaac in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of that evaluation, there were no significant changes in Fair, Isaac’s internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies or material weaknesses.


Item 15.	*Exhibits, Financial Statement Schedules, and Reports on Form 8-K*


(a) 1.	Consolidated Financial Statements:


	Reference Page
	Form 10-K

Independent auditors’ report		40
Consolidated balance sheets as of September 30, 2002 and 2001		41
Consolidated statements of income for the years ended September 30, 2002, 2001, and 2000		42
Consolidated statement of changes in stockholders’ equity and comprehensive income (loss) for the years ended September 30, 2000, 2001, and 2002		43
Consolidated statements of cash flows for the years ended September 30, 2002, 2001, and 2000		44
Notes to consolidated financial statements		45

2. Financial Statement Schedules

All financial statement schedules are omitted because the required information is not applicable or because the information required is included in the consolidated financial statements and the related notes.

3. Exhibits:


Exhibit
Number			Description

	2	.1	Agreement and Plan of Merger, dated as of April 28, 2002, among Company, Northstar Acquisition Inc. and HNC Software Inc. (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed April 29, 2002.)
	3	.1*	By-laws of the Company (as amended effective August 5, 2002).
	3	.2	Certificate of Amendment of Amended and Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.2 to Company’s report on Form 10-Q for the fiscal quarter ended December 31, 2001).
	4	.1	Indenture, dated as of August 24, 2001, between HNC and State Street Bank and Trust Company of California, N.A., as Trustee. (Incorporated by reference to Exhibit 4.04 to HNC’s Form S-3 Registration Statement, File No. 333-72804, filed November 6, 2001.)
	4	.2	Form of Note for HNC’s 5.25% Convertible Subordinated Note due September 1, 2008. (Included in Exhibit 4.02.)
	4	.3	Registration Rights Agreement, dated as of August 24, 2001, between HNC and Credit Suisse First Boston Corporation, Goldman, Sachs & Co. and U.S. Bancorp Piper Jaffray Inc. (Incorporated by reference to Exhibit 4.05 to HNC’s Form S-3 Registration Statement, File No. 333-72804, filed November 6, 2001.)
	4	.4	Rights Agreement dated as of August 8, 2001 between Fair, Isaac and Company, Incorporated and Mellon Investor Services LLC, which includes as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights. (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form 8-A relating to the Series A Participating Preferred Stock Purchase Rights filed August 10, 2001.)
	4	.5	For Form of Right Certificate. (Included in Exhibit 4.4.)
	10	.1	HNC’s 1995 Equity Incentive Plan, as amended through March 30, 2000. (Incorporated by reference to Exhibit 4.01 to HNC’s Form S-8 Registration Statement, File No. 333-40344, filed June 28, 2000.)(1)
	10	.2	Form of 1995 Equity Incentive Plan Stock Option Agreement and Stock Option Exercise Agreement. (Incorporated by reference to Exhibit 10.02 to HNC’s Form S-4 Registration Statement, File No. 333-64527, as amended December 21, 1998.)(1)


Exhibit
Number			Description

	10	.3	HNC’s 2001 Equity Incentive Plan and related form of Stock Option Agreement. (Incorporated by reference to Exhibit 4.01 to HNC’s Form S-8 Registration Statement, File No. 333-62492, filed June 7, 2001.)(1)
	10	.4	HNC’s 1995 Directors Stock Option Plan, as amended through April 30, 2000. (Incorporated by reference to Exhibit 4.05 to HNC’s Form S-8 Registration Statement, File No. 333-40344, filed June 28, 2000.)(1)
	10	.5	Form of 1995 Directors Stock Option Plan Option Agreement and Stock Option Exercise Agreement. (Incorporated by reference to Exhibit 10.01 to HNC’s Form 10-Q for the quarter ended June 30, 1999.)(1)
	10	.6	HNC’s 1995 Employee Stock Purchase Plan, as amended through January 1, 2002.(1) (Incorporated by reference to Exhibit 10.07 to HNC’s report on Form 10K for the fiscal year ended December 31, 2001.)
	10	.7	HNC’s 1998 Stock Option Plan, as amended through September 1, 2000 and related form of option agreement. (Incorporated by reference to Exhibit 4.05 to HNC’s Form S-8 Registration Statement, File No. 333-45442, filed September 8, 2000.)(1)
	10	.8	Aptex Software Inc. 1996 Equity Incentive Plan assumed by HNC. (Incorporated by reference to Exhibit 4.03 to HNC’s Form S-8 Registration Statement, File No. 333-71923, filed February 5, 1999.)(1)
	10	.9	Form of Aptex Software Inc. 1996 Equity Incentive Plan Stock Option Agreement and Stock Option Exercise Agreement. (Incorporated by reference to Exhibit 4.04 to HNC’s Form S-8 Registration Statement, File No. 333-71923, filed February 5, 1999.)(1)
	10	.10	Office Building Lease, Regency Center, by and between The Joseph and Eda Pell Revocable Trust and the Company dated June 13, 2001. (Incorporated by reference to Exhibit 10.13 to Company’s Annual Report on Form 10-K, as amended, for the year ended September 30, 2001.)
	10	.11	First Amendment to Lease by and between 111 Partners and the Company, effective July 1, 2001. (Incorporated by reference to Exhibit 10.13 to Company’s Annual Report on Form 10-K, as amended, for the year ended September 30, 2001.)
	10	.12	Form of Advanced Information Management Solutions, Inc. Stock Option Agreement. (Incorporated by reference to Exhibit 4.02 to HNC’s Form S-8 Registration Statement, File No. 333-33952, filed April 4, 2000.)(1)
	10	.13	ONYX Technologies, Inc. 1999 Stock Plan assumed by HNC. (Incorporated by reference to Exhibit 4.03 to HNC’s Form S-8 Registration Statement, File No. 333-33952, filed April 4, 2000.)(1)
	10	.14	Lease dated May 1, 1995, between Control Data Corporation and DynaMark, Inc. (Incorporated by reference to Exhibit 10.18 to the Company’s report on Form 10-K for the fiscal year ended September 30, 2001.)
	10	.15	Form of ONYX Technologies, Inc. Stock Option Agreement. (Incorporated by reference to Exhibit 4.04 to HNC’s Form S-8 Registration Statement, File No. 333-33952, filed April 4, 2000.)(1)
	10	.16	Fair, Isaac Supplemental Retirement and Savings Plan and Trust Agreement effective November 1, 1994 (Incorporated by reference to Exhibit 10.16 to the Company’s report on Form 10-K for the fiscal year ended September 30, 2001.)(1)
	10	.17	The Center for Adaptive Systems Applications, Inc. 1995 Stock Option Plan assumed by HNC. (Incorporated by reference to Exhibit 4.05 to HNC’s Form S-8 Registration Statement, File No. 333-33952, filed April 4, 2000.)(1)
	10	.18*	Third Amendment to Lease Agreement by and between W9/PC Limited Partnership and HNC Software, Inc., dated as of March 27, 2002.
	10	.19	Forms of The Center for Adaptive Systems Applications, Inc. Stock Option Agreements. (Incorporated by reference to Exhibit 4.06 to HNC’s Form S-8 Registration Statement, File No. 333-33952, filed April 4, 2000.)(1)


Exhibit
Number			Description

	10	.20*	Separation Agreement entered into effective as of September 20, 2002, by and between Fair, Isaac and Company, Inc. and Henk J. Evenhuis.
	10	.21	eHNC Inc. 1999 Equity Incentive Plan, as amended, assumed by HNC. (Incorporated by reference to Exhibit 4.01 to HNC’s Form S-8 Registration Statement, File No. 333-41388, filed July 13, 2000.)(1)
	10	.22	Forms of eHNC Inc. Stock Option Agreements and Stock Option Exercise Agreements under the eHNC Inc. 1999 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.02 to HNC’s Form S-8 Registration Statement, File No. 333-41388, filed July 13, 2000.)(1)
	10	.23	eHNC Inc. 1999 Executive Equity Incentive Plan assumed by HNC. (Incorporated by reference to Exhibit 4.03 to HNC’s Form S-8 Registration Statement, File No. 333-41388, filed July 13, 2000.)(1)
	10	.24	Forms of eHNC Inc. Stock Option Agreements and Stock Option Exercise Agreements under the eHNC Inc. 1999 Executive Equity Incentive Plan. (Incorporated by reference to Exhibit 4.04 to HNC’s Form S-8 Registration Statement, File No. 333-41388, filed July 13, 2000.)(1)
	10	.25	Systems/ Link Corporation 1999 Stock Option Plan assumed by HNC and related forms of agreements. (Incorporated by reference to Exhibit 4.04 to HNC’s Form S-8 Registration Statement, File No. 333-45442, filed September 8, 2000.)(1)
	10	.26*	Form of Management Agreement entered into as of August 14, 2002, with certain of the Company’s officers.
	10	.27	Lease dated April 28, 1995, between CSM Investors, Inc., and DynaMark, Inc. (Incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-K for the fiscal year ended September 30, 2001.)
	10	.28	Second Amendment to Employment Agreement entered into effective as of December 26, 2001, by and between Fair, Isaac and Company, Inc. and Thomas G. Grudnowski (Incorporated by reference to Exhibit 10.13 to Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2001.)(1)
	10	.29	Employee Option Exercise Assistance documents used under HNC’s option plans, consisting of forms of Secured Full Recourse Promissory Note, Stock Pledge Agreement and related documents. (Incorporated by reference to Exhibit 10.01 to HNC’s Form 10-Q for the quarter ended September 30, 2000.)(1)
	10	.30	Amended Employee Option Exercise Assistance documents, consisting of forms of Secured Full Recourse Promissory Note, Stock Pledge Agreement and related documents. (Incorporated by reference to Exhibit 10.33 to HNC’s Form 10-K, as amended, for the year ended December 31, 2000.)(1)
	10	.31	Strategic Partnership Agreement dated as of October 23, 2000, between HNC and GeoTrust, Inc., as amended by Amendment No. 1 dated March 6, 2001. (Incorporated by reference to Exhibit 10.35 to HNC’s Form 10-K, as amended, for the year ended December 31, 2000.)
	10	.32*	Office Building Lease dated as of December 1, 1993, as amended effective February 1, 1994 and June 1, 1994, between HNC and PacCor Partners. (Previously filed as Exhibit 10.09 to the HNC IPO S-1.)
	10	.33*	Credit Agreement dated November 1, 2002, by and between Fair, Isaac and Company, Inc. and Wells Fargo Bank, National Association.
	10	.36*	Lease Agreement dated as of June 17, 1996, between HNC and Williams Properties I, LLC & Williams Properties II, LLC. (Previously filed as Exhibit 10.12 to HNC’s Form 10-K, as amended, for the year ended December 31, 1996.)
	10	.37	Lease dated June 1, 2001 by and between The Prudential Assurance Company Limited and Fair, Isaac International UK Corporation (Incorporated by reference to Exhibit 10.4 to Company’s Annual Report on Form 10-K, as amended, for the year ended September 30, 2001.)
	10	.38	Office Building Lease dated June 17, 1993, between Linsco/Private Ledger Corp. and PacCor Partners and Assignment of the lease to HNC (Incorporated by reference to Exhibit 10.17 to HNC Annual Report on Form 10-K, as amended, for the year ended December 31, 1997.)


Exhibit
Number			Description

	10	.39	First Amendment to Lease Agreement between Williams Properties I, LLC and Williams Properties II, LLC and HNC dated June 17, 1996, amended October 28, 1997. (Incorporated by reference to Exhibit 10.16 to HNC’s Form S-4 Registration Statement, as amended, File No. 333-64527.)
	10	.40	Second Amendment to Lease between the HNC and W9/PC Real Estate Limited Partnership dated as of April 13, 1998. (Incorporated by reference to Exhibit 10.17 to HNC’s Form S-4 Registration Statement, as amended, File No. 333-64527.)
	10	.41	Industrial Lease dated as of October 2, 1998, between HNC and The Irvine Company. (Incorporated by reference to Exhibit 99.01 to HNC’s Registration Statement on Form S-8, File No. 333-71923, filed February 5, 1999.)
	10	.42	Multi-Tenant Industrial Lease between LBA VF-1, LLC and eHNC. (Incorporated by reference to Exhibit 10.01 to HNC’s Form 10-Q for the quarter ended March 31, 2000.)
	10	.43	Industrial Building Lease between the HNC and Coppell Commerce Center, Ltd dated as of December 13, 2000. (Incorporated by reference to Exhibit 10.45 to HNC’s report on Form 10K for the fiscal year ended December 31, 2001.)
	10	.44	Sublease Agreement between the HNC and Federal Insurance Company dated as of October 31, 2001. (Incorporated by reference to Exhibit 10.46 to HNC’s report on Form 10K for the fiscal year ended December 31, 2001.)
	10	.45	Lease dated July 1, 1993, between The Joseph and Eda Pell Revocable Trust and the Company and the First Addendum thereto (Incorporated by reference to Exhibit 10.7 to the Company’s report on Form 10-K for the fiscal year ended September 30, 2001.)
	10	.46	The Company’s 1992 Long Term Incentive Plan as amended and restated effective November 16, 2001. (Incorporated by reference to Exhibit 10.8 to Company’s Registration Statement on Form S-8, File No. 333-71923, filed February 5, 1999.)
	10	.47*	Employment Agreement entered into effective as of August 5, 2002, by and between Fair, Isaac and Company, Inc. and Kenneth J. Saunders.
	10	.48*	Nonstatutory Stock Option Agreement with Kenneth J. Saunders entered into as of August 5, 2002. (See Exhibit 10.47.)
	10	.49*	Form of Indemnity Agreement entered into by the Company with the Company’s directors and executive officers.
	10	.52	The Thomas G. Grudnowski Stock Option Plan (Incorporated by reference to Company’s Form S-8 Registration Statement, File No. 333-32396, filed March 14, 2000.)(1)
	10	.53	The Henk J. Evenhuis Stock Option Plan (Incorporated by reference to Company’s Form S-8 Registration Statement, File No. 333-32396, filed March 14, 2000.)(1)
	10	.54	The Thomas G. Grudnowski Stock Option Plan (Incorporated by reference to Company’s Form S-8 Registration Statement, File No. 333-66332, filed July 31, 2001.)(1)
	10	.55	The Mark Pautsch Stock Option Plan (Incorporated by reference to Company’s Form S-8 Registration Statement, File No. 333-66332, filed July 31, 2001.)(1)
	10	.56	2002 Stock Bonus Plan of Company (Incorporated by reference to Exhibit 99.1 of the Company’s Form S-8 Registration Statement, File No. 333-97695, filed August 6, 2002.)(1)
	10	.57	Second Supplemental Indenture, dated as of October 31, 2002, between Fair, Isaac and State Street Bank and Trust Company of California, N.A., as trustee. (Incorporated by reference to Exhibit 4.3 to Company’s Form S-3 Registration Statement, File No. 333-101033, filed November 6, 2002.)
	10	.58*	Stock Option Agreement with A. George Battle entered into as of February 5, 2002.
	10	.59*	Nonstatutory Stock Option Agreement with Thomas Grudnowski entered into as of November 16, 2002.
	10	.60*	Form of Company’s Nonstatutory Stock Option Agreement effective October 7, 2002.
	21	.1*	List of Company’s subsidiaries.
	23	.1*	Consent of KPMG LLP.


(1)	Management contract or compensatory plan or arrangement.

*	Filed herewith.


(b)	Reports on Form 8-K:

We filed a Current Report on Form 8-K on August 19, 2002, announcing the completion of the merger with HNC Software Inc. (“HNC”) on August 5, 2002. We amended this Current Report on Form 8-K on October 21, 2002 and October 22, 2002, reporting in Item 7 updated pro forma financial information for the merger with HNC Software Inc.

SIGNATURES

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


	FAIR, ISAAC AND COMPANY, INCORPORATED


	By	/s/ KENNETH J. SAUNDERS



	Kenneth J. Saunders
	Vice President and Chief Financial Officer

DATE: November 14, 2002

POWER OF ATTORNEY

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

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



/s/ THOMAS G. GRUDNOWSKI Thomas G. Grudnowski	President, Chief Executive Officer (Principal Executive Officer) and Director	November 14, 2002

/s/ KENNETH J. SAUNDERS Kenneth J. Saunders	Vice President, Chief Financial Officer (Principal Financial Officer)	November 14, 2002

/s/ HENK J. EVENHUIS Henk J. Evenhuis	Vice President (Principal Accounting Officer)	November 14, 2002

/s/ A. GEORGE BATTLE A. George Battle	Director	November 14, 2002

/s/ TONY J. CHRISTIANSON Tony J. Christianson	Director	November 14, 2002

/s/ THOMAS F. FARB Thomas F. Farb	Director	November 14, 2002

/s/ ALEX W. HART Alex W. Hart	Director	November 14, 2002



/s/ PHILIP G. HEASLEY Philip G. Heasley	Director	November 14, 2002

/s/ GUY R. HENSHAW Guy R. Henshaw	Director	November 14, 2002

/s/ DAVID S. P. HOPKINS David S. P. Hopkins	Director	November 14, 2002

/s/ MARGARET L. TAYLOR Margaret L. Taylor	Director	November 14, 2002

CERTIFICATIONS

I, Thomas G. Grudnowski, certify that:


	1. I have reviewed this annual report on Form 10-K of Fair, Isaac and Company, Incorporated;

	2. Based on my knowledge, this annual 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 annual report;

	3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

	4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a) designed such disclosure controls and procedures 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 annual report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


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


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 19, 2002


	/s/ THOMAS G. GRUDNOWSKI

	Thomas G. Grudnowski
	Chief Executive Officer

CERTIFICATIONS — (Continued)

I, Kenneth J. Saunders, certify that:


	1. I have reviewed this annual report on Form 10-K of Fair, Isaac and Company, Incorporated;

	2. Based on my knowledge, this annual 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 annual report;

	3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

	4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a) designed such disclosure controls and procedures 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 annual report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


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


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 19, 2002


	/s/ KENNETH J. SAUNDERS

	Kenneth J. Saunders
	Chief Financial Officer

EXHIBIT INDEX

To Fair, Isaac and Company, Incorporated

Report On Form 10-K For The Fiscal Year Ended September 30, 2002


Exhibit No.		Exhibit Name

	3.1	By-laws of the Company (as amended effective August 5, 2002).
	10.18	Third Amendment to Lease Agreement by and between W9/PC Limited Partnership and HNC Software, Inc., dated as of March 27, 2002.
	10.20	Separation Agreement entered into effective as of September 20, 2002, by and between Fair, Isaac and Company, Inc. and Henk J. Evenhuis.
	10.26	Form of Management Agreement entered into as of August 14, 2002, with certain of the Company’s officers.
	10.32	Office Building Lease dated as of December 1, 1993, as amended effective February 1, 1994 and June 1, 1994, between HNC and PacCor Partners. (Previously filed as Exhibit 10.09 to the IPO S-1.)
	10.33	Credit Agreement dated November 1, 2002, by and between Fair, Isaac and Company, Inc. and Wells Fargo Bank, National Association.
	10.36	Lease Agreement dated as of June 17, 1996, between HNC and Williams Properties I, LLC & Williams Properties II, LLC. (Previously filed as Exhibit 10.12 to HNC’s Form 10-K, as amended, for the year ended December 31, 1996.)
	10.47	Employment Agreement entered into effective as of August 5, 2002, by and between Fair, Isaac and Company, Inc. and Kenneth J. Saunders.
	10.48	Nonstatutory Stock Option Agreement with Kenneth J. Saunders entered into as of August 5, 2002. (Included in Exhibit 10.47.)
	10.49	Form of Indemnity Agreement entered into by the Company with the Company’s directors and executive officers.
	10.58	Stock Option Agreement with A. George Battle entered into as of February 5, 2002.
	10.59	Nonstatutory Stock Option Agreement with Thomas Grudnowski entered into as of November 16, 2002.
	10.60	Form of Company’s Nonstatutory Stock Option Agreement effective October 7, 2002.
	21.1	List of Company’s subsidiaries.
	23.1	Consent of KPMG LLP.


                                                                     EXHIBIT 3.1



                                 B Y - L A W S
                                       OF
                      FAIR, ISAAC AND COMPANY, INCORPORATED

                      (as amended effective August 5, 2002)



                                    ARTICLE I

                                     Offices

        1.1 Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.

        1.2 Additional Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.


                                   ARTICLE II

                                  Stockholders

        2.1 Annual Meetings. An annual meeting of stockholders shall be held for
the election of directors and scheduled for the first Tuesday of February of
each year, at 10:00 A.M. or, should such day fall upon a legal holiday, at the
same time on the next business day thereafter that is not a legal holiday, or at
such other date and time as may be designated by the Board of Directors from
time to time. The annual meeting of stockholders may be held at such place
either within or without the State of Delaware, or by means of remote
communication, as may be designated by the Board of Directors from time to time;
in the absence of any such designation, the annual meeting shall be held at the
principal executive offices of the Corporation. At such meeting, the
stockholders shall elect directors and transact such other business as may be
properly brought before the meeting.

        To be properly brought before the annual meeting, business must be
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder of record. In
addition to any other applicable requirements, for business to be properly
brought before the annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered by a nationally recognized
courier service or mailed by first class United States mail, postage or delivery
charges prepaid, and received at the principal executive offices of the
Corporation, addressed to the attention of the Secretary of the Corporation, not
less than 60 days nor more than 90 days prior to the scheduled date of the
meeting (regardless of any



                                      -1-


postponements, deferrals or adjournments of that meeting to a later date);
provided, however, that in the event that the annual meeting is held at a date
other than the first Tuesday of February, or the next business day if such
Tuesday is a legal holiday and less than 70 days' notice or prior public
disclosure of the date of the scheduled meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the earlier of (a) the close of business on the 10th day following
the day on which such notice of the date of the scheduled annual meeting was
mailed or such public disclosure was made, whichever first occurs, and (b) two
days prior to the date of the scheduled meeting. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class, series and number of
shares of the Corporation that are owned beneficially by the stockholder, and
(iv) any material interest of the stockholder in such business. Notwithstanding
anything in these by-laws to the contrary, no business shall be conducted at the
annual meeting except in accordance with the procedures set forth in this
Section 2.1; provided, however, that nothing in this Section 2.1 shall be deemed
to preclude discussion by any stockholder of any business properly brought
before the annual meeting.

        The Chairman of the Board of Directors (or such other person presiding
at the meeting in accordance with Section 2.7 of these by-laws) shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 2.1, and if he or she should so determine, he or she shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted.

        2.2 Special Meetings. Special meetings of stockholders may be called at
any time only by the Chairman of the Board of Directors, if any, the Vice
Chairman of the Board of Directors, if any, the President or the Board of
Directors, to be held at such date, time and place (if any) as may be stated in
the notice of the meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice of the
meeting.

        2.3 Notice of Meetings. Whenever stockholders are required or permitted
to take any action at a meeting, notice of the meeting shall be given in
accordance with Section 2.4 which shall state the place (if any), date and hour
of the meeting, the means of remote communication (if any) by which stockholders
and proxyholders may be deemed to be present in person and vote at such meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise provided by law, the notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.

        2.4 Manner Of Giving Notice. Notice of any meeting of stockholders shall
be given personally, by mail, by electronic transmission or by other written
communication, addressed to the stockholder at the address, number, electronic
mail address or other location of that stockholder appearing on the books of the
Corporation or given by the stockholder to the Corporation for the purpose of
notice. If no such address, number, email address or other location appears on
the Corporation's books or is given, notice shall be deemed to have been given
if sent to that stockholder by mail or telegraphic or other written
communication to the



                                      -2-


Corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or, if sent by electronic transmission, as follows: (i)
if by facsimile telecommunication, when directed to a number at which the
stockholder has consented to receive notice, (ii) if by electronic mail, when
directed to an electronic mail address at which the stockholder has consented to
receive notice, (iii) if by a posting on an electronic network together with
separate notice to the stockholder of such specific posting, upon the later of
(a) such posting and (b) the giving of such separate notice, and (iv) if by any
other form of electronic transmission, when directed to the stockholder.

        An affidavit of mailing or of electronic transmission of any notice or
report in accordance with the provisions of this Section 2.4, executed by the
Secretary, Assistant Secretary or any transfer agent or other agent, shall be
prima facie evidence of the giving of the notice.

        2.5 Adjournments. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place (if any),
and notice need not be given of any such adjourned meeting if the time and place
(if any) thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting the Corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

        2.6 Quorum. At each meeting of stockholders, except where otherwise
provided by law or the certificate of incorporation or these by-laws, the
holders of a majority of the outstanding shares of each class of stock entitled
to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum the stockholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 2.5 of these by-laws until a
quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.

        If authorized by the Board of Directors in its sole discretion, and
subject to such guidelines and procedures as the Board of Directors may adopt,
stockholders and proxyholders not physically present at a meeting of
stockholders may, by means of remote communication:

               (1) participate in a meeting of stockholders; and

               (2) be deemed present in person and vote at a meeting of
        stockholders whether such meeting is to be held at a designated place or
        solely by means of remote communication, provided that (i) the
        Corporation shall implement reasonable measures to



                                      -3-


        verify that each person deemed present and permitted to vote at the
        meeting by means of remote communication is a stockholder or
        proxyholder, (ii) the Corporation shall implement reasonable measures to
        provide such stockholders and proxyholders a reasonable opportunity to
        participate in the meeting and to vote on matters submitted to the
        stockholders, including an opportunity to read or hear the proceedings
        of the meeting substantially concurrently with such proceedings, and
        (iii) if any stockholder or proxyholder votes or takes other action at
        the meeting by means of remote communication, a record of such vote or
        other action shall be maintained by the Corporation.

        2.7 Organization. Meetings of stockholders shall be presided over by the
Chairman of the Board of Directors, if any, or in the absence of the Chairman of
the Board of Directors by the President, or in the absence of the President by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, or in the absence of the Secretary by an Assistant Secretary, or in
their absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.

        2.8 Voting; Proxies. Unless otherwise provided in the certificate of
incorporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by such stockholder
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for such stockholder by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting, whether in person or by
other means provided for in these by-laws or the certificate of incorporation,
and voting or by filing an instrument in writing revoking the proxy or another
duly executed proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and need not be
conducted by inspectors unless the holders of a majority of the outstanding
shares of all classes of stock entitled to vote thereon present in person or by
proxy at such meeting shall so determine. If authorized by the Board of
Directors, votes may be submitted by electronic transmission, provided that any
such electronic transmission must either set forth or be submitted with
information from which it can be determined that the electronic transmission was
authorized by the stockholder or proxyholder. At all meetings of stockholders
for the election of directors a plurality of the votes cast shall be sufficient
to elect. With respect to other matters, unless otherwise provided by law or by
the certificate of incorporation or these by-laws, the affirmative vote of the
holders of a majority of the shares of all classes of stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, provided that (except as otherwise
required by law or by the certificate of incorporation) the Board of Directors
may require a larger vote upon any such matter. Where a separate vote by class
is required, the affirmative vote of the holders of a majority of the shares of
each class present in person or represented by proxy at the meeting shall be the
act of such class, except as otherwise provided by law or by the certificate of
incorporation or these by-laws.



                                      -4-


        2.9 Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.

        2.10 List of Stockholders Entitled To Vote. The Secretary shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Nothing contained herein
shall require the Corporation to include electronic mail address or other
electronic contact information on such list. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting for a
period of at least ten days prior to the meeting: (i) on a reasonably accessible
electronic network, provided that the information required to gain access to
such list is provided with the notice of the meeting, or (ii) during ordinary
business hours at the principal place of business of the Corporation. In the
event the meeting is to be held at a place, the list shall be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. If the meeting is to be held solely
by means of remote communication, then the list shall also be open to
examination of any stockholder during the whole time of the meeting on a
reasonably accessible electronic network, and the information required to access
such list shall be provided with the notice of the meeting.

        2.11 Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the certificate of incorporation, any action required by law to be
taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.



                                      -5-


                                   ARTICLE III

                               Board of Directors

         3.1 Powers; Number; Qualifications. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The number of directors which shall constitute the Board of
Directors shall be nine (9). Directors need not be stockholders.

        3.2 Election; Term of Office; Resignation; Removal; Vacancies;
Nominations. Each director shall hold office until the annual meeting of
stockholders next succeeding his or her election and until his or her successor
is elected and qualified or until his or her earlier resignation or removal. Any
director may resign at any time upon notice in writing or electronic
transmission to the Board of Directors or to the President or the Secretary of
the Corporation. Such resignation shall take effect at the time specified
therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. Any director or the entire
Board of Directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors. Unless
otherwise provided in the certificate of incorporation or these by-laws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors or from any other cause may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director.

        Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election to the Board of Directors at the annual meeting, by or at the
direction of the Board of Directors, may be made by any Nominating Committee or
person appointed by the Board of Directors; nominations may also be made by any
stockholder of record of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 3.2. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered by a nationally recognized courier service or mailed by first class
United States mail, postage or delivery charges prepaid, and received at the
principal executive offices of the Corporation addressed to the attention of the
Secretary of the Corporation not less than 60 days nor more than 90 days prior
to the scheduled date of the meeting (regardless of any postponements, deferrals
or adjournments of that meeting to a later date); provided, however, that, in
the case of an annual meeting and in the event that the annual meeting is held
at a date other than the first Tuesday of February, or the next business day if
such Tuesday is a legal holiday and less than 70 days' notice or prior public
disclosure of the date of the scheduled meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the earlier of (a) the close of business on the 10th day following
the day on which such notice of the date of the scheduled meeting was mailed or
such public disclosure was made, whichever first occurs, or (b) two days prior
to the date of the scheduled meeting. Such stockholder's notice to the Secretary
shall set forth (a) as to each



                                      -6-


person whom the stockholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class, series and number of shares of capital stock of the Corporation that are
owned beneficially by the person, (iv) a statement as to the person's
citizenship, and (v) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder; and (b) as to the stockholder
giving the notice, (i) the name and record address of the stockholder and (ii)
the class, series and number of shares of capital stock of the Corporation that
are owned beneficially by the stockholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth herein.

        In connection with any annual meeting, the Chairman of the Board of
Directors (or such other person presiding at such meeting in accordance with
Section 2.7 of these by-laws) shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he or she should so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.

        3.3 Regular meetings. Regular meetings of the Board of Directors may be
held at such places within or without the State of Delaware and at such times as
the Board of Directors may from time to time determine, and if so determined
notice thereof need not be given.

        3.4 Special Meetings. Special meetings of the Board of Directors may be
held at any time or place within or without the State of Delaware whenever
called by the Chairman of the Board of Directors, if any, by the Vice Chairman
of the Board of Directors, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.

        3.5 Participation in Meetings by Conference Telephone Permitted. Unless
otherwise restricted by the certificate of incorporation or these by-laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or of such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.

        3.6 Quorum; Vote Required for Action. At all meetings of the Board of
Directors one third of the entire Board of Directors, but not less than two
shall constitute a quorum for the transaction of business. The vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless the certificate of
incorporation or these by-laws shall require a vote of a greater number. In case
at any meeting of the Board of Directors a quorum shall not be present, the
members of the Board of Directors present may adjourn the meeting from time to
time until a quorum shall attend.



                                      -7-


        3.7 Organization. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board of Directors, if any, or in the absence of the
Chairman of the Board of Directors by the Vice Chairman of the Board of
Directors, if any, or in the absence of the Vice Chairman of the Board of
Directors by the President, or in their absence by a chairman chosen at the
meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting.

        3.8 Action by Directors Without a Meeting. Unless otherwise restricted
by the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing
or electronic transmission, and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the
Board of Directors or committee. All such actions by written consent or
electronic transmission shall have the same force and effect as a unanimous vote
of such directors.

        3.9 Compensation of Directors. The Board of Directors shall have the
authority to fix the compensation of directors.


                                   ARTICLE IV

                                   Committees

        4.1 Executive Committee. The Board of Directors may, by resolution
approved by at least a majority of the authorized number of directors, establish
and appoint one or more members of the Board of Directors to constitute an
Executive Committee (the "Executive Committee"), with such powers as may be
expressly delegated to it by resolution of the Board of Directors. The Executive
Committee shall act only in the intervals between meetings of the Board of
Directors and shall be subject at all times to the control of the Board of
Directors.

        4.2 Committees. In addition to the Executive Committee, the Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate one or more other committees, each committee to consist of
one or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
power or authority in reference to amending the certificate of incorporation
(except that a committee may, to the



                                      -8-


extent authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors as provided in Section 151(a)
of the General Corporation Law of Delaware fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation), adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, removing or indemnifying directors or amending these
by-laws; and, unless the resolution expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock or adopt a certificate of ownership and merger.

        4.3 Committee Rules. Unless the Board of Directors otherwise provides,
the committee designated by the Board of Directors may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board of Directors or a provision in the rules of such committee to the
contrary, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, the vote of
a majority of the members present at a meeting at the time of such vote if a
quorum is then present shall be the act of such committee, and in other respects
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these by-laws.


                                    ARTICLE V

                                    Officers

        5.1 Officers; Election. As soon as practicable after the annual meeting
of stockholders in each year, the Board of Directors shall elect a President and
a Secretary, and it may, if it so determines, elect from among its members a
Chairman of the Board of Directors. The Board of Directors may also elect one or
more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such
other officers as the Board of Directors may deem desirable or appropriate and
may give any of them such further designations or alternate titles as it
considers desirable. Any number of offices may be held by the same person;
provided, however, that the offices of President and Secretary shall not be held
by the same person.

        5.2 Term of Office; Resignation; Removal; Vacancies. Except as otherwise
provided in the resolution of the Board of Directors electing any officer, each
officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding his or her election,
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Board of Directors or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. The Board of Directors



                                      -9-


may remove any officer with or without cause at any time. Any such removal shall
be without prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled for the unexpired portion
of the term by the Board of Directors at any regular or special meeting.

        5.3 Powers and Duties. The officers of the Corporation shall have such
powers and duties in the management of the Corporation as shall be stated in
these by-laws or in a resolution of the Board of Directors which is not
inconsistent with these by-laws and, to the extent not so stated, as generally
pertain to their respective offices, subject to the control of the Board of
Directors. The Board of Directors may require any officer, agent or employee to
give security for the faithful performance of his or her duties.

        5.4 Chairman of the Board of Directors. The Chairman of the Board of
Directors, if there shall be such an officer, shall, if present, preside at all
meetings of the Board of Directors and exercise and perform such other powers
and duties as may be from time to time assigned to him by the Board of Directors
or prescribed by the by-laws.

        5.5 President. The President shall be the chief executive officer of the
Corporation. Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board of Directors, if there be such
an officer, and subject to the provisions of these by-laws and to the direction
of the Board of Directors, the President shall have supervision over and may
exercise general executive powers of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of chief executive or which are delegated to him by the Board of
Directors. He shall have power to sign all stock certificates, contracts and
other instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation. The President shall be ex officio, a member of all the standing
committees, including the Executive Committee. In the absence of the Chairman of
the Board of Directors, the President shall preside at all meetings of the Board
of Directors.

        5.6 Vice President. In the absence of the President or in his inability
or refusal to act, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, then in the order of their election) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.

        5.7 Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an Assistant Secretary, shall have
authority to affix the same to any instrument



                                      -10-


requiring it and when so affixed, it may be attested by his signature or by the
signature of such Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.

        5.8 Assistant Secretary. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.

        5.9 Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.

        5.10 Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.


                                   ARTICLE VI

                                      Stock

        6.1 Certificates. The shares of stock of the Corporation shall either be
represented by certificates or uncertificated, as determined by the Board of
Directors; provided, however, that every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or any Assistant Secretary, of the Corporation,
certifying the number of shares owned by such holder in the Corporation. If such
certificate is manually signed by one officer or manually countersigned by a
transfer agent or by a registrar, any other signature on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.



                                      -11-


        Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the Corporation in the case
of uncertificated partly paid shares, shall be set forth the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
If the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

        6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.

        6.3 Transfer of Stock. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfer of uncertificated shares of stock shall be
made on the books of the Corporation upon receipt of proper transfer
instructions from the registered owner of the uncertificated shares, an
instruction from an approved source duly authorized by such owner or from an
attorney lawfully constituted in writing. The Corporation may impose such
additional conditions to the transfer of its stock as may be necessary or
appropriate for compliance with applicable law or to protect the Corporation, a
transfer agent or the registrar from liability with respect to such transfer.

        6.4 Fixing Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.



                                      -12-


        6.5 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.


                                   ARTICLE VII

                                  Miscellaneous

        7.1 Fiscal Year. The fiscal year of the Corporation shall be determined
by the Board of Directors.

        7.2 Seal. The Corporation may have a corporate seal which shall have the
name of the Corporation inscribed thereon and shall be in such form as may be
approved from time to time by the Board of Directors. The corporate seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.

        7.3 Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.

        7.4 Interested Directors; Quorum. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized,



                                      -13-


approved or ratified, by the Board of Directors, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.

        7.5 Amendment of By-Laws. These by-laws may be amended or repealed, and
new by-laws adopted, by the Board of Directors, but the stockholders entitled to
vote may adopt additional by-laws and may amend or repeal any by-law whether or
not adopted by them.



                                      -14-


                                                                   EXHIBIT 10.18



                            THIRD AMENDMENT TO LEASE

        THIS THIRD AMENDMENT TO LEASE ("AMENDMENT") is made and entered into as
of ___________________, 2002, by and between W9/PC LIMITED PARTNERSHIP, a
Delaware limited partnership ("LANDLORD") and HNC SOFTWARE, INC., a Delaware
corporation ("TENANT").

                                   RECITALS:

        A. WHEREAS, Williams Properties I, LLC and Williams Properties II, LLC
(collectively, the "ORIGINAL LANDLORD"), and Tenant entered into that certain
Lease dated as of June 17, 1996 (the "ORIGINAL LEASE"), as amended by that
certain First Amendment to Lease dated as of October 28, 1997 by and between
Original Landlord and Tenant ("FIRST AMENDMENT") and by that certain Second
Amendment to Lease dated as of April 13, 1998 by and between Landlord as
successor-in-interest to Original Landlord and Tenant ("SECOND AMENDMENT")
whereby Original Landlord leased to Tenant and Tenant leased from Original
Landlord office space located in the building known as Cornerstone Plaza located
at 6020 Cornerstone Court West, San Diego, California 92121. The Original Lease,
as amended by the First Amendment and the Second Amendment may be collectively
referred to herein as the "LEASE".

        B. WHEREAS, by this Amendment, Landlord and Tenant desire to correct the
name of the Landlord; and

        C. WHEREAS, unless otherwise defined herein, capitalized terms as used
herein shall have the same meanings as given thereto in the Lease.

        NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:


                                   AGREEMENT:


        1. Landlord's name is hereby amended and corrected to read as follows:
"W9/PC LIMITED PARTNERSHIP, a Delaware limited partnership" wherever Landlord's
name appears in the Lease.


                         [signatures on following page]



        IN WITNESS WHEREOF, this Amendment has been executed as of the day and
year first above written.

"LANDLORD"                      W9/PC LIMITED PARTNERSHIP,
                                a Delaware limited partnership

                                By: W9/PC, Inc., a Delaware corporation,
                                    general partner

                                    By:
                                        ----------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                              ----------------------------------

                                    By:
                                        ----------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                              ----------------------------------


"TENANT"                        HNC SOFTWARE, INC.,
                                a Delaware corporation


                                By:  /s/ MARY BURNSIDE
                                    --------------------------------------------
                                Print Name: Mary Burnside
                                           -------------------------------------
                                    Title:  COO
                                          --------------------------------------

                                By:
                                    --------------------------------------------
                                Print Name:
                                           -------------------------------------
                                    Title:
                                          --------------------------------------




                                      -2-


                                                                   EXHIBIT 10.20




                              SEPARATION AGREEMENT

               THIS SEPARATION AGREEMENT (this "Agreement") is made and entered
into on September 20, 2002 by and between Henk J. Evenhuis, a California
resident ("Evenhuis"), and Fair, Isaac and Company, Incorporated, a Delaware
corporation (the "Company").

                                   BACKGROUND

               A. Evenhuis is employed by the Company as Vice President, Finance
and Chief Accounting Officer.

               B. The parties have agreed that it is in their mutual interests
that Evenhuis resign from his position as Vice President, Finance and Chief
Accounting Officer, effective January 1, 2003.

               C. After such resignation, the Company desires to continue to
employ Evenhuis through April 30, 2003 on a reduced basis to assist with the
performance of certain financial responsibilities for the Company and to
transition his responsibilities to other Company personnel.

               D. The parties are concluding their employment relationship
amicably, but mutually recognize that such a transition and relationship may
give rise to potential claims or liabilities.

               E. The parties expressly deny that they may be liable to each
other on any basis or that they have engaged in any unlawful or improper conduct
toward each other or treated each other unfairly.

               F. The parties have agreed to a full settlement of all issues now
in dispute between them.



               NOW THEREFORE, in consideration of the mutual promises and
provisions contained in this Agreement and in the Evenhuis Release referred to
below, the parties, intending to be legally bound, agree as follows:

                                   AGREEMENTS

               1. RELEASE OF CLAIMS BY EVENHUIS. At the same time Evenhuis
executes this Agreement, he also will execute a Release, in the form attached to
this Agreement as Exhibit A (the "Evenhuis Release"), in favor of the Company
and its affiliates, divisions, committees, directors, officers, employees,
agents, predecessors, successors, and assigns. This Agreement will not be
interpreted or construed to limit the Evenhuis Release in any manner. The
existence of any dispute respecting the interpretation of this Agreement or the
alleged breach of this Agreement will not nullify or otherwise affect the
validity or enforceability of the Evenhuis Release.

               2. RESIGNATIONS. By executing this Agreement, Evenhuis confirms
his resignation as an officer of the Company effective January 1, 2003. Evenhuis
further confirms his resignation as an employee of the Company, effective as of
the end of the Transition Period (as defined below). The Company confirms its
acceptance of Evenhuis's resignations. At the same time he signs this Agreement,
Evenhuis will also sign a letter affirming his resignation as an officer of the
Company and as an employee, in the form attached to this Agreement as Exhibit B.

               3. TRANSITION PERIOD. Evenhuis and the Company agree that
Evenhuis's employment as Vice President, Finance and Chief Accounting Officer,
will end on January 1, 2003. The Company will continue to employ Evenhuis from
January 1, 2003 through April 30, 2003, or until such earlier date that
Evenhuis's employment ends pursuant to subparagraph 3.e.



                                       2


below (the "Transition Period"), only if: (i) Evenhuis has not revoked this
Agreement or the Evenhuis Release within the applicable revocation period set
forth in paragraph 21 below; (ii) Evenhuis is in material compliance with the
terms of paragraph 14 of this Agreement, the Evenhuis Release, the
Non-Disclosure Agreement between Evenhuis and the Company dated October 20, 1999
(the "Non-Disclosure Agreement"), and the Customer Information Confidentiality
Agreement between Evenhuis and the Company dated October 20, 1999 (the "Customer
Confidentiality Agreement").

               4. DUTIES.

               a. From the date hereof through December 31, 2002, the Company
will employ Evenhuis and Evenhuis will serve the Company in a transition role
which will include but not be limited to, providing assistance to the Company
for the preparation and filing of the Company annual report on Form 10-K for the
Company's 2002 fiscal year with the Securities and Exchange Commission on or
before the due date (the "Filing") and any certifications of the Filing required
by law. Such assistance will include but is not limited to, signing management
representation letters to outside auditors and internal company personnel; and
providing certifications and participating in reviews of past filings and all
other reviews deemed necessary by the Company to prepare the Filing so that it
complies with generally accepted accounting principles and meets the attestation
standards for certifications required by applicable law.

               b. During the Transition Period, the Company will employ Evenhuis
and Evenhuis will serve the Company in a transition role assisting the Company
as requested in connection with the completion and transition of his
responsibilities as Vice President, Finance and Chief Accounting Officer for the
Company.



                                       3


               c. From the date hereof through December 31, 2002, Evenhuis will
be employed by the Company on a full-time basis. During the Transition Period,
Evenhuis will be employed by the Company on a reduced time basis equal to ten
percent (10%) of a full-time position; and Evenhuis's duties and hours will be
as directed by the Company from time to time consistent with his reduced hours
and subparagraph 4.b above.

               5. SALARY. While he is employed from the date hereof through
December 31, 2002, Evenhuis will be paid a salary on a bi-weekly basis in
arrears based on an annual rate of $245,000; and while he is employed during the
Transition Period, will be paid on a bi-weekly basis in arrears based on an
annual rate of $24,500. Evenhuis acknowledges that if Company's current payroll
practices change during the above-stated periods, his salary will be payable at
such other intervals and in such amounts in accordance with the then-customary
payroll practices of Company for the payment of its employees.

               6. BONUS. Evenhuis will not receive any bonus payment under the
Company's FY03 Management Incentive Plan for the first quarter of fiscal year
2003 or for any time worked during the Transition Period.

               7. BENEFITS. While he is employed during the Transition Period,
Evenhuis will receive such employee benefits as are made generally available to
other employees of the Company, subject to the eligibility requirements and
other terms and conditions of the applicable plans or programs. So long as
Evenhuis remains a full-time employee of the Company, through December 31, 2002,
he will be eligible to continue his participation in the Company's group
medical, dental and life insurance plans. Thereafter, he will be eligible to
continue such group coverages at his own expense in accordance with the
applicable laws and plans. Evenhuis will not be eligible for any benefit plans
or programs of the Company after December 31, 2002,



                                       4


except to the extent specifically permitted for part-time employees under the
terms and conditions of such plans or programs.

               8. STOCK OPTIONS. Evenhuis agrees and acknowledges that the
options listed in this paragraph below are his only options to purchase shares
of the Company's Common Stock and that such options are exercisable as of the
date of this Agreement in accordance with the terms of, and only to the extent
provided for, in the CFO Option Plan and the Company's 1992 Long-Term Incentive
Plan (the "Plans") and the applicable option agreements. Evenhuis further agrees
and acknowledges that additional options may become exercisable during the
Transition Period if his employment continues through April 30, 2003, and that
his reduced-time status will not affect the vesting of options under the Plans
and the applicable option agreements. Evenhuis further agrees and acknowledges
that all of his options to purchase the Company's Common Stock will lapse and
cease to be outstanding as of 90 days after the termination of his employment
with the Company, except as expressly provided in the Plans and the applicable
option agreements unless previously exercised in accordance with the terms of
the Plans and the applicable option agreements.



                    Date of         Exercise         Number of
                     Grant            Price            Shares
                ----------------    ----------     ---------------
                                             
                   10/19/99         $14.5278           56,250
                    4/4/00          $16.3333           43,875
                    4/24/01         $27.1111           22,500


               9. EARLY TERMINATION OF EMPLOYMENT. Evenhuis and the Company
agree that Evenhuis's employment with the Company shall continue through April
30, 2003 in accordance with the terms and conditions of this Agreement, except
that such employment will end earlier if (i) Evenhuis resigns or abandons his
employment, (ii) Evenhuis dies, (iii) the



                                       5


Company notifies Evenhuis of termination of Evenhuis's employment for material
breach by Evenhuis of the terms of this Agreement, the Non-Disclosure Agreement,
or the Customer Confidentiality Agreement, (iv) the Company notifies Evenhuis of
termination of Evenhuis's employment for willful refusal by Evenhuis to perform
reasonable duties or responsibilities requested by the Company, or (v) the
Company notifies Evenhuis of termination of Evenhuis's employment for unlawful
conduct or gross misconduct by Evenhuis that is willful and deliberate on
Evenhuis's part and that, in either event, is materially injurious to the
reputation or financial interests of the Company.

               10. RETIREMENT PLANS. To the extent that Evenhuis is currently a
participant in any retirement, pension, or profit sharing plans of the Company,
Evenhuis will be entitled to begin drawing his benefits at the times and under
the terms and conditions set forth in any such plan.

               11. PAID TIME OFF. The Company will pay Evenhuis for any earned
but unused paid time off as of December 31, 2002, in accordance with the
Company's regular policies and practices. Evenhuis acknowledges that he will not
accrue any paid time off after December 31, 2002.

               12. EXPENSE REIMBURSEMENT. The Company will reimburse Evenhuis
for his regular and necessary business expenses incurred through the Transition
Period according to the Company's regular policies and practices. Evenhuis will
submit all requests for reimbursement to the Company no later than May 15, 2003.

               13. FUTURE REFERENCES. It is Evenhuis's responsibility to direct
or cause to be directed all future official requests for references concerning
him to the Vice President, Human Resources, of the Company, who will respond to
such requests by confirming the dates of



                                       6


Evenhuis's employment, identifying the position he held, describing his duties
and responsibilities, and, at his request, confirming his base salary.

               14. NON-DISCLOSURE AND NON-SOLICITATION AGREEMENTS.

               a. PROPRIETARY INFORMATION. During his employment with the
Company and after termination of such employment, Evenhuis will not divulge,
furnish, or make accessible to anyone or use in any way (other than in the
ordinary course of the business of the Company) any Proprietary Information of
the Company that Evenhuis has acquired during the period of his employment by
the Company, whether developed by himself or by others. "Proprietary
Information" means all things tangible and intangible in which the Company has
an actual or claimed property or other right and shall include, but not
necessarily be limited to, ideas, inventions, discoveries, computer languages,
computer programs, information of any type stored in computer usable form, any
data, information, program or materials input on a Company computer, records,
files, drawings, documents, equipment, lists of customers, either current, past
or prospective, mailing or address lists, financial data, strategic plans, or
marketing or sales plans, not otherwise known to the public, and irrespective of
whether any or all of these shall be protected by copyright, patent, or any
other process. Evenhuis acknowledges that the above-described Proprietary
Information constitutes a unique and valuable asset of the Company and
represents a substantial investment of time and expense by the Company, and that
any disclosure or other use of such knowledge or information other than for the
sole benefit of the Company would be wrongful and would cause irreparable harm
to the Company. The foregoing obligations of confidentiality will not apply to
any knowledge or information that (i) is now or subsequently becomes generally
publicly known, other than as a direct or indirect result of the breach by
Evenhuis of this Agreement or of the Non-Disclosure Agreement, (ii) is
independently



                                       7


made available to Evenhuis in good faith by a third party who has not violated a
confidential relationship with the Company, or (iii) is required to be disclosed
by law or legal process. Evenhuis further acknowledges and affirms his
continuing obligation to comply with the terms and conditions of the
Non-Disclosure Agreement. Evenhuis understands and agrees that his obligations
under this paragraph to maintain the confidentiality of the Company's
Proprietary Information are in addition to any obligations he has under
applicable statutory or common law.

               b. CUSTOMER INFORMATION. During his employment with the Company
and after termination of such employment, Evenhuis will not divulge, furnish, or
make accessible to anyone or use in any way any data provided to the Company by
a customer of the Company. Evenhuis further acknowledges and affirms his
continuing obligation to comply with the terms and conditions of the Customer
Confidentiality Agreement.

               c. AGREEMENT NOT TO HIRE. For a period of 12 consecutive months
after Evenhuis's employment with the Company ends, Evenhuis will not, directly
or indirectly, hire, engage, or solicit any person who is an employee of the
Company or who was an employee of the Company at any time during the 180-day
period immediately preceding the date Evenhuis's employment ends, in any manner
or capacity, including without limitation as a proprietor, principal, agent,
partner, officer, director, stockholder, employee, member of any association,
consultant, or otherwise.

               d. ACKNOWLEDGMENT. Evenhuis agrees that the restrictions and
agreements contained in this paragraph 14 are reasonable and necessary to
protect the legitimate interests of the Company and that any violation of this
paragraph 14 will cause substantial and irreparable harm to the Company that
would not be quantifiable and for which no adequate remedy would



                                       8


exist at law and accordingly injunctive relief will be available for any
violation of this paragraph 14.

               e. BLUE PENCIL DOCTRINE. If the duration or geographical extent
of this paragraph 14 are in excess of what is valid and enforceable under
applicable law, such provision will be construed to cover only that duration,
geographical extent, or activities that are valid and enforceable. Evenhuis
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this paragraph 14 be given the construction which renders its provisions
valid and enforceable to the maximum extent (not exceeding its express terms)
possible under applicable laws.

               15. MUTUAL CONFIDENTIALITY.

               a. GENERAL STANDARD. It is the intent of the parties that the
        terms of Evenhuis's separation from the Company, including the
        provisions of this Agreement and the Evenhuis Release (collectively
        "Confidential Separation Information"), will be forever treated as
        confidential. Accordingly, Evenhuis will not disclose Confidential
        Separation Information to anyone at any time, except as provided in
        subparagraph 15.b. below.

               b. EXCEPTIONS.

                      i. It will not be a violation of this Agreement for
                      Evenhuis to disclose Confidential Separation Information
                      in reports to governmental agencies as required by law,
                      including, but not limited to, any federal or state tax
                      authority.



                                       9


                      ii. It will not be a violation of this Agreement for
                      Evenhuis to disclose Confidential Separation Information
                      to his wife, his immediate family, his attorneys, his
                      accountants or tax advisors.

                      iii. It will not be a violation of this Agreement for
                      Evenhuis to disclose to employers and/or prospective
                      employers that he is constrained from certain activities
                      as a result of the terms of subparagraphs 14.a., 14.b., or
                      14.c. Nor will it be a violation of this Agreement for
                      Evenhuis to inform Company employees who ask him about
                      employment opportunities outside the Company that the
                      terms of paragraph 14.c. of this Agreement preclude him
                      from engaging in certain activities that could interfere
                      with their employment with the Company.

                      iv. It will not be a violation of this Agreement for
                      Evenhuis to disclose Confidential Separation Information
                      in connection with any litigation involving the parties'
                      rights or obligations under this Agreement or the Evenhuis
                      Release.

               10. NON-DISPARAGEMENT. Evenhuis will not at any time disparage,
defame, or besmirch the reputation, character, image, products, or services of
the Company, or the reputation or character of its directors, officers,
employees, or agents.

               11. CLAIMS INVOLVING THE COMPANY. Evenhuis will not recommend or
suggest to any potential claimants or plaintiffs or their attorneys or agents
that they initiate claims or lawsuits against the Company, any of its affiliates
or divisions, or any of its or their directors, officers, employees, or agents,
nor will Evenhuis voluntarily aid, assist, or cooperate with any claimants or
plaintiffs or their attorneys or agents in any claims or lawsuits now pending or



                                       10


commenced in the future against the Company, any of its affiliates or divisions,
or any of its or their directors, officers, employees, or agents; provided,
however, that this Agreement will not be interpreted or construed to prevent
Evenhuis from giving testimony in response to questions asked pursuant to a
legally enforceable subpoena, deposition notice, or other legal process, during
any legal proceedings or arbitrations involving the Company, any of its
affiliates or divisions, or any of its or their directors, officers, employees,
or agents.

               12. RECORDS, DOCUMENTS, AND PROPERTY. Evenhuis hereby represents
that, on or before the date his employment ends, he will deliver to the Company
any and all Company records and any and all Company property in his possession
or under his control, including without limitation manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, printouts, computer
disks, computer tapes, source codes, data, tables, calculations, or copies
thereof, all trade secrets and confidential information of the Company,
including, but not limited to, all documents that in whole or in part contain
any trade secrets or confidential information of the Company, and all equipment,
vehicles, personal computers, laptops, printers, telephones, and pagers, which
in any of such cases are in his possession or under his control.

               13. EVENHUIS'S REPRESENTATIONS. Evenhuis hereby represents that,
during the entire period that he was an employee or officer of the Company, he
acted in good faith, had no reasonable cause to believe that his conduct was
unlawful, and reasonably believed that his conduct was in the best interests of
the Company. Evenhuis represents and agrees that he will continue to carry out
his duties as an employee of the Company in good faith, using his best efforts
and abilities, and acting in the best interests of the Company.



                                       11


               14. TIME TO CONSIDER AGREEMENT. Evenhuis understands that he may
take at least 21 calendar days to decide whether to sign this Agreement and the
Evenhuis Release, which 21-day period will commence on the day after the date on
which Evenhuis first received copies of this Agreement and the Evenhuis Release
for review. Evenhuis represents that if he signs this Agreement and the Evenhuis
Release before the expiration of the 21-day period, it is because he has decided
that he does not need any additional time to decide whether to sign this
Agreement and the Evenhuis Release. Evenhuis also acknowledges that any changes
made to this Agreement or the Evenhuis Release before he executes either of
them, whether such changes are material or immaterial, will not cause the 21-day
period to commence again.

               15. RIGHT TO RESCIND OR REVOKE. Evenhuis understands that he has
the right to rescind or revoke this Agreement and the Evenhuis Release for any
reason within seven (7) calendar days after he signs them. Evenhuis understands
that this Agreement and the Evenhuis Release will not become effective or
enforceable unless and until he has not revoked this Agreement and the Evenhuis
Release and the revocation period has expired. Evenhuis understands that if he
wishes to rescind, the revocation must be in writing and hand-delivered or
mailed to the Company. If hand-delivered, the revocation must be (a) addressed
to the Company, c/o Richard Deal, Vice President, Human Resources, 4295
Lexington Avenue North, St. Paul, MN 55126-6164, and (b) delivered to Richard
Deal within the seven-day period. If mailed, the revocation must be: (a)
postmarked within the seven-day period; and (b) addressed to Richard Deal, Vice
President, Human Resources, 4295 Lexington Avenue North, St. Paul, MN
55126-6164.

               16. FULL COMPENSATION. Evenhuis understands that the continued
employment and other consideration provided by the Company under this Agreement
will fully



                                       12


compensate Evenhuis for and extinguish any and all of the potential claims
Evenhuis is releasing in the Evenhuis Release, including, but not limited to,
his claims for attorneys' fees and costs and any and all claims for any type of
legal or equitable relief.

               17. NO ADMISSION OF WRONGDOING. Evenhuis understands that this
Agreement does not constitute an admission that the Company has violated any
local ordinance, state or federal statute, or principle of common law, that the
Company has engaged in any unlawful or improper conduct toward Evenhuis, or that
the Company has treated Evenhuis unfairly. Evenhuis will not characterize this
Agreement or the payment of any money or other consideration in accordance with
this Agreement as an admission that the Company has engaged in any unlawful or
improper conduct toward him or treated him unfairly.

               18. AUTHORITY. Evenhuis represents and warrants that he has the
authority to enter into this Agreement and the Evenhuis Release, and that no
causes of action, claims, or demands released pursuant to this Agreement and the
Evenhuis Release have been assigned to any person or entity not a party to this
Agreement and the Evenhuis Release.

               19. REPRESENTATION. Evenhuis hereby acknowledges that he has been
advised by the Company to consult with his own attorney before executing this
Agreement and the Evenhuis Release, that he has had the opportunity to be
represented by his own attorney in this matter, that he has had a full
opportunity to consider this Agreement and the Evenhuis Release, that he has had
a full opportunity to ask any questions that he may have concerning this
Agreement, the Evenhuis Release, or the settlement of his potential claims
against the Company, and that he has not relied upon any statements or
representations made by the Company or its attorneys, written or oral, other
than the statements and representations that are explicitly set forth in this
Agreement, the CFO Plan, the 1992 Long-Term Incentive Plan, any written stock



                                       13


option agreement between Evenhuis and the Company, and any other employee
benefit plans or programs sponsored by the Company in which Evenhuis is a
participant.

               20. SUCCESSORS AND ASSIGNS. This Agreement is binding on Evenhuis
and on the Company and its successors and assigns. The rights and obligations of
the Company under this Agreement may be assigned to a successor, including, but
not limited to, a purchaser of substantially all the business or assets of the
Company. No rights or obligations of Evenhuis hereunder may be assigned by
Evenhuis to any other person or entity.

               21. INVALIDITY. In the event that any provision of this Agreement
or the Evenhuis Release is determined by a court of competent jurisdiction to be
invalid, illegal, or unenforceable in any respect, such a determination will not
affect the validity, legality, or enforceability of the remaining provisions of
this Agreement or the Evenhuis Release, and the remaining provisions of this
Agreement and the Evenhuis Release will continue to be valid and enforceable,
and any court of competent jurisdiction may modify the objectionable provision
so as to make it valid and enforceable.

               22. ENTIRE AGREEMENT. Before signing this Agreement and the
Evenhuis Release, the parties engaged in discussions and generated certain
documents, in which the parties considered the matters that are the subject of
this Agreement and the Evenhuis Release. In such discussions and documents, the
parties may have expressed their judgments and beliefs concerning the
intentions, capabilities, and practices of the parties, and may have forecast
future events. The parties recognize, however, that all business transactions,
including the transactions upon which the parties' judgments, beliefs, and
forecasts are based, contain an element of risk, and that it is normal business
practice to limit the legal obligations of contracting parties only to those
promises and representations that are essential to the transaction so as to
provide certainty



                                       14


as to their respective future rights and remedies. Accordingly, this Agreement,
the Evenhuis Release, the 1992 Long-Term Incentive Plan, any written stock
option agreement between Evenhuis and the Company, the Non-Disclosure Agreement,
the Customer Confidentiality Agreement, and any employee benefit plans or
programs sponsored by the Company in which Evenhuis is a participant are
intended to define the full extent of the legally enforceable contractual
undertakings of the parties, and no promises or representations, written or
oral, that are not set forth explicitly in this Agreement, the Evenhuis Release,
the CFP Plan, the 1992 Long-Term Incentive Plan, any written stock option
agreement between Evenhuis and the Company, the Non-Disclosure Agreement, the
Customer Confidentiality Agreement, or any employee benefit plans or programs
sponsored by the Company in which Evenhuis is a participant are intended by
either party to be legally binding, and all other agreements and understandings
between the parties are hereby superseded.

               23. REMEDIES. Evenhuis acknowledges that it would be difficult to
fully compensate the Company for damages resulting from any breach by him of the
provisions of paragraph 14 of this Agreement. Accordingly, in the event of any
actual or threatened breach of such provisions, the Company will (in addition to
any other remedies it may have) be entitled to temporary and/or permanent
injunctive and other equitable relief to enforce such provisions, and such
relief may be granted without the necessity of proving actual damages.

               24. AMENDMENTS. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.

               25. NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, except by a statement in writing signed by the party
against whom enforcement of the waiver is sought. Any written waiver shall not
be deemed a continuing



                                       15


waiver unless specifically stated, shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or condition for
the future or as to any act other than that specifically waived.

               26. HEADINGS. The descriptive headings of the paragraphs and
subparagraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.

               27. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.

               28. GOVERNING LAW. This Agreement and the Evenhuis Release will
be interpreted and construed in accordance with, and any dispute or controversy
arising from any breach or asserted breach of this Agreement or the Evenhuis
Release will be governed by, the laws of the State of California.

           IN WITNESS WHEREOF, the parties have executed this Agreement on the
date stated above.


                                         /s/ Henk J. Evenhuis
                                        ----------------------------------------
                                        HENK J. EVENHUIS



                                        FAIR, ISAAC AND COMPANY, INCORPORATED


                                        BY: /s/ Richard S. Deal
                                            ------------------------------------
                                            Its Vice President, Human Resources



                                       16


                                    EXHIBIT A

                           RELEASE BY HENK J. EVENHUIS

DEFINITIONS. I intend all words used in this Release to have their plain
meanings in ordinary English. Specific terms that I use in this Release have the
following meanings:

        A.     I, me, and my include both me and anyone who has or obtains any
               legal rights or claims through me.

        B.     FIC means Fair, Isaac and Company, Incorporated, any company
               related to Fair, Isaac and Company, Incorporated in the present
               or past (including without limitation, its predecessors, parents,
               subsidiaries, affiliates, joint venture partners, and divisions),
               and any successors of Fair, Isaac and Company, Incorporated.

        C.     Company means FIC; the present and past officers, directors,
               committees, shareholders, and employees of FIC; any company
               providing insurance to FIC in the present or past; the present
               and past fiduciaries of any employee benefit plan sponsored or
               maintained by FIC (other than multiemployer plans); and anyone
               who acted on behalf of FIC or on instructions from FIC.

        D.     Agreement means the Separation Agreement between FIC and me that
               I am executing on the same date on which I execute this Release,
               including all of the documents attached to the Agreement.

        E.     My Claims mean all of my rights that I now have to any relief of
               any kind from the Company, including without limitation:

               1.     all claims arising out of or relating to my employment
                      with FIC or the termination of that employment;

               2.     all claims arising out of or relating to the statements,
                      actions, or omissions of the Company;

               3.     all claims for any alleged unlawful discrimination,
                      harassment, retaliation or reprisal, or other alleged
                      unlawful practices arising under any federal, state, or
                      local statute, ordinance, or regulation, including without
                      limitation, claims under Title VII of the Civil Rights Act
                      of 1964, the Age Discrimination in Employment Act, the
                      Americans with Disabilities Act, 42 U.S.C. Section 1981,
                      the Employee Retirement Income Security Act, the Equal Pay
                      Act, the Worker Adjustment and Retraining Notification
                      Act, the Minnesota Human Rights Act, the California Fair



                                       17


                      Employment and Housing Act, the Fair Credit Reporting Act,
                      and workers' compensation non-interference or
                      non-retaliation statutes (such as Minn. Stat. Section
                      176.82);

               4.     all claims for alleged wrongful discharge; breach of
                      contract; breach of implied contract; failure to keep any
                      promise; breach of a covenant of good faith and fair
                      dealing; breach of fiduciary duty; estoppel; my
                      activities, if any, as a "whistleblower"; defamation;
                      infliction of emotional distress; fraud;
                      misrepresentation; negligence; harassment; retaliation or
                      reprisal; constructive discharge; assault; battery; false
                      imprisonment; invasion of privacy; interference with
                      contractual or business relationships; any other wrongful
                      employment practices; and violation of any other principle
                      of common law;

               5.     all claims for compensation of any kind, including without
                      limitation, bonuses, commissions, stock-based compensation
                      or stock options, vacation pay, and expense
                      reimbursements;

               6.     all claims for back pay, front pay, reinstatement, other
                      equitable relief, compensatory damages, damages for
                      alleged personal injury, liquidated damages, and punitive
                      damages;

               7.     all rights I have under California Civil Code section
                      1542, which states that: "A general release does not
                      extend to claims which the creditor does not know or
                      suspect to exist in his favor at the time of executing the
                      release, which if known by him must have materially
                      affected his settlement with the debtor;" and

               8.     all claims for attorneys' fees, costs, and interest.

               However, My Claims do not include any claims that the law does
               not allow to be waived, any claims that may arise after the date
               on which I sign this Release, or any claims for breach of the
               Agreement.

AGREEMENT TO RELEASE MY CLAIMS. I will receive consideration from FIC as set
forth in the Agreement if I sign and do not rescind this Release as provided
below. I understand and acknowledge that that consideration is in addition to
anything of value that I would be entitled to receive from FIC if I did not sign
this Release or if I rescinded this Release. In exchange for that consideration
I give up and release all of My Claims including but not limited to my rights
under California Civil Code section 1542, which provide as follows:



                                       18


               A general release does not extend to claims which the creditor
               does not know or suspect to exist in his favor at the time of
               executing the release, which if known by him must have materially
               affected his settlement with the debtor.

I will not make any demands or claims against the Company for compensation or
damages relating to My Claims. The consideration that I am receiving is a fair
compromise for the release of My Claims.

ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though FIC will provide
consideration for me to settle and release My Claims, the Company does not admit
that it is responsible or legally obligated to me. In fact, the Company denies
that it is responsible or legally obligated to me for My Claims, denies that it
engaged in any unlawful or improper conduct toward me, and denies that it
treated me unfairly.

CONFIDENTIALITY. I understand that the terms of this Release are confidential
and that I may not disclose those terms to any person except under the
circumstances described in the Agreement.

ADVICE TO CONSULT WITH AN ATTORNEY. I understand and acknowledge that I am
hereby being advised by the Company to consult with an attorney prior to signing
this Release. My decision whether to sign this Release is my own voluntary
decision made with full knowledge that the Company has advised me to consult
with an attorney.

PERIOD TO CONSIDER THE RELEASE. I understand that I have 21 days from the day
that I receive this Release, not counting the day upon which I receive it, to
consider whether I wish to sign this Release. If I sign this Release before the
end of the 21-day period, it will be my voluntary decision to do so because I
have decided that I do not need any additional time to decide whether to sign
this Release. I also agree that any changes made to this Release or to the
Agreement before I sign it, whether material or immaterial, will not restart the
21-day period.

MY RIGHT TO RESCIND THIS RELEASE. I understand that I may rescind this Release
at any time within seven (7) days after I sign it, not counting the day upon
which I sign it. This Release will not become effective or enforceable unless
and until the 7-day rescission period has expired without my rescinding it.

PROCEDURE FOR ACCEPTING OR RESCINDING THE RELEASE. To accept the terms of this
Release, I must deliver the Release, after I have signed and dated it, to FIC by
hand or by mail within the 21-day period that I have to consider this Release.
To rescind my acceptance, I must deliver a written, signed statement that I
rescind my acceptance to FIC by hand or by mail within the 7-day rescission
period. All deliveries must be made to FIC at the following address:



                                       19


                             Richard Deal
                             Vice President, Human Resources
                             4295 Lexington Avenue North
                             St. Paul, MN  55126-6164

If I choose to deliver my acceptance or the rescission of my acceptance by mail,
it must be (1) postmarked within the period stated above and (2) properly
addressed to FIC at the address stated above.

INTERPRETATION OF THE RELEASE. This Release should be interpreted as broadly as
possible to achieve my intention to resolve all of My Claims against the
Company. If this Release is held by a court to be inadequate to release a
particular claim encompassed within My Claims, this Release will remain in full
force and effect with respect to all the rest of My Claims. This Agreement shall
be governed by, and interpreted under, the laws of the State of California
without regard to its choice of law principles. In the event that any part or
provision of this Agreement is determined to be unenforceable, all other parts
and provisions shall remain in full force and effect.

MY REPRESENTATIONS. I am legally able and entitled to receive the consideration
being provided to me in settlement of My Claims. I have not been involved in any
personal bankruptcy or other insolvency proceedings at any time since I began my
employment with FIC. No child support orders, garnishment orders, or other
orders requiring that money owed to me by FIC be paid to any other person are
now in effect.

I have read this Release carefully. I understand all of its terms. In signing
this Release, I have not relied on any statements or explanations made by the
Company except as specifically set forth in the Agreement. I am voluntarily
releasing My Claims against the Company. I intend this Release and the Agreement
to be legally binding.


Dated:  9/20/02                                    /s/ Henk J. Evenhuis
                                            ------------------------------------
                                                   Henk J. Evenhuis



                                       20


                                    EXHIBIT B

                                October 23, 2002



Richard Deal
Vice President, Human Resources
Fair, Isaac and Company, Inc.
4295 Lexington Avenue North
St. Paul, MN  55126-6164

Dear Mr. Deal:

        This will confirm my resignation, effective January 1, 2003, from my
position with Fair, Isaac and Company, Inc. as Vice President, Finance and Chief
Accounting Officer and as an officer of Fair, Isaac or any of its affiliates.
This also confirms my resignation as an employee of Fair, Isaac, effective as of
May 1, 2003.

                                             Sincerely,

                                             /s/ Henk J. Evenhuis
                                             -----------------------------------

                                             Henk J. Evenhuis



                                       21


                                                                   EXHIBIT 10.26

                              MANAGEMENT AGREEMENT

               This Management Agreement (this "Agreement") is entered into as
of August 14, 2002, by and between Fair, Isaac and Company, Incorporated, a
Delaware corporation (the "Company"), and _________ ("Executive").

               WHEREAS, Executive is a key member of the management of the
Company and has heretofore devoted substantial skill and effort to the affairs
of the Company; and

               WHEREAS, it is desirable and in the best interests of the Company
and its shareholders to continue to obtain the benefits of Executive's services
and attention to the affairs of the Company; and

               WHEREAS, it is desirable and in the best interests of the Company
and its shareholders to provide inducement for Executive (A) to remain in the
service of the Company in the event of any proposed or anticipated change in
control of the Company and (B) to remain in the service of the Company in order
to facilitate an orderly transition in the event of a change in control of the
Company, without regard to the effect such change in control may have on
Executive's employment with the Company; and

               WHEREAS, it is desirable and in the best interests of the Company
and its shareholders that Executive be in a position to make judgments and
advise the Company with respect to proposed changes in control of the Company;
and

               WHEREAS, the Executive desires to be protected in the event of
certain changes in control of the Company; and

               WHEREAS, for the reasons set forth above, the Company and
Executive desire to enter into this Agreement.

               NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the Company and Executive agree as
follows:

        1.      EVENTS. No amounts or benefits shall be payable or provided for
pursuant to this Agreement unless an Event shall occur during the Term of this
Agreement.

                (a)     For purposes of this Agreement, an "Event" shall be
        deemed to have occurred if any of the following occur:

                        (i)     Any "person" (as defined in Sections 13(d) and
                                14(d) of the Securities Exchange Act of 1934, as
                                amended, or any successor statute thereto (the
                                "Exchange Act")) acquires or becomes a
                                "beneficial owner" (as defined in Rule 13d-3 or
                                any successor rule under the Exchange Act),
                                directly or indirectly, of securities of the



                                Company representing 30% or more of the combined
                                voting power of the Company's securities
                                entitled to vote generally in the election of
                                directors ("Voting Securities") then outstanding
                                or 30% or more of the shares of common stock of
                                the Company ("Common Stock") outstanding,
                                provided, however, that the following shall not
                                constitute an Event pursuant to this Section
                                1(a)(i):

                                (A)     any acquisition or beneficial ownership
                                        by the Company or a subsidiary of the
                                        Company;

                                (B)     any acquisition or beneficial ownership
                                        by any employee benefit plan (or related
                                        trust) sponsored or maintained by the
                                        Company or one or more of its
                                        subsidiaries;

                                (C)     any acquisition or beneficial ownership
                                        by any corporation (including without
                                        limitation an acquisition in a
                                        transaction of the nature described in
                                        Section 1(a)(ii)) with respect to which,
                                        immediately following such acquisition,
                                        more than 70%, respectively, of (x) the
                                        combined voting power of the Company's
                                        then outstanding Voting Securities and
                                        (y) the Common Stock is then
                                        beneficially owned, directly or
                                        indirectly, by all or substantially all
                                        of the persons who beneficially owned
                                        Voting Securities and Common Stock,
                                        respectively, of the Company immediately
                                        prior to such acquisition in
                                        substantially the same proportions as
                                        their ownership of such Voting
                                        Securities and Common Stock, as the case
                                        may be, immediately prior to such
                                        acquisition; or

                                (D)     any acquisition of Voting Securities or
                                        Common Stock directly from the Company;
                                        and

                        Continuing Directors shall not constitute a majority of
                        the members of the Board of Directors of the Company.
                        For purposes of this Section 1(a)(i), "Continuing
                        Directors" shall mean: (A) individuals who, on the date
                        hereof, are directors of the Company, (B) individuals
                        elected as directors of the Company subsequent to the
                        date hereof for whose election proxies shall have been
                        solicited by the Board of Directors of the Company or
                        (C) any individual elected or appointed by the Board of
                        Directors of the Company to fill vacancies on the Board
                        of Directors of the Company caused by death or
                        resignation (but not by removal) or to fill
                        newly-created directorships, provided that a "Continuing


                                      -2-



                        Director" shall not include an individual whose initial
                        assumption of office occurs as a result of an actual or
                        threatened election contest with respect to the
                        threatened election or removal of directors (or other
                        actual or threatened solicitation of proxies or
                        consents) by or on behalf of any person other than the
                        Board of Directors of the Company; or

                (ii)    Consummation of a reorganization, merger or
                        consolidation of the Company or a statutory exchange of
                        outstanding Voting Securities of the Company (other than
                        a merger or consolidation with a subsidiary of the
                        Company), unless immediately following such
                        reorganization, merger, consolidation or exchange, all
                        or substantially all of the persons who were the
                        beneficial owners, respectively, of Voting Securities
                        and Common Stock immediately prior to such
                        reorganization, merger, consolidation or exchange
                        beneficially own, directly or indirectly, more than 70%
                        of, respectively, (x) the combined voting power of the
                        then outstanding voting securities entitled to vote
                        generally in the election of directors of the
                        corporation resulting from such reorganization, merger,
                        consolidation or exchange and (y) the then outstanding
                        shares of common stock of the corporation resulting from
                        such reorganization, merger, consolidation or exchange
                        in substantially the same proportions as their
                        ownership, immediately prior to such reorganization,
                        merger, consolidation or exchange, of the Voting
                        Securities and Common Stock, as the case may be; or

                (iii)   (x) Approval by the shareholders of the Company of a
                        complete liquidation or dissolution of the Company or
                        (y) the sale or other disposition of all or
                        substantially all of the assets of the Company (in one
                        or a series of transactions), other than to a
                        corporation with respect to which, immediately following
                        such sale or other disposition, more than 70% of,
                        respectively, (1) the combined voting power of the then
                        outstanding voting securities of such corporation
                        entitled to vote generally in the election of directors
                        and (2) the then outstanding shares of common stock of
                        such corporation is then beneficially owned, directly or
                        indirectly, by all or substantially all of the persons
                        who were the beneficial owners, respectively, of the
                        Voting Securities and Common Stock immediately prior to
                        such sale or other disposition in substantially the same
                        proportions as their ownership, immediately prior to
                        such sale or other disposition, of the Voting Securities
                        and Common Stock, as the case may be; or


                                      -3-



                (iv)    A majority of the members of the Board of Directors of
                        the Company shall have declared that an Event has
                        occurred or that an Event will occur upon satisfaction
                        of specified conditions, in which case the Event shall
                        be deemed to occur upon satisfaction of such specified
                        conditions; or

                (v)     The Company enters into a letter of intent, an agreement
                        in principle or a definitive agreement relating to an
                        Event described in Section 1(a)(i), 1(a)(ii) or
                        1(a)(iii) hereof that ultimately results in such an
                        Event, or a tender or exchange offer or proxy contest is
                        commenced which ultimately results in an Event described
                        in Section 1(a)(i) hereof; or

                (vi)    There shall be an involuntary termination of employment
                        of the Executive or Termination for Good Reason (as
                        defined in Section 4(c)), and the Executive reasonably
                        demonstrates that such event (x) was requested by a
                        party other than the Board of Directors of the Company
                        that had previously taken other steps reasonably
                        calculated to result in an Event described in Section
                        1(a)(i), 1(a)(ii), 1(a)(iii) or 1(a)(iv) hereof and
                        which ultimately results in an Event described in
                        Section 1(a)(i), 1(a)(ii), 1(a)(iii) or 1(a)(iv) hereof,
                        or (y) otherwise arose in connection with or in
                        anticipation of an Event described in Section 1(a)(i),
                        1(a)(ii), 1(a)(iii) or 1(a)(iv) hereof that ultimately
                        occurs.

        Notwithstanding anything stated in this Section 1(a), an Event shall not
        be deemed to occur with respect to Executive if (x) the acquisition or
        beneficial ownership of the 30% or greater interest referred to in
        Section 1(a)(i) is by Executive or by a group, acting in concert, that
        includes Executive or (y) a majority of the then combined voting power
        of the then outstanding voting securities (or voting equity interests)
        of the surviving corporation or of any corporation (or other entity)
        acquiring all or substantially all of the assets of the Company shall,
        immediately after a reorganization, merger, exchange, consolidation or
        disposition of assets referred to in Section 1(a)(ii) or 1(a)(iii), be
        beneficially owned, directly or indirectly, by Executive or by a group,
        acting in concert, that includes Executive.

               (b) For purposes of this Agreement, a "subsidiary" of the Company
        shall mean any entity of which securities or other ownership interests
        having general voting power to elect a majority of the board of
        directors or other persons performing similar functions are at the time
        directly or indirectly owned by the Company.

        2.      PAYMENTS AND BENEFITS. If any Event shall occur during the Term
of this Agreement, then the Executive shall be entitled to receive from the
Company or its successor (which term as used herein shall include any person
acquiring all or substantially all of the assets of


                                      -4-



the Company) a cash payment and other benefits on the following basis (unless
the Executive's employment by the Company is terminated voluntarily or
involuntarily prior to the occurrence of the earliest Event to occur (the "First
Event"), in which case Executive shall be entitled to no payment or benefits
under this Section 2):

                (a)     If at the time of, or at any time after, the occurrence
        of the First Event and prior to the end of the Transition Period, the
        employment of Executive with the Company is voluntarily or involuntarily
        terminated for any reason (unless such termination is a voluntary
        termination by Executive other than for Good Reason, is on account of
        the death or Disability of the Executive or is a termination by the
        Company for Cause), subject to the limitations set forth in Sections
        2(d) and 2(e), Executive shall be entitled to the following:

                        (i)     The Company shall pay Executive's full base
                                salary through the Termination Date at the rate
                                then in effect.

                        (ii)    The Company or its successor, within 90 days
                                after the Termination Date, shall make a cash
                                payment to Executive in an amount equal to one
                                (1) times the sum of (A) the annual base salary
                                of Executive in effect immediately prior to the
                                First Event plus (B) the cash bonus or cash
                                incentive compensation received by the Executive
                                from the Company for the fiscal year preceding
                                the First Event.

                        (iii)   For a 12-month period after the Termination
                                Date, the Company shall allow Executive to
                                participate in any health, disability and life
                                insurance plan or program in which the Executive
                                was entitled to participate immediately prior to
                                the First Event as if Executive were an employee
                                of the Company during such 12-month period;
                                provided, however, that in the event that
                                Executive's participation in any such health,
                                disability or life insurance plan or program of
                                the Company is barred, the Company, at its sole
                                cost and expense, shall arrange to provide
                                Executive with benefits substantially similar to
                                those which Executive would be entitled to
                                receive under such plan or program if Executive
                                were not barred from participation. Benefits
                                otherwise receivable by Executive pursuant to
                                this section 2(a)(iii) shall be reduced to the
                                extent comparable benefits are received by
                                Executive from another employer or other third
                                party during such 12-month period, and Executive
                                shall promptly report receipt of any such
                                benefits to the Company.

                        (iv)    Any outstanding and unvested stock options
                                granted to Executive shall be accelerated and
                                become immediately exercisable by Executive (and
                                shall remain exercisable for the terms specified
                                in the applicable stock option agreements) and
                                any restricted stock awarded


                                      -5-



                                to Executive and subject to forfeiture shall be
                                fully vested and shall no longer be subject to
                                forfeiture.

                (b)     The Company shall also pay to Executive all legal fees
        and expenses incurred by the Executive as a result of such termination,
        including, but not limited to, all such fees and expenses, if any,
        incurred in contesting or disputing any such termination or in seeking
        to obtain or enforce any right or benefit provided by this Agreement.

                (c)     In addition to all other amounts payable to Executive
        under this Section 2, Executive shall be entitled to receive all
        benefits payable to Executive under any other plan or agreement relating
        to retirement benefits.

                (d)     Executive shall not be required to mitigate the amount
        of any payment or other benefit provided for in Section 2 by seeking
        other employment or otherwise, nor shall the amount of any payment or
        other benefit provided for in Section 2 be reduced by any compensation
        earned by Executive as the result of employment by another employer
        after the Termination Date or otherwise, except as specifically provided
        in this Agreement.

                (e)     Notwithstanding any other provision of this Agreement,
        the Company will not pay to Executive, and Executive will not be
        entitled to receive, any payment pursuant to Section 2(a)(ii) unless and
        until:

                        (i)     Executive executes, and there shall be effective
                                following any statutory period for revocation or
                                rescission, a release that irrevocably and
                                unconditionally releases the Company, any
                                company acquiring the Company or its assets, and
                                their past and current shareholders, directors,
                                officers, employees and agents from and against
                                any and all claims, liabilities, obligations,
                                covenants, rights and damages of any nature
                                whatsoever, whether known or unknown,
                                anticipated or unanticipated; provided, however,
                                that the release shall not adversely affect
                                Executive's rights to receive benefits to which
                                he is entitled under this Agreement or
                                Executive's rights to indemnification under
                                applicable law, the charter documents of the
                                Company, any insurance policy maintained by the
                                Company or any written agreement between the
                                Company and Executive; and

                        ii)     Executive executes an agreement prohibiting
                                Executive for a period of one (1) year following
                                the Termination Date from soliciting, recruiting
                                or inducing, or attempting to solicit, recruit
                                or induce, any employee of the Company or of any
                                company acquiring the Company or its assets to
                                terminate the employee's employment.


                                      -6-



                (f)     The obligations of the Company under this Section 2
        shall survive the termination of this Agreement.

        3.      CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.

                (a)     Notwithstanding anything contained herein to the
        contrary, prior to the payment of any amounts pursuant to Section 2(a)
        hereof, an independent national accounting firm designated by the
        Company (the "Accounting Firm") shall compute whether there would be any
        "excess parachute payments" payable to Executive, within the meaning of
        Section 280G of the Internal Revenue Code of 1986, as amended (the
        "Code"), taking into account the total "parachute payments," within the
        meaning of Section 280G of the Code, payable to Executive by the Company
        or any successor thereto under this Agreement and any other plan,
        agreement or otherwise. If there would be any excess parachute payments,
        the Accounting Firm will compute the net after-tax proceeds to
        Executive, taking into account the excise tax imposed by Section 4999 of
        the Code, if (i) the payments hereunder were reduced, but not below
        zero, such that the total parachute payments payable to Executive would
        not exceed three (3) times the "base amount" as defined in Section 280G
        of the Code, less One Dollar ($1.00), or (ii) the payments hereunder
        were not reduced. If reducing the payments hereunder would result in a
        greater after-tax amount to Executive, such lesser amount shall be paid
        to Executive. If not reducing the payments hereunder would result in a
        greater after-tax amount to Executive, such payments shall not be
        reduced. The determination by the Accounting Firm shall be binding upon
        the Company and Executive subject to the application of Section 3(b)
        hereof.

                (b)     As a result of uncertainty in the application of
        Sections 280G of the Code, it is possible that excess parachute payments
        will be paid when such payment would result in a lesser after-tax amount
        to Executive; this is not the intent hereof. In such cases, the payment
        of any excess parachute payments will be void ab initio as regards any
        such excess. Any excess will be treated as an overpayment by the Company
        to Executive. Executive will return the overpayment to the Company,
        within fifteen (15) business days of any determination by the Accounting
        Firm that excess parachute payments have been paid when not so intended,
        with interest at an annual rate equal to the rate provided in Section
        1274(d) of the Code (or 120% of such rate if the Accounting Firm
        determines that such rate is necessary to avoid an excise tax under
        Section 4999 of the Code) from the date Executive received the excess
        until it is repaid to the Company.

                (c)     All fees, costs and expenses (including, but not limited
        to, the cost of retaining experts) of the Accounting Firm shall be borne
        by the Company and the Company shall pay such fees, costs, and expenses
        as they become due. In performing the computations required hereunder,
        the Accounting Firm shall assume that taxes will be paid for state and
        federal purposes at the highest possible marginal tax rates which could
        be applicable to Executive in the year of receipt of the payments,
        unless Executive agrees otherwise.


                                      -7-



        4.      DEFINITION OF CERTAIN ADDITIONAL TERMS.

                (a)     "Cause" shall mean, and be limited to, (i) willful and
        gross neglect of duties by the Executive or (ii) an act or acts
        committed by the Executive constituting a felony and substantially
        detrimental to the Company or its reputation.

                (b)     "Disability" shall mean Executive's absence from his
        duties with the Company on a full time basis for 180 consecutive
        business days, as a result of Executive's incapacity due to physical or
        mental illness, unless within 30 days after written notice of intent to
        terminate is given by the Company following such absence Executive shall
        have returned to the full time performance of Executive's duties.

                (c)     "Good Reason" shall mean if, without Executive's express
        written consent, any of the following shall occur:

                        (i)     the assignment to Executive of any material
                                duties inconsistent with Executive's status or
                                position with the Company, or any other action
                                by the Company that results in a substantial
                                diminution in such status or position, excluding
                                any isolated, insubstantial, or inadvertent
                                action not taken in bad faith and which is
                                remedied by the Company promptly after receipt
                                of notice thereof from Executive;
                                notwithstanding the foregoing, a change in title
                                and/or reporting relationship alone shall not
                                constitute a substantial diminution in an
                                Executive's status or position.

                        (ii)    a material reduction by the Company in
                                Executive's annual base salary or target
                                incentive in effect immediately prior to the
                                First Event;

                        (iii)   the failure by the Company to continue to
                                provide Executive with benefits at least as
                                favorable in the aggregate to those enjoyed by
                                Executive under the Company's pension, life
                                insurance, medical, health and accident,
                                disability, deferred compensation, incentive
                                awards, employee stock options or savings plans
                                in which Executive was participating at the time
                                of the First Event, the taking of any action by
                                the Company that would directly or indirectly
                                materially reduce any of such benefits or
                                deprive Executive of any material fringe benefit
                                enjoyed at the time of the First Event, or the
                                failure by the Company to provide Executive with
                                the number of paid vacation days to which
                                Executive is entitled at the time of the First
                                Event, but excluding any failure or action by
                                the Company that is not taken in bad faith and
                                which is remedied by the Company promptly after
                                receipt of notice thereof from Executive; or


                                      -8-



                        (iv)    the Company requiring Executive to relocate to
                                any place other than a location within forty
                                miles of the location at which Executive
                                performed his primary duties immediately prior
                                to the First Event or, if Executive is based at
                                the Company's principal executive offices, the
                                relocation of the Company's principal executive
                                offices to a location more than forty miles from
                                its location immediately prior to the First
                                Event, except for required travel on the
                                Company's business to an extent substantially
                                consistent with Executive's prior business
                                travel obligations;

                        (v)     the failure of the Company to obtain agreement
                                from any successor to assume and agree to
                                perform this Agreement, as contemplated in
                                Section 5(b).

                (d)     As used herein, other than in Section 1(a) hereof, the
        term "person" shall mean an individual, partnership, corporation,
        estate, trust or other entity.

                (e)     "Termination Date" shall mean the date of termination of
        Executive's employment, which in the case of termination for Disability
        shall be the 30th day after notice is given as required in Section 4(b).

                (f)     "Transition Period" shall mean the one-year period
        commencing on the date of the earliest to occur of an Event described in
        Section 1(a)(i), 1(a)(ii), 1(a)(iii) or 1(a)(iv) hereof (the
        "Commencement Date") and ending on the first anniversary of the
        Commencement Date.

        5.      SUCCESSORS AND ASSIGNS.

                (a)     This Agreement shall be binding upon and inure to the
        benefit of the successors, legal representatives and assigns of the
        parties hereto; provided, however, that the Executive shall not have any
        right to assign, pledge or otherwise dispose of or transfer any interest
        in this Agreement or any payments hereunder, whether directly or
        indirectly or in whole or in part, without the written consent of the
        Company or its successor.

                (b)     The Company will require any successor (whether direct
        or indirect, by purchase of a majority of the outstanding voting stock
        of the Company or all or substantially all of the assets of the Company,
        or by merger, consolidation or otherwise), by agreement in form and
        substance satisfactory to Executive, to assume expressly and agree to
        perform this Agreement in the same manner and to the same extent that
        the Company would be required to perform it if no such succession had
        taken place. Failure of the Company to obtain such agreement prior to
        the effectiveness of any such succession (other than in the case of a
        merger or consolidation) shall be a breach of this Agreement and shall
        entitle Executive to compensation from the Company in the same amount
        and on the same terms as Executive


                                      -9-



        would be entitled hereunder in the event of termination by Executive for
        Good Reason, except that for purposes of implementing the foregoing, the
        date on which any such succession becomes effective shall be deemed the
        Termination Date. As used in this Agreement, "Company" shall mean the
        Company as hereinbefore defined and any successor to its business and/or
        assets as aforesaid that is required to execute and deliver the
        agreement as provided for in this Section 5(b) or that otherwise becomes
        bound by all the terms and provisions of this Agreement by operation of
        law.

        6.      GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Minnesota.

        7.      NOTICES. All notices, requests and demands given to or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered or certified
mail, return receipt requested, postage pre-paid, addressed to the last known
residence address of Executive or in the case of the Company, to its principal
executive office to the attention of each of the then directors of the Company
with a copy to its Secretary, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.

        8.      REMEDIES AND CLAIM PROCESS. If Executive disputes any
determination made by the Company regarding Executive's eligibility for any
benefits under this Agreement, the amount or terms of payment of any benefits
under this Agreement, or the Company's application of any provision of this
Agreement, then Executive shall, before pursuing any other remedies that may be
available to Executive, seek to resolve such dispute by submitting a written
claim notice to the Company. The notice by Executive shall explain the specific
reasons for Executive's claim and basis therefor. The Board of Directors shall
review such claim and the Company will notify Executive in writing of its
response within 60 days of the date on which Executive's notice of claim was
given. The notice responding to Executive's claim will explain the specific
reasons for the decision. Executive shall submit a written claim hereunder
before pursuing any other process for resolution of such claim. This Section 8
does not otherwise affect any rights that Executive or the Company may have in
law or equity to seek any right or benefit under this Agreement.

        9.      SEVERABILITY. In the event that any portion of this Agreement is
held to be invalid or unenforceable for any reason, it is hereby agreed that
such invalidity or unenforceability shall not affect the other portions of this
Agreement and that the remaining covenants, terms and conditions or portions
hereof shall remain in full force and effect.

        10.     INTEGRATION. The benefits provided to Executive under this
Agreement shall be in lieu of any other severance pay or benefits available to
Executive under any other agreement, plan or program of the Company. In the
event that any payments or benefits become payable to Executive pursuant to
Section 2 of this Agreement, then this Agreement will supersede and replace any
other agreement, plan or program applicable to Executive to the extent that such
other


                                      -10-



agreement, plan or program provides for payments or benefits to Executive
arising out of the involuntary termination of Executive's employment or
termination by Executive for Good Reason. In addition, the acceleration of stock
options and lapsing of forfeiture provisions of restricted stock provided
pursuant to Section 2(a)(iv) of this Agreement shall not be subject to the
provisions of Article 13 of the Company's 1992 Long-Term Incentive Plan (or
similar successor provision or plan).

        11.     MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the parties. No waiver by either party hereto at any
time of any breach by the other party to this Agreement of, or compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior to similar time.

        12.     TERM. This Agreement shall commence on the date of this
Agreement and shall terminate, and the Term of this Agreement shall end, on the
later of (A) December 31, 2007, provided that such period shall be automatically
extended for one year and from year to year thereafter until notice of
termination is given by the Company or Executive to the other party hereto at
least 60 days prior to December 31, 2007 or the one-year extension period then
in effect, as the case may be, or (B) if the Commencement Date occurs on or
prior to December 31, 2007 (or prior to the end of the extension year then in
effect as provided for in clause (A) hereof), the first anniversary of the
Commencement Date.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

                                   FAIR, ISAAC AND COMPANY, INCORPORATED

                                   By
                                     -------------------------------------
                                   NAME OF EXECUTIVE

                                   By
                                     -------------------------------------



                                      -11-





                                                                   EXHIBIT 10.32





                              OFFICE BUILDING LEASE


                                     BETWEEN


                                 PACCOR PARTNERS


                                  ("Landlord")


                                       and


                                    HNC, INC.


                                   ("Tenant")





                             Date: December 1, 1993





                                TABLE OF CONTENTS


                                                                                        Page
                                                                                        -----
                                                                               
SECTION 1 BASIC LEASE INFORMATION

        1.1   Parties                                                                    1
        1.2   Project                                                                    1
        1.3   Premises                                                                   1
        1.4   Commencement Date                                                          1
        1.5   Term of Lease                                                              2
        1.6   Option to Extend Term                                                      2
        1.7   Base Rent                                                                  2
        1.8   Security Deposit Amount                                                    2
        1.9   Tenant's Share of Common Area Operating Expenses and
              Building Operating Expenses                                                3
        1.10  Tenant Improvement Allowance                                               3
        1.11  Additional Insureds                                                        3
        1.12  Notice Address                                                             4
        1.13  Exhibits                                                                   4

SECTION 2 PREMISES                                                                       5

SECTION 3 TERM

        3.1   Term                                                                       5
        3.2   Option to Extend Term                                                      5
        3.3   Cancellation of Lease                                                      6

SECTION 4 RENT

        4.1   Definitions                                                                7
        4.2   Base Rent                                                                  7
        4.3   Base Rent for Extended Term                                                7
        4.4   Fair Market Rental Value                                                   8
        4.5   Security Deposit                                                           9
        4.6   Rent Credit for Unused Tenant Improvement Allowance                        9

SECTION 5 TENANT IMPROVEMENTS

        5.1   Definitions                                                                9
        5.2   Preparation of Premises                                                   10
        5.3   Landlord's Contractor                                                     10
        5.4   Acceptance of Premises                                                    10






                          TABLE OF CONTENTS (continued


                                                                                       Page
                                                                                       -----
                                                                                 
SECTION 6 OPERATING EXPENSES

        6.1   Definitions                                                               10
        6.2   Adjustments to Common Area Operating Expenses                             16
        6.3   Rent Adjustment                                                           16
        6.4   Lease Expenses Difference Cap                                             17
        6.5   Operating Expense Records                                                 17

SECTION 7 USE AND MAINTENANCE OF THE PREMISES

        7.1   Permitted Use                                                             17
        7.2   Insurance                                                                 18
        7.3   Compliance with Laws                                                      18
        7.4   Hazardous Waste or Nuisance                                               18
        7.5   Damage and Overloading                                                    20
        7.6   Access by Landlord                                                        20
        7.7   Sign                                                                      21
        7.8   Parking                                                                   21
        7.9   Alterations                                                               22
        7.10  Mechanics' Lien                                                           24
        7.11  Indemnity and Exemption of Landlord from Liability                        24
        7.12  Premises Changes                                                          25
        7.13  Services and Utilities                                                    25
        7.14  Rules                                                                     27
        7.15  Maintenance Obligations                                                   27
        7.16  Tenant to Pay Personal Property Taxes                                     28

SECTION 8 INSURANCE

        8.1   Tenant's Insurance                                                        28
        8.2   Landlord's Insurance                                                      30

SECTION 9 DESTRUCTION

        9.1   Risk Covered by Insurance                                                 31
        9.2   Abatement or Reduction of Rent                                            32
        9.3   Loss During Last Part of Term or Exceeding 25% of
              Replacement Value                                                         32
        9.4   Limitation on Landlord's Restoration Obligation                           32



                                       ii


                         TABLE OF CONTENTS (continued)



                                                                                       Page
                                                                                       -----
                                                                                 
SECTION 10 CONDEMNATION

        10.1  Definitions                                                               32
        10.2  Governed by Lease                                                         33
        10.3  Total Taking                                                              33
        10.4  Partial Taking                                                            33
        10.5  Award                                                                     33
        10.6  Temporary Taking                                                          34
        10.7  Waiver of Statute                                                         34

SECTION 11 ASSIGNMENT AND SUBLETTING

        11.1  Assignment                                                                34
        11.2  Sublease                                                                  36
        11.3  Tenant and Assignee or Sublessee Fully Liable                             37
        11.4  Assignment of Rents                                                       37
        11.5  Equal Division of Sublease Premium                                        37

SECTION 12 DEFAULT AND REMEDIES

        12.1  Default                                                                   36
        12.2  Landlord's Remedies                                                       36
        12.3  Interest and Late Charges                                                 40
        12.4  Quarterly Payments                                                        40
        12.5  Waiver                                                                    40
        12.6  Notice of Default                                                         41

SECTION 13 SUBORDINATION, ATTORNMENT,
           ESTOPPEL AND NON-DISTURBANCE

        13.1  Subordination                                                             41
        13.2  Attornment                                                                41
        13.3  Estoppel Certificates                                                     42
        13.4  Non-Disturbance Agreement                                                 42

SECTION 14 SURRENDER OF PREMISES, HOLDING OVER

        14.1  Surrender of Premises                                                     43
        14.2  Holding Over                                                              43

SECTION 15 DELAY IN OCCUPANCY

        INTENTIONALLY OMITTED                                                           43




                                      iii






                                                                                       Page
                                                                                       -----
                                                                                 
SECTION 16 GENERAL PROVISIONS

        16.1  Brokers                                                                   44
        16.2  Notices                                                                   44
        16.3  Quitclaim Deed                                                            44
        16.4  Sale or Transfer of Premises                                              44
        16.5  Attorneys' Fees                                                           45
        16.6  Merger                                                                    45
        16.7  Time of Essence                                                           45
        16.8  Successor in Interest                                                     45
        16.9  Easements                                                                 45
        16.10 Governing Law                                                             45
        16.11 Integration                                                               45
        16.12 Provisions Are Covenants and Conditions                                   46
        16.13 Person and Gender                                                         46
        16.14 Severability                                                              46
        16.15 Limitations on Landlord's Liability                                       46
        16.16 Headings and Exhibits                                                     46
        16.17 Payments in United States Currency                                        46
        16.18 Tenant's Financial Statements                                             46
        16.19 No Option                                                                 47
        16.20 Recordation of Lease                                                      47
        16.21 No Violation of Other Agreements                                          47
        16.22 Project Name Change                                                       47
        16.23 Use of Project Name                                                       47
        16.24 Reserved Area                                                             47

SECTION 17 SPECIAL PROVISIONS

        17.1  Moving Allowance                                                          47
        17.2  Warranty of Landlord                                                      48
        17.3  Right of First Refusal for Expansion Space                                48

Exhibit A     Description of Premises
Exhibit B     Project Site Plan (Including Legal Description of Real Property)
Exhibit C     Work Letter
Exhibit D     Building/Tenant Improvement Standards for Pacific Corporate Park
Exhibit E     Rules and Regulations
Exhibit F     Tri-Water System
Exhibit G     Non-Disturbance Agreement
Exhibit H     Estoppel Certificate
Exhibit I     Janitorial Specifications
Exhibit J     Covenants, Conditions & Restrictions
Exhibit K     Amended Planned Industrial Development Permit No. 85-0830




                                       iv



                                  OFFICE LEASE

        This Office Lease and Exhibits ("Lease") is made and entered into this
1st day of December 1993 between PACCOR PARTNERS, a California general
partnership ("Landlord"), and HNC, Inc. a California corporation ("Tenant"), who
for valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, agree as follows:

                                    SECTION 1
                            BASIC LEASE INFORMATION

        1.1 Parties:

        Landlord: PacCor Partners, a California general partnership.

        Tenant: HNC, INC.

        1.2 "Project" shall mean: (i) the Premises; (ii) the building located at
5930 Cornerstone Court West, San Diego, California (the "Building"); (iii)
building located at 5935 Cornerstone Court West, San Diego, California
("Adjacent Building"), Building and Adjacent Building are referred to
collectively as "Buildings"; (iv) Common Area as shown in Exhibit B and
described in Section 6.1(c); (v) the real property defined in Exhibit B ("Real
Property"); and (vi) all other improvements on the Real Property or any future
improvements, including additional buildings, to the Real Property.

        1.3 "Premises" shall mean all of the second floor and that portion of
the third floor of the Building as shown on Exhibit "A".

               (a) "Rentable Square Footage" shall mean 25,259 rentable square
feet of the Premises consisting of 17,846 rentable square feet on the second
floor and 7,413 rentable square feet on the third floor.

               (b) "Usable Square Footage" shall mean 22,936 usable square feet
of the Premises consisting of 16,434 usable square feet on the second floor and
6,502 usable square feet on the third floor.

        1.4 "COMMENCEMENT DATE" shall mean March 15, 1994, or later as set forth
below.

        If, as of March 15, 1994 Substantial Completion (defined in Section 5.1)
has not occurred, then the Commencement Date shall be the earlier of Substantial
Completion or Substantial Completion less the number of days Tenant demonstrably
delayed the Schedule in the Work Letter (see Exhibit "C"), and neither party
shall incur any liability to the other party on account of such delay in
Substantial Completion. Notwithstanding any other provision of this Lease, this
Lease shall terminate upon written notice by



                                     Page 1


Tenant if Substantial Completion has not occurred by June 15, 1994, unless the
delay in Substantial Completion is caused by factors beyond Landlord's
reasonable control including but not limited to material shortages, labor
strikes, acts of God, inability to obtain permits or other necessary approvals,
moratoriums, and/or Tenant's failure to comply with the Schedule in the Work
Letter. If the Lease terminates pursuant to this Section 1.4, neither party
shall incur any liability to the other party. If Substantial Completion has not
occurred by December 31, 1994 due to factors beyond Landlord's reasonable
control, then this Lease shall automatically terminate as of December 31, 1994
and neither party shall incur any liability to the other party.

        1.5 "Term of Lease" shall mean Eighty-Four (84) full calendar months
from and after the Commencement Date or, if the Commencement Date is not the
first day of a calendar month, from and after the first day of the calendar
month following the Commencement Date, provided, however, that notwithstanding
the foregoing, Tenant may terminate this Lease effective at the end of sixty
(60) months after the Commencement Date without incurring any liability to
Landlord, except as set forth in Section 3.3.

        1.6 "Option to Extend Term" shall mean one (1) option to extend the term
of the Lease, for a period of five (5) years following the Expiration Date
(Section 3.1) in accordance with Section 3.2.

        1.7 "Base Rent" shall be payable monthly in accordance with the
"Schedule of Base Rent" as set forth below, except that Base Rent for Month 1 in
the amount of $25,259 shall be paid to Landlord upon the execution of this
Lease:

                             SCHEDULE OF BASE RENT



                                BASE RENT RATE          RENTABLE
MONTH                         PER RENTABLE SQ. FT.    SQUARE FOOTAGE*   BASE RENT
- ------                        --------------------    ---------------   ---------
                                                                       
Month 1                 1             $1.00               25,259         $25,259         25,259
                                                                                       ---------
Months 2-3              2                $0               25,259         $0 (rent             0
                                                                         abated)

Months 4-30            27             $1.00               25,259         $25,259/       681,993
                                                                         month        ----------

Months 31-60           30             $1.10               25,259         $27,785/       833,550
                                                                         month        ----------

Months 61-84           24             $1.20               25,259         30,311/        727,464
                       --                                                month        ----------
                       84                                                             2,268,266
                                                                                       1.07/MD.


        1.8 "Security Deposit" shall mean the amount of Twenty-Five Thousand Two
Hundred Fifty-Nine and no/100ths Dollars ($25,259.00).



                                     Page 2


        1.9 "Tenant's Share of Common Area Operating Expenses and Building
Operating Expenses" (Section 6.1(e)) shall mean an amount due Landlord,
beginning June 1, 1995, which is Twenty-Six percent (26%) of the increase in
Common Area Operating Expenses and Fifty-Two and 3/10ths percent (52.3%) of the
increase in Building Operating Expenses over the Base Year, as specifically set
forth in Sections 6.3 and 6.4.

        1.10 "Tenant Improvement Allowance" shall mean the amount Landlord shall
pay and apply towards the cost of the Work, as follows:

               (a) $410,850.00 for improvements to the second floor of the
Premises (16,434 usable square feet multiplied by $25.00 per usable square
foot);

               (b) $55,800.00 for improvements to the shell space on the third
floor of the Premises (2,232 usable square feet multiplied by $25.00 per usable
square foot);

               (c) That portion of the Premises on the third floor previously
occupied by Telesoft, consisting of 4,270 usable square feet, shall be
demolished and tenant improvements completed in accordance with a mutually
agreed upon plan, drafted by Tenant's architect, utilizing existing improvements
where possible, to be consistent with the material and furnishings of the third
floor shell space, all at Landlord's expense.

               (d) Tenant's architect shall provide design plans for the
refurbishment of the present third floor elevator lobby area and existing
corridor to reflect a multi-tenant building standard quality appearance. Upon
Landlord's approval of the plans, which approval shall not be unreasonably
withheld or demonstrably delayed, Landlord will complete the refurbishment of
the present third floor elevator lobby area and existing corridor at Landlord's
expense.

Tenant shall pay for the cost of the Work referenced in Subsections (a) and (b)
hereinabove which exceeds the Tenant Improvement Allowance.

        1.11 Additional Insureds: Tenant shall name as additional insureds the
following entities:

        PacCor Partners, a California general partnership (Landlord)
        11939 Rancho Bernardo Road, Suite 200
        San Diego, California 92128
        Attn: Robert C. Henkel

        PacCor Management Company, a California corporation (a general partner)
        11939 Rancho Bernardo Road, Suite 200
        San Diego, California 92128
        Attn: Terrence L. Vogel



                                     Page 3



        PR Land Corp., a Delaware corporation (a general partner)
        c/o Paul Revere Investment Management Corporation
        18 Chestnut Street
        Worcester, MA 01608


        1.12 Notice Address (Section 16.2): All notices shall be addressed as
follows:


        Landlord: PacCor Partners
                  11939 Rancho Bernardo Road, Suite 200
                  San Diego, California 92128
                  Attn: Robert C. Henkel

        Copy to:  PacCor Management Company
                  11939 Rancho Bernardo Road, #200
                  San Diego, California 92128
                  Attn: Terrence L. Vogel

        To Tenant prior to Tenant's taking possession of the Premises:
                  HNC, Inc.
                  5501 Oberlin Drive
                  San Diego, California 92121
                  Attn: Hugh D. Gerfin

        Tenant after Tenant's taking possession of the Premises:
                  HNC, Inc.
                  5930 Cornerstone Court West
                  San Diego, California 92121
                  Attn: Hugh D. Gerfin

        Copy of all notices to Tenant to:
                  Kenneth A. Linhares, Esq.
                  Fenwick & West
                  Two Palo Alto Square, Suite 800
                  Palo Alto, California 94306


        1.13 EXHIBITS:

        Exhibit "A": Description of Premises (Floor Plans)
        Exhibit "B": Project Site Plan (including legal description of Real
                     Property)
        Exhibit "C": Work Letter
        Exhibit "D": Building/Tenant Improvement Standards for Pacific Corporate
                     Park



                                     Page 4


                    SECOND AMENDMENT TO OFFICE BUILDING LEASE
                 BETWEEN PACCOR PARTNERS AND HNC SOFTWARE, INC.

        This Second Amendment To Office Building Lease between PacCor Partners
and HNC, Inc. ("Second Amendment"), is made and entered into as of the 1st day
of June, 1994 between PACCOR PARTNERS, a California general partnership
("Landlord") and HNC SOFTWARE, INC., a California corporation ("Tenant"), with
regard to the following:

A.      Landlord and Tenant entered into an Office Building Lease dated December
        1, 1993 ("Lease").

B.      Landlord and Tenant amended the Lease by the First Amendment to Office
        Building Lease between PacCor Partners and HNC, Inc. effective February
        1, 1994 ("First Amendment"). Generally, the First Amendment substituted
        Bycor General Contractors, Inc. for Roel Construction Company, Inc. as
        the general contractor to complete the tenant improvements on the second
        and a portion of the third floors of the building at 5930 Cornerstone
        Court West, San Diego, California ("Building"). The Lease and First
        Amendment shall be referred to as "Lease".

C.      Landlord and Tenant desire to amend the Lease to provide for the
        expansion of the Premises in the third and first floors, whereby the
        Premises shall include all of the interior of the Building. HNC, Inc.
        changed its name to HNC Software, Inc.

        NOW, THEREFORE, for valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties agree to amend the Lease as
follows:

1.      Section 1.3 of the Lease entitled "Premises" shall be deleted in its
        entirety and substituted in its place shall be the following:

        1.3 "Premises" shall mean all of the interior of the Building as shown
        on Exhibit A Amended attached to the Second Amendment. _

                (a) "Rentable Square Footage" shall mean 48,984 square feet.

                (b) "Usable Square Footage" shall mean 43,568 square feet.

                (c) "Original Premises" shall mean all of the second floor and
        that portion of the third floor shown on Exhibit A of the Lease (being
        the area leased pursuant to the terms of the Lease dated December 1,
        1993).

                (d) "Third Floor Expansion Space" shall mean that portion of the
        Premises on the third floor not previously included on Exhibit A of the
        Lease dated December 1, 1993 consisting of 6,325 usable square feet (for
        purposes of determining Tenant Improvement Allowance and refurbishment
        allowance for the Third Floor Expansion



                                     Page 1


            Space) and 7936 rentable square feet (for purposes of determining
            the Base Rent), as shown on Exhibit A Amended.

                    (e) "Area 1" shall mean that portion of the Premises on the
            first floor of the Building consisting of 4353 usable square feet
            (for purposes of determining the Tenant Improvement Allowance and
            refurbishment allowance for Area 1) and 5130 rentable square feet
            (for purposes of determining the Base Rent), as shown on Exhibit A
            Amended.

                    (f) "Area 2" shall mean that portion of the Premises on the
            first floor of the Building consisting of 4528 usable square feet
            (for purposes of determining the Tenant Improvement Allowance and
            refurbishment allowance for Area 2) and 4528 rentable square feet
            (for purposes of determining the Base Rent), as shown on Exhibit A
            Amended.

                    (g) "Area 3" shall mean that portion of the Premises on the
            first floor of the Building consisting of 5426 usable square feet
            (for purposes of determining the Tenant Improvement Allowance and
            refurbishment allowance for Area 3) and 6131 rentable square feet
            (for purposes of determining the Base Rent), as shown on Exhibit A
            Amended.

2.      Section 1.4 of the Lease entitled "Commencement Date" shall be
        deleted in its entirety and substituted in its place shall be the
        following:


            1.4 "Commencement Date" shall be the collective term for the
            commencement dates for the Premises as set forth below.

                    (a) "Original Premises Commencement Date" shall mean March
            15, 1994.

                    (b) "Third Floor Expansion Space Commencement Date" shall
            mean October 1, 1994 or when the Work for the Third Floor Expansion
            Space is Substantially Complete, if earlier than October 1, 1994.

                    (c) "Area 1 Commencement Date" shall mean May 1, 1995 or
            when the Work for Area 1 is Substantially Complete, if earlier than
            May 1, 1995;

                    (d) "Area 2 Commencement Date" shall mean November 1, 1995
            or when the Work for Area 2 is Substantially Complete, if earlier
            than November 1, 1995;

                    (e) "Area 3 Commencement Date" shall mean May 1, 1996 or
            when the Work for Area 3 is Substantially Complete, if earlier than
            May 1, 1996.

3.      Section 1.5 of the Lease entitled "Term of Lease" shall be deleted in
        its entirety and substituted in its place shall be the following:

            1.5 "Term of Lease" shall mean the period from March 15, 1994
            through April 30, 2003.



                                     Page 2


4.      Section 1.7 of the Lease entitled "Base Rent" shall be deleted in its
        entirety and substituted in its place shall be the following:

                1.7 "Base Rent" shall be payable monthly in accordance with the
                "Schedule of Base Rent" as set forth below:

                              SCHEDULE OF BASE RENT



                                                                        Rentable Sq. Footage
             Base Rent Rate                        3rd Flr       ------------------------------------          Total Base Rent
Month        Per Rentable Sq. Ft.   Orig. Prem       Exp         Area 1         Area 2         Area 3             Per Month
- -----        --------------------   ----------   -----------     -------       -------        -------          -----------------
                                                                                          
3/15/94-          $1.00             25,259 sf                                                                      $13,852
3/31/94                                                                                                            (17 days)

4/1-30/94         $1.00             25 259 sf                                                                      $25,259

5/1/94-             0               25,259 sf                                                                      $0(rent
6/30/94                                                                                                            abated)

7/94-9/94         $1.00             25,259 sf                                                                      $25,259

10/94-            $1.00             25,259 sf     7,936 sf                                                         $33,195
4/95

5/95-             $1,00             25,259 sf     7,936 sf       5130 sf                                           $38,325
10/95

11/95-            $1.00             25,259 sf     7,936 sf       5130 sf        4528 sf                            $42,853
4/96

5/96-9/96         $1.00             25,259 sf     7,936 sf       5130 sf        4528 sf        6,131 sf            $48,984

10/96-            $1.10             25,259 sf     7,936 sf       5130 sf        4528 sf        6,131 sf            $53,882
3/99
4/99-3/01         $1.20             25,259 sf     7,936 sf       5130 sf        4528 sf        6,131 sf            $58,780
4/01-3/03         $1.30             25,259 sf     7,936 sf       5130 sf        4528 sf        6,131 sf            $63,679



5.      Section 1.8 of the Lease entitled "Security Deposit" shall be amended by
        adding the following sentence to the end of the Section:

                "The Security Deposit shall not be increased due to the leasing
                of the Third Floor Expansion Space, Area 1, Area 2 or Area 3."


                                     Page 3


6.      Section 1.9 of the Lease entitled "Tenant's Share of Common Area
        Operating Expenses and Building Operating Expenses" shall be deleted in
        its entirety and substituted in its place shall be the following:

                1.9 "Tenant's Share of Common Area Operating Expenses and
                Building Operating Expenses" (as defined in Section 6.1) shall
                mean an amount due Landlord beginning June 1, 1995 which is
                fifty percent (50%) of the increase in Common Area Operating
                Expenses and one hundred percent (100%) of the increase in
                Building Operating Expenses over the Base Year, as specifically
                set forth in Sections 6.3 and 6.4.

7.      Section 1.10 of the Lease entitled "Tenant Improvement Allowance" shall
        be amended by adding the following:

                        (e) $158,125 for tenant improvements to the remaining
                space in the third floor (6,325 usable square feet multiplied by
                $25 per usable square foot);

                        (f) $108,825 for tenant improvements to Area 1 on the
                first floor (4,353 usable square feet multiplied by $25 per
                usable square foot) increased by three percent (3%) per
                annum from the date of the Second Amendment until the signing of
                a contract for the tenant improvements for Area 1;

                        (g) $113,200 for tenant improvements to Area 2 on the
                first floor (4,528 usable square feet multiplied by $25 per
                usable square foot) increased by three percent (3%) per annum
                from the date of the Second Amendment until the signing of a
                contract for the tenant improvements for Area 2;

                        (h) $135,650 for tenant improvements to Area 3 on the
                first floor (5,426 usable square feet multiplied by $25 per
                usable square foot) increased by three percent (3%) per annum
                from the date of the Second Amendment until the signing of a
                contract for the tenant improvements for Area 3;

                        (i) $11,360 for improvements to the lobby on the first
                floor (1,136 usable square feet multiplied by $10 per usable
                square foot), which is in addition to the $25 per usable square
                foot allowance for the lobby by virtue of its being included in
                the usable square footage of Area 1;

                        (j) $8,500 for improvements to remodel the lobby on the
                second floor (340 usable square feet multiplied by $25 per
                usable square foot), which lobby was previously improved as part
                of the Original Premises;

                        (k) $7,680 for improvements to the shipping area on the
                third floor (512 usable square feet multiplied by $15 per usable
                square foot), which was previously improved as part of the
                Original Premises.

                        (l) Tenant shall pay for the cost of the Work referenced
                in subsections (a) through (k) above which exceeds the Tenant
                Improvement Allowance.

8.      Section 1.13 of the Lease entitled EXHIBITS shall be amended by adding
        Exhibit A Amended - Description of Premises, and Exhibit C Amended -
        Second Phase Work Letter



                                     Page 4


        for all of the Premises except the Original Premises, copies of which
        are attached to this Second Amendment.

9.      Section 3.1 of the Lease entitled TERM shall be deleted in its entirety
        and substituted in its place shall be the following:

                3.1 TERM: The term of the lease as set forth in Section 1.5.
                "Expiration Date" shall mean April 30, 2003. The Third Floor
                Expansion Space Commencement Date, Area 1 Commencement Date,
                Area 2 Commencement Date and Area 3 Commencement Date shall be
                confirmed in writing by Landlord and Tenant within fifteen (15)
                days after the respective Commencement Dates.

10.     Section 3.2(c) of the Lease entitled Provisions Applicable To The
        Extended Term shall be amended by adding the following:

                (vi) The option to extend the Term shall be for the entire
                Building only and not for any portion or floor thereof.

11.     Section 3.2(d) of the Lease entitled Refurbishment Allowance shall be
        deleted in its entirety and substituted in its place shall be the
        following:

                (d) Refurbishment Allowance: On April 1, 1999, Landlord shall
                provide Tenant an allowance of not to exceed One Hundred
                Forty-Six Thousand Three Hundred Five and no/100 Dollars
                ($146,305.00 - $5.00 multiplied by Usable Square Footage of
                29,261 usable square feet) to refurbish the Original Premises
                and the Third Floor Expansion Space (i.e., the second and third
                floors of the Building). In the event Tenant elects to extend
                the Term for the entire Building pursuant to Section 3.2, then
                on April 1, 2003, Landlord shall provide Tenant an allowance of
                not to exceed Seventy-One Thousand Five Hundred Thirty-Five and
                no/100 Dollars ($71,535.00 - $5.00 multiplied by Usable Square
                Footage of 14,307 usable square feet) to refurbish Area 1, Area
                2 and Area 3 (i.e., the first floor of the Building). Such
                allowances shall be in addition to the Tenant Improvement
                Allowance and shall be a reimbursement to Tenant within ten (10)
                days after Tenant's completing the refurbishments and actually
                incurring expenses for such refurbishment of the Premises and
                submitting invoices to Landlord indicating the refurbishment
                work completed. Refurbishment and/or alterations shall be in
                accordance with Section 7.9 of this Lease.

12.     Section 3.3 of the Lease entitled CANCELLATION OF LEASE shall be deleted
        in its entirety.

13.     Section 4.2 of the Lease entitled Base Rent shall be amended by adding
        the following subsections:

                (a) In the event Tenant gives Landlord written notice that
                Tenant shall not cause the Work to be completed in the Third
                Floor Expansion Space, Area 1, Area 2 and/or



                                     Page 5


                Area 3 prior to the respective Commencement Date, the Base Rent
                for that portion of the Premises listed in the notice shall be
                at eighty percent (80%) of the Schedule of Base Rent set forth
                in Section 1.7 for a period of not to exceed six (6) months.
                Whether or not the portion of the Premises listed on the notice
                is improved, Base Rent commencing in the seventh (7th) month
                shall be as set forth in Section 1.7. Tenant's share of Common
                Area Operating Expenses and Building Operating Expenses shall be
                paid notwithstanding any reduction of Base Rent.

                (b) In the event the Third Floor Commencement Date, Area 1
                Commencement Date, Area 2 Commencement Date and/or Area 3
                Commencement Date are earlier than as set forth in Section 1.4
                (Second Amendment), the Schedule of Base Rent shall be amended
                to reflect the proper Commencement Date(s).

14.     Section 4.6 of the Lease entitled RENT CREDIT FOR UNUSED TENANT
        IMPROVEMENT ALLOWANCE shall be deleted in its entirety and substituted
        in its place, shall be the following:

                4.6 RENT CREDIT FOR UNUSED TENANT IMPROVEMENT ALLOWANCE: All
                Tenant Improvement Allowances [except the allowances set forth
                in Section 1.10(i), (j) and (k)] not used to pay for Work shall
                be credited toward Rent commencing on the Commencement Date, not
                to exceed One Dollar ($1.00) multiplied by the Usable Square
                Footage of the area being improved. This paragraph shall not
                apply to any portion of the Premises whereby Tenant gives
                Landlord written notice that Tenant shall not cause the Work to
                be completed pursuant to Section 4.2(a) above.

15.     Section 5 of the Lease entitled TENANT IMPROVEMENTS shall be deleted in
        its entirety and substituted in its place shall be the following:

                5.1 DEFINITIONS: For purposes of this Lease, the following
                definitions shall apply:

                        (a) "Work" shall mean the Tenant improvements as set
                forth in the approved construction documents and approved change
                orders as more specifically defined in the Work Letter and
                Second Phase Work Letter.

                        (b) "Substantial Completion" shall mean a portion of
                the Premises has been approved for occupancy by the City of
                San Diego Building Department, a portion of the Premises has
                been delivered to Tenant for occupancy, and completion of
                construction of the Work (defined below) in accordance with the
                approved construction documents and change orders has occurred
                with the exception of minor details of construction,
                installation, decoration, or mechanical adjustments commonly
                found on a punchlist, none of which materially interferes with
                Tenant's use or occupancy of that portion of the Premises.
                Substantial Completion of the Work shall be deemed to have
                occurred notwithstanding the requirement to complete the
                punchlist items or similar corrective work as set forth in
                Section 5.4.

                        (c) "Work Letter" shall mean Exhibit "C" attached to the
                Lease.



                                     Page 6


                        (d) "Second Phase Work Letter" shall mean Exhibit C
                Amended attached to this the Second Amendment.

                        5.2 PREPARATION OF PREMISES: Landlord shall arrange for
                the timely construction of the Work in accordance with the
                requirements set forth in the Work Letter, Second Phase Work
                Letter, the Lease and Amendments to the Lease.

                        5.3 LANDLORD'S CONTRACTOR: Landlord shall enter into
                construction contracts in accordance with the Work Letter and
                Second Phase Work Letter.

                        5.4 ACCEPTANCE OF PREMISES: Within five (5) days after
                Substantial Completion, Landlord, Tenant, Tenant's architect and
                such other of Tenant's Representatives as Tenant deems
                appropriate shall conduct a walk-through of the respective
                portion of the Premises. Tenant and Landlord shall at the
                conclusion of the walk-through jointly prepare a list of any
                items not completed in accordance with the Lease, Work Letter,
                Second Phase Work Letter, construction documents, construction
                contracts, Building/Tenant Improvement Standards for Pacific
                Corporate Park as set forth in Exhibit "D" ("Building
                Standards") and/or other applicable codes, laws, regulations or
                standards ("Corrections List"). Landlord shall reasonably and
                promptly complete all items on the Corrections List. Except for
                latent defects in the Building not reasonably discoverable
                during construction, Tenant shall be deemed to have accepted the
                Premises in its then "AS IS" condition upon Substantial
                Completion. If Landlord fails to reasonably complete all items
                on the Corrections List prior to ninety (90) days after it is
                prepared, Tenant may complete any items and deduct the
                reasonable cost from the Rent next due. Any items completed by
                Tenant shall be in accordance with Section 7.9 except as
                specifically otherwise provided in this Section.

16.     Section 5 of the Lease entitled Tenant Improvements shall be amended by
        adding the following after subsection 5.4:

                5.5 Election as to Area 1 and Area 2: Tenant may elect to
                complete the tenant improvements for Area 2 prior to Area 1;
                however, in this event, the first floor lobby as shown on
                Exhibit A Amended shall be completed at the same time as Area 2.

17.     Section 6.1(e) of the Lease entitled "Lease Expenses" shall be deleted
        in its entirety and substituted in its place shall be the following:

                (e) "Lease Expenses" shall mean the sum of (i) Building
                Operating Expenses, and (ii) Tenant's proportionate share of
                Common Area Operating Expenses (defined as a fraction, the
                numerator of which is the Rentable Square Footage and the
                denominator of which is the Project Rentable Area as defined
                below in subsection (g) below).

                (f) "Lease Year" shall mean each twelve (12) month period during
                the Term commencing June 1, 1995.



                                     Page 7


18.     Section 17.3 of the Lease entitled RIGHT OF FIRST REFUSAL FOR EXPANSION
        Space shall be deleted in its entirety.

19.     Henceforth "Tenant" shall mean HNC Software, Inc.

20.     Except as specifically set forth in this Second Amendment, all other
        terms and conditions of the Lease shall remain in full force and effect.

        IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first hereinabove set forth.

Landlord:                    PACCOR PARTNERS, a California general partnership

                             By:  PacCor Management Company, A general partner

                                  By:           [SIGNATURE ILLEGIBLE]
                                     -------------------------------------------

                                     Its:          VICE PRESIDENT
                                         ---------------------------------------

Tenant:                           HNC SOFTWARE, INC., a California corporation

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

                                     Its:
                                         ---------------------------------------



                                     Page 8


18.     Section 17.3 of the Lease entitled RIGHT OF FIRST REFUSAL FOR EXPANSION
        SPACE shall be deleted in its entirety.

19.     Henceforth "Tenant" shall mean HNC Software, Inc.

20.     Except as specifically set forth in this Second Amendment, all other
        terms and conditions of the Lease shall remain in full force and effect.

        IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first hereinabove set forth.

Landlord:                     PACCOR PARTNERS, a California general partnership

                              By: PacCor Management Company, A general partner

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

                                     Its:
                                         ---------------------------------------

Tenant:                           HNC SOFTWARE, INC., a California corporation

                                  By:        [SIGNATURE ILLEGIBLE]
                                     -------------------------------------------

                                     Its:           PRESIDENT
                                         ---------------------------------------


                                     Page 8


                        Exhibit "C" to Second Amendment

                            SECOND PHASE WORK LETTER

This Second Phase Work Letter is an exhibit to the Lease, as amended, between
PacCor Partners, a California general partnership ("Landlord") and HNC Software,
Inc., a California corporation ("Tenant") dated December 1, 1993, with regard to
the following:

1.      CONDITION OF PREMISES AND BUILDING DELIVERED BY LANDLORD.

        1.1 Second Phase Premises Shell and Stub-in. Landlord shall provide, at
its expense and not as a charge against the Tenant Improvement Allowance, a
finished shell for that portion of the Premises and Building consisting of the
Third Floor Expansion Space, Area 1, Area 2 and Area 3 ("Second Phase
Premises"), which shall include: (a) smooth concrete floors; (b) unfinished
ceilings; (c) finished core area, including elevator(s), toilet room(s),
electrical room, telephone room(s), janitorial closet(s) and exit stair(s); (d)
dry wall (taped and/or finished, but not painted) around surfaces of core walls;
(e) existing heating, ventilating and air conditioning service as set forth in
Exhibit "F" to the Lease; (f) existing sprinkler service within the Building
(not including main loops and branch distribution); (g) main electrical panel;
(h) exercise room including existing exercise equipment, and (i) life safety
systems as required by the applicable San Diego City Municipal Code for a
building shell.

        1.2 Building Standards. All improvements in the Building shall be in
accordance with Building/Tenant Improvement Standards for Pacific Corporate Park
("Building Standards") attached as Exhibit D of the Lease. If provisions of
this Second Phase Work Letter conflict with provisions of the Building
Standards, the provisions of the Second Phase Work Letter shall prevail.

        1.3 Building Plans. Landlord has delivered to Tenant its best available
shell building plans and information ("Building Plans").

        1.4 Work. The installation and construction of the Tenant improvements
by Landlord in accordance with the permitted and approved Second Phase
Construction Documents (defined in paragraph 2.4) and Second Phase Change Orders
(defined in paragraph 9) of this Second Phase Work Letter shall constitute the
work ("Work").

2.      PLANS AND DOCUMENTS.

        2.1 Second Phase Preliminary Space Plan. Tenant's Representative shall
provide to Landlord a preliminary schematic drawing depicting the Second Phase
Premises with walls, doors, windows, columns and structural elements, based on
site visits, other information obtained by Tenant or Tenant's Representatives,
and the best available Building Plans supplied by Landlord ("Second Phase
Preliminary Space Plan"), in accordance with the schedule set forth in paragraph
6 of this Second Phase Work Letter ("Second Phase Schedule") for information
only.



                                     Page 1

        2.2 Second Phase Final Space Plan. Tenant's Representative shall furnish
to Landlord a final schematic drawing depicting the Second Phase Premises with
walls, doors, windows, columns and structural elements, based on site visits,
other information obtained by Tenant or Tenant's Representatives, and the
Building Plans ("Second Phase Final Space Plan"), in accordance with the Second
Phase Schedule. Landlord shall review and approve the Second Phase Final Space
Plan with reasonable written conditions, if any, in accordance with the Second
Phase Schedule.

        2.3 Second Phase Construction Documents. Tenant shall cause to be
prepared all documents required to obtain a building permit from the City of San
Diego for the Work, including any corrections or changes requested by the City
of San Diego ("Second Phase Construction Documents") in accordance with the
Second Phase Schedule. The Second Phase Construction Documents shall be
consistent with the Second Phase Final Space Plan, design plans, if any, and the
Building Standards. Tenant shall submit Second Phase Construction Documents
including the list of bid alternates, if any, to Landlord in accordance with the
Second Phase Schedule. The Landlord shall review and approve with reasonable
conditions, if any, in accordance with the Second Phase Schedule. Tenant shall
reasonably comply with Landlord's conditions, if any, by modifying the Second
Phase Construction Documents prior to the issuance of building permits.

        2.4 Second Phase Design/Engineering Fees. Fees paid to BSHA Architects &
Interior Design for preparation of the Second Phase Preliminary Space Plan, the
Second Phase Final Space Plan, working drawings, and services for processing and
obtaining building permits and Second Phase Change Orders, and other services
related to the Work shall not exceed Thirty-Four Thousand Seven Hundred
Thirty-Eight and no/100ths Dollars ($34,738.00) ($1.70 times Usable Square
Footage of 20,434 usable square feet). Such fees shall be part of the Tenant
Improvement Allowance. All above mentioned fees exceeding $34,738 shall be paid
by Tenant and not be a part of the Tenant Improvement Allowance.

        2.5 Landlord's Review of Plans and Documents. Landlord's review of plans
during design and construction of Work is selective for the benefit of Landlord
only. A Building Standard, provision in the Amended Planned Industrial
Development Permit No. 85-0830 ("PID") or other similar document may only be
amended, modified or waived as specifically set forth in writing by Landlord.
Any provision of a PID and/or governmental requirement that is amended, modified
or waived must be specifically approved by the appropriate government entity
prior to final approval by the Landlord.

3.      COST ESTIMATES.

        3.1 Second Phase Preliminary Cost Estimates. Landlord shall obtain
preliminary cost estimates and deliver to Tenant for approval with conditions,
if any, in accordance with the Second Phase Schedule.

        3.2 Second Phase Final Cost Estimates. Landlord shall deliver to tenant
Final Cost Estimates in accordance with the Second Phase Schedule.

        3.3 Contractors. Bycor General Contractors, Inc. shall be the general
contractor ("Bycor").



                                     Page 2

4. BUILDING PERMIT. Tenant or Tenant's Representative shall submit to the City
of San Diego all Construction Documents required to obtain building permits in
accordance with the Second Phase Schedule. The building permits shall be issued
to the Landlord and all fees shall be paid by the Landlord as part of the Tenant
Improvement Allowance. Furthermore, Tenant, Tenant's Representative and Bycor
shall conduct all processing and coordination with the City of San Diego
required for the issuance of building permits for the Work.

5. CONSTRUCTION CONTRACTS.

        5.1 Tenant or Tenant's Representative shall prepare a bid package for
distribution to the subcontractor(s) and submit to Landlord for review. Landlord
shall approve the bid package with reasonable conditions, if any, in accordance
with the Second Phase Schedule.

        5.2 Landlord shall prepare a contract for the Work with Bycor and submit
to Tenant for review in accordance with the Second Phase Schedule. Tenant shall
approve the contract with conditions, if any, in accordance with the Second
Phase Schedule.

        5.3 Landlord shall execute a construction contract for the Second Phase
Premises ("Second Phase Construction Contract") with Bycor. Landlord shall
deliver to Tenant a copy of the Second Phase Construction Contract in accordance
with the Second Phase Schedule.

6. SECOND PHASE SCHEDULE. Tenant and Landlord shall comply with the following
Second Phase Schedule. All dates not in this Second Phase Schedule shall be
determined by Landlord and Tenant prior to the due date for item a) for the
respective area.



                                     Page 3


                                    SCHEDULE



                                                              RESPON-       DUE         DUE         DUE          DUE
#                   ACTION                                    SIBILITY      DATE        DATE        DATE         DATE
- --  ---------------------------------------------             --------     ---------   --------     ------      ---------
                                                                           3D FLOOR     AREA 1      AREA 2       AREA 3
                                                                                              
a)  Deliver to Landlord for approval Preliminary              Tenant        6/24/94     11/25/94    6/29/95     12/26/95
    Space Plan

b)  Deliver to Tenant written notice approving                Landlord      6/29/94
    Preliminary Space Plan or disapproving with
    detailed written comments

c)  Deliver to Landlord preliminary cost estimate             Tenant        7/7/94

d)  Deliver to Tenant written approval of preliminary         Landlord      7/7/94
    cost estimate with conditions, if any

e)  Deliver to Landlord for approval Final Space Plan         Tenant        7/7/94

f)  Deliver to Tenant written notice approving Final          Landlord      7/7/94
    Space Plan with conditions, if any

g)  Deliver to Landlord Construction Documents                Tenant        7/8/94

h)  Deliver to Tenant written approval of Construction        Landlord      7/8/94
    Documents with conditions, if any

i)  Submit Construction Documents to City of San              Tenant        7/5/94
    Diego for permits

j)  Prepare bid package and deliver to Landlord for           Tenant        7/7/94
    approval

k)  Deliver to Bycor bid package as approved by               Landlord      7/8/94
    Landlord

l)  Deliver to Tenant Construction Contact, bids and          Landlord      7/7/94
    recommended subcontractors in each line item of
    budget

m)  Deliver to Landlord written approval with                 Tenant        7/8/94
    conditions, if any, of Construction Contract and bids
    in each line item of budget

n)  Execute Construction Contract. Deliver to Tenant          Landlord      7/8/94
    copies of executed Construction Contract, final
    budget and construction schedule

o)  Process and obtain City building permits                  Tenant        7/15/94

p)  Commence construction of Work                             Landlord      7/10/94     2/3/95      8/17/95     2/13/96

q)  Substantial Completion of Work                            Landlord      9/4/94      4/24/95     10/24/95    4/23/96




                                     Page 4


NOTE: The documents in the Second Phase Schedule are deemed delivered when
received in good condition by the following which may be changed upon written
notice:

To Tenant:                           HNC, Inc.
                                     5930 Cornerstone Court West
                                     San Diego, California 92121
                                     Attn: Hugh D. Gerfin

To Tenant's Representative:          Ms. Beverly Thompson
(Interior Designer)                  BSHA Architects & Interior Design
                                     919 4th Avenue
                                     San Diego, California 92101

To Landlord                          PacCor Partners
                                     11939 Rancho Bernardo Road, Suite 200
                                     San Diego, California 92128
                                     Attn: Robert C. Henkel
To Landlord's Representative:        Mr. James L. Pulliam or Mr. Robert L. Smith
                                     PacCor Management Company
                                     11939 Rancho Bernardo Road, Suite 200
                                     San Diego, California 92128

7. ADMINISTRATION OF CONSTRUCTION. Landlord shall administer the construction of
the Work in accordance with the Work Letter, the Second Phase Construction
Contract, the Lease and the Amendments to the Lease.

        Landlord shall notify Tenant of all regularly scheduled construction
meetings during the course of construction of the Work. Tenant shall have the
right but not the obligation to attend all construction meetings.

8. PAYMENT OF TENANT IMPROVEMENT ALLOWANCE. Landlord shall make monthly progress
payments to Bycor of the Tenant Improvement Allowance pursuant to the following
conditions and computations:

        8.1 Landlord shall deliver to Tenant copies of Bycor's approved monthly
payment request ("Payment Request").

        8.2 At such time as Landlord has expended the Tenant Improvement
Allowance, Tenant shall reimburse Landlord for the entire remaining balance of
the cost of the Work or the amount due under the Second Phase Construction
Contract, whichever is greater. After the Tenant Improvement Allowance has been
expended, Tenant shall reimburse Landlord the amount of the Payment Request
within fourteen (14) days of receipt of the Payment Request by Tenant.

        8.3 All utilities expenses reasonably associated with the construction
of the Work shall be a part of the Tenant Improvement Allowance.



                                     Page 5


9.      SECOND PHASE CHANGE ORDERS.

        9.1 Any deviation from the Second Phase Construction Contract during the
construction of the Work shall be via a change order from Landlord to Bycor
except for minor changes that are made by Bycor which are within normal
construction practices in the San Diego Area ("SECOND PHASE CHANGE ORDER").

        9.2 Either Tenant or Landlord may prepare and submit a Second Phase
Change Order to the other party for approval. The Second Phase Change Order
shall include the change in the contract price and the number of days of delay,
if any, in Substantial Completion.

        9.3 Within two (2) business days after receipt of a Second Phase Change
Order, a party shall give the other party notice of its approval or disapproval
including the reason for disapproval. Tenant and Landlord agree to meet and
confer within three (3) business days after receipt of the Second Phase Change
Order regarding any Second Phase Change Order not approved. Tenant shall
reimburse Landlord for outside consultants' fees for the review of a Second
Phase Change Order if (i) Landlord does not reasonably have the expertise among
its employees to properly review a specific Second Phase Change Order and (ii)
Tenant consents to the retaining of an outside consultant.

        9.4 Landlord and Tenant agree not to unreasonably disapprove a Second
Phase Change Order. Both parties agree to use reasonable effort to process a
Second Phase Change Order expeditiously. When a Second Phase Change Order has
been signed by Landlord, Bycor and Tenant, the contents thereof shall be binding
on all parties.

10. SPECIFIC LANDLORD CONCERNS RE SECOND PHASE CONSTRUCTION DOCUMENTS AND SECOND
    PHASE CHANGE ORDERS.

        10.1 Landlord has identified below certain areas of intense concern
which are most likely to generate condition(s) to approval by Landlord during
Landlord's review of plans, drawings, specifications and a Second Phase Change
Order, and therefore may result in a disapproval or the necessity to retain
outside consultants.

               10.1.1 Any aspects of the Work that may endanger the structural
integrity of the Premises, the Building and/or the Project;

               10.1.2 Any aspects of the Work altering the Project utility
services or utilities serving Landlord's other tenants;

               10.1.3 Any aspect of the Work which is a material deviation from
the Building Standards;

               10.1.4 Any aspects of the Work which violate the conditions of
the PID, any State or municipal code or public agency ordinance, or regulation
and the applicable Declaration of Conditions, Covenants & Restrictions
("CC&R's")



                                     Page 6



               10.1.5 Any aspects of the Work to the Premises which will be
visually unattractive from the exterior of the Premises.

               10.1.6 Penetration or modification of the Building roof or shell.

               10.1.7 Reduction in the number of parking stalls in the Project.

               10.1.8 Increase in rentable areas which may cause a reduction in
buildable area available to Landlord with respect to future expansion of the
Project.

11.     TENANT'S VISIT TO PREMISES.

        11.1 Upon execution of the Second Amendment to Lease, Tenant shall have
access to the Second Phase Premises for the purpose of planning and design seven
(7) days a week, twenty-four (24) hours a day, subject to all applicable codes,
ordinances, law and governmental restrictions, except that Tenant shall not
interrupt or interfere with the activities of Landlord or other tenants of the
Project.

        11.2 Tenant hereby indemnifies and agrees to hold Landlord, Landlord's
Representatives and the Project free and harmless of any and all costs, claims,
damages, liens, losses and expenses of any kind or nature, arising out of or
resulting from such entry and/or activity upon the Project, Building or Second
Phase Premises by Tenant and Tenant's Representatives, except to the extent
caused by Landlord's negligence or intentional misconduct.

        11.3 All of Tenant's personal property brought upon or installed in the
Second Phase Premises before the delivery of possession shall be at Tenant's
risk, and neither Landlord nor Landlord's Representatives shall be responsible
for any damage, losses or destruction thereof, except for Landlord's willful
misconduct. All Tenant's installations shall conform with all applicable
governmental regulations and codes.

12. BONDS/GUARANTEE. Landlord may at its election require the contractors to
provide for the benefit of Landlord from a company acceptable to Landlord a
performance and completion bond to assure the completion of the Work and the
payment of all labor and material costs.

13. INSURANCE. Landlord shall require contractors to maintain adequate insurance
as a cost of Tenant Improvement Allowance, including any cost for naming
Landlord as an additional insured.

14. LANDLORD'S FEE. No fee, charge, out-of-pocket costs, general conditions,
overhead or profit shall be chargeable by Landlord to Tenant in connection with
Landlord's supervision of Work, except as provided in Paragraph 9.3 above.

15. ARBITRATION OF DISPUTES. If either party disapproves any designs, plans and
specifications submitted by the other party pursuant to this Second Phase Work
Letter, the disapproving party shall as soon thereafter as reasonably possible,
submit for the issuing party's approval revised designs, plans and
specifications. Within three (3) business days after receipt of such revised
designs, plans and specifications, the issuing party shall notify the



                                     Page 7


disapproving party of approval or disapproval of such revisions. If the issuing
party disapproves such revised designs, plans and specifications, then the
disapproving party may, at its election, notify the issuing party in writing of
the submission of the dispute to arbitration pursuant to this paragraph. Such
arbitration shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.

16. DEFINED TERMS. All defined terms (capitalized words) shall have same meaning
as in the Lease, the First Amendment dated February 1, 1994, and the Second
Amendment dated June 1, 1994, concerned with the Second Phase Work Letter.
"Business days" shall mean Monday through Friday, excluding all federal and
state holidays.

ACCEPTED AND APPROVED:

PACCOR PARTNERS

By:  PACCOR MANAGEMENT COMPANY, A general partner

     By:           /s/ HUGH GERFIN
        ------------------------------------------
        Its:          VICE PRESIDENT
            --------------------------------------

HNC SOFTWARE , INC., a California corporation

     By:           [SIGNATURE ILLEGIBLE]
        ------------------------------------------
        Its:            CONTROLLER
            --------------------------------------



                                     Page 8







                      [THIRD FLOOR WEST BUILDING DIAGRAM]













EXHIBIT A







                      [SECOND FLOOR WEST BUILDING DIAGRAM]













EXHIBIT A








                               [SITE PLAN DIAGRAM]













EXHIBIT B










                      [FIRST FLOOR WEST BUILDING DIAGRAM]













EXHIBIT A AMENDED


                                  PAGE 1 OF 2








                      [THIRD FLOOR WEST BUILDING DIAGRAM]













EXHIBIT A AMENDED



                                  PAGE 2 OF 2




                       FIRST AMENDMENT TO OFFICE BUILDING
                                      LEASE
                             between PACCOR PARTNERS
                                  and HNC, INC.


        This First Amendment To Office Building Lease between PacCor Partners
and HNC, Inc. ("First Amendment"), is made and entered into effective February
1, 1994 between PACCOR PARTNERS, a California general partnership
("Landlord") and HNC, INC., a California corporation ("Tenant"), with
regard to the following:

A.  Landlord and Tenant entered into an Office Building Lease dated December 1,
    1993 ("Lease").


B.  The Work Letter (Exhibit "C" of the Lease) names Roel Construction Company,
    Inc. ("Roel") as the general contractor.

C.  Tenant has requested to substitute Bycor General Contractors, Inc., a
    California corporation ("Bycor"), for Roel as the general contractor to
    complete the Work on the Premises.

D.  Changing general contractors may delay Substantial Completion (defined in
    Paragraph 5.1 of the Lease) and/or create a claim for damages by Roel.
    Tenant desires to assume both of the aforementioned liabilities and
    indemnify and defend Landlord from any such claim(s).

E.  Landlord and Tenant desire to amend the Lease as set forth in this First
    Amendment.


    NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree to amend the Lease as follows:


1.  The Lease and Work Letter are hereby amended to replace Roel with Bycor as
    the general contractor. Wherever the term "Roel" appears in the Work Letter
    or Lease, it shall be substituted by "Bycor".

2.  Landlord and Tenant agree that the change of general contractor from Roel to
    Bycor shall be considered Tenant's delay of the Schedule by seven (7) days
    for purposes of paragraph 1.4 of the Lease.

3.  Tenant agrees to indemnify and defend Landlord for all claims directly or
    indirectly arising from this substitution of general contractors,
    specifically, any claim Roel may have for it not being retained as the
    general contractor. Tenant shall not indemnify and defend Landlord for any
    claims directly or indirectly arising from Landlord's sole negligence.
    Landlord shall use reasonable efforts to resolve any claim Roel may have at
    no cost to Landlord or Tenant.

4.  Except as specifically set forth in this First Amendment, all other terms
    and conditions of the Lease, as amended, shall remain in full force and
    effect.


                                     Page 1



        IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first hereinabove set forth.



 Landlord:                    PACCOR PARTNERS, a California general partnership
                              By:  PacCor Management Company, A general partner



                                   By: /s/ HUGH GERFIN
                                       -----------------------------------------
                                       Its: Vice President



Tenant:                       HNC, INC., a California corporation




                              By: /s/ [SIGNATURE ILLEGIBLE]
                                  ----------------------------------------------
                                  Its: PRESIDENT
                                       -----------------------------------------


                                     Page 2





        Exhibit "E": Rules and Regulations
        Exhibit "F": Heating, Ventilation & Air Conditioning ("Tri-Water
                     System")
        Exhibit "G": Non-Disturbance Agreement
        Exhibit "H": Estoppel Certificate
        Exhibit "I": Janitorial Specifications
        Exhibit "J": Covenants, Conditions & Restrictions
        Exhibit "K": Amended Planned Industrial Development
                     ("PID") Permit No. 85-0830

                                   SECTION 2
                                    PREMISES

        Landlord hereby leases the Premises to Tenant and Tenant hereby leases
the Premises from Landlord, subject to the provisions of this Lease.

                                   SECTION 3
                                      TERM

        3.1 TERM: The Term of this Lease is set forth in Section 1.5.
"Expiration Date" shall mean the last day of the initial Term of this Lease. The
Commencement Date and Expiration Date shall be confirmed in writing by Landlord
and Tenant within fifteen (15) days after the Commencement Date.


        3.2 OPTION TO EXTEND TERM:

            (a) Option to Extend Term: As a material part of the consideration
for the execution of this Lease by Tenant, Tenant is hereby granted an option to
extend the Term for the Premises for one (1) five (5) year period ("Extended
Term") following the Expiration Date, by giving Landlord written notice
of Tenant's exercise of the option ("Option Notice") at least six (6) months
before the Expiration Date. If the option to extend is exercised, the "Option
Commencement Date" shall be one day after the Expiration Date and the term of
this Lease shall be extended to the fifth anniversary of the Expiration Date
("Option Expiration Date").


            (b) Provisions Applicable to the Option: The option to extend the
Term of this Lease set forth in the preceding Section may be exercised by Tenant
provided that, at the time Landlord receives the Option Notice, Tenant is not in
material default under this Lease. Notwithstanding Section 3.2(a), if Tenant is
in material default of this Lease on the date Landlord receives the Option
Notice, the Option Notice shall be void and the Extended Term shall not commence
unless Landlord notifies the Tenant in writing within ten (10) days after
receipt of the Option Notice that the Option Notice is accepted and will operate
to extend the Term of this Lease as provided in this Section 3.2. If Tenant is
in material default under this Lease on the date the Extended Term is to
commence and Tenant has not commenced any cure of such default within the cure
periods set forth in Section 12 below, then, in Landlord's sole election, the
Extended Term shall not commence and this Lease shall expire upon the Expiration
Date.


                                     Page 5




Notwithstanding any provision to the contrary in this Lease, Tenant shall in no
event be deemed in material default of this Lease if curative action has
occurred pursuant to Section 12.

            (c) Provisions Applicable To The Extended Term: The Extended Term
shall be upon the same terms and conditions as set forth in this Lease except as
follows:

              (i) The Base Rent for the Extended Term shall be adjusted to
ninety-five percent (95%) of the then fair market rental value as more
specifically set forth in Sections 4.3 and 4.4.

              (ii) Tenant will have no option to extend the Term of this Lease
beyond the Option Expiration Date unless the parties agree so in writing.

              (iii) Tenant shall accept the Premises in its then "AS IS"
condition at the Option Commencement Date.

              (iv) If the Lease is extended, then "Term" as used in this Lease
shall include the Term and the Extended Term unless specifically provided to the
contrary in this Lease.

              (v) Landlord shall deliver to Tenant an amendment to this Lease
which shall include the Base Rent for the Extended Term as set forth in Section
4.3. Base Rent for the Extended Term shall be as set forth in Sections 4.3 and
4.4 of this Lease. The parties shall execute an amendment to this Lease stating
the Base Rent for the Extended Term, provided, however, that the execution of
such amendment shall not be a condition precedent to Tenant's obligation to pay
Base Rent as set forth in Sections 4.3 and 4.4 of this Lease. If the parties do
not agree on the Base Rent for the Extended Term, it shall be determined in
accordance with Section 4.3 of this Lease.

              (d) Refurbishment Allowance: In the event Tenant elects to extend
the Term pursuant to Section 3.2, Landlord shall provide Tenant an allowance of
not to exceed One Hundred Fourteen Thousand Six Hundred Eighty and no/100
Dollars ($114,680.00 - $5.00 multiplied by Usable Square Footage of 22,936
usable square feet) to refurbish the Premises. Such allowance shall be in
addition to the Tenant Improvement Allowance and shall be a reimbursement to
Tenant within ten (10) days of Tenant's completing the refurbishments and
actually incurring expenses for such refurbishment of the Premises and
submitting invoices to Landlord indicating the work completed. Refurbishment
and/or alterations shall be in accordance with Section 7.9 of this Lease.

        3.3 CANCELLATION OF LEASE: Tenant shall have the right to cancel this
Lease which cancellation shall be effective at the end of the sixtieth (60th)
month after the Commencement Date. Tenant's right to cancel shall be exercised
by giving to Landlord


                                     Page 6



written notice by no later than the forty-eighth (48th) month after the
Commencement Date and by paying Landlord concurrent with such notice the sum of
Twenty-Three Thousand Six Hundred Forty-Two Dollars ($23,642.00), which
represents the unamortized lease commission for months 61-84 of the Term.

                                   SECTION 4
                                      RENT

        4.1 DEFINITIONS: For purposes of this Lease, the following definitions
shall apply:

            (a) "Base Rent" shall mean the minimum monthly base rent set forth
in Section 1.7 subject to any adjustments contained in this Lease or written
amendments to this Lease executed by both Landlord and Tenant;

            (b) "Additional Rent" shall mean all Monthly Payments and Lease
Expense Difference which Tenant is required to pay under Section 6 below.

            (c) "Rent" shall mean Base Rent and Additional Rent and any other
sum payable by Tenant to Landlord under this Lease.

        4.2 BASE RENT: Tenant agrees to pay to Landlord the Base Rent as set
forth on the Schedule of Base Rent in Section 1.7, without deduction, setoff,
prior notice, or demand (except as specifically set forth in this Lease and
except for tenant allowances which Landlord fails to timely pay to Tenant
pursuant to this Lease), per month in advance on the first day of each month
commencing on the Commencement Date and continuing during the Term of this Lease
(except as otherwise provided in the Schedule of Base Rent as provided in
Section 1.7). All Rent shall be paid to Landlord at its address specified in
Section 1.12. Base Rent in the amount of Twenty-Five Thousand Two Hundred
Fifty-Nine and no/100ths Dollars ($25,259.00) shall be paid to Landlord
concurrent with the execution of this Lease and shall be applied to month one
(1) of the Term.

        4.3 BASE RENT FOR EXTENDED TERM: The Base Rent for the Extended Term
shall be Ninety-five Percent (95%) of the Fair Market Rental Value of the
Premises, as defined in Section 4.4.

            (a) On or before the date which is thirty (30) days after receipt of
the Option Notice, Landlord shall notify Tenant in writing of Landlord's
determination of Fair Market Rental Value (Section 4.4) ("Landlord's Notice").
Tenant may, at its election, either accept such determination of Fair Market
Rental Value or attempt to reach an alternative determination of Fair Market
Rental Value by mutual agreement with Landlord.

                                     Page 7





            (b) If Landlord and Tenant are unable to agree on the Fair Market
Rental Value within thirty (30) days after Tenant's receipt of Landlord's
Notice, then the Fair Market Rental Value shall be determined in accordance with
the following procedure:


              (i) Within sixty (60) days after Tenant's receipt of Landlord's
Notice, Landlord and Tenant shall jointly appoint an arbitrator in accordance
with the commercial arbitration rules of the American Arbitration Association.
If the parties cannot agree on an arbitrator, then Landlord and Tenant shall
each appoint one arbitrator and the two arbitrators shall appoint a third
arbitrator. All three shall determine Fair Market Rental Value. Such
arbitrator(s) shall be experienced with matters involving real estate
appraisals in the area in which the Premises are located.

              (ii) Concurrent with such appointment(s) of arbitrator(s) by the
parties, Landlord and Tenant shall each submit to such arbitrator(s) their
respective determination of the Fair Market Rental Value.

              (iii) The arbitrator(s) shall select the one of the submitted
determinations that is closest to such arbitrator's own appraisal of the Fair
Market Rental Value. Such arbitrator(s) shall have no discretion to make any
determination other than the selection of either Landlord's or Tenant's
determination of Fair Market Rental Value.

            (c) The cost of such arbitrator(s) shall be shared equally by
Landlord and Tenant.

            (d) Landlord and Tenant shall each proceed expeditiously with the
arbitration in order to permit the arbitrator's decision to be issued by the
Expiration Date.

            (e) If the arbitrator's decision has not been received by the Tenant
and the Landlord by the Expiration Date, Tenant shall pay Base Rent in an amount
of Tenant's determination of Fair Market Rental Value as submitted to the
arbitrator(s). Any additional Base Rent as determinated by arbitration shall be
due with interest at ten percent (10%) from the time the Base Rent was due and
payable.

        4.4 FAIR MARKET RENTAL VALUE: "Fair Market Rental Value" shall mean the
effective value on a monthly basis of comparable office space in the Sorrento
Mesa area of San Diego (which is described as bounded on the west by Interstate
805, on the north by Sorrento Valley Boulevard, on the east by Camino Ruiz, and
on the south by Miramar Road) being paid by willing, comparable non-renewal
tenants six (6) months prior to the commencement of the Extended Term. For
purposes of determination of Fair Market Rental Value, other comparable space in
the Project shall be considered the most comparable space to the Premises and
the arbitrator(s) shall consider the Refurbishment Allowance as set forth in
Section 3.2(d).


                                     Page 8





        4.5 SECURITY DEPOSIT: Upon the execution of this Lease, Tenant shall
deposit with Landlord a check in the amount of Twenty-Five Thousand Two Hundred
Fifty-Nine and no/100ths Dollars ($25,259.00) as a Security Deposit to secure
the performance by Tenant of its obligations under this Lease, including without
limitation Tenant's obligations to (a) pay Rent, (b) repair damages to the
Premises caused by Tenant, Tenant's agent(s), employee(s), officer(s) and/or
independent contractor(s) of or retained by Tenant ("Tenant's Representatives"),
and/or Tenant's guests, visitors, customers, invitees and/or licensees
("Tenant's Invitees"), (c) clean the Premises upon termination of this Lease if
the Premises are not left in a clean condition by Tenant, and (d) remedy future
defaults by Tenant in any obligation under this Lease to restore, replace or
return personal property installed or located in or on the Premises, including
without limitation trade fixtures, furnishings, equipment and inventory, signs
("Personal Property") or appurtenances. If Tenant defaults under this Lease,
including without limitation a default described in the preceding sentence,
Landlord may use the Security Deposit to cure such defaults and to compensate
Landlord for all or a portion of Landlord's damage resulting from such defaults.
Within seven (7) days of written demand by Landlord, Tenant shall promptly pay
to Landlord a sum equal to the amount so used by Landlord so as to replenish the
Security Deposit. Within thirty (30) days after the Expiration Date, Option
Expiration Date or earlier termination of this Lease, Landlord shall deliver to
Tenant, at Tenant's address, any portion of such Security Deposit not used by
Landlord, together with a detailed statement explaining how any portion of the
Security Deposit was used. Landlord may commingle such Security Deposit with
Landlord's other funds and Landlord shall not pay to Tenant interest on such
Security Deposit. In the event of a bankruptcy or other insolvency or a debtor-
creditor proceeding against or by Tenant, the Security Deposit shall be deemed
applied first to the payment of Rent and other amounts due Landlord for all
periods prior to the date of filing or instigating such proceedings. To the
extent any debts, liabilities and obligations of Tenant under this Lease have
not been satisfied, Tenant shall remain fully liable to Landlord for their
payment and/or performance.

        4.6 RENT CREDIT FOR UNUSED TENANT IMPROVEMENT ALLOWANCE: All Tenant
Improvement Allowance not used to pay for Work shall be credited toward Rent in
month four (4) of the Term of this Lease not to exceed One Dollar ($1.00)
multiplied by the Usable Square Footage.



                                    SECTION 5
                               TENANT IMPROVEMENTS

        5.1 DEFINITIONS: For purposes of this Lease, the following definitions
shall apply:

            (a) "Work" shall mean the Tenant improvements as set forth in the
approved Construction Documents and approved Change Orders as more specifically
defined in the Work Letter.


                                     Page 9




            (b) "Substantial Completion" shall mean that the Premises have been
approved for occupancy by the City of San Diego Building Department, the
Premises have been delivered to Tenant for occupancy and completion of
construction of the Work (defined below) in accordance with the approved
Construction Documents and Change Orders has occurred with the exception of
minor details of construction, installation, decoration, or mechanical
adjustments commonly found on a punchlist, none of which materially interferes
with Tenant's use or occupancy of the Premises. Substantial Completion of the
Work shall be deemed to have occurred notwithstanding the requirement to
complete the punchlist items or similar corrective work as set forth in Section
5.4.

            (c) "Work Letter" shall mean Exhibit "C" attached to the Lease.

        5.2 PREPARATION OF PREMISES: Landlord shall arrange for the timely
construction of the Work in accordance with the requirements set forth in the
Work Letter and this Lease.

        5.3 LANDLORD'S CONTRACTOR: Landlord shall enter into construction
contracts in accordance with the Work Letter.

        5.4 ACCEPTANCE OF PREMISES: Within five (5) days after Substantial
Completion, Landlord, Tenant, Tenant's architect and such other of Tenant's
Representatives as Tenant deems appropriate shall conduct a walk-through of the
Premises. Tenant and Landlord shall at the conclusion of the walk-through
jointly prepare a list of any items not completed in accordance with the Lease,
Work Letter, construction documents, construction contracts, Building/Tenant
Improvement Standards for Pacific Corporate Park as set forth in Exhibit "D"
("Building Standards") and/or other applicable codes, laws, regulations or
standards ("Corrections List"). Landlord shall reasonably and promptly complete
all items on the Corrections List. Except for latent defects in the Building not
reasonably discoverable during construction, Tenant shall be deemed to have
accepted the Premises in its then "AS IS" condition upon Substantial Completion.
If Landlord fails to reasonably complete all items on the Corrections List prior
to ninety (90) days after it is prepared, Tenant may complete any items and
deduct the reasonable cost from the Rent next due. Any items completed by Tenant
shall be in accordance with Section 7.9 except as specifically otherwise
provided in this Section.



                                    SECTION 6
                               OPERATING EXPENSES

        6.1 DEFINITIONS: For purposes of this Lease, the following definitions
shall apply:


                                     Page 10



            (a) "Base Year" shall mean the twelve (12) month period from June 1,
1994 to May 31, 1995.

            (b) "Building Operating Expenses" shall mean all costs and expenses
paid or incurred by Landlord or on Landlord's behalf with respect to the
maintenance and operation of the Building which belong within the following
categories:

              (i) that portion of Real Property Taxes (as defined below)
allocable to the Building provided that Real Property Taxes attributable to the
Base Year shall be increased, if required, to reflect the full value of the
tenant improvements of the Premises provided for hereunder;


              (ii) painting, interior landscape maintenance, window cleaning,
janitorial and other cleaning services for the Building, pest control and
security services provided in connection with the Building;


              (iii) premiums, costs, expenses, deductibles paid or similar costs
or charges with respect to insurance Landlord maintains, including without
limitation any insurance arranged by Landlord under Section 8.2 below, public
liability and property damage insurance, fire and extended coverage insurance,
plate glass insurance, rental income insurance, fidelity insurance, and/or any
other insurance Landlord may maintain under this Lease provided that the
decision to carry such insurance and the premiums for such are commercially
reasonable; and if such insurance is not in effect during the Base Year, then
the Operating Expenses for the Base Year shall be increased by the insurance
premium that would have been paid had the insurance been obtained by Landlord;

              (iv) supplies, including without limitation cleaning supplies and
other depletable materials, and sales and other taxes on such items;

              (v) the cost of the rental of equipment including without
limitation all applicable sales taxes;

              (vi) the cost of operating and maintaining (but not the cost of
purchasing) the Building security or other system used in connection with life
or property protection, (including without limitation all machinery, electronic
systems, and other equipment comprising any part of such systems);

              (vii) direct charges for services of independent contractors who
provide services in connection with the maintenance and operation of the
Building, to the extent such charges are not in excess of commercially
competitive rates;

              (viii) the cost of operation, maintenance, repair, replacement
and/or repainting of (i) cables, fans, pumps, boilers, cooling equipment,
wiring, electrical fixtures, metering, control and distribution equipment, (ii)
the unexposed electrical,


                                     Page 11





plumbing, sewage systems and mechanical systems, elevators and elevator shafts
which are not part of the Work; (iii) structural parts of the Building, which
are limited to foundations, bearing and exterior walls (excluding glass doors
which are part of Tenant's Premises), subflooring, and roof including roof
membrane; (iv) windows and window frames, gutters and downspouts on the
Building; (v) the Tri-Water System (defined in Section 7.13 below) and any
auxiliary system to the Tri-Water System, if any, for the Building; (vi) that
portion of the Building not included as part of the Premises and the Common
Area; and (vii) any life and/or property protections including without
limitation sprinkler systems, lighting and window washing equipment, signs
(other than signs to be maintained by a tenant) and/or any other portions of the
Building;


              (ix) charges for removal of trash from the Building, including the
cost of janitorial services provided to tenants of the Building (including
without limitation Tenant;

              (x) whether or not capitalized under generally accepted accounting
principles, costs for alterations and improvements to the Building made by
reason of the laws and requirements enacted after the Commencement Date by any
public authorities or the reasonable requirements of insurance bodies after the
Commencement Date or Landlord's insurer after the Commencement Date, which costs
shall be amortized over the reasonable useful life of such alterations and
improvements, which in no event shall be less than five (5) years;

              (xi) management fee for the Building;

              (xii) whether or not capitalized under generally accepted
accounting principles, costs of capital improvements, equipment, or machinery
installed after the Commencement Date for the purpose of reducing energy
consumption or reducing other Building Operating Expenses, which costs shall be
amortized over the reasonable useful life of such capital improvements,
equipment or machinery, which in no event shall be less than five (5) years,
provided that the amount of such costs included in Building Operating Expenses
for any year shall never exceed the savings in Building Operating Expenses for
such year resulting from the capital improvements, equipment or machinery;

              (xiii) the cost of all charges for water and sewer (together with
any taxes on such utilities) used at the Building;

              (xiv) reasonable accounting fees for the audit and verification of
the financial matters relating to the Building;

              (xv) reasonable labor expenses, including salaries, wages and
benefits, for on-site personnel retained by Landlord to manage the Building;

                                     Page 12




              (xvi) Pacific Corporate Center, Unit 1 Owners' Association fee
with respect to the Building; and

              (xvii) all other charges properly allocable to the management,
repair, operation, and/or maintenance of the Building in accordance with
generally accepted accounting practices.

Notwithstanding anything to the contrary in this definition of Building
Operating Expenses, Building Operating Expenses shall not include, and Tenant
shall not be responsible for payment of any share or portion of, the following:


              (A) Interest, principal, points and fees on debt secured by the
Building or the Project;

              (B) Any ground lease rentals;

              (C) Costs of purchasing or renting capital improvements and
equipment, except as specifically permitted above;

              (D) Costs incurred by Landlord for the repair of damage to the
Building, to the extent that Landlord is reimbursed by insurance proceeds;

              (E) Costs incurred with respect to the installation or
rehabilitation of tenant improvements made at any time for other tenants or
other occupants of the Buildings or the Project or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other occupants
of the Buildings or the Project;

              (F) Costs and expenses (including attorney's fees, leasing
commissions, brochures and space planning costs) incurred in connection with
negotiations or disputes with present or prospective tenants or other occupants
of the Building or the Project;

              (G) Landlord's general corporate overhead and general and
administrative expenses;


              (H) Advertising and promotional expenditures;

              (I) Tax penalties;

              (J) Costs and expenses incurred by Landlord by reason of a
violation by Landlord of this Lease or a violation of another tenant of the
terms and conditions of another lease regarding other space in the Building or
the Project;

              (K) Services provided, taxes attributable to and costs incurred in
connection with the operation of any retail or restaurant operations in the
Project;


                                    Page 13



            (L) Costs arising from the presence in or about the Project
(including ground water or soil) of Hazardous Materials subject to the
provisions set forth in Section 7.4 below;

            (M) Costs arising from Landlord's charitable or political
contributions;

            (N) Management, overhead and profit increments paid to Landlord or
Landlord's affiliates for services in the Building or the Project to the extent
they exceed the reasonable costs of such services if rendered by unaffiliated
third parties on a competitive basis;

            (O) Depreciation and amortization;

            (P) Expenses in connection with services or other benefits which are
not offered to Tenant but which are provided to another tenant or occupant of
the Building;

            (O) All items and services for which Tenant or any tenant or
occupant of the Building reimburses Tenant (other than through Tenant's
proportionate share of Building Operating Expenses) or which Tenant provides
selectively to one or more tenants or occupants (other than Tenant) without
reimbursement;

            (R) Costs incurred in connection with upgrading the Building to
comply with handicap, hazardous material, fire and safety codes which were in
effect prior to the date of the Lease, subject to Section 7.3;

            (S) All assessments and premiums which can be paid by Tenant in
installments without any additional cost shall be paid by Tenant in the maximum
number of installments permitted by law and not included as Building Operating
Expenses except in the year in which the assessment installment is actually
paid;

            (T) Costs to repair defects in, or maintain the structural portions
of, the Building or of any of the Work installed by Landlord in the Premises;

            (U) Capital costs for sculpture, paintings or other objects of art;

            (V) Costs (including all related attorneys' fees and costs of
settlement judgments) arising from claims, disputes or potential disputes
between Landlord and other tenants of the Building;

            (W) Measurable costs of overtime, excluding emergencies, incurred by
Landlord in curing its defaults or performing work expressly provided in the
Lease to be performed by Landlord;

            (X) Any legal fees associated with the sale or refinancing of the
Building;


                                    Page 14

and

            (Y) Costs for any separate utility meters Landlord may install for
other tenants of the Building, unless the installation is required by a utility
company or governmental entity.

            (c) "Common Area" (as shown on Exhibit "B") shall mean all areas and
facilities within the Project designated from time to time by Landlord for the
general use and convenience of Tenant and other users of the Project. Common
Area includes, without limitation, walkways, parking lots (as designated by
landlord for non-exclusive tenant parking), landscape areas, sidewalks, and all
other areas of the Project intended for use by Tenant in common with the Project
tenants, their authorized representatives and invitees. Tenant has the
non-exclusive right to use the Common Area along with others so entitled,
subject to rules and regulations promulgated from time to time by Landlord.

            (d) "Common Area Operating Expenses" shall mean all costs and
expenses paid or incurred by Landlord or on Landlord's behalf with respect to
the maintenance and operation of the Common Area and which include but are not
limited to the categories listed in the definition of Building Operating
Expenses, but in no event shall Common Area Operating Expenses include (i) any
Building Operating Expenses or (ii) any expense attributable to the maintenance
and/or operation of any interior portion of any building except Building.

            (e) "Lease Expenses" shall mean the sum of (i) Tenant's
proportionate share of Building Operating Expenses which is fifty-two and
3/10ths percent (52.3%) (defined as Rentable Square Footage of 25,259 divided by
48,327 rentable square feet of the Building), and (ii) Tenant's proportionate
share of Common Area Operating Expenses which is twenty-six percent (26%)
(defined as Rentable Square Footage of 25,259 rentable square feet divided by
Project Rentable Area of 97,311 rentable square feet).

            (f) "Lease Year" shall mean each twelve (12) month period during
the Term after the Base Year.

            (g) "Project Rentable Area" shall mean 97,311 rentable square feet.

            (h) "Real Property Taxes" shall mean all real property taxes and
general and special assessments levied or assessed against real property of the
Premises, including without limitation any tax, fee or excise on (i) rents, (ii)
the square footage, (iii) the act of entering into this Lease, or (iv) the
occupancy of Tenant, or any other tax, or excise, however described including
without limitation value-added tax, levied or assessed by the United States, the
State of California or any political subdivision of the State of California,
including without limitation any county, city and county, public corporation,
district, or any other political entity or public corporation of the State of


                                    Page 15



California as a direct substitution in whole or in part for, or in addition to,
any real property taxes or general or special assessments. Notwithstanding
anything to the contrary in the preceding sentence, "Real Property Taxes" shall
not mean any municipal, county, state, or federal income, excise, franchise,
estate, succession, inheritance or transfer taxes of Landlord. If any Real
Property Taxes are assessed or collected on the basis of a fiscal period, a
portion of which occurs during the Term and the remainder of which occurs before
or after the Term, then the Real Property Taxes payable for such fiscal period
shall be apportioned between such periods based upon the number of days during
such fiscal period that occur during the Term and the number of days that occur
before or after the Term. Real Property Taxes shall also not include, so long as
Proposition 13 remains in effect in California, any increase in taxes
attributable to any sale or transfer of or change of ownership in the Project
(or any part thereof) which occurs during the initial five (5) years of the
Term. If Real Property Taxes are assessed in combination with the Adjacent
Building, then (for purposes of determining Building Operating Expenses and
Common Area Operating Expenses) the Real Property Taxes shall be allocated on
the basis of the ratio of the Rentable Square Footage to the Project Rentable
Area.

        6.2 ADJUSTMENTS TO COMMON AREA OPERATING EXPENSES: Common Area Operating
Expenses during the Term (including the Base Year) shall be "grossed up" ("Gross
Up") if the Project is less than ninety-five percent (95%) leased and occupied,
in accordance with reasonable and generally accepted accounting principles
consistently applied to reflect what Common Area Operating Expenses would have
been had the Project been ninety-five percent (95%) leased and occupied and
fully assessed for tax purposes as leased and occupied buildings provided that
in no event shall the Gross Up result in Landlord receiving payment or
reimbursement from Tenant for costs or expenses not actually incurred by
Landlord.

        6.3 RENT ADJUSTMENT: If Lease Expenses for any Lease Year are greater
than Lease Expenses for the Base Year (after the Gross Up of Common Area
Operating Expenses), Tenant shall pay such increase in Lease Expenses pursuant
to this Section 6.3 beginning not earlier than the first Lease Year after the
Base Year. Landlord shall deliver to Tenant, at least thirty (30) days prior to
the commencement of each subsequent Lease Year during the Term, a written
statement ("Estimated Statement") setting forth Landlord's estimate of the
amount by which the Lease Expenses for the upcoming Lease Year will be greater
or less than the Lease Expenses for the Base Year (the "Lease Expenses
Difference"). If the Lease Expenses for the upcoming Lease Year ("Next Year")
are estimated to be greater than the Lease Expenses for the Base Year, then
Tenant shall pay to Landlord, on the first day of each month of the Next Year
during the Term, an amount ("Monthly Payment") equal to one-twelfth (1/12th) of
the Lease Expenses Difference, as estimated by Landlord in the most recently
delivered Estimated Statement. Landlord may, at its election, no more than one
(1) time during any Lease Year, deliver to Tenant a revised Estimated Statement,
revising Landlord's estimate of the Lease Expenses, in accordance with
Landlord's most current estimate. No later than one hundred twenty (120) days
after the end of


                                    Page 16



each Lease Year, Landlord shall deliver to Tenant a written statement ("Actual
Statement") setting forth the actual Lease Expenses Difference allocable to such
Lease Year. If the sum of Monthly Payments actually paid by Tenant during any
Lease Year exceeds the actual Lease Expenses Difference allocable to such Lease
Year, then such excess shall be refunded to Tenant within thirty (30) days after
delivery of the Actual Statement to Tenant. If Tenant has made Monthly Payments
and the sum of Monthly Payments actually paid by Tenant during any Lease Year is
less than the actual Lease Expenses Difference allocable to such Lease Year,
then Tenant shall, within thirty (30) days after receipt of the Actual
Statement, pay to Landlord the amount of such deficiency. The payment by Tenant
of any Monthly Payment or any year-end deficiency of Lease Expenses Difference
shall not be deemed a waiver of Tenant's right to contest Landlord's calculation
of Lease Expenses.

        6.4 LEASE EXPENSES DIFFERENCE CAP: Notwithstanding anything to the
contrary in this Lease, Lease Expenses Difference shall not include more than
one hundred eight percent (108%) of Controllable Operating Expenses of the
preceding Lease Year, or in the case of the first Lease Year, the Base Year.
"Controllable Operating Expenses" shall mean landscaping maintenance, parking
lot sweeping, plumbing, Tri-Water System maintenance, janitorial services and
supplies, trash removal, security and life safety, pest control, elevator
maintenance, parking and walkways, locks and keys, window washing, lighting
maintenance, roof maintenance, painting and sealing, general maintenance, paving
maintenance, windows, doors and screens, signs, common area maintenance, and
management fees.

        6.5 OPERATING EXPENSE RECORDS: Landlord shall maintain all operating
expense records for a period of five (5) years. Tenant or Tenant's
Representative shall have the right to inspect and photocopy any or all of the
operating expense records at the office of PacCor Management Company during
normal working hours upon twenty-four (24) hours written notice. Tenant shall
have the right to require an audit of Lease Expenses. Any amounts of Lease
Expenses Difference overpaid by Tenant shall be immediately refunded or shall be
credited against the Base Rent next due by Tenant. In the event Tenant's audit
determines that Lease Expense Difference for any Lease Year is overstated by Six
Thousand Two Hundred Fifty and no/100ths Dollars ($6,250.00) or more and the
Actual Statement did not reasonably disclose the facts underlying the
overstatement, then Landlord shall pay the reasonable cost of Tenant's audit.

                                    SECTION 7
                      USE AND MAINTENANCE OF THE PREMISES

        7.1 PERMITTED USE: Tenant may use the Premises for general office use
and for any other legally permitted use compatible with comparable office
buildings in the Sorrento Mesa area of San Diego, California, including software
development and testing.


                                    Page 17



        7.2 INSURANCE: Tenant shall not do, bring or keep anything in or about
the Premises which is outside the scope of that which is normally contemplated
for the use specified in Section 7.1, that will cause a cancellation of any
insurance covering the Premises or the Project. If the rate of any insurance
carried by Landlord is increased as a result of Tenant's use (except as
contemplated by Section 7.1), Tenant shall pay to Landlord, within ten (10) days
after Landlord delivers to Tenant a notice of such increases, the amount of such
increase.

        7.3 COMPLIANCE WITH LAWS: Tenant shall comply with all laws concerning
the Premises and Tenant's use of the Premises. Landlord represents and warrants
that, as of the Commencement Date of this Lease, there are no violations within
the Project of the Americans With Disabilities Act 42 U.S.C. Section 1281 et.
seq. ("ADA") and any similar state and federal laws and that the Building and
Common Areas shall comply with ADA and any similar state and federal laws on the
Commencement Date. To the extent that the foregoing representation and warranty
is inaccurate or untrue, Landlord shall, at its sole expense and not as an
expense which shall be added to Building Operating Expenses or Common Area
Operating Expenses, be responsible for compliance with the ADA and any similar
state or federal law. The Work shall comply with the requirements of the ADA and
any similar state and federal laws. If the Premises do not comply with the ADA
or similar state or federal law during the Term of the Lease due to a change in
the ADA or similar state or federal law after the Commencement Date that
requires Tenant to comply with such changes as a condition to Tenant's continued
use of the Premises, then Tenant shall at its sole cost be responsible for
compliance with the ADA or any similar state and federal laws.

        7.4 HAZARDOUS WASTE OR NUISANCE: Landlord represents that to its
knowledge the Project is free of Hazardous Materials as defined below. Tenant
shall not use the Premises in any manner that will constitute waste, nuisance or
unreasonable annoyance to other tenants of the Project, or to owners or
occupants of nearby properties. Tenant shall not use the Premises for sleeping,
washing clothes, or the preparation, manufacture, or mixing of anything that
might emit any odor or objectionable noises or lights onto the Building or
nearby properties. Tenant shall neither bring into the Premises, nor permit the
bringing into the Premises of, any animal, motorcycle or other vehicle, except
for guide dogs or wheelchairs. Tenant and Landlord shall each strictly comply
with all statutes, laws, ordinances, rules, regulations, and precautions now or
hereafter mandated or advised by any federal, state or local law, regulation,
ordinance or rule or by any governmental agency with respect to the use,
generation, treatment, storage, disposal, release or threatened release of
hazardous, toxic or radioactive substance, materials or waste (collectively
"Hazardous Materials"). As used in this Section 7.4, Hazardous Materials
includes without limitation those substances identified in Section 66680 through
66685 of Title 22 of the California Administrative Code, Division 4, Chapter 30,
as amended from time to time, and those substances defined as "hazardous
substances," "hazardous materials," "hazardous wastes," "pollutants,"
"contaminants," "chemicals known to the State to cause cancer or reproductive
toxicity," "asbestos," "hydrocarbons (including


                                    Page 18




without limitation oil)," "toxic bearing dust" or other similar designations in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Sections 9601, et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801, et seq., the Hazardous Substance
Account Act, Health & Safety Code Sections 25300, et seq., the Safe Drinking
Water and Toxic Enforcement Act of 1986, Health & Safety Code Sections 25249.5,
et seq., and any other federal, state or local statutes, laws, ordinances,
rules, regulations and precautions. Tenant shall not cause or allow any Tenant's
Representatives and/or Tenant's Invitees to cause any Hazardous Materials to be
used, generated, treated, stored, disposed of or released in, on or about the
Premises, except as allowed by law. Tenant shall indemnify, protect, defend by
counsel acceptable to Landlord, and hold Landlord and its successors, assigns
and mortgagees harmless from and against any and all claims, losses,
liabilities, costs and expenses, including all foreseeable and unforeseeable
consequential damages, except to the extent caused by Landlord's or Landlord's
Representative's negligence, willful misconduct, omission or breach of
obligations under this Lease, directly or indirectly arising out of the use,
generation, treatment, storage, disposal, release or threatened release of
Hazardous Materials by Tenant or any Tenant's Representatives and/or Tenant's
Invitees claiming under Tenant of Hazardous Materials at, on, beneath or from
the Project based on the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Sections 9601, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901, et seq., the California Hazardous
Substance Account Act, Health & Safety Code Sections 25300, et seq., the
California Hazardous Waste Control Law, Health & Safety Code Sections 25100, et
seq., the Porter-Cologne Water Quality Control Act, Water Code Sections 13000,
et seq., or any other federal, state or local statute, law, regulation,
ordinance or rule. Landlord shall indemnify, protect, defend by counsel
acceptable to Tenant, and hold Tenant, Tenant's Representatives (as defined in
4.5) and Tenant's successors, assigns and mortgagees harmless from and against
any and all claims, losses, liabilities, costs and expenses, including all
foreseeable and unforeseeable consequential damages, except to the extent caused
by Tenant or Tenant's Representative's negligence, willful misconduct or breach
of its obligations under this Lease, directly or indirectly arising out of the
past, present or future use, generation, treatment, storage, disposal, release
or threatened release of Hazardous Materials at, on, beneath or from the Project
based on the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Sections 9601, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901, et seq., the California Hazardous Substance
Account Act, Health & Safety Code Sections 25300, et seq., the California
Hazardous Waste Control Law, Health & Safety Code Sections 25100, et seq., the
Porter-Cologne Water Quality Control Act, Water Code Sections 13000, et seq., or
any other federal, state or local statute, law, regulation, ordinance or rule.
Neither the written consent by Landlord to the use, generation, storage or
disposal of Hazardous Materials nor the strict compliance by Tenant with all
statutes, laws, ordinances, rules, regulations and precautions pertaining to
Hazardous Materials shall excuse Tenant from Tenant's obligations pursuant to
this Section 7.4. Likewise, neither the written consent by Tenant to the use,
generation, storage or disposal of Hazardous


                                    Page 19



Materials nor the strict compliance by Landlord with all statutes, laws,
ordinances, rules, regulations and precautions pertaining to Hazardous Materials
shall excuse Landlord from Landlord's obligations pursuant to this Section 7.4.
Tenant's obligations pursuant to this Section 7.4 shall survive the termination
of this Lease. Tenant shall notify Landlord, as required by California Health &
Safety Code Section 25359.7, if Tenant knows or has reasonable cause to believe
that any Hazardous Material has come to be located on or beneath the Building.
On or before January 1, 1995, and each January 1 thereafter during the Term,
Tenant shall provide Landlord with a written list of all Hazardous Materials
used, generated, treated, stored, disposed of and released in, on or about the
Premises by Tenant during the prior calendar year and those Hazardous Materials
Tenant proposes to use, generate, treat, store, dispose of and release during
the next calendar year, except for substances which are customarily used or
found in typical offices, including without limitation copier and printer toner,
cleaning supplies, correction fluid and ink.

        7.5 DAMAGE AND OVERLOADING: Tenant shall be responsible for any damage
to the Premises or the Project caused by Tenant's Invitees and/or Tenant's
Representatives. No machinery, apparatus, or other appliance shall be used or
operated in or on the Premises that will in any manner injure the Premises or
Project. If Tenant, Tenant's Representatives or Tenant's Invitees cause damage
to the Premises or the Project, then Landlord shall have the right but not the
obligation to repair such damage and Tenant shall promptly reimburse Landlord
for Landlord's actual costs of such repair (to the extent that such costs exceed
available insurance proceeds) as Rent.

        7.6 ACCESS BY LANDLORD:

            (a) Landlord and/or Landlord's agent(s), employee(s), officer(s) or
independent contractor(s) of or retained by Landlord ("Landlord's
Representatives") shall have the right to enter the Premises at all reasonable
times upon twenty-four (24) hour prior written notice to Tenant (i) to determine
whether the Premises are in Good Condition (defined in Section 7.15) or whether
Tenant is complying with its obligations under this Lease, (ii) to do any
necessary maintenance or make any restoration to the Premises that the Landlord
has the right or obligation to perform under this Lease, (iii) to serve, post,
or keep posted any notices required or allowed under this Lease, (iv) to show
the Premises to brokers, agents, buyers, tenants or other persons interested in
a listing of, financing, sale or exchange of, or occupancy of the Premises or
the Project, and (v) to shore the foundations, footings, and walls of the
Premises and other improvements on the Real Property and to erect scaffolding
and protective barricades around and about the Premises or the Project, but not
so as to prevent entry to or use of the Premises and to do any other act or
thing necessary for the safety or preservation of the Premises or the Project if
any excavation or other construction is undertaken or is about to be undertaken
on any adjacent property or nearby street. Landlord shall have the right at any
and all times to enter the Premises for emergency purposes.


                                    Page 20



            (b) Landlord shall not be liable for any inconvenience, disturbance,
loss of business, nuisance, or other damage arising out of Landlord's entry on
the Premises as provided in this Section 7.6, except damage resulting directly
from the negligent act, omission or willful misconduct of Landlord or Landlord's
Representatives. No provision of this Lease shall be construed as obligating
Landlord to perform any repairs, alterations or decorations except as otherwise
provided in this Lease or as expressly agreed in writing to be performed by
Landlord. Landlord shall have the right to run utility or other services and
facilities through the Premises as may be reasonably required, whether to
service the Premises or other premises, provided that the use of such space does
not have a materially adverse effect on or unreasonably interfere with Tenant's
use and enjoyment of the Premises. If during the last month of the Term, Tenant
shall have removed substantially all of its Personal Property and personnel from
the Premises, Landlord may enter the Premises and repair, alter and redecorate
the same without abatement of Base Rent or liability to Tenant and such acts
shall have no effect on this Lease. Any entry to the Premises obtained by
Landlord pursuant to this Section 7.6 shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into or detainer of the
Premises, or an eviction of Tenant from the Premises or any portion thereof.
Tenant shall not be entitled to an abatement or reduction of Base Rent because
of the exercise by Landlord of any rights under this Section 7.6. Landlord shall
conduct its activities on the Premises as allowed in this Section 7.6 in a
manner that will cause as little inconvenience, annoyance, or disturbance to
Tenant as reasonably feasible.

        7.7 SIGN: Tenant shall have the right to place, construct and maintain
one sign, not to exceed twenty-five (25) square feet in size and located as
mutually agreed to by Landlord and Tenant, at the top of the Building
("Sign"). The design, construction and maintenance of the Sign shall be
solely at Tenant's expense. Landlord makes no representation with respect to
Tenant's ability to obtain such approvals under applicable laws and regulations
or pursuant to that certain Declaration of Covenants, Conditions and
Restrictions for Unit No. 1 of Pacific Corporate Center, dated May 14, 1985 and
recorded as Instrument #85-169398 ("CC&R's", Exhibit "J"). In any event, the
Sign shall comply with all laws, regulations, CC&R's, and PID (Exhibit "K").
Tenant shall obtain any approvals required by laws, regulations and CC&R's. All
costs to remove the Sign upon the Expiration Date, Option Expiration Date or
earlier termination of the Lease shall be the liability of Tenant.

        7.8 PARKING: Subject to the terms of this Section 7.8 and so long as
Tenant is not in default under this Lease, Landlord grants to Tenant the right
to the non-exclusive use in common with other Project tenants of the parking lot
adjacent to and serving the Building of ninety (90) parking spaces, five (5) of
which will be reserved solely for Tenant, except for reserved parking granted to
any other tenants in the Project. Tenant's use of the parking lot shall be
subject to such reasonable rules which do not favor other Project tenants to the
detriment of Tenant, as Landlord may, in its sole discretion, adopt from time to
time with respect to use of the parking lot. Landlord shall cooperate with
Tenant, and shall take all reasonable steps necessary, to ensure that


                                    Page 21



Tenant and Tenant's Representatives and Tenant's Invitees shall have access to
all parking spaces to which Tenant is entitled. Tenant shall not be charged for
the use of the parking lot unless the City of San Diego or other governmental
entity after the execution of this Lease assesses a tax, fee and/or excise on
the parking of motor vehicles in the parking lot, and then Tenant shall pay to
Landlord that portion of the tax, fee and/or excise based on Tenant's right to
non-exclusive parking of the entitled parking spaces.

        7.9 ALTERATIONS:

            (a) Tenant shall not make any alterations, improvements, repairs,
additions, installations, or changes of any nature in or to the Premises
(individually and collectively, "Alterations") without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed more than
ten (10) days after Landlord's receipt of Tenant's request for Landlord's
consent. If written consent is obtained from Landlord, any construction
undertaken by Tenant in or to the Premises shall comply with all the terms and
provisions of Sections 7.9(b) and 7.9(c). Unless otherwise agreed to in writing
by Landlord and Tenant before such Alterations are made, all Alterations made by
Tenant shall become the property of Landlord and a part of the realty and shall
be surrendered to Landlord upon the Expiration Date, Option Expiration Date or
sooner termination of the Lease, or, at Landlord's election shall be removed
before the last day of the Term after receiving ninety (90) days prior written
notice from Landlord to Tenant or thirty (30) days after notice of Landlord's
election is given to Tenant in the event of earlier termination of the Lease.
All damage caused by such removal shall be repaired with all due diligence by
Tenant at its sole cost and expense.

            (b) Tenant must utilize only bondable licensed contractors for any
Alterations proposed to be made in or to the Premises. Tenant shall promptly
provide Landlord with copies of bid solicitations and bids received for all such
work.

            (c) Alterations whether installed by Tenant or Tenant's
Representatives at any time prior to or during the Term shall be completed only
in compliance with the following:

                (i) Except as to Alterations which are reasonably expected to
cost less than Ten Thousand Dollars ($10,000.00), no work shall commence without
(A) Landlord's prior written approval or written waiver of right to approve
Tenant's contractor, (B) certificates of insurance acceptable to Landlord from a
company or companies approved by Landlord, furnished to Landlord by Tenant's
contractor, for general liability and automobile liability with limits of not
less than $500,000.00 combined single limit, builder's risk insurance for the
value at risk, workers' compensation as required, endorsed to include Landlord
as an additional insured, (C) Landlord's prior written approval of detailed
plans and specifications for such work which approval may not be unreasonably
withheld or delayed more than ten (10) days after Landlord's receipt of Tenant's
request for approval, and (D) with respect to any


                                    Page 22



after Landlord's receipt of Tenant's request for approval, and (D) with respect
to any work estimated to cost more the $30,000.00, procurement by Tenant or its
contractor, if required by Landlord, of both a performance and labor and
materials payment bond (or a single bond including such coverage) guaranteeing
lien-free completion of the work of improvements.

                (ii) Notwithstanding Section 7.9(c)(i), all work on any
Alterations shall be performed in conformity with a valid permit and all other
applicable permits or licenses when and where required by cognizant government
authority or agency, copies of which shall be furnished to Landlord before the
work is commenced, and any work not acceptable to any governmental authority or
agency having or exercising jurisdiction over such work, or not reasonably
satisfactory to Landlord, shall be promptly corrected at Tenant's sole cost and
expense. Notwithstanding any failure by Landlord to object to any such work,
Landlord shall have no responsibility thereof either to Tenant or to third
parties.

                (iii) Notwithstanding Section 7.9(c)(i), all work or any
Alterations shall be performed at such time and in such manner as Landlord may
reasonably schedule or designate. Tenant shall pay to Landlord, subject to
Tenant's prior written approval, any extraordinary costs incurred for monitoring
any substantial changes to the Premises.

                (iv) Tenant shall reimburse Landlord subject to Tenant's prior
written approval, for any extraordinary expense actually incurred by Landlord by
reason of faulty work performed by Tenant or its contractors, or by reason of
delays caused by such work, or by reason of inadequate cleanup.

                (v) Tenant or its contractors will in no event be allowed to
install plumbing, mechanical equipment, electrical wiring or fixtures,
acoustical or integrated ceilings, or partitions, unless such installation is
consistent with plans and specifications previously approved in writing by
Landlord.

                (vi) All data processing, photocopying, copying and other
special electrical equipment shall have a separate duplex outlet and to the
extent such equipment requires electrical power in excess of that allotted to
the Premises, such equipment shall be installed only under the supervision of
Landlord or its electrical contractor. Tenant assumes the risk of all damage,
costs, and expense which is incurred by Landlord or other Premises tenants as
the result of Tenant's installation of electrical equipment in the Premises
without the supervision of Landlord or its electrical contractor. Tenant shall
pay any additional costs on account of any increased support to the floor load
necessary thereof or for any other equipment.

                (vii) Tenant or its contractors shall, before the commencement
of any Alterations by Tenant in, on or around the Premises, give sufficient
notice thereof to Landlord for Landlord's preparation, posting and recordation
of any appropriate notices



                                    Page 23



successor or similar provision of law. Within ten (10) days after substantial
completion of any Alterations or repairs, Tenant or its contractor shall file
for record in the Office of the County Recorder in and for the county in which
the Premises is located, a notice of completion as permitted by law.

                (viii) All Alterations shall conform to the then applicable
Building Standards. The Building Standards may be reasonably amended during the
Term of the Lease.

        7.10 MECHANICS' LIEN: Tenant shall pay all costs for Alterations and
other construction done or caused to be done by it on the Premises. Tenant shall
keep the Premises free and clear of all mechanics' liens resulting from such
Alterations or other construction. Tenant shall have the right to contest the
correctness or validity of any such lien if, immediately on demand by Landlord,
Tenant procures and records a lien release bond, issued by a corporation
satisfactory to Landlord and authorized to issue surety bonds in California, in
an amount equal to one hundred fifty percent (150%) of the amount of the claim
of lien. The bond shall meet the requirements of California Civil Code Section
3143, shall indemnify Landlord against liability for such claim of lien and
shall hold the Project free from the effect of such claim of lien. In addition,
Landlord may require Tenant to pay Landlord's reasonable and necessary
attorneys' fees and costs in participating in such an action.

        7.11 INDEMNITY AND EXEMPTION OF LANDLORD FROM LIABILITY:

             (a) Except to the extent caused by the negligence or willful
misconduct of Landlord or Landlord's Representatives, Tenant shall indemnify,
protect and defend Landlord against all claims arising from (i) the use of the
Premises by Tenant, Tenant's Representatives and/or Tenant's Invitees, (ii) the
conduct of Tenant's business, (iii) any activity, work or things done, permitted
or suffered by Tenant or any of Tenant's Representatives in or about the
Premises or elsewhere, (iv) any breach or default in the performance of any
obligation to be performed by Tenant under this Lease, or (v) any negligence of
Tenant, Tenant's Representatives and/or Tenant's Invitees, and against all
reasonable costs, attorneys' fees, expenses and liabilities incurred in the
defense of any such claim and any action or proceeding brought on such claim.
Notwithstanding any other provision of this Lease, Tenant shall not indemnify,
protect or defend Landlord with respect to any past, present or future act or
omission relating to the use, generation, storage, discharge or disposal of
Hazardous Materials on or about the Project caused by any person other than
Tenant, Tenant's Representatives or Tenant's Invitees. If any action or
proceeding is brought against Landlord by reason of any such claim, Tenant upon
written notice from Landlord shall defend such action or proceeding at Tenant's
sole cost by counsel reasonably satisfactory to Landlord. Tenant assumes all
risk of damage to property and injury to persons in, upon or about the Premises
arising from any cause, and Tenant waives all claims against Landlord in respect
of such damage or injury, except to the extent caused by Landlord's or
Landlord's Representative's sole and exclusive gross negligent acts or willful
misconduct.


                                    Page 24



Representative's sole and exclusive gross negligent acts or willful misconduct.
Tenant's obligations pursuant to this Section 7.11 shall survive the termination
of this Lease.

             (b) Landlord shall not be liable for injury to Tenant's business or
any loss of income from such business or for damage or injury to the goods,
wares, merchandise, or other property or the person of Tenant, Tenant's
Representatives or Tenant's Invitees or any other persons in, upon or about the
Premises, whether such damage, loss or injury is caused by or results from
criminal acts, fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures; or from any other
cause, whether such damage, loss or injury results from conditions arising upon
the Premises or from other sources or places and regardless of whether the cause
of such damage, loss or injury or the means of repairing such damages, loss or
injury is inaccessible to Tenant.

        7.12 PREMISES CHANGES: This Lease shall not be affected or impaired by
any physical change to any part of the Project or any sidewalks, streets or
improvements nearby the Project, provided that access to the Premises, parking
for the Premises and Tenant's use of the Premises are not adversely materially
affected by such change and provided that such changes do not significantly and
adversely affect the safety of the Project. This Lease shall not be affected or
impaired by any change in the use of the Project, provided the Project is for
general office use and for any other legally permitted use compatible with
comparable office buildings in the Sorrento Mesa area of San Diego, California.

        7.13 SERVICES AND UTILITIES:

             (a) Heating, Ventilation, Air Conditioning System:

                 (i) Landlord has installed that portion of the water source
heat pump system set forth in the first and second paragraphs of Weather
Engineering letter to Roel Construction Company dated April 6, 1993 attached as
Exhibit "F" ("Tri-Water System").

                 (ii) Landlord shall install as a component of the Work and as
part of the Tenant Improvement Allowance all portions of the Tri-Water System
within the Building which is set forth generally as items 1 through 9 in Exhibit
"F".

                 (iii) Tenant shall pay Landlord the sum of Twenty-Five Dollars
($25.00) for each off-peak hour the Tri-Water System is in operation. Off-peak
hours shall mean before 7 a.m. and after 7 p.m. Monday through Friday, before 9
a.m. and after 1 p.m. Saturday, all day Sunday and all day the following public
holidays: New Year's Day, the observed Monday or Friday holiday if New Year's
Day falls on a Sunday, Memorial Day (observed), Independence Day (observed),
Labor Day,



                                    Page 25



observed Monday or Friday holiday if Christmas Day falls on a Sunday, and New
Year's Eve.

                 (iv) Upon Tenant's written request to Landlord, Landlord shall
install as a component of the Work and as part of the Tenant Improvement
Allowance a monitoring device to measure off-peak hours use of the Tri-Water
System or a bypass system to allow Tenant to operate the Tri-Water System during
off-peak hours to a portion of the Premises.

             (b) Landlord's Responsibility: Landlord shall provide to the
Building telephone service and electrical service to the utilities equipment
room in the Building. Landlord shall install water line(s) to the Building at
Landlord's expense. Landlord shall furnish elevator service consisting of
non-attended automatic elevators, lighting replacement for exterior standard
lights, daily janitor services, and such other services and pursuant to the
specifications set forth on attached Exhibit "F". If Tenant uses heat generating
machines or equipment in the Premises which affect the temperature otherwise
maintained by the Tri-Water System for the Premises, Landlord reserves the right
to install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation, operation and maintenance thereof,
shall be paid by Tenant to Landlord upon written demand by Landlord.

             (c) Interruption of Services: In the event of any interruption of
service required to be provided by Landlord hereunder, where such interruption
is caused by the negligence or willful misconduct of Landlord, Tenant shall be
entitled to abatement of Base Rent and Lease Expenses Difference in proportion
to the reasonable denial of use caused by the interruption, beginning on the
later of the third day after Tenant provides Landlord with notice of the
interruption or the actual date when Tenant stops using all or any affected
portion of the Premises because of the interruption, and continuing until the
restoration of the interrupted service. Notwithstanding the foregoing, Tenant
acknowledges that services to be supplied by Landlord hereunder may be
temporarily interrupted because of accidents, repairs, alterations, improvements
or other reasons beyond the reasonable control of Landlord. Except as set forth
in the next sentence of this Section 7.13(c) no such interruption shall (i) be
considered an eviction or disturbance of Tenant's use and possession of the
Premises; (ii) make Landlord liable to Tenant for damages; (iii) abate Basic
Rent or Lease Expenses Difference or (iv) relieve Tenant from performing its
obligations hereunder. Notwithstanding the preceding sentence, if any essential
services (such as Tri-Water System, passenger elevators, electricity or water)
supplied by Landlord are interrupted and the interruption does not result from
the negligence or willful misconduct of Landlord or Landlord's Representatives,
Tenant shall only be entitled to an abatement of Base Rent and Lease Expenses
Difference beginning on the fourth consecutive business day of the interruption
and continuing until the interrupted services are restored.


                                    Page 26


               (d) Tenant's Responsibility: Separate utility meters for
electrical, gas and water service to the Premises and any monitoring devices
required to measure off-hours use of the Tri-Water System shall be installed as
part of the Work. Tenant shall be responsible for the payment for all
electrical, gas and water service to the Premises and the Tri-Water System
within the Premises during the Term.

               (e) Excessive Consumption: Tenant shall not connect any apparatus
with electric current except through existing electrical outlets in the premises
at the Commencement Date, without Landlord's prior written consent which shall
not be unreasonably withheld. Tenant shall not consume water in excess of that
usually and reasonably furnished or supplied for the use of other tenants in the
Project using their premises as general office space, including limited
lunchroom facilities (as reasonably determined by Landlord), without first
procuring the written consent of Landlord, which will not be unreasonably
withheld provided that Tenant shall be responsible to pay for such excess use,
and in the event of consent, Landlord may cause to be installed a water meter
for the Premises to measure the amount of water consumed. The cost of any such
meter and of its installation, maintenance and repair shall be paid for by the
Tenant and Tenant agrees to pay Landlord promptly upon demand for all such water
consumed as shown by said meter, at the rates charged for such services by the
local public utility company plus any additional reasonable and necessary
expense incurred by Landlord in keeping account of the water so consumed. If a
separate meter is not installed, the excess cost for such water shall be
established by an estimate made by a utility company hired by Landlord at
Tenant's expense,

        7.14 RULES: Tenant and Tenant's Representatives shall observe faithfully
and comply strictly with the rules and regulations that are set forth in
attached Exhibit "E" and such other rules as Landlord may from time to time
reasonably adopt and disclose to Tenant for the Real Property and the Project
("Rules").

        7.15 MAINTENANCE OBLIGATIONS:

               (a) Tenant at its sole cost shall maintain (except to the extent
janitorial services are supplied by Landlord as set forth in the janitorial
specifications in Exhibit "I"), and repair, all in neat, clean and good
condition, with allowances for reasonable wear and tear ("Good Condition"), all
portions of the Premises, except those portions of the Premises to be maintained
by Landlord as expressly described in Section 7.15(b). Tenant shall be liable
for any damage to the Project resulting from the acts or omissions of Tenant or
Tenant's Representatives. If Tenant fails to maintain the Premises as provided
above, then after applicable periods of notice and periods to cure as set forth
in Section 12.1(b), Landlord shall have the right but not the obligation to
maintain the Premises and Tenant shall promptly reimburse Landlord for
Landlord's actual cost of such maintenance.

               (b) Landlord shall maintain, repair, replace and repaint (i) the
structural parts of the Building, which are limited to foundations, bearing and
exterior walls


                                    Page 27

(excluding glass doors which are part of Tenant's Premises), subflooring, and
roof and roof membrane; (ii) the unexposed electrical, plumbing, and mechanical
systems which are not part of the Work; (iii) windows and window frames, gutters
and downspouts on the Building; (iv) the Tri-Water System and any auxiliary
system to the Tri-Water System, if any, for the Building; (v) that portion of
the Building not included as part of the Premises; and (vi) the Common Area.

               (c) Landlord's failure to perform its obligations set forth in
Section 7.15(b) shall not release Tenant of its obligations under this Lease,
including without limitation Tenant's obligation to pay Rent. Tenant waives the
provisions of California Civil Code Sections 1941 and 1942 with respect to
Landlord's obligations for tenantability of the Premises and Tenant's right to
make repairs and deduct the expenses of such repairs from rent.

        7.16 TENANT TO PAY PERSONAL PROPERTY TAXES: Tenant shall pay before
delinquent all taxes, assessments, license fees, and other charges levied or
assessed against, or based upon the value of Tenant's Personal Property
("Personal Property Taxes") that become payable during the Term. On written
demand by Landlord, Tenant shall furnish Landlord with written satisfactory
evidence of such payments. If any Personal Property Taxes are levied against
Landlord or Landlord's property, or if the assessed value of the Project is
increased by the inclusion of a value placed on Tenant's Personal Property, and
if Landlord pays such Personal Property Taxes or any taxes based on the
increased assessments caused by such Tenant's Personal Property, then Tenant, on
demand, shall immediately reimburse Landlord for the sum of the Personal
Property Taxes so levied against Landlord, or the proportion of taxes resulting
from such increase in Landlord's assessment. Landlord shall have the right to
pay such Personal Property Taxes or such proportion, and receive such
reimbursement, regardless of the validity of the levy.

                                    SECTION 8
                                    INSURANCE

        8.1 TENANT'S INSURANCE:

               (a) Public Liability and Property Damage Insurance: Tenant shall
procure at its sole cost and expense and keep in effect from the date of this
Lease at all times until the end of the Term, comprehensive general liability
insurance insuring against liability of Tenant, Tenant's Representatives,
Landlord, and Landlord's Representatives, arising out of or in connection with
Tenant's use or occupancy of the Premises or any part thereof, or the Project by
Tenant or Tenant's Representative. Such insurance shall include contractual
liability insurance coverage insuring Tenant's indemnity obligations under this
Lease. Such coverage shall have a minimum combined single limit of liability of
not less than $1,000,000 with a minimum general aggregate limit of
$1,000,000.00. Such policies shall be written to apply to property damage,
bodily injury, personal injury, premises medical payments, fire legal liability,


                                    Page 28

general liability and other covered losses, however occasioned, occurring during
the policy term, naming the Landlord and Landlord's lender as additional
insureds, providing that such coverage shall be primary and that any insurance
maintained by Landlord shall be excess insurance only. Such coverage shall also
(i) delete any employee exclusion on personal injury coverage; (ii) include
employees as insureds, (iii) include liquor liability and (iv) include
employer's automobile non-ownership liability. All such insurance shall provide
for severability of interests or contain a cross-liability endorsement and shall
provide that an act or omission of one of the named insureds shall not reduce or
avoid coverage to the other named insureds; and shall afford coverage for all
claims based on acts, omissions, injury and damage, which claims occurred or
arose (or the onset of which occurred or arose) in whole or in part during the
policy period.

               (b) Automobile Liability Insurance: Tenant shall procure at its
sole cost and expense and keep in effect from the date of this Lease at
all times until the end of the Term, if applicable, Comprehensive Automobile
Liability insurance covering owned, non-owned and hired vehicles. Such coverage
shall have a minimum combined single limit of liability of not less than
$1,000,000.

               (c) Workers' Compensation Insurance: Tenant shall, if applicable,
maintain Workers' Compensation insurance in accordance with California law, and
employer's liability insurance with a limit of not less than $1,000,000.
Workers' Compensation insurance shall be endorsed to waive the insurer's right
of subrogation against Landlord.

               (d) Business Personal Property and Loss of Income Insurance:
Tenant shall, if applicable, maintain business personal property insurance to
pay for damage to or destruction of the Tenant's property from damage to or
destruction of the Premises. Such insurance shall insure against losses on an
"all-risk" type policy to the extent of at least one hundred percent (100%) of
the full replacement value of business personal property.

               (e) Maintaining Insurance: If Tenant fails during the Term to
maintain any insurance required to be maintained by Tenant under this Lease,
then Landlord may, at its option and in addition to Landlord's other remedies in
the event of default by Tenant, arrange for any such insurance, and Tenant shall
reimburse Landlord for any premiums for any such insurance within five (5)
business days after Tenant receives a copy of the premium notice. If such
premiums are allocable to a period, a portion of which occurs during the Term
and the remainder of which occurs before or after the Term, then such premiums
shall be apportioned between Landlord and Tenant based upon the number of days
during such period that occurred during the Term and the number of days that
occurred before or after the Term, such that Tenant pays for the premiums that
are allocable to the period during the Term. Insurance required to be maintained
by Tenant under this Lease (i) shall be issued as a primary policy by insurance
companies authorized to do business in the State of California with a Best's
rating of a least "A"


                                     Page 29

and a Best's financial size category rating of at least "VIII", as set forth in
the most current edition of Best's insurance reports or such higher rating as
may be required by Landlord's lender, (ii) shall name the Additional Insureds as
additional named insureds as required by the Lease, (iii) shall constitute
"occurrence" based coverage, without provision for subsequent conversion to
"claims" based coverage, and (iv) shall not be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days' prior
written notice to Landlord and any lender. Tenant shall, at least thirty (30)
days prior to the expiration of any such policy, furnish Landlord with a renewal
or binder of such policy. Tenant shall, upon request from Landlord, promptly
deliver to Landlord copies of such policy or policies or certificates evidencing
the existence and amounts of such insurance together with evidence of payment of
premiums. Any policy required to be maintained by Landlord or Tenant under this
Lease may be maintained under a so-called "blanket policy" insuring other
parties and/or other locations, so long as the amount of insurance and type of
coverage required to be provided under this Lease is not thereby diminished,
changed or adversely affected.

               (f) All insurance coverage, terms and conditions described in
this Section 8.1 shall be evidenced by a Certificate of Insurance issued to
Landlord. A copy of all insurance policies issued to Tenant during the Term
shall be forwarded to Landlord within sixty (60) days after the Commencement
Date.

               (g) If at any time during the Term the amount or coverage of
insurance which Tenant is required to carry under this Section 8.1 is, in
Landlord's reasonable judgment, materially less than that amount or type of
insurance coverage typically carried by owners or tenants of properties located
in San Diego, California, which are similar in size and used for similar
purposes as the Premises, Landlord shall have the right to require Tenant to
increase the amount or change the types of insurance coverage required under
this Section 8.1.

        8.2 Landlord's Insurance: Landlord shall, at its expense, maintain in
effect at all times during the Term: a policy or policies of "all risk" fire,
general liability and extended coverage insurance, including at least six (6)
months rental interruption insurance, with vandalism and malicious mischief
endorsements, coverage with respect to increased costs due to building
ordinances, demolition coverage, boiler and machinery insurance, sprinkler
leakage coverage, in each case to the extent of at least one hundred percent
(100%) of the full replacement value of the Building and Adjacent Building and
any future building on the Project. If Landlord fails during the Term to
maintain any insurance required to be maintained by Landlord under this Lease,
then Tenant may, at its election, arrange for any such insurance, and Tenant may
require that Landlord reimburse Tenant for any premiums for any such insurance
within five (5) days after Landlord or Tenant's receipt of the premium notice.
Insurance required to be maintained by Landlord under this Lease (a) shall be
issued as a primary policy by insurance companies authorized to do business in
California with a Best's Rating of at least "A" and a Best's Financial Size
Category rating of at least "VIII," as set forth in the most current edition of
"Best's Insurance Reports, or such higher rating as may be


                                    Page 30


required by any lender, (b) shall name Tenant and any lender or other party as
Tenant may elect as additional named insureds, (c) shall constitute "occurrence"
based coverage, without provision for subsequent conversion to "claims" based
coverage, and (d) shall not be cancelable or subject to reduction of coverage or
other modification except after thirty (30) days' prior written notice to Tenant
and any lender. Landlord shall, at least thirty (30) days prior to the
expiration of each such policy, furnish Tenant with a renewal or "binder" of
such policy. Landlord shall, upon request from Tenant, promptly deliver to
Tenant copies of such policy or policies or certificates evidencing the
existence and amounts of such insurance together with evidence of payment of
premiums. The premiums, costs and expenses and deductibles of and/or with
respect to any such insurance shall be included in the Building Operating
Expenses. Landlord shall not increase the amount of insurance coverage beyond
that which was in place during the Base Year, other than reasonable increases to
reflect inflation or an increase in value of the insured property. Landlord
shall not increase the types of insurance coverages beyond that which was in
place during the Base Year unless commercially reasonable and in such event the
Operating Expenses for the Base Year shall be increased by the insurance premium
that would have been paid had the insurance been obtained by Landlord.

                                   SECTION 9
                                  DESTRUCTION

        9.1 RISK COVERED BY INSURANCE:

               (a) If during the Term the premises is totally or partially
destroyed, rendering the Premises totally or partially inaccessible or unusable,
Landlord shall, subject to Sections 9.1(b) and 9.1(c), restore the Premises to
substantially the same condition as it was in immediately before the
destruction. Such destruction shall not terminate this Lease except as provided
in this Section. If, however, then-existing laws do not permit such restoration,
Landlord or Tenant may terminate this Lease by giving written notice to the
other party.

               (b) If Landlord determines that the cost of such restoration
exceeds the amount of proceeds received by Landlord from any insurance
maintained by Landlord, then Landlord may elect to terminate this Lease by
giving notice to Tenant within sixty (60) days after such destruction or within
sixty (60) days after Landlord's receipt of such proceeds, whichever is later.
If Landlord gives such notice of termination, then this Lease shall terminate as
of forty-five (45) days after Landlord's notice of termination, unless Tenant
provides Landlord with written notice of its election to pay the amount by which
the cost of such restoration exceeds the amount of proceeds received by Landlord
("Notice To Restore"), in which event this Lease shall remain in full force and
effect. Tenant shall have thirty (30) days after Notice To Restore to pay the
excess cost of restoration either to Landlord or to an escrow account to be used
for restoration.

               (c) Within thirty (30) days after such destruction, Landlord
shall notify


                                    Page 31


Tenant in writing whether or not, based on Landlord's determination, the
Premises can be restored within six (6) months after the date of such
destruction. If such restoration cannot be completed within such six (6) month
period, either party may terminate this Lease by giving written notice to the
other party within twenty (20) days after the date of Landlord's written notice.
If Landlord determines that the Premises can be restored within such six (6)
month period and neither party terminates this Lease pursuant to this Section 9,
Landlord shall use its reasonable efforts to restore the Premises within such
six (6) month period to substantially the same condition as it was in
immediately before the destruction. Notwithstanding the foregoing, if due to any
delay or fault on the part of Landlord the Premises are not in fact restored
within seven (7) months from the date of destruction, then Tenant may terminate
this Lease without further liability to Landlord by giving Landlord written
notice of termination, such termination to be effective immediately upon the
giving of such notice.

        9.2 ABATEMENT OR REDUCTION OF RENT: Except as otherwise provided herein,
in case of any destruction to the Premises, all obligations of Tenant under this
Lease shall remain in effect, except that Base Rent and Lease Expenses
Difference shall be abated or reduced, between the date of such destruction and
the date of completion of restoration, by the ratio of (a) the area of the
Premises rendered unusable or inaccessible by the destruction to (b) the area of
the Premises prior to such destruction.

        9.3 LOSS DURING LAST PART OF TERM OR EXCEEDING TWENTY-FIVE PERCENT (25%)
OF REPLACEMENT VALUE: Notwithstanding any other provision of this Lease, if any
destruction to the Premises occurs during the last year of the Term, or if, at
any time during the Term, there is any destruction to the Premises that exceeds
twenty-five percent (25%) of the then replacement value of the Premises,
Landlord or Tenant may terminate this Lease by giving written notice to the
other not more than thirty (30) days after such destruction, in which case (a)
neither Landlord nor Tenant shall have any obligation to restore the Premises,
(b) Landlord shall retain all insurance proceeds relating to such destruction
except for insurance proceeds relating to the loss of or damage to Tenant's
Personal Property or loss of business, and (c) this Lease shall terminate as of
thirty (30) days after such notice of termination.

        9.4 LIMITATION ON LANDLORD'S RESTORATION OBLIGATION: If Landlord is
required or elects to restore the Premises as provided in Section 9.1, Landlord
shall not be required to restore any of Tenant's Alterations which were
constructed without Landlord's written consent or any of Tenant's Personal
Property, unless they are an integral part of the Premises and specifically
covered by insurance proceeds received by Landlord, such excluded items being
the sole responsibility of Tenant to restore.

                                   SECTION 10
                                  CONDEMNATION

        10.1 DEFINITIONS: For purposes of this Lease, the following definitions
shall apply:


                                    Page 32


               (a) "Condemnation" shall mean the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor (as defined
below) or a voluntary sale or transfer by Landlord to any Condemnor, either
under threat of condemnation or while legal proceedings for condemnation are
pending;

               (b) "Date of Taking" shall mean the date the Condemnor has a
right to possession of the property being condemned;

               (c) "Award" shall mean all compensation, sums or anything of
value awarded, paid, or received on a total or partial Condemnation of the
Project; and

               (d) "Condemnor" shall mean any public or quasi-public authority,
or private corporation or individual, having the power of Condemnation.

        10.2 GOVERNED BY LEASE: If during the Term, or during the period of time
between the execution of this Lease and the Commencement Date, there is any
taking of all or any part of the Project or any interest in this Lease by
Condemnation, the rights and obligations of Landlord and Tenant shall be
determined pursuant to this Section 10.

        10.3 TOTAL TAKING: If greater than fifty percent (50%) of the Premises
are taken by Condemnation or more than thirty percent (30%) of the available
parking area is taken by Condemnation, this Lease shall terminate on the Date of
Taking.

        10.4 PARTIAL TAKING: if any portion, but not all, of the Premises is
taken by Condemnation, this Lease shall remain in effect, except that Tenant may
elect to terminate this Lease if the remaining portion of the Premises is, in
Tenant's reasonable opinion, rendered unsuitable for Tenant's continued use of
the Premises. If Tenant elects to so terminate this Lease, Tenant must exercise
its right to terminate by giving notice to Landlord within sixty (60) days after
the date that the nature and the extent of the taking have been finally
determined ("Determination Date"), which notice shall set forth the date of
termination. Such termination date shall not be earlier than thirty (30) days
nor later than ninety (90) days after Tenant has notified Landlord of its
election to terminate; except that this Lease shall terminate on the Date of
Taking if the Date of Taking falls on a date before the date of termination as
designated by Tenant. If Tenant does not so notify Landlord within sixty (60)
days after the Determination Date, all obligations of Tenant under this Lease
shall remain in effect, except that Base Rent and Lease Expenses shall be
reduced by the ratio of (a) the area of the Premises taken to (b) the area of
the Premises immediately prior to the Date of Taking.

        10.5 AWARD: The Award shall belong to and be paid to Landlord, Tenant
shall have no right to any part of the Award, and Tenant assigns to Landlord all
of Tenant's right, title and interest in and to any part of the Award, except
that Tenant shall receive from the Award an amount equal to the value of
Tenant's leasehold interest and any


                                    Page 33


sum paid expressly to Tenant from the Condemnor for relocation, the cost of
tenant improvements which were paid for by Tenant and not part of the Tenant
Improvement Allowance, the value of Alterations and loss of goodwill.

        10.6 TEMPORARY TAKING: The taking of the Premises or any part of the
Premises by military or other public authorities shall constitute a taking of
the Premises by Condemnation only when the use and occupancy by the taking
authority is continued for longer than one hundred eighty (180) consecutive
days. During the one hundred eighty (180) day period, all obligations of Tenant
under this Lease shall remain in effect, except that Base Rent shall be abated
or reduced during such period of taking by the ratio of (a) the area of the
Premises taken to (b) the area of the Premises immediately prior to the Date of
Taking, and Landlord shall be entitled to any Award related to such taking.

        10.7 WAIVER OF STATUTE: Landlord and Tenant waive the provision of
California Code of Civil Procedure Section 1265.130 allowing Landlord or Tenant
to petition the superior court to terminate this Lease in the event of a partial
taking of the Premises.

                                   SECTION 11
                            ASSIGNMENT AND SUBLETTING

        11.1 ASSIGNMENT:

               (a) If Tenant is not in default of the Lease, Tenant may assign
any portion of Premises to any related entity, parent company, subsidiary or
affiliate ("Affiliate") without Landlord's consent.

               () Except for an Affiliate, Tenant shall not assign, enter into a
license or concession agreement for, hypothecate or otherwise divest itself of
this Lease or any of its rights under this Lease or permit any third party or
parties other than Tenant to occupy the Premises or any portion thereof without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed, but is subject to the terms and conditions contained in
this Section 11.

               (c) For purposes of this Lease, each of the following events
shall be deemed to constitute an assignment of this Lease:

                      (i) any assignment or transfer of this Lease, or any
interest in this Lease, voluntarily, involuntarily, by operation of law or
otherwise;

                      (ii) any mortgage, hypothecation, pledge, or collateral
assignment of this Lease or any interest in this Lease;


                                    Page 34


                      (iii) any sale, transfer, grant of concessions or
licenses, or other disposition of this Lease, any interest in this Lease or all
or any portion of the Premises;

                      (iv) any assignment, transfer, disposition, sale, or
acquisition of more than fifty percent (50%) of the shares of Tenant's voting
stock by any person, entity, or group of related persons or affiliated entities,
whether in a single transaction or in a series of related or unrelated
transactions that results in a Change of Control (as hereinafter defined). For
purposes of this Lease, a "Change of Control" shall mean a change in the
identity of the person or persons exercising, or who may exercise, effective
control of the management of Tenant's business, unless such change (a) does not
materially impair Tenant's financial condition immediately after such change has
occurred; or (b) the change results from either (i) a registered public offering
of shares of Tenant's stock; (ii) the acquisition of Tenant by a company whose
shares are publicly traded; (iii) the trading of shares of Tenant listed on a
recognized national securities exchange or a nationally recognized automated
quotation system (such as the NASDAQ quotation system); or (iv) the transfer of
an equity interest in Tenant for purposes of estate or tax planning or by reason
of a distribution of shares held by a partnership to its partners; and

                      (v) any issuance of voting stock of Tenant to any person,
entity, or group of related persons or affiliated entities, whether in a single
transaction or in a series of related or unrelated transactions, which results
in Change of Control as defined above.

               (d) At least fifteen (15) days prior to entering into any
assignment of this Lease of all or any portion of the Premises, Tenant shall
submit to Landlord the form of such proposed assignment, and a written notice
("Tenant's Notice") setting forth in reasonable detail (i) the name and address
of the proposed assignee, (ii) the terms and conditions of the proposed
assignment, including without limitation the proposed effective date of the
assignment, which shall be at least thirty (30) days after Tenant's notice is
given, (iii) the nature and character of the business of the proposed assignee,
and (iv) current banking, financial, and other credit information, including
prior year's federal tax return, if available, (all of which information
Landlord agrees to treat as strictly confidential and not disclose or
disseminate to third parties) relating to the proposed assignee, in reasonably
sufficient detail, to enable Landlord to determine the proposed assignee's
financial responsibility.

               (e) Within twenty (20) days after Landlord's receipt of Tenant's
Notice and the form of assignment, Landlord shall notify Tenant whether Landlord
has consented to the proposed assignment. Any consent granted by Landlord in any
instance shall not constitute a consent with respect to any other instance or
request. If Landlord consents to any proposed assignment and Tenant fails to
consummate such assignment within one hundred eighty (180) days after such
consent, then such


                                    Page 35


consent shall be deemed withdrawn and Tenant shall be required again to comply
with this Section 11 before assigning this Lease or any portion of the Premises.

               (f) Landlord shall not have unreasonably withheld its consent
with respect to any assignment if (i) Landlord shall not have received Tenant's
Notice as provided above, (ii) the nature and character of the proposed assignee
and the proposed use and occupancy of the Premises by the proposed assignee is
not in keeping with the dignity and character of the Premises and the
surrounding area, (iii) the proposed assignment will result in the diminution of
the value or marketability of the Premises, or (iv) the proposed assignee's use
of the Premises may reasonably conflict with other uses in the Premises. Tenant
acknowledges that Tenant's Notice shall be ineffective if Tenant is in material
default with respect to any provision under this Lease.

               (g) Notwithstanding any provision of this Lease to the contrary,
a merger or consolidation of Tenant with or into another corporation (including
a merger or consolidation that results in assignment or transfer of this Lease)
will not require the consent of Landlord, provided that the financial condition
of the surviving entity is equal to or greater than Tenant's financial condition
immediately prior to the Change of Control.

        11.2 SUBLEASE:

               (a) If Tenant is not in default of the Lease, Tenant may sublet
all or a portion of the Premises to an Affiliate without Landlord's consent.

               (b) If Tenant is not in default of the Lease, Tenant may sublease
all or a portion of the Premises to anyone, upon Landlord's prior written
consent, which consent shall not be unreasonably withheld.

               (c) Any sublease of all or a portion of the Premises shall be in
accordance with the terms and conditions of this Section 11 and all other
applicable terms and conditions of this Lease. Tenant's request to sublease all
or a portion of the Premises to anyone other than an Affiliate shall be in the
form of the Tenant's Notice as set forth in Section 11.1(d).

               (d) Any sublease of all or any portion of the Premises must
contain the following provisions, which provisions, whether contained in such
sublease nor not, shall apply to such sublessee:

                      (i) Such sublease shall be subject and subordinate to all
of the provisions of this Lease (including all exhibits) and any subsequent
amendments of this Lease;


                                    Page 36


                      (ii) At Landlord's option, in the event of cancellation or
termination of this Lease for any reason or the surrender of this Lease, whether
voluntarily, involuntarily, or by operation of law, prior to the expiration of
such sublease, the subtenant shall make full and complete attornment to Landlord
for the balance of the term of such sublease, provided that Landlord agrees in
writing not to disturb subtenant's right to occupy the subleased area as long as
such sublessee is in compliance with its obligations under such sublease. The
subtenant shall execute and deliver to Landlord an agreement of attornment
reasonably satisfactory to Landlord within five (5) days after requested by
Landlord; and

                      (iii) No sublessee shall be permitted to further sublet
all or any portion of the subleased space without Landlord's prior written
consent.

               (e) Tenant shall submit all subleases to Landlord prior to
execution for Landlord's review and approval, which shall not be unreasonably
withheld or delayed more than seven (7) days after Landlord's receipt of any
sublease.

        11.3 TENANT AND ASSIGNEE OR SUBLESSEE FULLY LIABLE: No assignment of
this Lease nor any sublease of all or any portion of the Premises shall release
or discharge Tenant from any liability, whether past, present, or future, under
this Lease and Tenant shall continue to remain primarily liable under this Lease
except as may be executed by Tenant and Landlord in writing. The assignee of any
assignment of this Lease, and the sublessee of any sublease of all or any
portion of the Premises, shall execute, acknowledge, and deliver to Landlord an
agreement satisfactory to Landlord in which the assignee or sublessee assumes
and agrees to be bound by all of the provisions of this Lease.

        11.4 ASSIGNMENT OF RENTS: Tenant irrevocably assigns to Landlord, as
security for Tenant's obligations under this Lease, all rent from any subletting
of all or any portion of the Premises, and Landlord, as assignee and as special
attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this Lease, except that, unless Tenant defaults under this Lease, Tenant
shall have the sole right to collect such rent.

        11.5 EQUAL DIVISION OF SUBLEASE PREMIUM: Landlord and Tenant shall share
equally any "Premium" (as defined below) arising from the sublease of any
portion of the Premises to any entity which is not an Affiliate. For purposes of
this paragraph "Premium" shall mean all sums received by Tenant under the
sublease which exceed the Rent attributable to the subleased portion of the
Premises, after deducting (a) all reasonable expenses of Tenant incurred in
connection with such sublease amortized on a straight line basis over the
initial term of the sublease, including without limitation legal costs,
brokerage commissions, rent abatement and other concessions, lease takeover,
subtenant improvement costs, the unamortized value of Tenant's leasehold
improvements, downtime, and cash payments, (b) any utility costs paid by Tenant
which is attributable to such subleased premises, and (c) any Additional Rent
paid by


                                    Page 37


Tenant which is attributable to such subleased premises. The determination of
Base Rent attributable to the subleased portion of the Premises shall be made on
the basis of the ratio of the rentable square footage in the subleased portion
to the Rentable Square Footage.

                                   SECTION 12
                              DEFAULT AND REMEDIES

        12.1 DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:

               (a) the failure by Tenant to pay Rent as and when due, where such
failure shall continue for a period of five (5) business days after written
notice of such failure from Landlord to Tenant. In the event that Landlord
serves Tenant with a Notice to Pay Rent or Quit pursuant to applicable statutes
set forth in California Code of Civil Procedure, such Notice to Pay Rent or Quit
shall also constitute the notice of such failure;

               (b) the failure by Tenant to observe or perform any of the
provisions of this Lease to be observed or performed by Tenant, other than
described in Section 12.1(a), where such failure shall continue for a period of
thirty (30) days after written notice of such failure from Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that more than
thirty (30) days are required for its cure, then Tenant shall not be deemed to
be in default if Tenant commenced such cure within such thirty (30) day period
and thereafter diligently prosecutes such cure to completion within sixty (60)
days after Landlord's written notice; or

               (c) the making by Tenant of any general arrangement or assignment
for the benefit of creditors; Tenant's becoming bankrupt, insolvent or a
"debtor" as defined in 11 U.S.C. Section 101, or any successor statute (unless,
in the case of a petition filed against Tenant, such petition is dismissed
within sixty (60) days after its original filing); the institution of
proceedings under bankruptcy or similar laws in which Tenant is the debtor or
bankrupt; the appointing of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease (unless possession is restored to Tenant within sixty
(60) days after such taking); or the attachment, execution of judicial seizure
of substantially all of Tenant's assets located at the Premises or Tenant's
interest in this Lease (unless such attachment, execution or judicial seizure is
discharged within sixty (60) days after such attachment, execution or judicial
seizure).

        12.2 LANDLORD'S REMEDIES: Landlord shall have the following remedies if
Tenant commits a default or breach under this Lease; these remedies are not
exclusive, but are cumulative in addition to any remedies provided elsewhere in
this Lease or now or later allowed by law.


                                    Page 38


               (a) Continuation of Lease: No act by Landlord (including without
limitation the acts set forth in this Section 12.2(a)) shall terminate Tenant's
right to possession unless Landlord notifies Tenant in writing that Landlord
elects to terminate Tenant's right to possession. As long as Landlord does not
terminate Tenant's right to possession, Landlord may (i) continue this Lease in
effect, (ii) continue to collect rent when due and enforce all the other
provisions of this Lease, (iii) enter the Premises and relet them, or any part
of them, to third parties for Tenant's account, for a period shorter or longer
than the remaining term of this lease, and (iv) have a receiver appointed to
collect rent. Tenant shall immediately pay to Landlord all costs Landlord
reasonably incurs in such reletting, including, without limitation, brokers'
commissions, attorneys' fees, advertising costs and expenses of remodeling the
Premises of such reletting.

               (b) Rent from Reletting: If Landlord elects to relet all or any
portion of the Premises as permitted by Section 12.2(a), rent that Landlord
receives from such reletting shall be applied to the payment of, in the
following order and priority, (i) any indebtedness due from Tenant to Landlord
(other than Base Rent), (ii) all costs reasonably incurred by Landlord in such
reletting, including without limitation any brokers', finders', or leasing
agents' commissions, charges or fees, and (iii) Base Rent due and unpaid under
this Lease. After applying such payments as referred to above, any sum remaining
from the rent Landlord receives from such reletting shall be held by Landlord
and applied in payment of future Base Rent as it becomes due under this Lease.
In no event shall Tenant be entitled to any excess rent received by Landlord.

               (c) Termination of Tenant's Right to Possession: Landlord may
terminate Tenant's right to possession of the Premises at any time, by notifying
Tenant in writing that Landlord elects to terminate Tenant's right to
possession. On termination of this Lease, Landlord has the right to recover
from Tenant (i) the worth at the time of the award of the unpaid Base Rent which
had been earned at the time of such termination, (ii) the worth at the time of
the award of the amount by which the unpaid Base Rent which would have been
earned after such termination until the time of award exceeds the amount of such
loss of Base Rent that Tenant proves could have been reasonably avoided, (iii)
the worth at the time of the award of the amount by which the unpaid Base Rent
for the balance of the Term after the time of award (had there been no such
termination) exceeds the amount of such loss of Base Rent that Tenant proves
could be reasonably avoided, and (iv) any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or in the ordinary course of things would
be likely to result therefrom. The "worth at the time of the award" of the
amounts referred to in Sections 12.2(c)(i) and 12.2(c)(ii) is to be computed by
allowing interest at a rate equal to ten percent (10%) per annum, but in no
event greater than the maximum rate permitted by applicable law. The "worth at
the time of the award" of the amount referred to in Section 12.2(c)(iii) is to
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%), but in
no event greater than the maximum rate permitted by applicable law.


                                    Page 39


               (d) Landlord's Right to Cure Default: Landlord, at any time after
Tenant commits a default or breach under this Lease, may cure such default or
breach at Tenant's sole cost. If Landlord at any time, by reason of Tenant's
default or breach, pays any sum or does any act that requires the payment of any
sum, such sum shall be due immediately from Tenant to Landlord at the time such
sum is paid, and shall be deemed additional rent under this Lease.

        12.3 INTEREST AND LATE CHARGES: Rent not paid within five (5) days after
its due date shall bear interest from the date due at a rate equal to ten
percent (10%) per annum, but in no event greater than the maximum rate permitted
by applicable law. Late payment by Tenant to Landlord of Rent will cause
Landlord to incur cost not contemplated by this Lease, the exact amount of which
would be impracticable or extremely difficult to fix. Such costs include,
without limitation, processing, collection and accounting charges, and late
charges that may be imposed on Landlord by the terms of any Mortgage covering
the Premises. Therefore, if any Rent is not received by Landlord within five (5)
business days after notice to Tenant of such overdue payment from Landlord to
Tenant, Tenant shall pay to Landlord an additional sum of five percent (5%) of
such overdue amount as a late charge ("Late Charge"). Landlord and Tenant agree
that the Late Charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of any late payment by Tenant, and therefore this
Section 12.3 is reasonable under the circumstances existing at the time this
Lease is executed. Acceptance of the Late Charge by Landlord shall not
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies available
to Landlord under this Lease.

        12.4 QUARTERLY PAYMENTS: In the event that a Late Charge is payable
under this Lease, whether or not collected, for three (3) consecutive
installments of Rent or in the event Rent is paid more than thirty (30) days
late twice due under this Lease during any twelve (12) month period, then Base
Rent, and Monthly Payment, shall , at Landlord's election by written notice to
Tenant, become due and payable quarterly in advance, rather than monthly, for a
period of six (6) months. If a Late Charge is payable under the Lease, whether
or not collected, for two (2) installments of Rent during the twelve (12)
calendar months following such six (6) month period, then Base Rent and Monthly
Payment shall automatically become due and payable quarterly in advance for a
period of one (1) year, after which time Rent shall revert back to monthly
payments. If any payment is not timely paid during such one year period, then
Base Rent and Monthly Payment shall automatically become due and payable
quarterly in advance for the remaining Term of the Lease. All monies paid to
Landlord under this Section 12.4 may be commingled with other monies of Landlord
and shall not bear interest.

        12.5 WAIVER: No delay or omission in the exercise of any right or remedy
of Landlord in the event of any default by Tenant shall impair such right or
remedy of be construed as a waiver. The receipt and acceptance by Landlord of
delinquent Rent shall not constitute a waiver of any default other than the
particular rent payment accepted. Landlord's receipt and acceptance from Tenant,
on any date ("Receipt


                                    Page 40


Date"), of an amount less than rent due on such Receipt Date, or to become due
(pursuant to Section 4 or Section 6) at a later date but applicable to a period
prior to such Receipt Date, shall not release Tenant of its obligation (a) to
pay the full amount of such rent due on such Receipt Date or (b) to pay when due
the full amount of such rent to become due at a later date but applicable to a
period prior to such Receipt Date. No act or conduct of Landlord, including
without limitation, the acceptance of the keys to the Premises, shall constitute
an acceptance by Landlord of the surrender of the Premises by Tenant before the
Expiration Date or Option Expiration Date. Only a written notice from Landlord
to Tenant stating Landlord's election to terminate Tenant's right to possession
of the Premises shall constitute acceptance of the surrender of the Premises and
accomplish a termination of this Lease. Landlord's consent to or approval of any
act by Tenant requiring Landlord's consent or approval shall not be deemed to
waive or render unnecessary Landlord's consent to or approval of any other or
subsequent act by Tenant. Any waiver by Landlord of any default by Tenant must
be in writing and shall not be a waiver of any other default concerning the same
or any other provision of this Lease.

        12.6 NOTICE OF DEFAULT: Landlord shall not be deemed to be in default in
the performance of any obligation required to be performed by Landlord unless
and until it has failed to perform such obligation within thirty (30) days after
Landlord's receipt of written notice from Tenant specifying Landlord's failure
to perform such obligation. However, if the nature of Landlord's obligation is
such that more than thirty (30) days are required for its performance, then
Landlord shall not be deemed to be in default if it shall commence such
performance within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.

                                   SECTION 13
             SUBORDINATION, ATTORNMENT, ESTOPPEL, AND NON-DISTURBANCE

        13.1 SUBORDINATION: This Lease and Tenant's rights under this Lease are
subject and subordinate to any mortgage, loan secured by a deed of trust, or
other written security instrument or agreement affecting the Project that
constitutes security for the payment of a debt or performance of an obligation
(each, a "Mortgage"), and to all renewals, modifications, consolidations,
replacements or extensions thereof, now or hereafter affecting the Premises. The
provisions of this Section 13.1 shall be self-operative, and no further
instrument of subordination shall be required. Within fifteen (15) days after
written notice from Landlord, Tenant shall execute and deliver any instruments
that Landlord and the holder of any Mortgage may reasonably request to evidence
such subordination so long as the instruments do not modify this Lease, decrease
or adversely affect Tenant's rights under this Lease, or increase Tenant's
duties or obligations hereunder. If Tenant fails to execute and deliver any such
instrument(s) within fifteen (15) days after such notice, Tenant irrevocably
appoints Landlord as Tenant's special attorney-in-fact to execute and deliver
such instruments on behalf of Tenant. If Landlord executes documents on behalf
of Tenant pursuant to


                                    Page 41


the special power-of-attorney, it shall be deemed that Tenant has not waived any
rights against Landlord solely due to the use of the special power-of-attorney
by Landlord.

        13.2 ATTORNMENT: If the holder of any Mortgage shall hereafter succeed
to the Landlord under this Lease, Tenant shall attorn to and recognize such
successor as the Landlord under this Lease, and shall promptly execute and
deliver any instruments that may be necessary to evidence such attornment. If
Tenant fails to execute and deliver any such instrument(s) within fifteen (15)
days after written notice from Landlord, Tenant irrevocably appoints Landlord as
Tenant's special attorney-in-fact to execute and deliver such instruments on
behalf of Tenant. If Landlord executes documents on behalf of Tenant pursuant to
the special power-of-attorney, it shall be deemed that Tenant has not waived any
rights against Landlord or such successor solely due to the use of the special
power-of-attorney by Landlord. Upon such attornment, this Lease shall continue
in effect as a direct lease between such successor landlord and Tenant upon and
subject to all of the provisions of this Lease.

        13.3 ESTOPPEL CERTIFICATES: Within fifteen (15) days after written
notice from Landlord, Tenant shall execute and deliver to Landlord, in
recordable form, a certificate in the form of Exhibit "H" stating (i) that this
Lease is unmodified and in effect, or in effect as amended, and stating all
amendments; (ii) the amount of Base Rent; (iii) the date to which Base Rent has
been paid in advance; (iv) the amount of any security deposit, prepaid rent or
other payment constituting rent which has been paid; (v) whether or not Tenant
or Landlord is in default under this Lease; and (vi) such other matters as
Landlord shall reasonably request. Tenant's failure to deliver such estoppel
certificate within such fifteen (15) day period shall be conclusive upon Tenant
for the benefit of Landlord, and any successor in interest to Landlord, that
this Lease is in effect and has not been amended except as may be represented by
Landlord, no rent has been paid more than thirty (30) days in advance and
neither Landlord nor Tenant is in default under this Lease. If Tenant fails to
deliver such estoppel certificate within such fifteen (15) day period, then
Tenant irrevocably appoints Landlord as its special attorney-in-fact to execute
and deliver such certificate to any third party. If Landlord executes documents
on behalf of Tenant pursuant to the special power-of-attorney, it shall be
deemed that Tenant has not waived any rights against Landlord by reason of the
contents of the estoppel certificate signed pursuant to the special
power-of-attorney by Landlord.

        13.4 NON-DISTURBANCE AGREEMENT: Landlord shall, within twenty (20) days
after the date of this Lease, obtain from Paul Revere Insurance Company and each
other holder of a Mortgage in existence at the time of execution of this Lease a
duly executed non-disturbance agreement in the form of Exhibit "G". With respect
to any Mortgages which are not in existence at the time of execution of this
Lease, Landlord shall obtain a non-disturbance agreement in the form of Exhibit
"G" duly executed in recordable form by any holders of any future Mortgage as a
condition to this Lease being subordinate and junior to such future Mortgage and
as a condition to the recordation of any such future Mortgage.


                                    Page 42


                                   SECTION 14
                      SURRENDER OF PREMISES, HOLDING OVER

        14.1 SURRENDER OF PREMISES: By the Expiration Date, Option Expiration
Date or earlier termination of this Lease, (i) Tenant shall surrender to
Landlord the Premises, including without limitation all Alterations, in Good
Condition, reasonable wear and tear excepted (except for destruction to the
Premises covered by Section 9) except for Alterations that Tenant is obligated
to remove under Section 7.9; (ii) Tenant shall remove all its Personal Property
and perform all repairs and restoration required by the removal of any
Alterations or Personal Property at its sole cost; and (iii) Tenant shall
surrender to Landlord all keys to the Premises (including without limitation any
keys to exterior or interior office doors) and all permits, validations,
keycards, passes, and similar items with respect to the Premises and parking
lot. Landlord may elect to retain or dispose of in any manner any Alterations or
Personal Property that Tenant does not remove from the Premises on the
Expiration Date, Option Expiration Date or earlier termination of this Lease as
required by this Lease by giving written notice to Tenant. Title to any such
Alterations or Personal Property that Landlord elects to retain or dispose of
shall vest in Landlord. Tenant waives all claims against Landlord for any damage
to Tenant resulting from Landlord's retention or disposition of any such
Alterations or Personal Property after the Expiration Date or earlier
termination of this Lease. Tenant shall be liable to Landlord for Landlord's
costs for storing, removing or disposing of any such Alterations or Personal
Property. If Tenant fails to surrender the Premises to Landlord on the
Expiration Date or earlier termination of this Lease, Tenant shall indemnify and
defend Landlord against all liability, loss and claims resulting from such
failure including without limitation any claim for damages made by any other
tenant or subtenant.

        14.2 HOLDING OVER: If Tenant, with Landlord's written consent, remains
in possession of the Premises after the Expiration Date, Option Expiration Date
other than pursuant to an extension of the Term of this Lease pursuant to
Section 3.2, or earlier termination of this Lease, such possession by Tenant
shall be deemed to be a month-to-month tenancy terminable on thirty (30) days
written notice given at any time by Landlord or Tenant. During any such
month-to-month tenancy, the first month's Base Rent shall be equal to the Base
Rent in effect immediately prior to the Expiration Date, Option Expiration Date
or earlier termination of this Lease as may be the case, and thereafter Tenant
shall pay as Base Rent one hundred twenty-five percent (125%) of the Base Rent
in effect immediately prior to the Expiration Date or earlier termination of
this Lease, as the case may be. All provisions of this Lease except for those
pertaining to the Term shall apply to such month-to-month tenancy.

                                   SECTION 15
                               DELAY IN OCCUPANCY

INTENTIONALLY OMITTED



                                    Page 43


                                   SECTION 16
                               GENERAL PROVISIONS

        16.1 BROKERS: Landlord retained CB Commercial Real Estate Group Inc.
("CB Commercial") as a leasing broker and shall be responsible for all
commissions paid to CB Commercial regarding this Lease. Tenant retained Langdon
Rieder Corporation ("LRC"), as exclusive agent for Tenant. Landlord shall pay to
LRC a real estate brokerage commission ("Commission") of four percent (4%) of
the Base Rent less cash contributions paid by Landlord to Tenant such as Moving
Allowance and rent abatement for the first five (5) years of the Term and two
percent (2%) of the Base Rent for the balance of the Term payable one-half (1/2)
upon the complete execution of the Lease and one-half (1/2) upon the
Commencement Date and upon the occupancy of the Premises by Tenant. Tenant
represents that, except as set forth in this Section 16.1, no real estate
broker, agent, finder, or other person is responsible for bringing about or
negotiating this Lease and that Tenant has not dealt with any real estate
broker, agent, finder, or other person with respect to this Lease in any manner.
Tenant shall indemnify and defend Landlord against all liability, costs,
expenses and charges (including without limitation attorneys' fees and
disbursements) arising from any claims that may be made against Landlord by any
real estate broker, agent, finder, or other person alleging to have acted on
behalf of or to have dealt with Tenant, prior to the Commencement Date and
during the Term except for claims made by CB Commercial or LRC pursuant to this
Lease.

        16.2 NOTICES: Any notice, demand, request, consent, approval, or
communication that either Landlord or Tenant desires or is required under this
Lease to give to the other or any other person shall be in writing and either
served personally or sent by certified prepaid, first class U.S. mail or by
Federal Express mail or other overnight delivery service that provides written
confirmation of delivery addressed to Tenant or to Landlord at the addresses set
forth in Section 1.12.

Either Landlord or Tenant may change its address by notifying the other of the
change of its address in writing pursuant to this Section 16.2. Notice, if
mailed or sent as provided in this Section 16.2, shall be deemed given
forty-eight (48) hours after the time of such mailing.

        16.3 QUITCLAIM DEED: Tenant shall execute and deliver to Landlord on the
Expiration Date or earlier termination of this Lease, promptly on Landlord's
request, a quitclaim deed to the Premises, in recordable form, designating
Landlord as transferee.

        16.4 SALE OR TRANSFER OF PREMISES: If Landlord sells or transfers any
portion of the Premises, Landlord, on consummation of the sale or transfer,
shall be released from liability under this Lease as to the portion of the
Premises sold or transferred, except for the actions of Landlord or Landlord's
Representatives occurring prior to the date of such consummation and this Lease
shall remain in full force and effect. If any



                                    Page 44


security deposit or prepaid rent has been paid by Tenant, Landlord shall
transfer the unused portion of the Security Deposit and/or prepaid rent to
Landlord's successor-in-interest and on such transfer Landlord shall be
discharged from any further liability arising from the Security Deposit or
prepaid rent.

        16.5 ATTORNEYS' FEES: If Landlord or Tenant becomes a party to any
litigation concerning this Lease, the Premises, or the Project by reason of any
act or omission of the other or its agents, employees, officers, independent
contractors, licensees, invitees, visitors or customers, (and not by any act or
omission of the one that becomes a party to that litigation or its agents,
employees, officers, independent contractors, licensees, invitees, visitors or
customers), the one that causes the other to become involved in such litigation
shall be liable to the other for reasonable attorneys' fees, court costs, and
other expenses incurred by it in such litigation. If Landlord or Tenant
commences an action against the other arising out of or in connection with this
Lease, the prevailing party (as determined by the court) shall be entitled to
recover from the losing party reasonable attorneys' fees, court costs, and other
expenses incurred by the prevailing party in such litigation.

        16.6 MERGER: A voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation of this Lease, or a termination by Landlord, shall not
work a merger, and shall, at the option of Landlord, terminate any existing
subleases or may, at the option of Landlord, operate as an assignment to
Landlord of any such subleases.

        16.7 TIME OF ESSENCE: Time and strict and punctual performance are of
the essence with respect to each provision of this Lease.

        16.6 SUCCESSOR IN INTEREST: Subject to Section 11, this Lease shall be
binding on and inure to the benefit of Landlord and Tenant and their successors
in interest.

        16.9 EASEMENTS: Landlord may, from time to time, grant such easements,
rights and dedications that Landlord deems reasonably necessary or desirable,
and cause the recordation of parcel maps and restrictions, provided such
easements, rights, dedications, maps and restrictions do not unreasonably
interfere with, or adversely affect the use of, the Premises by Tenant. Tenant
shall promptly sign any documents or instruments to accomplish the foregoing
upon request by Landlord, and failure to do so shall constitute a material
breach of this Lease. Tenant irrevocably appoints Landlord as Tenant's special
attorney-in-fact to execute and deliver such documents or instruments on behalf
of Tenant should Tenant refuse or fail to do so.

        16.10 GOVERNING Law: This Lease shall be interpreted in accordance with
the laws of the State of California.

        16.11 INTEGRATION: This Lease contains all the agreements between
Landlord and Tenant relative to this Lease and cannot be amended or modified
except by a written document executed by Landlord and Tenant. This Lease shall
be deemed



                                    Page 45


prepared by both parties, and the fact that one party actually drafted this
Lease shall not affect the interpretation of any provision thereof.

        16.12 PROVISIONS ARE COVENANTS AND CONDITIONS: All provisions, whether
covenants or conditions, to be performed or observed by Landlord and Tenant
shall be deemed to be both covenants and conditions.

        16.13 PERSON AND GENDER: Whenever the singular number is used in this
Lease, the same shall include, when appropriate, the plural; and each gender
shall include, when appropriate, any other genders; and the word "person" shall
include, in addition to a natural person, when appropriate, a corporation, firm,
partnership, joint venture, trust, estate or other entity.

        16.14 SEVERABILITY: If any provision of this Lease is held by a court to
be unenforceable or invalid for any reason, the remaining provisions of this
Lease shall be unaffected by such holding.

        16.15 LIMITATIONS ON LANDLORD'S LIABILITY: If Landlord is in default
under this Lease, and as a consequence, Tenant recovers a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levy against the right, title and
interest of Landlord in the Project, and out of rent or other income from the
Project receivable by Landlord or out of the consideration received by Landlord
from the sale or other disposition of or any part of Landlord's right, title and
interest in the Project, except for that portion of the judgment that
specifically pertains to Landlord's (i) failure to timely pay taxes or
insurance, (ii) failure to refund Tenant's security deposit, (iii) fraudulent,
willful or intentional acts or misrepresentations, (iv) failure to apply
insurance or condemnation proceeds as required by the Lease, and (v) failure to
remit, to the persons entitled thereto, any funds paid by Tenant to Landlord for
work or materials on the Premises. Except as specifically provided in this
Section, neither Landlord nor the partners comprising Landlord (if any) shall be
personally liable for any deficiency.

        16.16 HEADINGS AND EXHIBITS: The Section and subsection headings of this
Lease shall have no effect on its interpretation. Any exhibits referred to in
this Lease are incorporated in it by reference.

        16.17 PAYMENTS IN UNITED STATES CURRENCY: All payments to be made by
Tenant to Landlord under this Lease shall be in United States currency.

        16.18 TENANT'S FINANCIAL STATEMENTS: Within fifteen (15) days of written
notice from Landlord, Tenant agrees to deliver to Landlord or any lender or
buyer designated by Landlord, at no cost to Tenant, such financial statements of
Tenant that have most recently been prepared, as may be reasonably required by
Landlord, any lender or buyer. Such financial statements shall include the past
three (3) years' financial statements of Tenant if requested in writing by
Landlord. Such financial



                                    Page 46


statements shall be kept confidential and Landlord shall take all reasonable
steps necessary to ensure such confidentiality.

        16.19 NO OPTION: The submission of this Lease by Landlord, its agent or
representative for examination or execution by Tenant does not constitute an
option or offer to lease the Premises upon the terms and conditions contained in
this Lease or reservation of the Premises in favor of Tenant, it being intended
that this Lease shall only become effective upon the execution of the Lease by
Landlord and Tenant and delivery of a fully executed Lease to both parties.

        16.20 RECORDATION OF LEASE: Either Landlord or Tenant may, at its
election, record a Memorandum of Lease and each party shall cooperate with the
other in connection therewith.

        16.21 NO VIOLATION OF OTHER AGREEMENTS: Tenant hereby warrants and
represents that neither its execution of or performance under this Lease shall
cause Tenant to be in violation of any agreement, instrument, contract, law,
rule or regulation by which Tenant is bound and, in addition to all other
indemnity granted to Tenant in this Lease, Tenant agrees to indemnify Landlord
against any loss, cost, damage or liability arising out of Tenant's breach of
this Section 16.21.

        16.22 PROJECT NAME CHANGE: Landlord reserves the right to change the
name of the Project from time to time during the Term.

        16.23 USE OF PROJECT NAME: Tenant shall not be allowed to use the name,
picture or representation of the Project or words to that effect, in connection
with any business carried on in the Premises or otherwise (except at Tenant's
address) without the prior written consent of Landlord.

        16.24 RESERVED AREA: Tenant hereby acknowledges and agrees that the
exterior walls of the Premises and the area between the finished ceilings of the
Premises and the slab of the floor of the Premises have not been demised by this
Lease and the use thereof, together with the right to install, maintain, use,
repair and replace pipes, ducts, conduits and wires leading through, over or
above the Premises in locations which will not materially interfere with
Tenant's use of the Premises and serving other parts of the Premises, are hereby
excepted and reserved unto Landlord. Notwithstanding the foregoing, Tenant shall
have the right, subject to Landlord's right of approval pursuant to Section 7.9
above, to make such Alterations as Tenant deems necessary or desirable to such
areas above the finished ceilings and below the slab floor of the Premises.



                                    Page 47


                                   SECTION 17
                               SPECIAL PROVISIONS

        17.1 MOVING ALLOWANCE: Landlord shall pay to Tenant upon the
Commencement Date and the occupation of the Premises by Tenant a moving
allowance of Twenty-Five Thousand Two Hundred Fifty-Nine and no/100ths Dollars
($25,259.00) ($1.00 multiplied by Rentable Square Footage of 25,259 rentable
square feet) for Tenant's moving costs ("Moving Allowance"), regardless of
Tenant's actual moving costs.

        17.2 WARRANTY OF LANDLORD: Landlord warrants that the roof, foundation,
bearing and exterior walls, floor, subfloor and existing Tri-Water System,
windows and seals, electrical and plumbing systems and equipment in the Building
existing at the date of this Lease are in good condition as of the Commencement
Date.

        17.3 RIGHT OF FIRST REFUSAL FOR EXPANSION SPACE:

                (a) During the first eighteen (18) months of the Term of the
Lease, Tenant shall have a right of first refusal on unleased space on the third
(3rd) floor of the Building. "Right of First Refusal" shall mean Landlord shall
notify Tenant in writing of the rent and other terms and conditions of a lease
prior to leasing space on the third floor to another tenant ("Notice of Space").
Tenant shall have five (5) business days after receipt of the Notice of Space to
agree to lease the space pursuant to the terms and conditions set forth in the
Notice of Space.

                (b) During months 19-36 of the Term of the Lease, Tenant shall
have a five (5) business day right of first negotiation to lease all remaining
space on the third floor of the Building. The terms and conditions for Tenant to
lease such space shall be negotiated between Landlord and Tenant upon Tenant's
written notice of interest in negotiating a lease for space.

                (c) In the event Tenant does not expand as set forth in
subparagraphs (a) or (b) above, and such space is subsequently leased to a third
party tenant, upon the third party's vacation of the space, Tenant shall then be
entitled to a right of first negotiation when said space becomes vacant under
the same terms and conditions outlined above in subparagraph (b).




                                    Page 48


        IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first hereinabove set forth.

Landlord: PACCOR PARTNERS, a California general partnership

               By: PacCor Management Company
                   Its general partner

                    BY:  [SIGNATURE ILLEGIBLE]
                         ----------------------------------
                         Its  Vice President
                              -----------------------------

Tenant:             HNC, INC., a California corporation


                    BY:  [SIGNATURE ILLEGIBLE]
                         ----------------------------------
                         Its  President
                              -----------------------------



                                    Page 49


                                   Exhibit "C"

                                   WORK LETTER

This Work Letter is an exhibit to the Lease between PacCor Partners, a
California general partnership ("Landlord") and HNC, Inc., a California
corporation ("Tenant") dated ___________________________, with regard to the
following:

1. CONDITION OF PREMISES AND BUILDING DELIVERED BY LANDLORD.

        1.1 Premises Shell and Stub-in. Landlord shall provide, at its expense
and not as a charge against the Tenant Improvement Allowance, a finished shell
for the Premises and Building, which shall include: (a) smooth concrete floors;
(b) unfinished ceilings in the Premises; (c) finished core area, including
elevator(s), toilet room(s), electrical room, telephone room(s), janitorial
closet(s) and exit stair(s); (d) dry wall (taped and/or finished, but not
painted) around surfaces of core walls; (e) existing heating, ventilating and
air conditioning service as set forth in Exhibit "F" to the Lease; (f) existing
sprinkler service within the Building (not including main loops and branch
distribution); (g) main electrical panel; (h) exercise room including existing
exercise equipment, and (i) life safety systems as required by the applicable
San Diego City Municipal Code for a building shell.

        1.2 Building Standards. All improvements in the Building shall be in
accordance with Building/Tenant Improvement Standards for Pacific Corporate Park
("Building Standards") attached as Exhibit D of the Lease. If provisions of this
Work Letter conflict with provisions of the Building Standards, the provisions
of the Work Letter shall prevail.

        1.3 Building Plans. Landlord has delivered to Tenant its best available
shell building plans and information ("Building Plans").

        1.4 The Work. The installation and construction of the Tenant
improvements by Landlord in accordance with the permitted and approved
Construction Documents (defined in paragraph 2.4) and Change Orders (defined in
paragraph 9) shall constitute the work ("Work").

2. PLANS AND DOCUMENTS.

        2.1 Preliminary Space Plan. Tenant's Representative shall provide to
Landlord a preliminary schematic drawing depicting the Premises with walls,
doors, windows, columns and structural elements, based on site visits, other
information obtained by Tenant or Tenant's Representatives, and the best
available Building Plans supplied by Landlord ("Preliminary Space Plan"), in
accordance with the schedule set forth in paragraph 6 of this Work Letter
("Schedule") for information only.

        2.2 Final Space Plan. Tenant's Representative shall furnish to Landlord
a final schematic drawing depicting the Premises with walls, doors, windows,
columns and structural elements, based on site visits, other information
obtained by Tenant or Tenant's Representatives, and the Building Plans ("Final
Space Plan"), in accordance with the Schedule. Landlord shall review and approve
the Final Space Plan with reasonable written conditions, if any, in accordance
with the Schedule.

        2.3 Construction Documents. Tenant shall cause to be prepared all
documents required to obtain a building permit from the City of San Diego for
the Work, including any corrections or changes requested by the City of San
Diego ("Construction Documents") in accordance with the Schedule. The
Construction Documents shall be consistent with the Final Space Plan, design
plans, if any, and the Building Standards. Tenant shall submit Construction
Documents including the list of bid alternates, if any, to Landlord in
accordance with the Schedule. The Landlord shall review and approve with
reasonable conditions, if any, in accordance with the Schedule. Tenant shall
reasonably comply with



                                     Page 1


Landlord's conditions, if any, by modifying the Construction Documents prior to
the issuance of building permits.

        2.4 Design/Engineering Fees. Fees paid to BSHA Architects & Interior
Design for preparation of the Preliminary Space Plan, the Final Space Plan,
working drawings, and services for processing and obtaining building permits and
Change Orders, and other services related to the Work not to exceed Forty Five
Thousand Eight Hundred Seventy-Two Dollars ($45,872.00) ($2.00 times Usable
Square Footage of 22,936 usable square feet) shall be part of the Tenant
Improvement Allowance. All above mentioned fees exceeding $45,872.00 shall be
paid by Tenant and not a part of the Tenant Improvement Allowance.

        2.5 Landlord's Review of Plans and Documents. Landlord's review of plans
during design and construction of Work is selective for the benefit of Landlord
only. A Building Standard, provision in the Amended Planned Industrial
Development Permit No. 85-0830 ("PID") or other similar document may only be
amended, modified or waived as specifically set forth in writing by Landlord.
Any provision of a PID and/or governmental requirement that is amended, modified
or waived must be specifically approved by the appropriate government entity
prior to final approval by the Landlord.

3. COST ESTIMATES.

        3.1 Preliminary Cost Estimates. Landlord shall obtain preliminary cost
estimates and deliver to Tenant for approval with conditions, if any, in
accordance with the Schedule.

        3.2 Final Cost Estimates. Landlord shall deliver to tenant Final Cost
Estimates in accordance with the Schedule.

        3.3 Contractors. Roel Construction shall be the general contractor
("Roel").

4. Building Permit. Tenant or Tenant's Representative shall submit to the City
of San Diego all Construction Documents required to obtain building permits in
accordance with the Schedule. The building permits shall be issued to the
Landlord and all fees shall be paid by the Landlord as part of the Tenant
improvement Allowance. Furthermore, Tenant, Tenant's Representative and Roel
shall conduct all processing and coordination with the City of San Diego
required for the issuance of building permits for the Work.

5. CONSTRUCTION CONTRACTS.

        5.1 Tenant or Tenant's Representative shall prepare a bid package for
distribution to the subcontractor(s) and submit to Landlord for review. Landlord
shall approve the bid package with reasonable conditions, if any, in accordance
with the Schedule.

        5.2 Landlord shall prepare a contract for the Work with Roel and submit
to Tenant for review in accordance with the Schedule. Tenant shall approve the
contract with conditions, if any, in accordance with the Schedule.

        5.3 Landlord shall execute a construction contract ("Construction
Contract") with Roel. Landlord shall deliver to Tenant a copy of the
Construction Contract in accordance with the Schedule.

6. SCHEDULE. Tenant and Landlord shall comply with the following Schedule.



                                     Page 2


                                    SCHEDULE



                            ACTION                                      RESPONSIBILITY          DUE DATE
                            ------                                      --------------          --------
                                                                                         
a)   Deliver to Tenant best available shell building plans &               Landlord            Completed
     information

b)   Deliver to Landlord for approval Preliminary Space Plan               Tenant              Completed

c)   Deliver to Tenant written notice approving Preliminary Space          Landlord            Completed
      Plan or disapproving with detailed written comments

d)   Deliver to Tenant preliminary cost estimate                           Landlord            Completed

e)   Deliver to Landlord written approval of preliminary cost              Tenant
     estimate with conditions, if any

f)   Select general contractor                                             Landlord/Tenant     Completed

g)   Deliver to Landlord for approval Final Space Plan                     Tenant              11/23/93

h)   Deliver to Tenant written notice approving Final Space Plan           Landlord            11/24/93
     with conditions, if any

i)   Deliver to Landlord Construction Documents                            Tenant              12/1/93

j)   Deliver to Tenant written approval of Construction                    Landlord            12/8/93
      Documents with conditions, if any

k)   Submit Construction Documents to City of San Diego for                Tenant              12/1/93
     permits

l)   Prepare bid package and deliver to Landlord for approval              Tenant              12/1/93

m)   Deliver to Roel bid package as approved by Landlord                   Landlord            12/8/93

n)   Deliver to Tenant Construction Contact, bids and                      Landlord            12/15/93
     recommended subcontractors in each line item of budget

o)   Deliver to Landlord written approval with conditions, if any, of      Tenant              12/20/93
     Construction Contract and bids in each line item of budget.

p)   Execute Construction Contract. Deliver to Tenant copies of            Landlord            12/23/93
     executed Construction Contract, final budget and
     construction schedule

q)   Process and obtain City building permits                              Tenant              12/23/93

r)   Commence construction of Work                                         Landlord            1/3/94

s)   Substantial Completion of Work                                        Landlord            3/15/94


NOTE: The documents in the Schedule are deemed delivered when received in good
condition by the following which may be changed upon written notice:



                                     Page 3



To Tenant:                           HNC, Inc.
                                     5501 Oberlin Drive
                                     San Diego, California 92121
                                     Attn: Hugh D. Gerfin

To Tenant's Representative:          Ms. Beverly Thompson
(Interior Designer)                  BSHA Architects & Interior Design
                                     919 4th Avenue
                                     San Diego, California 92101

To Landlord                          PacCor Partners
                                     11939 Rancho Bernardo Road, Suite 200
                                     San Diego, California 92128
                                     Attn: Robert C. Henkel

To Landlord's Representative:        Mr. Gary Carter
                                     PacCor Management Company
                                     11939 Rancho Bernardo Road, Suite 200
                                     San Diego, California 92128

7. Administration of Construction. Landlord shall administer the construction of
the Work in accordance with the Work Letter, the Construction Contract and the
Lease.

        Landlord shall notify Tenant of all regularly scheduled construction
meetings during the course of construction of the Work. Tenant shall have the
right but not the obligation to attend all construction meetings.

8. PAYMENT OF TENANT IMPROVEMENT ALLOWANCE. Landlord shall make monthly progress
payments to Roel of the Tenant Improvement Allowance pursuant to the following
conditions and computations:

        8.1 Landlord shall deliver to Tenant copies of Roel's approved monthly
payment request ("Payment Request").

        8.2 At such time as Landlord has expended the Tenant Improvement
Allowance, Tenant shall reimburse Landlord for the entire remaining balance of
the cost of the Work or the amount due under the Construction Contract,
whichever is greater. After the Tenant Improvement Allowance has been expended,
Tenant shall reimburse Landlord the amount of the Payment Request within
fourteen (14) days of receipt of the Payment Request by Tenant.

9. CHANGE ORDERS.

        9.1 Any deviation from the Construction Contract during the construction
of the Work shall be via a change order from Landlord to Roel except for minor
changes that are made by Roel which are within normal construction practices in
the San Diego Area ("Change Order").

        9.2 Either Tenant or Landlord may prepare and submit a Change Order to
the other party for approval. The Change Order shall include the change in the
contract price and the number of days of delay, if any, in Substantial
Completion.

        9.3 Within two (2) business days after receipt of a Change Order, a
party shall give the other party notice of its approval or disapproval including
the reason for disapproval. Tenant and Landlord agree to meet and confer within
three (3) business days after receipt of the Change Order regarding any Change
Order not approved. Tenant shall reimburse Landlord for outside consultants'
fees for the review of a Change Order if (i) Landlord does not reasonably have
the expertise among its employees to



                                     Page 4



properly review a specific Change Order, and (ii) Tenant consents to the
retaining of an outside consultant.

        9.4 Landlord and Tenant agree not to unreasonably disapprove a Change
Order. Both parties agree to use reasonable effort to process a Change Order
expeditiously. When a Change Order has been signed by Landlord, Roel and Tenant,
the contents thereof shall be binding on all parties.

10. SPECIFIC LANDLORD CONCERNS RE CONSTRUCTION DOCUMENTS AND CHANGE ORDERS.

        10.1 Landlord has identified below certain areas of intense concern
which are most likely to generate condition(s) to approval by Landlord during
Landlord's review of plans, drawings, specifications and a Change Order, and
therefore may result in a disapproval or the necessity to retain outside
consultants.

                10.1.1 Any aspects of the Work that may endanger the structural
integrity of the Premises, the Building and/or the Project;

                10.1.2 Any aspects of the Work altering the Project utility
services or utilities serving Landlord's other tenants;

                10.1.3 Any aspect of the Work which is a material deviation from
the Building Standards;

                10.1.4 Any aspects of the Work which violate the conditions of
the PID, any State or municipal code or public agency ordinance, or regulation
and the applicable Declaration of Conditions, Covenants & Restrictions
("CC&R's).

                10.1.5 Any aspects of the Work to the Premises which will be
visually unattractive from the exterior of the Premises.

                10.1.6 Penetration or modification of the Building roof or
shell.

                10.1.7 Reduction in the number of parking stalls in the Project.

                10.1.8 Increase in rentable areas which may cause a reduction in
buildable area available to Landlord with respect to future expansion of the
Project.

11. TENANT'S VISIT TO PREMISES.

        11.1 Upon execution of the Lease, Tenant shall have access to the
Premises for the purpose of planning and design seven (7) days a week,
twenty-four (24) hours a day, subject to all applicable codes, ordinances, law
and governmental restrictions, except that Tenant shall not interrupt or
interfere with the activities of Landlord or other tenants of the Project.

        11.2 Tenant hereby indemnifies and agrees to hold Landlord, Landlord's
Representatives and the Project free and harmless of any and all costs, claims,
damages, liens, losses and expenses of any kind or nature, arising out of or
resulting from such entry and/or activity upon the Project, Building or Premises
by Tenant and Tenant's Representatives, except to the extent caused by
Landlord's negligence or intentional misconduct.

        11.3 All of Tenant's personal property brought upon or installed in the
Premises before the delivery of possession shall be at Tenant's risk, and
neither Landlord nor Landlord's Representatives shall be responsible for any
damage, losses or destruction thereof, except for Landlord's willful misconduct.
All Tenant's installations shall conform with all applicable governmental
regulations and codes.



                                     Page 5



12. BONDS/GUARANTEE. Landlord may at its election require the contractors to
provide for the benefit of Landlord from a company acceptable to Landlord a
performance and completion bond to assure the completion of the Work and the
payment of all labor and material costs.

13. INSURANCE. Landlord shall require contractors to maintain adequate insurance
as a cost of Tenant Improvement Allowance.

14. LANDLORD'S FEE. No fee, charge, out-of-pocket costs, general conditions,
overhead or profit shall be chargeable by Landlord to Tenant in connection with
Landlord's supervision of Work, except as provided in Paragraph 9.3 above.

15. ARBITRATION OF DISPUTES. If either party disapproves any designs, plans and
specifications submitted by the other party pursuant to this Work Letter, the
disapproving party shall as soon thereafter as reasonably possible, submit for
the issuing party's approval revised designs, plans and specifications. Within
three (3) business days after receipt of such revised designs, plans and
specifications, the issuing party shall notify the disapproving party of
approval or disapproval of such revisions. If the issuing party disapproves such
revised designs, plans and specifications, then the disapproving party may, at
its election, notify the issuing party in writing of the submission of the
dispute to arbitration pursuant to this paragraph. Such arbitration shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association.

16. DEFINED TERMS. All defined terms (capitalized words) shall have same meaning
as in the Lease. "Business days" shall mean Monday through Friday, excluding all
federal and state holidays.

ACCEPTED AND APPROVED:

PACCOR PARTNERS

By:  PACCOR MANAGEMENT COMPANY
     A general partner

     By:
        ----------------------------------------
          Its:
              ----------------------------------
HNC, INC., a California corporation

     By:
        ----------------------------------------
          Its:
              ----------------------------------



                                     Page 6


                      BUILDING/TENANT IMPROVEMENT STANDARDS
                                       FOR
                             PACIFIC CORPORATE PARK

These Building/Tenant Improvement Standards consists of the following Sections:

I.        GENERAL
II.       LANDLORD'S RESPONSIBILITIES
III.      TENANT'S RESPONSIBILITIES
IV.       IMPROVEMENTS PROVIDED BY LANDLORD
V.        IMPROVEMENTS PROVIDED BY TENANT
VI.       DESIGN CRITERIA
          A.   Architectural Criteria
          B.   Interior Improvement Criteria
          C.   Signage Criteria
          D.   Electrical Criteria
          E.   Plumbing Criteria
          F.   Mechanical Criteria
          G.   Sprinkler Criteria
VII.      CONSTRUCTION REGULATIONS
VIII.     TENANT'S CONSTRUCTION DOCUMENT SUBMITTAL
IX.       TENANT IMPROVEMENT STANDARD SPECIFICATIONS



                                   EXHIBIT D



All defined terms in this Exhibit D shall have the same meaning as in the Lease.

I.      GENERAL

        A.      Pacific Corporate Park is designed to be a highly successful
                office building center. It is expected that tenant improvements
                and signage may represent a variety of design styles. PacCor
                Partners ("Landlord") intends to provide Tenant with reasonable
                latitude with this aspect of design. At the same time, Landlord
                will discourage tenant improvements and signage design that
                would conflict significantly with the general design of the
                buildings. These matters are more fully addressed in section VI
                of these Building/Tenant Improvement Standards For Pacific
                Corporate Park ("Building Standards").

                In providing the Building Standards, it is Landlord's intent to
                simplify the effort of Tenant in securing Landlord's approval of
                tenant improvements and/or alterations to be constructed by
                Tenant through a clear understanding of the responsibility of
                each party. The Building Standards are intended to aid Tenant in
                designing its improvements in a timely manner, with the least
                disruption to other tenants, Landlord, and Landlord's
                contractors and agents.

                In the event of any conflict between the Building Standards, the
                Office Lease (the "Lease"), and the Work Letter, the provisions
                of the Lease and Work Letter will govern.

II.     LANDLORD'S RESPONSIBILITIES

                Landlord accepts the responsibility of providing assistance to
                Tenant, Tenant's architects, engineers and other consultants,
                and to Tenant's contractors, subcontractors and suppliers
                (collectively "Tenant's Contractors") to complete their work in
                the shortest time. To this end, Landlord may stringently enforce
                the provisions of the Building Standards and any other
                reasonable rules of conduct for design and construction.

        B.      Other responsibilities of Landlord are as follows:

                1.      Make available to Tenant and Tenant's Representatives a
                        person designated by the Landlord to be responsible for
                        providing information, review of Tenant's drawings, to
                        have final approval authority for all submittals, and to
                        resolve disputes between tenants.

                2.      Meet with Tenant and Tenant's Representatives in a
                        preliminary meeting to clarify details of Tenant's
                        tenant improvement process.

                3.      Provide Tenant and Tenant's Representatives with copies
                        of Landlord's construction documentation reasonably
                        required by Tenant to design Tenant's tenant
                        improvements.

                4.      Define the improvements in the Premises provided by
                        Landlord.

                5.      When necessary, refer Tenant and Tenant's
                        Representatives to Landlord's engineering and design
                        agents.

                6.      Review Tenant's submittals in accordance with the time
                        periods set forth herein and specify any elements which
                        are disapproved.

                7.      Use Landlord's best effort to ensure that Tenant's Work
                        is not unreasonably affected by the work of other
                        tenants or their agents.

III.    TENANT'S RESPONSIBILITIES

        A.      "Tenant's Work" shall include all work in the Premises other
                than improvements provided by Landlord described in Section IV
                hereof.


                                     Page 1


        B.      Tenant shall review Landlord's construction documentation,
                inspect the Premises, and promptly indicate any deficiencies of
                work to be completed by Landlord.

        C.      Tenant and Tenant's Representatives are responsible for
                requesting additional documentation or clarifications from
                Landlord if they feel that construction documentation provided
                by Landlord is inadequate or incomplete.

        D.      Tenant shall be thoroughly familiar with all aspects of the
                Lease applicable to Tenant's Work and the contents of these
                Building Standards.

        E.      Tenant shall be aware of the improvements provided by Landlord
                ("Landlord's Work").

        F.      Tenant shall select qualified and professional persons to act as
                design consultants and as Tenant's Contractors.

        G.      Tenant shall ensure that Tenant's design consultants and
                Tenant's Contractors are familiar with and comply with the
                contents of these Building Standards, applicable provisions of
                the Lease, and all City, County, State, and other governmental
                ordinances, rule, regulations, and codes pertaining to Tenant's
                work.

        H.      Tenant shall insure that the contractors engaged by Tenant to
                perform Tenant's Work shall be bondable and licensed in the
                State of California. The selection of such firm(s) are in the
                discretion of Tenant, subject to the reasonable approval of
                Landlord. By approving Tenant's Contractors, Landlord assumes no
                liability for the work completed by, or other obligations of,
                Tenant's Contractors.

        I.      Tenant shall ensure the cooperation of Tenant's Representatives
                with Landlord and Landlord's agents and other Tenants and their
                agents while at Pacific Corporate Park.

        J.      Tenant shall ensure that all submittals and resubmittals of
                Tenant's plans and specifications are made properly and in
                accordance with the timetables set forth in Section VIII of
                these Building Standards. After Landlord's approval of Tenant's
                plans and specifications, such drawings shall become
                "Construction Documents".

        K.      Tenant shall ensure that Construction Documents are in a
                condition that reasonably illustrate the design intent to
                construct and maintain the Premises. Tenant shall, upon request,
                provide Landlord with a color board of finishes set forth in the
                Construction Documents.

        L.      Tenant shall obtain and transmit to Landlord prior to
                commencement of Tenant's Work copies of all permits with respect
                to Tenant's Work required by the City, County of San Diego,
                and/or any utility service.

        M.      If required by Landlord in its sole discretion, Tenant or
                Tenant's Contractors shall furnish a bond or other security in
                form satisfactory to Landlord covering the prompt and faithful
                performance of Tenant's Work in an amount equal to one hundred
                twenty-five percent (125%) of the cost thereof.

        N.      Tenant shall not allow the Premises to be occupied until
                Tenant's sprinkler system has been inspected, approved and put
                into operation, and Tenant has received a Certificate of
                Occupancy from the Building Department of the City of San Diego.
                Tenant shall deliver to Landlord the Original Certificate of
                Occupancy immediately upon receipt from the City of San Diego.

        O.      Tenant and Tenant's Contractors shall be responsible for the
                security of the Premises during the period of construction,
                including re-keying, if required, of Tenant's doors after
                completion of construction. Landlord shall have no liability for
                any loss or damage, including theft of building materials,
                equipment or supplies.



                                     Page 2


        P.      Tenant shall, within ten (10) working days after the completion
                of Tenant's Work, execute and file of record, or cause to be
                filed of record, a notice of completion with respect thereto in
                a form complying with the applicable provisions of the
                California Civil Code specifying the names of Tenant's
                Contractors and the location of the work done. Tenant shall
                furnish to Landlord a conformed copy thereof after recordation.

        Q.      Tenant shall ensure that Tenant's Contractors exercise caution
                in matters relating to public safety and to prevent damage to
                the Common Areas and other leased areas. Tenant shall be
                responsible for any damage or liability occurring by reason of
                the acts or omissions of Tenant's Contractors.

        R.      Tenant shall require that Tenant's Contractors and other
                Representatives cause all supplies, materials, equipment, or
                trash being delivered to or removed from the Premises across the
                Common Areas or within the elevators, which requires the use of
                dollies or hand trucks, to be transported on dollies or hand
                trucks with soft rubber tires.

IV.     IMPROVEMENTS PROVIDED BY TENANT

        A.      The following is a complete description of Landlord's Work,
                which shall be performed at Landlord's expense. Landlord's Work
                shall be completed in accordance with Landlord's plans. Where
                two (2) or more types of materials or structures are indicated,
                the option of selection shall be with Landlord. Landlord shall
                at all times have the option, in its sole discretion, of
                replacing or changing materials or structures with comparable or
                like quality or kind without prior notice to Tenant. Landlord's
                Work shall be designed by Landlord's designers and consultants
                and shall include the installation of the following:

                1.      A structural floor designed to support a live load as
                        set forth in the Lease and Work Letter. No load shall be
                        imposed by the Tenant upon the Premises in excess of
                        this limit.

                2.      Columns on the interior or on the periphery of the
                        Premises are not necessarily encased.

                3.      Unfinished overhead consisting of structural,
                        mechanical, plumbing and electrical elements as shown on
                        Landlord's plans, subject to any field modifications
                        reasonably authorized by Landlord.

                4.      Fire rated corridors and stairwells where required in
                        Common Areas, but not including any areas within
                        Tenant's Premises.

                5.      Walls along the exterior of the Building consisting of
                        glazing and finished exterior materials, but with
                        unfinished studs or appropriate channels on the
                        interior.

                6.      Acoustical and thermal insulation as provided on
                        Landlord's plans.

                7.      Other improvements as and to the extent described in the
                        Design Criteria set forth in Section VI hereof as
                        follows:

                        Electrical      Paragraph D
                        Plumbing        Paragraph E
                        Mechanical      Paragraph F
                        Sprinklers      Paragraph G

                8.      Tenant agrees that Tenant's acceptance of the Premises
                        after completion of Landlord's Work shall constitute
                        Tenant's approval of same, except for any deficiencies
                        which Tenant has advised Landlord in writing within ten
                        (10) business days of the time when Tenant accepts the
                        Premises. Except as described in such notice, Tenant
                        hereby waives any



                                     Page 3


                        right to claim or bring an action of any kind, direct or
                        indirect, latent or patent, against Landlord arising out
                        of the condition of the Premises, appurtenances thereto,
                        the improvements therein or the equipment therein, and
                        Landlord shall have no liability therefor.
                        Notwithstanding the foregoing, Landlord shall warrant
                        the Premises against defects in workmanship in
                        connection with Landlord's Work for a period of one (1)
                        year from the date of completion thereof. Tenant shall
                        not refuse to accept delivery of the Premises as a
                        result of a "punchlist," unless any such defect
                        unreasonably precludes Tenant's Contractors from
                        proceeding with Tenant's Work.

                9.      The work to be done by Landlord in satisfying its
                        obligation to construct the Premises shall be limited
                        only to those improvements described in this Section IV
                        hereof unless agreed by Landlord in writing.

V.      IMPROVEMENTS PROVIDED BY LANDLORD

        A.      All items of construction other than described in Section IV
                shall be performed diligently by Tenant, at Tenant's expense,
                in a workmanlike manner and in accordance with Tenant's
                Construction Documents. Tenant's Work will include, but not be
                limited to, the installation and performance of the following:

                1.      Any modifications, approved in writing by Landlord, to
                        the interior of the Premises as shown on Landlord's
                        plans.

                2.      Drywall and taping of the interior side of walls
                        demising the Premises and the interior side of exterior
                        walls of the Premises.

                3.      Partitions and walls within the Premises.

                4.      All ceilings.

                5.      All interior painting, wallpaper and other finishes.

                6.      All floor coverings and floor finishes, preparations of
                        surfaces to receive same, special reinforcing and
                        floating of any irregularities or depressions in the
                        concrete floor.

                7.      Office fixtures and furnishings.

                8.      Stairways and elevators within the Premises, dumb
                        waiters, chutes, conveyers, pneumatic tubes and their
                        shafts, doors, and other components, including required
                        electrical hookups for such equipment and the cost of
                        any engineering and structural changes resulting from
                        penetrations of the slab.

                9.      Signs and related attachments. The method of attachment
                        including structural calculations, if required, shall be
                        provided to Landlord prior to construction of any such
                        appendages.

                10.     Electrical work and equipment, including wiring from the
                        meter room to the Premises in conduit provided by
                        Tenant, required transformers, and lighting and time
                        clocks. Electrical requirements are more particularly
                        described in Section VI.


                11.     Telephone service and equipment, telephone conduit,
                        cabinets, and outlets within the Premises, including
                        wiring conduit from the terminal board provided by
                        Landlord to the Premises.

                12.     Internal communications, security, fire and smoke
                        detection, and alarm systems.



                                     Page 4


                13.     Any plumbing fixtures and accessories, toilets, water
                        heaters, water treatment systems and drinking fountains,
                        together with plumbing thereto, connected to services
                        stubbed to the Premises as shown in Landlord's plans.
                        Plumbing requirements are more particularly described in
                        Section VI.

                14.     All heating, cooling, ventilating equipment, ducting,
                        condensate lines, and hookups within the Premises.
                        Mechanical requirements are more particularly described
                        in Section VI.

                15.     All additions and modifications to, and relocation of,
                        the fire sprinkler system installed by Landlord pursuant
                        to Landlord's plans. Sprinkler requirements are more
                        particularly described in Section VI.

                16.     Any engineering costs incurred by Landlord for review of
                        structural changes proposed by Tenant shall be paid
                        according to the Lease and Work Letter. Tenant shall not
                        notch, core, cut or otherwise modify the structure of
                        the Building without Landlord's written approval.

VI.     DESIGN CRITERIA

        A.      Architectural Criteria:

                1.      Tenant's Work must be designed and constructed by
                        Tenant's architect and Tenant's Contractors to meet all
                        applicable City, County, State and other governmental
                        ordinances, rules, regulations and codes, and be
                        constructed to the highest standards of quality
                        consistent with the Common Areas of the Premises.
                        Landlord's approval of Tenant's Construction Documents
                        shall not be deemed a certification by Landlord or
                        Landlord's Representatives that Tenant's Construction
                        Documents comply with building codes or other
                        governmental requirements.

                2.      Tenant shall retain, at Tenant's expense, Tenant's
                        architect, along with other consultants for the design
                        of Tenant's Construction Documents Tenant's Construction
                        Documents shall include interior design, signage,
                        electrical, plumbing, mechanical and sprinkler systems.
                        The design firm of Howard-Sneed Interior Architecture
                        ("Tenant's Architect") is approved by Landlord.

                3.      Tenant's Architect will be provided with a copy of those
                        portions of Landlord's plans reasonably required to
                        complete the Construction Documents. Tenant's Architect
                        shall be responsible for verifying Building drawings and
                        specifications for the Premises delivered to Tenant by
                        Landlord.

        B.      Interior Improvement Criteria:

                1.      Landlord shall provide a building shell in accordance
                        with Landlord's plans. Construction shall generally be
                        type V, 1 hr. rated (sprinklered in lieu of 1 hr.
                        protection) for B2 occupancies. All structural columns
                        and beams within the Premise are exposed and will not be
                        protected.

                2.      Tenant shall install at least 2 1/2" X 25 GA (min.)
                        metal studs @ 16" o.c. w/5/8", type X drywall each side,
                        continuous from floor slab to the structure above on
                        Tenant's side of each demising wall. Drywall will be
                        fire-taped, spackled, and sealed air tight in order to
                        achieve a one (1) hour rating of the demising wall.
                        Demising walls between Tenant spaces must be finished
                        with orange peel medium wall texture, R.11 batt
                        insulation in cavities and 1 hr. rated w/STC.50.



                                     Page 5


                3.      Tenant shall not penetrate the drywall which encloses
                        any fire corridor or exit stairwell without the prior
                        written approval of Landlord. Any penetrations shall
                        maintain the fire rating of the corridor or stairwell.

                4.      Tenant's Architect shall indicate on Tenant's
                        Construction Documents, referencing Building grid lines
                        and the structural supporting members, the precise
                        location, size, and weight of all safes, Tri-Water
                        System equipment, and other heavy fixtures or equipment.
                        Any required structural changes to accommodate such
                        equipment or loading, including slab, other structural
                        penetrations, or the reinforcing of the Building
                        structure, must have the prior review and approval of
                        the Landlord, Landlord's designer and/or Landlord's
                        structural engineer, with the cost of such review to be
                        paid according to the Lease and Work Letter. Tenant
                        shall contract directly with Landlord's consultant for
                        such review and be solely responsible for paying the
                        cost of same.

                5.      The studs provided by Landlord for demising walls or
                        corridors are not designed to accommodate cantilevered
                        or eccentric loads. For such loads, Tenant shall
                        reinforce the wall as required by inserting additional
                        studs or by other appropriate means. Tenant's
                        Construction Documents shall include details of any such
                        reinforcement.

                6.      Any interior stairwells and/or elevators shall require
                        the prior review and approval of Landlord, Landlord's
                        designer and/or structural engineer. Tenant shall
                        contract directly with Landlord's consultant for such
                        review, with all costs paid as set forth in the Lease
                        and the Work Letter.

                7.      If Tenant's Construction Documents include Tri-Water
                        Systems ducts which penetrate through any floor level,
                        such ducts must be enclosed in properly rated shafts and
                        incorporate appropriate fire-dampers.

                8.      Any roof top penetrations will be sealed by Landlord's
                        roofing contractor. Tenant shall contract directly with
                        Landlord's roofing contractor for such work and pay the
                        reasonable cost of same.

                9.      Interior finishes within the Premises will be
                        appropriate for the type and quality of Tenant's
                        operation.

                10.     Tenant shall install proprietary materials, products or
                        assemblies denoted by an asterisk (*) in section IX of
                        the Building Standards.

        C.      Signage Criteria:

                        Tenant shall provide submittals or shop drawings of
                        Tenant's proposed exterior signage for Landlord's review
                        and approval, subject to the Lease and Exhibit L. Tenant
                        shall not proceed with the fabrication or installation
                        of signage without the prior written approval by
                        Landlord of Tenant's final sign plans, which approval
                        shall not be unreasonably withheld.

        D.      Electrical Criteria:

                        Prior to the preparation of Tenant's electrical plans
                        and specifications for the Premises. Tenant's electrical
                        engineer shall thoroughly familiarize himself with these
                        Building Standards, Landlord's plans, applicable local
                        building codes, and existing job conditions. Tenant's
                        electrical plans shall be prepared in full knowledge of
                        and in compliance with these Building Standards, and all
                        City, County, State and other governmental ordinances,
                        rules, regulations, and codes relating thereto
                        including, without limitation, the Energy Conservation
                        Requirements of Title 24 of the California
                        Administrative Codes ("Title 24"). Tenant's
                        electrical engineer shall be licensed in the State of
                        California and qualified to



                                     Page 6


                        prepare Tenant's electrical plans. Electrical plans
                        prepared by other than a duly licensed electrical
                        engineer will not be accepted by Landlord for review.

                2.      Tenant's electrical engineer shall verify that the
                        electrical service available to the Premises is adequate
                        to satisfy Tenant's requirements.

                3.      All Tenant's Work must be designed in order to comply
                        with Title 24, and include the required signed statement
                        of Title 24 design compliance written on Tenant's
                        electrical plans.

                4.      Landlord shall provide facilities for the delivery of
                        120/208 volt 3 phase power from a central distribution
                        point located within the main electric room designated
                        on Landlord's plans (the "Electric Room").

                5.      Tenant shall extend service by feeder wires and conduits
                        provided by Tenant to Tenant's Premises from the main
                        electrical switch located in the Electric Room. All work
                        by Tenant's electrical subcontractor in the Electric
                        Room shall be performed under the supervision of
                        Landlord or Landlord's Representatives.

                6.      Except for that portion of electrical work installed by
                        Landlord as set forth in the Work Letter, Tenant shall
                        install all electrical work necessary for the electrical
                        distribution system within the Premises including,
                        without limitation, the main electric disconnect switch,
                        transformers, electrical panels, other disconnect
                        switches, conduit, wire, light fixtures, controls,
                        timers and time clocks, smoke detectors, alarms, and
                        security systems. Tenant, at its expense, shall arrange
                        and pay for electrical service and meters provided by
                        the local electric utility company.

                7.      Temporary electrical facilities for construction power
                        will not be available from Landlord. Tenant's electrical
                        contractor must provide temporary facilities from
                        Tenant's panel and make application for electrical
                        service to the local utility company for construction
                        power. This should be the first item accomplished
                        within the Premises by Tenant. Landlord shall pay for
                        utilities as provided in the Lease and Work Letter.

                8.      Transformers shall be floor supported and not suspended
                        from the structure. Noise level should be a maximum of
                        50 dB average, measured a distance of one (1) foot from
                        the case.

                9.      Tenant shall connect Tenant's telephone and
                        communications service by feeder wires and conduit as
                        required to access Tenant's telephone backboard within
                        the Premises.

                10.     Tenant's electrical plans shall be submitted to Landlord
                        as a part of the Tenant's Construction Documents
                        Submittal (Section VIII below). Tenant's electrical
                        plans shall include the following:

                        a.      Electrical floor plan at 1/8" scale or larger.

                        b.      Reflected ceiling plan showing all elements of
                                the proposed design including lighting at 1/8"
                                scale or larger.

                        c.      Electrical riser diagram which shall include,
                                without limitation, the size of the main service
                                switch, fuse size at main service switch, and
                                wire size and type from main service switch.

                        d.      Electrical panel schedule, including circuit
                                breaker sizes and all connected loads.



                                     Page 7


                        e.      Lighting fixture schedule which shall include
                                type of lamps, mounting, wattages, quantities,
                                and manufacturers catalog number. Submittals
                                shall also include catalog cuts of all light
                                fixtures proposed for use by Tenant.

                        f.      Interior elevations and details sufficient for
                                review of Tenant's electrical system.

                        g.      Tri-Water System control diagrams and
                                schematics, as required by the Mechanical
                                Criteria (Section VI.F below).

                        h.      Electrical load summary which shall include all
                                connected and demand load calculations.

                        i.      Equipment and material specifications.

                        j.      Completed "Form 5" and "Form 7" with required
                                calculations as required by Title 24.

                11.     Landlord shall review Tenant's electrical plans in
                        accordance with the Tenant's Construction Documents
                        Submittal for conformance with the provisions hereof.
                        Where Tenant's electrical plans conflict with these
                        Building Standards, the provisions of these Building
                        Standards shall prevail. Landlord's approval shall not
                        be deemed to certify that Tenant's electrical plans
                        comply with building codes or other governmental
                        requirements and shall not relieve Tenant and Tenant's
                        Representatives of the responsibility to verify all job
                        conditions including, without limitation, dimensions,
                        locations and clearances. Tenant is responsible to
                        obtain all necessary permits for the installation of
                        Tenant's temporary power and other electrical work.

                12.     Landlord shall notify Tenant in writing whether Tenant's
                        electrical plans are approved or rejected by Landlord
                        for specified deficiencies. Tenant's electrical engineer
                        shall make all corrections to bring Tenant's electrical
                        plans into compliance and resubmit in accordance with
                        the requirements of the Tenant's Construction Documents
                        Submittal.

        E.      Plumbing Criteria:

                1.      Prior to the preparation of Tenant's plumbing plans and
                        specifications for the Premises, Tenant's plumbing
                        engineer shall thoroughly familiarize himself with these
                        Building Standards, Landlord's plans, all applicable
                        local building codes, and existing job conditions.
                        Tenant's plumbing plans shall be prepared in full
                        knowledge of and in compliance with these Building
                        Standards, and all City, County, State and other
                        governmental ordinances, rules, regulations and codes
                        relating thereto including, without limitation,
                        requirements of Title 24. Tenant's plumbing engineer
                        shall be licensed in the State of California and
                        qualified to prepare Tenant's plumbing plans. Plumbing
                        plans prepared by other than a duly licensed plumbing
                        engineer will not be accepted by Landlord for review.

                2.      Landlord shall provide piping laterals for domestic
                        waste, sewer and venting stubbed to locations at each
                        floor, or below the Premises in the case of sewer
                        service, in sizes shown on Landlord's plans.

                3.      Tenant's plumbing engineer shall verify that the
                        plumbing and related services available to the Premises
                        are adequate to satisfy Tenant's requirements.

                4.      Tenant shall connect to and extend all piping as may be
                        necessary for Tenant's Work from the stub-ins provided
                        by Landlord.



                                     Page 8


                5.      Tenant may provide equipment for the heating of domestic
                        water. Water heaters may either by electric or an
                        instant heat variety. Electric hot water heaters shall
                        sit in metal drain pans connected to an overflow drain
                        source and have a pressure temperature relief valve
                        discharging into a code approved point of disposal. All
                        hot water heaters must conform with Title 24.

                6.      Plumbing fixtures and fittings shall be of commercial
                        quality.

                7.      Tenant shall ensure that all slab penetrations within
                        the Premises are properly sealed and remain water-tight
                        to prevent possible damage from leakage. Tenant shall
                        exercise caution during all core drilling activities to
                        prevent damage caused by leakage and falling debris. Any
                        damage resulting from core drilling by Tenant's
                        Contractors shall be at the sole risk and expense of the
                        Tenant.

                8.      Tenant's plumbing subcontractor shall flush and
                        chlorinate all domestic water piping within the Premises
                        and provide a copy of the Test Certification before
                        connecting to Landlord's domestic water system.

                9.      Tenant's plumbing plans shall be submitted to Landlord
                        as a part of the Tenant's Construction Documents
                        Submittal. Tenant's plumbing plans shall include the
                        following:

                        a.      Floor plan at 1/8" scale or larger that shows
                                all fixtures and piping and all connections to
                                Landlord's utility systems.

                        b.      Schematic diagram of water service.

                        c.      Schematic diagram of sanitary service.

                        d.      Schematic diagram of condensate and water heater
                                relief valve and drip pan drains.

                        e.      Schematic diagram of gas service, if applicable.

                        f.      Details of floor drains, clean-outs, fixtures
                                and other plumbing sufficient for construction
                                of Tenant's Work.

                        g.      Material and fixture specifications.

                10.     Landlord shall review Tenant's plumbing plans in
                        accordance with the Tenant's Construction Documents
                        Submittal for conformance with the provisions hereof.
                        Where Tenant's plumbing plans conflict with these
                        Building Standards, the provisions of these Building
                        Standards shall prevail. Landlord's approval shall not
                        be deemed to certify that Tenant's plumbing plans comply
                        with building codes or other governmental requirements
                        and shall not relieve Tenant and Tenant's
                        Representatives of the responsibility to verify all job
                        conditions including, without limitation, dimensions,
                        locations and clearances. Tenant is responsible to
                        obtain all necessary permits for the installation of
                        Tenant's plumbing work.

                11.     Tenant's Contractors shall pressure test any piping
                        systems prior to connection to the system installed by
                        Landlord for the Building.

                12.     Landlord shall notify Tenant in writing whether Tenant's
                        plumbing plans are, approved or rejected by Landlord for
                        specified deficiencies. Tenant's plumbing engineer shall
                        make all corrections to bring Tenant's plumbing plans
                        into compliance and resubmit in accordance with the
                        requirements of the Tenant's Construction Documents
                        Submittal.



                                     Page 9


        F.      Mechanical Criteria:

                1.      Prior to the preparation of Tenant's mechanical plans
                        and specifications for the Premises, Tenant's mechanical
                        engineer shall thoroughly familiarize himself with these
                        Building Standards, Landlord's plans, all applicable
                        local building codes, and existing job conditions.
                        Tenant's mechanical plans shall be prepared in full
                        knowledge of and in compliance with these Building
                        Standards, and all City, County, State and other
                        governmental ordinances, rules, regulations and codes
                        relating thereto including, without limitation,
                        requirements of Title 24. Tenant's mechanical engineer
                        shall be licensed in the State of California and
                        qualified to prepare Tenant's mechanical plans.
                        Mechanical plans prepared by other than a duly licensed
                        mechanical engineer will not be accepted by Landlord for
                        review.

                2.      Landlord will provide a two pipe water loop system for
                        connection to the Tenant's water source heat pump(s).
                        Tenant's mechanical engineer will design the Tri-Water
                        System for the Premises based upon the system installed
                        by Landlord for the Building. Tenant may install an
                        auxiliary system as set forth in the Lease and Work
                        Letter.

                3.      Tenant's mechanical engineer shall verify that the
                        mechanical services available to the Premises are
                        adequate to satisfy Tenant's requirements. Tenant may
                        install an auxiliary system as set forth in the Lease
                        and Work Letter.

                4.      Tenant shall not install any mechanical equipment which
                        does not have a recognized service vendor in the San
                        Diego area capable of rendering service and repairs upon
                        a four (4) hour notice during working hours.

                5.      All of Tenant's Tri-Water Systems shall be located
                        within Tenant's Premises except an auxiliary system may
                        be installed on the roof, subject to Landlord's
                        approval. Tenant's Tri-Water System equipment, when
                        supported from above, must be supported from the
                        structural steel of the floor or roof above, with
                        appropriate acoustical attenuation, rather than the
                        deck. Support locations and methods shall be subject to
                        the review of the Landlord's structural engineer.

                6.      Tenant's Tri-Water Systems must be connected to Tenant's
                        smoke detector in order to shut down the Tri-Water
                        System upon an appropriate signal from the smoke
                        detectors, if required by code.

                7.      Street metal duct work shall meet the thickness and
                        installation standards of SMACNA and should have smooth
                        interiors with all seams, braces, stiffeners, and
                        hangers on the outside of the duct work. Seismic bracing
                        is to be provided per code and SMACNA standards.
                        Flexible duct connectors should be double neoprene
                        coated, 30 oz. glass fabric flexible connectors and
                        should be properly connected to 24 gauge metal fitted on
                        the duct connections at fan or at inlets and outlets.
                        Dampers should be manually operated, opposed blade, and
                        constructed of 24 gauge steel with locking quadrants.

                8.      Condensate drain piping not exceeding 3/4" in diameter
                        may be piped into the tail piece of Tenant's toilet room
                        lavatory. Piping of any larger diameter shall be
                        connected directly into the sewer system by method
                        approved by Landlord or Landlord's architect. Copper
                        condensate lines should be insulated to avoid line
                        sweating.

                9.      Access through Tenant's ceiling for service and
                        inspection of the mechanical equipment must be provided,
                        Access may be through factory access panels or removable
                        ceiling tiles.



                                    Page 10


                10.     Tenant's mechanical plans shall be submitted to Landlord
                        as a part of the Tenant's Construction Documents
                        Submittal. Tenant's mechanical plans shall include the
                        following:

                        a.      Air distribution duct work at 1/8" scale or
                                larger.

                        b.      Equipment schedule with specification.

                        c.      Water piping showing valves and connection
                                points.

                        d.      Control wiring, including connections to work
                                provided Landlord.

                        e.      All connection details.

                        f.      Three (3) copies of Tenant's Tri-Water System
                                design calculations.

                        g.      Three (3) copies of the necessary calculations
                                and "Form 4" and "Form 6" as required by Title
                                24.

                11.     Landlord shall review Tenant's mechanical plans in
                        accordance with the Tenant's Construction Documents
                        Submittal for conformance with the provisions hereof.
                        Where Tenant's mechanical plans conflict with these
                        Building Standards, the provisions of these Building
                        Standards shall prevail. Landlord's approval shall not
                        be deemed to certify that Tenant's mechanical plans
                        comply with building codes or other governmental
                        requirements and shall not relieve Tenant and Tenant's
                        Representatives of the responsibility to verify all job
                        conditions including, without limitation, dimensions,
                        locations and clearances. Tenant is responsible to
                        obtain all necessary permits for the installation of
                        Tenant's mechanical work.

                12.     Landlord shall notify Tenant in writing whether Tenant's
                        mechanical plans are approved or rejected by Landlord
                        for specified deficiencies. Tenant's mechanical engineer
                        shall make all corrections to bring Tenant's mechanical
                        plans into compliance and resubmit in accordance with
                        the requirements of the Tenant's Construction Documents
                        Submittal.

        G.      Sprinkler Criteria

                1.      Prior to the preparation of Tenant's sprinkler plans and
                        specifications for the Premises, Tenant's sprinkler
                        designer shall thoroughly familiarize himself with these
                        Building Standards, Landlord's plans, all applicable
                        local building codes, and existing job conditions.
                        Tenant's sprinkler plans shall be prepared in full
                        knowledge of and in compliance with these Building
                        Standards, and all City, County, State and other
                        governmental ordinances, rules, regulations and codes
                        relating thereto. Tenant's sprinkler designer shall be
                        licensed in the State of California and qualified to
                        prepare Tenant's sprinkler plans. Sprinkler plans
                        prepared by other than a duly licensed sprinkler
                        designer will not be accepted by Landlord for review.

                2.      Tenant's sprinkler designer shall verify that the
                        sprinkler system available to the Premises is adequate
                        to satisfy Tenant's requirements.

                3.      Tenant's sprinkler plans and the system installed by
                        Tenant's Contractors shall be acceptable to the Fire
                        Marshall and the Fire Insurance Underwriters having
                        jurisdiction in the City of San Diego.

                4.      Landlord will provide a shell sprinkler system with
                        laterals in the Premises as set forth in Landlord's
                        plans.



                                    Page 11


                5.      All sprinkler fire protection systems installed by
                        Tenant's Contractors shall be listed as approved by the
                        Underwriters' Laboratories, Inc., or approved by other
                        appropriate nationally recognized testing laboratories,
                        and of the latest design of the manufacturer.

                6.      All sprinkler heads are to be semi-recessed, chrome
                        finish.

                7.      All sprinkler piping installed by Tenant's Contractors
                        shall be free of rust.

                8.      Landlord shall review Tenant's sprinkler plans in
                        accordance with the Tenant's Construction Documents
                        Submittal for conformance with the provisions hereof.
                        Where Tenant's sprinkler plans conflict with these
                        Building Standards, the provisions of these Building
                        Standards shall prevail. Landlord's approval shall not
                        be deemed to certify that Tenant's sprinkler plans
                        comply with building codes or other governmental
                        requirements and shall not relieve Tenant and Tenant's
                        Representatives of the responsibility to verify all job
                        conditions including, without limitation, dimensions,
                        locations and clearances. Tenant is responsible to
                        obtain all necessary permits for the installation of
                        Tenant's sprinkler work.

                9.      Landlord shall notify Tenant in writing whether Tenant's
                        sprinkler plans are approved or rejected by Landlord for
                        specified deficiencies. Tenant's sprinkler designer
                        shall make all corrections to bring Tenant's sprinkler
                        plans into compliance and resubmit in accordance with
                        the requirements of the Tenant's Construction Documents
                        Submittal.

                10.     In constructing or repairing the fire sprinkler system
                        for the Premises, Tenant shall coordinate with Landlord
                        when testing or draining the system for modifications.
                        Tenant's Contractors shall be responsible to make any
                        adjustments as required to secure all necessary
                        approvals.

VII.    CONSTRUCTION REGULATIONS

        A.      Tenant shall provide Landlord with copies of Tenant's
                construction contracts prior to the commencement of Tenant's
                Work. Landlord's review of Tenant's contracts in no way implies
                Landlord's approval of such contracts, Tenant's Construction
                Documents, or that the contracts properly reflect the
                requirements of these Building Standards.

        B.      Tenant's Contractors shall construct Tenant's Work in accordance
                with Tenant's Construction Documents which have been approved by
                Landlord and must comply with all City, County, State and
                governmental ordinances, rule, regulations and codes relating
                thereto. If the Premises have not been constructed in accordance
                with approved Tenant's Construction Documents, Landlord may
                refuse to permit Tenant to open the Premises for business until
                the Premises do so comply, but Tenant shall not be excused from
                the performance of all other obligations of Tenant under the
                Lease.

        C.      Tenant's Contractors shall construct the Premises in accordance
                with Tenant's Construction Documents as soon as practically
                possible, at Tenant's expense. Tenant and Tenant's Contractors
                agree to pursue Tenant's Work diligently to completion.

        D.      All work performed by Tenant or Tenant's Contractors shall be
                performed in a manner so as to avoid any labor dispute which
                results or could result in a stoppage or impairment of work,
                deliveries, or any other services in the Project. If there shall
                be any such stoppage or impairment or threat thereof as a result
                of any such labor dispute, Tenant shall immediately undertake
                such action as may be necessary to eliminate such dispute or
                potential dispute, including any of the following:

                1.      Remove all disputants from the job site until such time
                        as the labor dispute no longer exists;



                                    Page 12


                2.      Seek an injunction in the event of a breach of contract
                        between Tenant and Tenant's Contractors; and

                3.      File appropriate unfair labor practice charges in the
                        event of a union jurisdictional dispute.

        E.      Prior to the commencement of construction, Tenant's Contractors
                shall thoroughly familiarize themselves with all job conditions
                and the requirements outlined in these Building Standards.

        F.      Upon approval of Tenant's Construction Documents and permit
                application for the Premises by the applicable governmental
                agency, Tenant or Tenant's Contractors shall promptly pick up
                the building permit from said agency. Tenant will pay for the
                plan check and building permit fees required on the permit
                application and any other fees required in connection therewith.
                If required, Tenant shall apply for and obtain all approvals and
                permits from the County of San Diego Health Department and any
                other governmental agencies. Tenant shall provide Landlord a
                copy of Tenant's building permit and the Building Department
                approved set of Tenant's Construction Documents prior to first
                inspection.

        G.      Prior to entering the Project or starting construction, Tenant's
                Contractors must provide Landlord with the following:

                1.      A copy of Tenant's building permit and the Building
                        Department approved set of Tenant's Construction
                        Documents.

                2.      A complete list with phone numbers of key personnel of
                        Tenant's Contractors.

                3.      A certificate of insurance evidencing the required
                        insurance coverage.

                4.      A construction schedule showing the work schedule,
                        critical path activities, and anticipated completion of
                        Tenant's Work, which schedule shall be subject to
                        Landlord's approval.

                5.      A copy of acknowledgments executed by Tenant's
                        Contractors of an understanding or an agreement to
                        comply with the requirements of these Building
                        Standards.

                6.      A copy of Tenant's building permit ten (10) days after
                        starting construction.

        H.      Tenant's Contractors shall not deviate from approved Tenant's
                Construction Documents without obtaining prior written
                permission from Tenant, Landlord, the City Building Department,
                and other governmental agencies having jurisdiction to approve
                same.

        I.      Tenant's Work shall be performed in a thorough, first class, and
                workmanlike manner and shall be in good and usable condition at
                the date of completion thereof.

        J.      Tenant's Contractors are responsible for scheduling inspections
                by the City of San Diego Building Department and other
                inspectors as required to comply with their requirements and all
                codes and regulations. A copy of all inspection reports shall be
                submitted available to Landlord at the Premises. In the event
                Tenant's Contractors are notified of violations of codes by any
                appropriate governmental authority or Landlord, Tenant's
                Contractors shall correct such violations within seven (7)
                calendar days from such date of notification.

        K.      Tenant's construction shall maintain a full-time superintendent
                or representative on site at all times when construction is
                being performed in the Premises.



                                    Page 13


        L.      Tenant's Contractors shall observe the following limitations in
                the conduct of Tenant's Work:

                1.      No suspended loads will be attached to the underside of
                        the floor or roof structure, with the exception of
                        normal suspended ceiling, mechanical equipment,
                        plumbing, electrical and telephone conduit, and light
                        fixtures, without Landlord's prior written approval.

                2.      No load shall be imposed upon any floor areas of the
                        Premises in excess of the design life as set forth in
                        the Lease and Work Letter.

        M.      Tenant's Work shall be coordinated with all other work being
                performed or to be performed by Landlord and other tenants of
                the Project to such extent that Tenant's Work will not interfere
                with, or delay the completion of any other work. Tenant's
                Contractors shall not damage, injure, interfere with, or delay
                the completion of any other construction within the Building.
                Tenant's Contractors shall comply with all procedures and
                regulations prescribed by Landlord for the integration of
                Tenant's Work with the work to be performed by Landlord and
                Landlord's Contractor in connection with the construction.
                Common Areas and the exterior of the Building must be kept clear
                of Tenant's and Tenant's Contractors' equipment, merchandise,
                fixtures, refuse and trash at all times. Any mechanical,
                electrical or plumbing items which need to be routed outside the
                Premises must have the written approval of Landlord and any
                tenant whose space the item will pass through.

        N.      Tenant's Contractors shall be responsible for the repair and
                replacements of any damage caused by Tenant's Contractors to any
                other contractor's work in any area of the Building, including
                cleanup after such corrective work. Tenant's Contractors shall
                be required to maintain continuous protection of adjacent
                premises in such a manner as to prevent any damage to such
                adjacent property and the improvements thereon. Tenant's
                Contractors shall promptly pay for the repair of any such
                property or improvements so damaged to restore it to its
                pre-damaged condition.

        O.      Before work commences, Tenant's Contractors shall be required to
                properly protect the Premises and Tenant's Work with lights,
                guard rails and barricades, and to secure Tenant's Work against
                accident, malicious mischief and theft.

        P.      Tenant's Contractors shall not use any space outside of the
                Premises and within or on adjacent sidewalks, parking lot in
                front of building or side of building facing the street for
                storage, handling or moving of materials and equipment, or for
                the location of any field office or facilities required for
                construction personnel without the prior written authorization
                of Landlord.

        Q.      Tenant's Contractors shall remove and dispose of all debris and
                rubbish caused by or resulting from Tenant's Work on a daily
                basis. Trash receptacles or carts will be allowed to be stored
                in the Common Areas as mutually agreed by the parties. Upon
                completion of Tenant's Work, Tenant's Contractors shall remove
                all temporary structures, surplus materials, debris and rubbish
                remaining with the Building which has been brought in or created
                as a result of Tenant's Work. If Tenant's Contractors shall
                neglect, refuse or fail to remove any temporary structures,
                surplus materials, debris and rubbish within twenty-four (24)
                hours after notice to Tenant from Landlord, Landlord may remove
                or cause same to be removed, and Tenant shall bear the cost of
                removal and hold Landlord harmless therefrom.

        R.      Tenant shall require that Tenant's Contractors and other agents
                cause all supplies, merchandise, materials, equipment or trash
                being delivered to or removed from the Premises across the
                Common Areas or within the elevators, which requires the use of
                dollies or hand trucks, to be transported on dollies or hand
                trucks with soft rubber tires.

        S.      Tenant and Tenant's Contractors shall comply with all applicable
                safety related laws, codes, rules and regulations governing the
                performance of Tenant's Work including all applicable safety
                regulations established by Landlord or Landlord's contractor.
                Tenant's Contractors shall take all necessary precautions to
                safeguard all workmen and the public from accident and to
                preserve all private and public property.



                                    Page 14


        T.      Tenant's Contractors shall be allowed to post signs on any part
                of the Premises in a reasonable manner in conformance with
                applicable restrictions.

        U.      Tenant's Contractors shall provide a fire watch whenever any
                welding is done in the Premises. The person performing the fire
                watch must remain within the Premises for at least one (1) hour
                after the completion of any welding.

        V.      All roof penetrations required by Tenant must be made by an
                agreed upon roofing contractor at Tenant's expense. Such
                penetration shall be subject to Landlord's approval as to
                construction details, size, configuration, location and support.

        W.      Tenant's Contractors shall obtain approval from Landlord prior
                to penetrating any floor slab. Landlord's approval shall not
                relieve Tenant from responsibility for damage to Landlord's Work
                and/or any other tenant's work because of penetration by Tenant.

        X.      In addition to the requirements of the Lease, and without any
                limitation thereof, Tenant's Contractors shall (i) comply with
                all governmental rules and regulations including applicable OSHA
                standards and (ii) carry worker's compensation and public
                liability insurance (including property damage), with limits, in
                form and issued by insurance companies approved in advance by
                Landlord. Landlord, Tenant, Tenant's Contractor and/or
                subcontractors procuring the insurance shall be named insured
                (or named as additional insured) in each policy of said
                liability insurance, which policy shall have a cross-liability
                endorsement or its equivalent. Certificates evidencing the
                foregoing insurance shall be delivered to Landlord before any
                work is commenced by Tenant's Contractors and before any
                equipment and/or materials are moved into the Building.

        Y.      Tenant's Contractors shall guarantee that portion of Tenant's
                Work for which they are responsible against any defects in
                workmanship and materials for a period of not less than one (1)
                year after the date of completion of Tenant's Work. This
                guarantee shall include, without limitation, all expenses and
                costs incurred in the repair or replacement of the structure of
                the Building or the Common Areas should the Building or Common
                Areas be damaged or affected by the defective work, or by the
                repair or replacement of such defective work. All such
                warranties or guarantees as to materials or workmanship with
                respect to Tenant's Work shall be contained in a written
                agreement between Tenant and Tenant's Contractors. Tenant shall
                require Tenant's Contractors to include such guarantees in each
                subcontract, and all such guarantees shall be so written so that
                same shall inure to the benefit of both Tenant and Landlord, as
                their respective interests may appear, and so that same may be
                directly enforced by Tenant or Landlord. Tenant shall provide
                Landlord with an assignment or other assurance necessary to
                perfect Landlord's right to enforce any such guarantee.

        AA.     Tenant shall be required to settle and/or bond against any
                mechanic's or materialman's liens, or other similar liens, filed
                against the Building as a result of Tenant's Work in accordance
                with the provisions relating to such liens in the Lease and the
                Work Letter. Except to the extent caused by the Landlord's
                negligence or wrongful failure to make payments required under
                this Lease or the Work Letter, Tenant shall reimburse Landlord
                in full and indemnify, defend, and hold Landlord harmless from
                and against any liability, cost or expense incurred by Landlord
                in connection with any such lien.

        BB.     Tenant's Contractors shall keep the exterior Common Areas in an
                absolutely clean and neat condition at all times. If Tenant's
                Contractors violate this regulation on more than one (1)
                occasion, or fail to immediately cure such default, Landlord may
                prohibit Tenant's Contractors from entering the Building.

        CC.     Tenant's Contractors shall use restrooms only for personal
                functions. Cleaning of tools or painting equipment will not be
                allowed. Any utility sinks will contain water supply, but may
                not be used for tool or painting equipment cleaning or other
                construction work,



                                    Page 15


        DD.     Tenant's Contractors shall provide Landlord with a key for
                access to the Premises during construction for use in the case
                of emergencies, and permit the construction of service lines by
                other tenants, which service lines have been approved by Tenant.

VIII.   TENANT'S CONSTRUCTION DOCUMENT SUBMITTAL

        A.      Tenant's preliminary plans and specifications:

                1.      Tenant shall submit to Landlord for Landlord's approval
                        three (3) sets of preliminary drawings of Tenant's
                        improvements prepared by Tenant's Architect, which
                        drawings shall indicate Tenant's proposed improvements
                        including, without limitation, floor plans (scale 1/8" =
                        1'0") describing in reasonable detail the layout of the
                        interior partitions, signage, materials to be used, and
                        indicating the proposed use of each enclosed area.

        B.      Tenant's Construction Documents:

                1.      After Landlord's approval of Tenant's preliminary design
                        drawings, and subject to Tenant's field measurement of
                        the Premises, Tenant shall, at Tenant's expense, submit
                        to Landlord for approval three (3) sets of plans and one
                        (1) set of reproducible plans of Tenant's Construction
                        Documents prepared by Tenant's Architect describing the
                        improvements to be completed in the Premises including,
                        without limitation, floor plans (scale 1/8"-1'0");
                        elevations, interior partitions; trade fixtures;
                        reflected ceiling plan, including ceiling height(s);
                        location, size and details of signage; areas of unusual
                        floor loading; specifications of all mechanical,
                        plumbing, electrical, telephone, security and sprinkler
                        systems, including the details of the hookup of these
                        systems to Landlord's Work; and all other improvements
                        to be performed by Tenant as a part of Tenant's Work.
                        Details shall be included as required by Section VI of
                        these Building Standards for each component addressed
                        therein.

                2.      Construction of the improvements specified on Tenant's
                        Construction Documents shall not commence until Tenant's
                        Construction Documents have been approved by Landlord in
                        writing.

                3.      If Tenant's Construction Documents are in conflict with
                        terms and conditions of these Building Standards, the
                        Building Standards shall control. If Landlord approves
                        Tenant's Construction Documents and there is a conflict
                        between the Building Standards and the Construction
                        Documents as approved, to the extent the conflict does
                        not affect health and safety or the structural integrity
                        of the Building, the Construction Documents shall
                        control.

                4.      Any additional changes, expenses or costs (including
                        architects' fees, consultants' fees and attorneys' fees)
                        arising by reason of any subsequent change, modification
                        or alteration of Tenant's Construction Documents, made
                        at the request of Landlord, shall be at the expense of
                        the Tenant. No changes, modifications or alterations
                        shall be made to Tenant's Construction Documents without
                        the prior written consent of Landlord.

                5.      Landlord's approval of Tenant's Construction Documents
                        or any work or installation made by Tenant shall not
                        constitute a warranty or representation by Landlord that
                        Tenant's drawings, work or installations comply with the
                        requirements of any applicable law, ordinance or
                        regulation, or are safe, sound, merchantable or fit for
                        the purpose intended. Landlord shall have no liability
                        to Tenant in the event Tenant is required to change its
                        drawings or Tenant's Work after the approval thereof by
                        Landlord on account of the failure of such drawings or
                        Tenant's Work to meet applicable governmental
                        requirements or in the event that such drawings or
                        Tenant's Work, directly or indirectly, are defective or
                        cause injury to persons or property.



                                    Page 16


                6.      Tenant shall furnish to Landlord one (1) complete set of
                        red-lined Construction Documents (plans and
                        specifications) indicating the as-built conditions
                        within thirty (30) days after completion or Tenant's
                        Work. If any clarifications or additions to the as-built
                        plans and specifications are required by Landlord,
                        Tenant shall cause such revisions to be completed within
                        thirty (30) days after request therefor.

IX.     TENANT IMPROVEMENT STANDARD SPECIFICATIONS

        A.      These Tenant Improvement Building Standards Specifications have
                been developed as guidelines to establish the minimum standards
                for materials, product systems or procedures for improvements
                made to the Premises. The materials or product systems
                referenced herein are not all inclusive and may be modified by
                local codes, governmental agencies having jurisdiction, the
                Landlord or Tenant (with Landlord's written permission).

        B.      Materials, products or systems referenced in this Section will
                be adhered to by Tenant, Tenant's consultants and Tenant's
                Contractor unless alternates or substitutions have been
                authorized by the Landlord in writing. Non-proprietary
                materials, products or systems referenced in these
                specifications must be submitted to the Landlord for review and
                approval. The Landlord reserves the right to reject materials,
                products or systems that, in the Landlord's reasonable opinion,
                do not meet or exceed the intended level of building standards
                for a comparable building as listed in Exhibit P to the Lease.

        C.      Product/Materials Specifications

                1.      Interior Partitions (*)
                        2 1/2" X 25 GA. metal studs at 24" o.c. with 5/8" type
                        'X' gypsum board each side. Height from floor to
                        underside of suspended ceiling or 6" above ceiling.
                        Brace partitions with 2 1/2" x 25 GA metal stud kickers
                        at 48" o.c. (maximum). Texture with medium orange peel
                        finish.

                2.      Column Wrap (*)
                        1 5/8" x 25 GA (minimum) metal furring at 24"
                        o.c. with 5/8" gypsum board, one side. Height from floor
                        to 6" above suspended ceiling. Texture flat and smooth.

                3.      Public Corridor Entry Doors (*)
                        Single leaf or pair of doors, 3'0" x 8'0" x 1 3/4"
                        solid core wood with premium grade hardwood face
                        veneer (balanced and rift cut, free of hearts) to match
                        existing doors with natural finish. Frame to be extruded
                        aluminum with clear finish. Door and frames to be 20
                        minute labeled. For hardware use the following:

                        4 pr. Butt Hinges (4.5 x 4.5) Ball Bearing (32D)

                        1 ea. Lockset - Sargent 8100, Level LNH, Function
                          F04, (finish 32D)

                        2 ea. Closer- Sargent 350, aluminum finish

                        1 ea. Astregal - Ultra WS 011, aluminum

                        1 set Flush bolts - DCI 900 Series (32D)

                        1 ea. Coordinator - DCI, 600 Series

                        2 ea. Wall Bumper - Ives 409 1/2 (SS)

                        1 ea. Smoke Seals

                4.      Interior Doors (*)
                        3'0" x 8'0" x 1 3/4" solid core wood door, paint
                        grade. Door frames to be extruded aluminum with clear
                        finish. For hardware use the following:



                                    Page 17


                        2 pr. Butt Hinges (4.5 x 4.5)

                        1 ea. Lockset - Sargent 10 line, Lever LLJ, function
                          F75, (26D)

                        1 ea. Wall Bumper- Ives 409 1/2 (SS)

                        1 set Mutes

                5.      Office Light Fixtures
                        2' x 4' recessed fluorescent fixtures with 3 lamps and
                        18 cell parabolic lens, aluminum finish.

                6.      Corridor Light Fixtures
                        2' x 2' recessed fluorescent fixtures with 2 'U' lamps
                        and 9 cell parabolic lens, aluminum finish.

                7.      Light Switch
                        Two (2) single pole, 20 amp, 120/205 V with ivory
                        colored face plate.

                8.      Electrical Wall Outlets
                        Duplex Outlet, Three Prong with ivory colored face
                        plate.

                9.      Telephone Wall Outlet
                        2" x 4" (minimum) box with single gang plaster ring and
                        pull string (stub only). Cover plate to be ivory
                        colored.

                10.     Electrical Supply Panel
                        Feeder wire and one (1) 125A, 24 circuit load center.

                11.     Exit Signs (if required)
                        Green block letters (6" high with 3/4" stroke) over
                        white background and painted frame with battery powered
                        backup.

                12.     Acoustic Ceilings
                        A ceiling that has a consistent appearance as viewed
                        from the exterior of the Building.

                13.     Carpet
                        Carpet to be manufactured by Designweave, Courtyard 36
                        oz. Zafgtron CFN. Glue carpet directly to floor.

                14.     Vinyl Composite Tile
                        Armstrong 1/8" Excelon or equal.

                15.     Resilient Base
                        2 1/2" high rubber top-set or cove base
                        manufactured by Roppe or equal.

                16.     Painting
                        One primer plus two finish coats (flat or semi-gloss
                        latex) Frazee paints. Color to be selected from standard
                        finish board.

                17.     Window Coverings (*) Required at all Exterior Windows
                        Window Coverings that have a consistent appearance as
                        viewed from the exterior of the Building.

                18.     Fire Extinguisher
                        J.L. Industries, stock cabinet with ABC #5.

                19.     Tri-Water System
                        See Section VI for Mechanical Criteria



                                    Page 18


                E.      Building standards for this project are based on
                        products, materials and assemblies noted in the
                        preceding Section and finish color boards. Changes to
                        pre-selected finishes or alterations to quantities
                        specified herein will constitute additional services.
                        Landlord's consultants will be compensated for
                        additional services on a per project basis.



                                    Page 19


                                   EXHIBIT "E"

                              RULES AND REGULATIONS
                                       FOR
                             PACIFIC CORPORATE PARK

1.      The sidewalks, entrances, passages, courts, elevators, vestibules,
        stairways, corridors or halls shall not be obstructed or used for any
        purpose other than ingress or egress.

2.      No awnings or other projections shall be attached to the outside walls
        of the Premises.

3.      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 Premises shall not be covered or obstructed, nor shall any
        bottles, parcels or other items be placed on the windowsills. Neither
        the interior nor the exterior of any windows shall be coated or
        otherwise sunscreened without Landlord's prior written consent.

4.      No sign, advertisement or notice shall be exhibited, painted or affixed
        by Tenant on any part of, or so as to be seen from the outside of, its
        Premises or the Premises without Landlord's prior written consent. In
        the event of Tenant's violation of the foregoing, Landlord may remove
        the same without any liability and may charge the expense incurred for
        such removal to Tenant. All signs whether on doors, directories or
        elsewhere, shall be inscribed, painted or affixed for Tenant by Landlord
        at the expense of Tenant, and shall be of a size, color and style
        acceptable to Landlord.

5.      Directories for the Premises will be provided exclusively for the
        display of the name and location of Tenant only; and Landlord reserves
        the right to exclude any other names therefrom, and each and every name
        in addition to the name of Tenant placed upon such bulletin board or
        directory, shall be subject to Landlord's prior written consent (and if
        approved by Landlord, all costs therefor shall be paid by Tenant).
        Tenant shall pay for the removal of any such listings or representations
        upon its departure from its Premises.

6.      All doors that open into public corridors shall be kept closed, except
        when being used for ingress and egress.

7.      Tenant shall not mark, paint, drill or bore into, cut or string wires
        in, lay linoleum or other floor coverings in, or in any way deface any
        part of Its Premises or the Premises, except with Landlord's prior
        written consent and as Landlord may direct.


8.


                                    EXHIBIT E




9.       No window or other air conditioning or heating units or other similar
         apparatus shall be installed or used by Tenant without Landlord's prior
         written consent. Tenant shall not be permitted upon the roof at any
         time.

10.     The water, restrooms and other plumbing fixtures shall not be used for
        any purpose other than those for which they were constructed and no
        sweepings, rubbish, rags or other substances stored therein. All damages
        resulting from any misuse of the fixtures by Tenant or its servants,
        employees, agents, visitors or licensees shall be paid by Tenant. Tenant
        shall exercise extraordinary care and caution to insure all water
        faucets or water apparatus in the Premises are entirely shut off before
        Tenant, its employees, agents or visitors leave the Premises and that
        all electricity, gas or air conditioning to the Premises is carefully
        shut off when the Premises is not in use so as to prevent waste or
        damage.

11.     Unless Tenant is leasing an entire Building all movement of freight,
        furniture, safes or other heavy or bulky items ("Heavy Items") shall be
        moved prior to 7:00 a.m. or after 6:00 p.m. or on Saturday, Sundays or
        Holidays. Tenant shall notify Landlord in writing the day before any
        heavy items which may cause noise, jar or, tremor to the floors or walks
        which may injure the Premises or Building.

12.     Neither Tenant nor its servants, employees, agents, visitors or
        licensees shall at any time bring or keep upon the Premises any
        flammable, combustible or explosive fluid, chemical or substance, except
        for a reasonable quantity of such material reasonably necessary for the
        conduct of Tenant's business.

13.     The Premises shall not be used for manufacturing or for the storage of
        merchandise except as such storage may be incidental to the permitted
        use of the Premises set forth in the Lease. Tenant shall not, without
        Landlord's prior written consent, occupancy or permit any portion of the
        Premises to be occupied or used for the manufacture or sale of liquor or
        tobacco in any form, or as a barber or manicure shop, or as an
        employment bureau. The Premises shall not be used for lodging or
        sleeping.

14.     Tenant shall not make, or permit to be made, any unseemly or disturbing
        noise, or disturb or interfere with occupants of neighboring premises or
        the other adjacent Building.

15.     No bicycles, vehicles, birds or animals of any kind shall be brought
        into or kept in or about the Premises except as permitted in the Lease
        or the Work Letter. Tenant shall not cause or permit any unusual or
        objectionable odors to be produced in or emanate from the Premises.

16.     All hand trucks or other moving equipment used in the Building shall be
        equipped with rubber tires and side guards.

17.     No vending or coin operated machines shall be placed within the Premises
        without Landlord's prior written consent.

18.     No person shall be employed by Tenant to do janitorial work in any part
        of said Premises without Landlord's prior written consent. Any person
        employed by Tenant to do janitorial, maintenance or similar work with
        Landlord's consent shall, while in the Premises, be subject to and under
        the control and direction of Landlord or its agent or representative
        (but not as an agent or servant of Landlord) and Tenant shall be
        responsible for all acts of such persons.





19.     Landlord shall have the right to prohibit any advertising by Tenant
        which, in Landlord's discretion tends to impair the reputation of the
        Building or Project or its desirability as an office park, and upon
        written notice from Landlord, Tenant shall refrain from or discontinue
        such advertising.

20.     Canvassing, soliciting and peddling in the Premises are prohibited and
        Tenant shall cooperate to prevent same.

21.     Landlord assumes no responsibility and shall not be liable for any
        damage resulting from the admission of any unauthorized person to the
        Premises.

22.     Landlord reserves the right to exclude or expel from the Premises 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 the Rules and Regulations of the Premises.

23.     It is understood and agreed between Landlord and Tenant that no assent
        or consent to any waiver or any part hereof by Landlord in spirit or
        letter shall be deemed or taken as made except if same is done in
        writing by Landlord except as provided in the Lease.

24.     Landlord reserves the right at any time to change or rescind any one or
        more of these Rules or Regulations, or to make such other and further
        reasonable Rules and Regulations as in Landlord's judgment may from time
        to time be reasonably necessary for the management, safety, care and
        cleanliness of the Premises and Premises, and for the preservation of
        good order therein, as well as for the convenience of other occupants
        and tenants therein, provided that such changes do not adversely affect
        Tenants use, enjoyment, access of or to the Premises. Landlord shall not
        be responsible to Tenant herein or to any other person for the
        nonobservance of the Rules and Regulations by any other tenant or other
        person. Tenant shall be deemed to have read these Rules and Regulations
        and to have agreed to abide by them as a condition to its occupancy of
        the Premises.





                     [WEATHER ENGINEERING, INC. LETTERHEAD]

April 6, 1993

Roel Construction Co.
2366 Kurts Street
San Diego, California 92130

Attn: Terry Arnett

Re: Pacific Corporate Park
    5930 and 5935 Cornerstone Court
    HVAC System

Dear Terry:

The subject buildings are serviced by a "Tri-Water" water source heat pump
system. The central plant, which houses a separate cooling tower, boiler and
recirculating pump for each building, is located in the parking area north of
building A. The condenser water is piped underground to each building and
connected to the fire sprinkler system which is routed throughout both
buildings. The individual water source heat pumps are then connected to the fire
sprinkler piping as a part of the tenant improvement.

The cooling towers installed are rated @ 350 GMP which would provide the
equivalent of approximately 140 tons of air conditioning capability for each
building. There is a 4 wire energy management loop that is routed from the
central plant to each building for connection to future tenant Water Source Heat
Pump ("WSHP") units. This allows the tenant to communicate with the central
plant to provide after hours cooling.

As part of the tenant improvement buildout, the following should be utilized as
guidelines for a minimum standard:

        1. Suspend WSHP units above the ceiling utilizing 1 in. spring isolation
for vibration and sound attenuation.

        2. Type L copper piping with hard solder should be utilized for the
condenser water piping to the individual WSHP units. Automatic flow controls are
required for each unit.

        3. The return air must be ducted and both supply and return ducts must
be insulated.

        4 Rigid duct to be utilized with flex duct on the last 7 ft. only.


                                    EXHIBIT F


        5. Check valves must be installed on the condenser piping to the
individual WSHP units.

        6. Duct shall be sized at .1 in. pressure drop per 100 ft. of duct.

        7. Perimeter and interior zones shall not be combined.

        8. WSHP units shall be equivalent to Carrier, Trane or AAF.

        9. Outside air shall be provided @ 20 CFM/person.

Should you have any additional questions or comments, please do not hesitate to
call.

Sincerely,


/s/ GREG DAVIS

Greg Davis,
Weather Engineering, Inc.




Recording Requested By:

When Recorded Mail To:

PacCor Partners
11939 Rancho Bernardo Road, Suite 200
San Diego, California 92128


- --------------------------------------------------------------------------------
                   (Space above this line for recorder's use)

                            NON-DISTURBANCE AGREEMENT

        THIS AGREEMENT, is dated as of the ___ day of _______________, 1993, by
and between THE PAUL REVERE LIFE INSURANCE COMPANY, a Massachusetts corporation
("Lender") and HNC, Inc. a California corporation ("Tenant") with respect to the
following recitals:

                                    RECITALS

        A. Tenant has entered into an Office Lease dated _______________, 1993
("Lease") with PACCOR PARTNERS, a California general partnership ("Landlord") as
Landlord for certain real property described on Exhibit "A" attached hereto
("Premises"); and

        B. Lender is the Beneficiary under that certain Deed of Trust dated
February 28, 1990, and recorded March 2, 1990, in Recorder's File No. 90-112897,
Official Records of the County of San Diego, State of California, which
constitutes a lien on the Premises ("Deed of Trust").

        NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

        1. Lender agrees that:

                (a) Unless Tenant is in material breach of the Lease, Tenant
shall not be named or joined as a party defendant or otherwise in any lawsuit,
action or proceeding under the Deed of Trust or to enforce any rights of Lender
under the Deed of Trust or under any note or other obligation secured thereby;

                (b) So long as Tenant is not in default (beyond any period given
Tenant to cure such default) in the payments of rent or in the performance of
any of the terms, covenants or conditions of the Lease on Tenant's part to be
performed, possession of the Premises by Tenant, and the enjoyment of all
rights, privileges and entitlements under the Lease, shall not be disturbed,
affected or impaired by (i) any lawsuit, action or proceeding under the Deed of
Trust, or the note or any obligation secured thereby, (ii) any foreclosure under
the Deed of Trust or the enforcement of any rights of Lender thereunder, (iii)
any sale of the Premises under the Deed of Trust or in lieu of any foreclosure
thereof, and (iv) any default under the Deed of Trust, or the note or any
obligation secured thereby; and

                (c) All condemnation awards and/or insurance proceeds paid or
payable regarding the Premises or any part thereof shall first be applied to any
repairs and restoration of the Premises required by the Lease.

        2. If Lender or any other person should become fee owner of the Premises
by reason of the foreclosure of or sale under the Deed of Trust or otherwise,
the Lease shall continue in full force and effect, with or without the execution
of a new lease, as a direct lease between Tenant and the then feel



                                   EXHIBIT G


owner of the Premises, upon all of the same terms, covenants or provisions
contained in the Lease and the then fee owner of the Premises, together with all
of the rights and privileges therein contained, between such fee owner of the
Premises and Tenant for the balance of the term of the Lease; and Tenant agrees
to attorn to and accept such fee owner of the Premises as the Landlord under the
Lease and to be bound by and to perform all of the obligations imposed by the
Lease upon the Tenant thereunder and Lender, its successors or assigns, or any
purchaser at a foreclosure or trustee's sale or otherwise will not disturb the
possession of Tenant and will be bound by all of the obligations imposed by the
Lease upon the Landlord, provided, however, that Lender, or any purchaser at a
foreclosure or trustee's sale or otherwise shall not be:

                (a) liable for any act or omission of a prior Landlord
(including Landlord); or

                (b) subject to any offsets or defenses which Tenant might have
against any prior Landlord (including Landlord) except for the Tenant
Improvement Allowance (Section 1.10 of the Lease), Refurbishment Allowance
(Section 5.5 of the Lease), Security Deposit Amount (Section 1.8 of the Lease),
Moving Allowance (Section 17.1 of the Lease), and Commission (Section 16.1 of
the Lease).

        3. The terms of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto.

        4. Upon the written request of either Tenant or Lender given to the
other at the time of a foreclosure of the Deed of Trust or sale under power of
sale therein contained or conveyance in lieu of foreclosure, and if no default
then exists under the terms conditions and provisions of the Lease on the part
of the requesting party, Tenant and Lender agree to execute a lease of the
premises demised by the Lease upon the same terms an conditions as the Lease
between Landlord and Tenant, which lease shall cover any unexpired term of the
Lease existing prior to such foreclosure, trustee's sale or conveyance in lieu
of foreclosure.

        5. Subject to the nondisturbance provisions of the Lease, the Lease now
is, and shall at all times continue to be, subject and subordinate in each and
every respect to the Deed of Trust.

        6. Tenant and Lender may each rely upon the terms and provisions of this
Agreement.

"LENDER"                                    "TENANT"

THE PAUL REVERE LIFE                        HNC, Inc., a California corporation
  INSURANCE COMPANY, a
  Massachusetts corporation

By:                                         By:
   -------------------------------             ---------------------------------
   Its                                         Its
      ----------------------------                ------------------------------



                                   EXHIBIT G


                               LEASE ESTOPPEL CERTIFICATE

Re:     Office Lease between PacCor Partners ("Landlord") and HNC, Inc.
        ("Tenant") dated _______________ ("Lease")

Area: Approximately 24,446 square feet ("Premises")

Dear Sir or Madam:

The undersigned Landlord and Tenant of the above-referenced Lease hereby ratify
the Lease and certify to ____________________________________ ("Lender") with
knowledge that Lender is relying on this certificate in making a mortgage loan
on the property of which the Premises as set forth in the Lease is a part, as
follows:

1.      The term of the Lease commenced on _____________________, 19 ___, and
        the Tenant is in full and complete possession of the Premises and has
        commenced full occupancy and use of the Premises, such possession have
        been delivered by the Landlord and having been accepted by the Tenant.

2.      The Tenant is paying monthly installments of rent of $ _________________
        which commenced to accrue on the ________ day of _______________, 199__.

3.      No advance rent or other payment has been made in connection with the
        Lease, except rent for the current month and there is no rent abatement,
        waived rent or other concession under the remaining term of the Lease
        except as follows
        ________________________________________________________________________
        ________________________________________________________.

4.      Rent has been paid to and including _______________, 19__.

5.      A security deposit in the amount of $ ______________ is being held by
        Landlord, which amount is not subject to any set-off or reduction or to
        any increase for interest or other credit due to Tenant.

6.      All obligations and conditions under the Lease to be performed to date
        by Landlord or Tenant have been satisfied.

7.      The Lease is a valid lease and in full force and effect and represents
        the entire agreement between parties. There is no existing default on
        the part of the Landlord or the Tenant in any of the terms and
        conditions thereof and no event has occurred which with the passing of
        time or giving of notice or both, would constitute an event of default.
        The Lease has not been amended, modified, supplemented, extended,
        renewed or assigned except as follows:
        ________________________________________________________________________
        ________________________________________________________________________
        ________________________________________________________________________
        _________________________________________________________


8.      The Lease provides for a initial term of ________ months; the term of
        the Lease expires on the ______ day of __________________, 199__; and
        neither the Lease nor any amendment, modification, supplement extension
        renewal or assignment (if any), contain any option for any additional
        term or terms except as follows:
        ________________________________________________________________________
        ________________________________________________________________________
        _________________________________________________________



                                   EXHIBIT H


9.      Except as provided by the Lease, Landlord has not rebated, reduced or
        waived any amounts due from Tenant under the Lease, either orally or in
        writing, nor has Landlord provided financing for, made loans or advances
        to, or invested in the business of Tenant.

10.     Tenant agrees not to prepay rent more than one (1) month in advance,
        except as provided in the Lease, without Lenders written approval and
        agrees to give Lender notice and reasonable opportunity (without
        obligation) to cure any default by Landlord, before exercising its
        rights under the Lease.

11.     The Lease does not contain, and Tenant does not have any outstanding
        option or right of first refusal to purchase the Premises or any part
        thereof or the property of which the Premises are a part.

12.     To the best of Tenant's actual current knowledge, there is no apparent
        or likely contamination of the property or the Premises by Hazardous
        Materials, and Tenant does not use, nor has Tenant disposed of Hazardous
        Materials in violation of Environmental Laws on the property of
        Premises. "Hazardous Materials" shall mean any flammable substances,
        explosives, radioactive materials, hazardous wastes, toxic substances,
        pollutants, pollution, or related materials or other substances
        regulated by any of the Environmental Laws as specifically defined in
        Section 7.4 of the Lease. "Environmental Laws" shall mean federal, state
        or local laws, ordinances, rules, regulations or policies governing the
        use, storage, treatment, transportation, manufacture, refinement,
        handling, production or disposal of Hazardous Materials as specifically
        set forth in Section 7.4 of the Lease, except for substances which are
        customarily used or found in typical offices, including without
        limitation copier and printer toner, cleaning supplies, correction fluid
        and ink.

13.     There are no actions, voluntary or involuntary, pending against the
        Tenant under the bankruptcy laws of the United States or any state
        thereof.

14.     This certificate shall inure to the benefit of Lender, its successors
        and assigns and shall be binding upon Tenant and Tenant's heirs,
        successors and assigns. This certificate shall not be deemed to alter or
        modify any of the terms, convenience or obligations of the Lease, except
        to the extent specifically set forth herein.

15.     The entity, person, and/or office executing this certificate is
        empowered by action, resolution, or at law to execute the same.

Date:                                       Date:

Tenant:                                     Landlord:

HNC, Inc., a California corporation         PACCOR PARTNERS, a California
                                            corporation
                                            By: PacCor Management Company
By:                                             a general partner
   -------------------------------

       Its                                  By:
           -----------------------             ---------------------------------

                                               Its
                                                  ------------------------------



                                   EXHIBIT H


                           JANITORIAL SPECIFICATIONS

A.      DAILY - ALL COMMON AREAS AND TENANT SPACES - FIVE (5) DAYS PER WEEK,
        SUNDAY THROUGH THURSDAY

        1.      Dust desks (using care not to disturb paperwork), chairs and all
                other office furniture.

        2.      Clean glass desk tops.

        3.      Vacuum all carpeted areas, using care around wood furniture.

        4.      Dust mop all interior tile surfaces, then damp mop.

        5.      Sweep exterior entrance to building, then hose down.

        6.      Clean all tables, sinks and counter tops in kitchen area.

        7.      Return furniture to proper position.

        8.      Remove trash, change liners as needed in offices, lobbies and
                exterior trash receptacles.

        9.      Deposit trash to designated trash dumpster.

        10.     Clean all ash trays and sand urns.

        11.     Spot clean walls, doors and baseboards.

        12.     Spot clean around wall switches.

        13.     Dust window sills.

        14.     Police all balconies, spot clean as needed.

        15.     Clean elevator wall surfaces, call buttons, door tracks, polish
                stainless steel.

        16.     Police service entrance, if applicable.

        17.     Police stairwells and landings to remove debris, sweep and mop
                as necessary. Wipe down hand rails.

        18.     Clean both sides of lobby glass doors.

        19.     Vacuum elevator carpet.

        20.     Dust, mop if necessary, mail area in lobby.

        21.     Empty and wipe out all waste paper receptacles in restrooms.

        22.     Empty all sanitary napkin containers and replace insert.


        23.     Clean, sanitize and polish all restroom fixtures and stock
                dispensers, including disinfecting underside and tops of toilet
                seats.

        24.     Spot clean tile walls and toilet partitions.



                                   EXHIBIT I


        25.     Spot clean walls around wash basins.

        26.     Wet mop floors with germicidal solution using a two bucket
                wash/rinse.

        27.     Refill soap, towel, tissue and seat cover dispensers, as needed.

        28.     Clean shower and disinfect.

        29.     Wipe down exercise equipment and mats.

        30.     Secure all exterior doors upon completion of duties.

B.      WEEKLY - ALL COMMON AREAS AND TENANT SPACES

        1.      Concentrated carpet cleaning. Move furniture and plants that can
                be moved in order to reach all corners and edges.

        2.      Dust ledges and window sills.

        3.      Brush down all air conditioning vents.

        4.      Use lint brush on all upholstered furniture.

        5.      Clean and polish drinking fountains.

        6.      Spot clean all carpeted areas.

        7.      Dust picture frames and all wall hangings.

        8.      Damp mop and buff all tile surfaces.

        9.      Clean tenant glass in all occupied areas.

        10.     Dust and spot clean all baseboards.

        11.     Clean both sides of toilet partitions.

        12.     Remove finger prints from woodwork, walls and partitions.

        13.     Dust chair legs and bases of furniture, door frames, etc.

        14.     Clean mirrors in exercise equipment room.

        15.     Disinfect all athletic facility equipment.

        16.     Sweep all exterior walkways.

        17.     Remove gum from common walkways.

        18.     Empty trash dumpsters and clean dumpster area.



                                   EXHIBIT I


C.      MONTHLY - ALL COMMON AREAS AND TENANT SPACES

        1.      Oil all stained wood doors using products approved by Landlord
                and polish wood furniture.

        2.      Remove finger prints and smudges from light fixtures.

        3.      Polish stainless steel in elevators, including ceiling, if
                applicable.

        4.      Sweep and damp mop all stairwells and landings.

        5.      Wipe ledges and handrails in stairwells.

        6.      Clean light fixtures in stairwells.

        7.      Dust all high areas.

        8.      Wipe down all plastic and leather furniture.

        9.      Thoroughly vacuum upholstered furniture.

        10.     Interior and exterior lighting to be checked and all necessary
                bulbs replaced.

        11.     Strip, machine scrub and reapply Landlord approved finish to all
                tile floors.


D.      QUARTERLY - ALL COMMON AREAS AND TENANT SPACES

        1.      Wipe metal framework around doors and windows.

        2.      Lift desk pads where possible and vacuum under desks.

        3.      Dust vertical blinds.

        4.      Clean (acid wash if necessary) exterior entrance walkway to main
                lobby.

        5.      Clean all exterior building glass.

        6.      Clean picture frame glass.


E.      SEMI-ANNUALLY - ALL COMMON AREAS AND TENANT SPACES

        1.      Wash all vinyl baseboards.

        2.      Wash all vinyl wall coverings.



                                   EXHIBIT I

RECORDING REQUESTED BY
TICOR TITLE INSURANCE COMPANY


Recording requested by
and when recorded, mail to:

LATHAM & WATKINS
Attorneys at Law
Attn: Mr. Jon D. Demorest
701 "B" Street, Ste. 2100
San Diego, Ca. 92101
ORDER: 1125760-02

                            DECLARATION OF COVENANTS,

                          CONDITIONS AND RESTRICTIONS

                            FOR UNIT NO. 1 OF PACIFIC

                                CORPORATE CENTER




                                   EXHIBIT J


                               TABLE OF CONTENTS


                                                                                Page
                                                                                -----
                                                                             
ARTICLE I DEFINITIONS .......................................................      2

     1.01 Architectural Committee ...........................................      2
     1.02 Articles ..........................................................      2
     1.03 Assessment ........................................................      2
     1.04 Association .......................................................      2
     1.05 Association Maintenance Areas .....................................      2
     1.06 Board of Directors ................................................      2
     1.07 Bylaws ............................................................      2
     1.08 Declaration .......................................................      2
     1.09 Detention Basin ...................................................      2
     1.10 Developer .........................................................      2
     1.11 Government Regulations ............................................      3
     1.12 Guidelines ........................................................      3
     1.13 Improvements ......................................................      3
     1.14 Landscape Improvements ............................................      3
     1.15 Lot ...............................................................      3
     1.16 Member ............................................................      3
     1.17 Net Useable Square Footage ........................................      3
     1.18 Owner .............................................................      3
     1.19 PID Permit ........................................................      3
     1.20 Property ..........................................................      3
     1.21 Restrictions ......................................................      3
     1.22 Submittal .........................................................      4
     1.23 Undeveloped Lot ...................................................      4

ARTICLE II ESTABLISHMENT AND PURPOSE OF RESTRICTIONS ........................      4

     2.01 Establishment of Restrictions .....................................      4
     2.02 Purpose of Restrictions ...........................................      4

ARTICLE III THE ASSOCIATION .................................................      4

     3.01 Membership in Association .........................................      4
     3.02 Voting Rights .....................................................      5
     3.03 Approval of Members ...............................................      5
     3.04 Vesting of Voting Rights ..........................................      5
     3.05 Non-Liability of Board ............................................      5
     3.06 Duties and Powers .................................................      6

ARTICLE IV COVENANT FOR ASSESSMENTS .........................................      8

     4.01 Creation of Liens .................................................      8
     4.02 Purpose of Assessments ............................................      8
     4.03 Regular Assessments ...............................................      8
     4.04 Special Assessments ...............................................      8
     4.05 Capital Improvement Assessments ...................................      9
     4.06 Uniform Rate of Collection ........................................      9
     4.07 Date of Commencement of Regular Assessments .......................      9
     4.08 Certificate of Payment ............................................      9
     4.09 Exempt Property ...................................................      9
     4.10 Waiver of Use .....................................................     10

ARTICLE V NONPAYMENT OF ASSESSMENTS .........................................     10



                                       i



                                                                                Page
                                                                                -----
                                                                             
     5.01 Delinquency .......................................................     10
     5.02 Notice of Lien ....................................................     10
     5.03 Foreclosure Sale ..................................................     10
     5.04 Curing of Default .................................................     11
     5.05 Cumulative Remedies ...............................................     11
     5.06 Subordination of Assessment Liens .................................     11

ARTICLE VI ARCHITECTURAL CONTROL ............................................     11
     6.01 Architectural Committee ...........................................     11
     6.02 Promulgation of Guidelines ........................................     12
     6.03 Plan Review .......................................................     12
     6.04 Approvals .........................................................     12
     6.05 Variances .........................................................     13
     6.06 Construction ......................................................     13
     6.07 Certificates of Compliance ........................................     13
     6.08 Architectural Fee .................................................     13
     6.09 Waiver ............................................................     13
     6.10 Nonliability for Decisions ........................................     14
     6.11 General ...........................................................     14
     6.12 Disclosure and Waiver of Conflict of Interest .....................     14

ARTICLE VII REGULATION OF OPERATIONS AND USES ...............................     15

     7.01 Prohibited Operations and Uses ....................................     15
     7.02 Other Operations and Uses .........................................     16
     7.03 Exculpation .......................................................     16

ARTICLE VIII ENCROACHMENTS AND EASEMENTS ....................................     17

     8.01 Encroachments .....................................................     17
     8.02 Utility Easements .................................................     17
     8.03 Slope and Drainage ................................................     17
     8.04 Grades, Cuts and Fills ............................................     17
     8.05 Performance and Discharge of Rights and Duties ....................     17

ARTICLE IX MAINTENANCE BY OWNERS ............................................     18

ARTICLE X ENFORCEMENT .......................................................     18

     10.01 Abatement and Suit ...............................................     18
     10.02 Deemed to Constitute a Nuisance ..................................     18
     10.03 Suspension of Members ............................................     19
     10.04 Attorney's Fees ..................................................     19
     10.03 Inspection Rights ................................................     19
     10.06 Failure to Enforce Not a Waiver of Rights ........................     19

ARTICLE XI MISCELLANEOUS PROVISIONS .........................................     19

     11.01 Termination and Modification .....................................     19
     11.02 Assignments of Developer's Rights and Duties .....................     20
     11.03 Assignment of Association's Rights and Duties ....................     20
     11.04 Constructive Notice and Acceptance ...............................     20



                                                                            2327



                                                                                Page
                                                                                -----
                                                                             
     11.05 Rights of Mortgagees .............................................     20
     11.06 Mutuality, Reciprocity, Runs with Land ...........................     20
     11.07 Paragraph Headings ...............................................     20
     11.08 Effect of Invalidation ...........................................     21
     11.09 Choice of Law ....................................................     21


            DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS FOR

                     UNIT NO. 1 OF PACIFIC CORPORATE CENTER

        THIS DECLARATION is made this 19th day of April, 1985, by CORNERSTONE
CORPORATE CENTER, a California limited partnership ("Developer").

                                    RECITALS

        A. Developer is the owner of certain real property in the County of San
Diego, State of California, more particularly described in Exhibit A attached
hereto (the "Property").

        B. Developer desires to subject the Property to certain conditions,
covenants and restrictions, upon and subject to which all the Property shall now
and hereafter be held, improved and conveyed, in order to establish a general
plan for the improvement and development of the Property.

        C. Developer has caused to be formed PACIFIC CORPORATE CENTER UNIT NO. 1
OWNERS' ASSOCIATION, a California nonprofit mutual benefit corporation (the
"Association") to act as the property owners' association for the Property. The
Association shall have such powers and duties as are set forth herein and in the
Articles and the Bylaws of the Association.

        Now, THEREFORE, Developer declares as follows:

                                    ARTICLE I

                                   DEFINITIONS

        For purposes of this Declaration, the following terms shall have the:
following meanings:

        1.01 Architectural Committee: "Architectural Committee" shall refer to
the Architectural Committee established pursuant to Article VI of this
Declaration.

        1.02 Articles: "Articles" shall mean and refer to the Articles of
Incorporation of the Association.

        1.03 Assessment: "Assessment" shall mean and refer to any or all of the
Assessments hereinafter defined:

        (a) "Regular Assessments" shall mean and refer to a charge against each
Owner and his Lot representing a portion of the cost to the Association to
provide for and promote the health, safety and welfare of the Members of the
Association and, in particular, for the improvement and maintenance of the
properties, services, and facilities devoted to this purpose and related to the
use and enjoyment of the Association Maintenance Areas, including, without
limitation, establishing and maintaining reserves for such purposes.

             (b) "Special Assessment" shall mean and refer to a charge against a
particular Owner and his Lot, directly attributable to such Owner, for a
reasonable fine or penalty levied by the Association for a violation of this
Declaration or the Articles and Bylaws of the Association, or for certain costs
incurred by the Association or Declarant for materials or services furnished to
such Owner or his Lot at the request of or on behalf of such Owner as a result
of any owner failing to maintain any portion of his Lot in accordance with the
provisions of this Declaration or for material or services furnished to any
portion of any Lot which the Association maintains pursuant to this Declaration,
as a result of the negligence or willful misconduct of any Owner, his employees,
guests or invitees, or for excessive use or special use of the services or
facilities provided by the Association, including but not limited to parking,
trash removal and maintenance of improvements.

             (c) "Capital Improvements Assessment" shall mean and refer to a
charge against each Owner and his Lot representing a portion of the cost to the
Association for the installation, construction, unexpected repair or replacement
of any Improvements, including the necessary fixtures said personal property
related thereto, on any portion of the Property upon which the Association may
be required to install, construct, repair or replace any Improvements ax
provided in this Declaration, which coat has not barn provided for by reserves
established by Regular Assessments paid by the Members.

        1.04 Association: "Association" shall mean PACIFIC CORPORATE CENTER
UNIT NO. 1 OWNERS' ASSOCIATION, a California nonprofit mutual benefit
corporation, its successors and assigns.

        1.05 Association Maintenance Areas: "Association Maintenance Areas"
shall mean and refer to all areas within the Property that the Association has
accepted into the Association Maintenance Areas pursuant to subsections 3.06(a),
(b), (c) or (d) of this Declaration.

        1.06 Board of Directors: "Board of Directors" and/or "Board" shall refer
to the Board of Directors of the Association.

        1.07 Bylaws: "Bylaws" shall mean and refer to the Bylaws of the
Association.

        1.08 Declaration: "Declaration" shall mean this Declaration of
Covenants, Conditions and Restrictions, and all amendments thereto.

        1.09 Detention Basin: "Detention Basin" shall mean the detention basin
to be constructed and maintained on a portion of Lot 9 of the Property for the
purpose of receiving silt and storm water run-off from the Property and from
adjacent real property.

        1.10 Developer: "Developer" shall mean CORNERSTONE CORPORATE CENTER, a
California limited partnership, its successors and assigns.


                                       2


        1.11 Government Regulations: "Government Regulations" shall mean all
present and future governmental laws, statutes, codes, ordinances, rules,
regulations, limitations, restrictions, orders, judgements and other
governmental requirements applicable to the Property, including without
limitation the PID Permit.

        1.12 Guidelines: "Guidelines" shall mean and refer to those guidelines
promulgated by the Architectural Committee pursuant to Article VI of this
Declaration.

        1.13 Improvements: "Improvements" shall mean and refer to all structures
and appurtenances thereto of every type and kind, including, but not limited to,
buildings, outbuildings, garages, irrigation and drainage devices or systems,
fences, screening walls, retaining walls, parking areas, loading areas, poles,
light standards, signs and "Landscape Improvements" (defined below).

        1.14 Landscape Improvements: "Landscape Improvements" shall refer to any
plantings, ground cover, trees and shrubbery existing on a Lot or within
dedicated streets or alleys at the date of this declaration or thereafter
installed, together with any alterations, systems, and equipment installed in
order to enable reasonable maintenance of the plantings, ground cover, trees and
shrubbery.

        1.15 Lot: "Lot" shall mean each separate legal lot within the Property,
but shall not include streets or alleys which have been dedicated to and
accepted by any governmental agency having jurisdiction in the matter.

        1.16 Member: "Member" shall mean and refer to every person or entity who
is an Owner of a fee or undivided fee interest in any Lot.

        1.17 Net Useable Square Footage: "Net Useable Square Footage" shall
mean, with respect to a Lot, all square footage of such Lot, exclusive of (a)
dedicated public pedestrian and roadway rights of way, and (6) slopes of greater
than five percent (5%) that are not within the ten (10) foot landscape setback
from public streets.

        1.18 Owner: "Owner" shall mean and refer to the record Owner, whether
one or more persons or entities, of fee simple title to any Lot, including
contract sellers, but excluding those having such interest merely as security
for the performance of an obligation.

        1.19 PID Permit: "PID Permit" shall mean and refer to Planned Industrial
Development Permit No. 83-0378, as such Permit may be corrected or amended from
time to time.

        1.20 Property: "Property" shall mean that certain real property
described in Exhibit A to this Declaration.

        1.21 Restrictions: "Restrictions" shall mean and refer to the covenants,
conditions, restrictions, liens,


                                       3

charges, rules and regulations now or hereafter established or imposed by or
pursuant to this Declaration.

        1.22 Submittal: "Submittal" shall mean and refer to all documents
required to be submitted to the Architectural Committee established by this
Declaration.

        1.23 Undeveloped Lot: "Undeveloped Lot" shall mean and refer to any Lot
for which the City of San Diego has not issued a Certificate of Occupancy which
allows occupancy of a completed building.

                                   ARTICLE II

                    ESTABLISHMENT AND PURPOSE OF RESTRICTIONS

        2.01 Establishment of Restrictions: Developer hereby declares that the
Property is now held and shall hereafter be held, transferred, sold, leased,
conveyed, maintained, and occupied subject to the Restrictions herein set forth,
each and all of which is and are for the benefit of, shall inure to, and shall
pass with the Property and each and every part or parcel thereof, and shall
apply to and bind Developer, the Association and any Owner, lessee or other
occupier or user of the Property or any portion thereof, and the heirs,
assignees and successors in interest of Developer, the Association and any such
Owner, lessee, occupier or user.

        2.02 Purpose of Restrictions: The purpose of these Restrictions is to
insure proper development and use of the Property, to protect the Owner of each
Lot against such improper development and use of surrounding parcels as will
depreciate the value of his parcel, to prevent the erection on the Property of
structures built of improper design or materials, to encourage the erection of
attractive Improvements at appropriate locations, to prevent haphazard end
inharmonious Improvements, to secure and maintain proper setbacks from streets
and adequate free spaces between structures, to provide for proper and
sufficient care and maintenance of the Property and the Improvements and
Landscape Improvements thereon, and in general to provide adequately for a high
type and quality of improvement, use and maintenance of the Property in
accordance with a general plan.

                                   ARTICLE III

                                 THE ASSOCIATION

        3.01 Membership in Association: Every Owner shall be a Member of the
Association. Membership shall be appurtenant to and may not be separated from
fee ownership of a Lot, and such fee ownership shall be the sole qualification
for membership. Where more than one person holds a fee interest in any Lot, all
such persons shall be Members. The foregoing is not intended to include persons
or entities who hold an interest merely as security for performance of an
obligation. The terms and provisions set forth in this Declaration, which are
binding upon all Members in the Asso-



                                       4



ciation, are not exclusive. Each Member shall also be subject to the terms and
provisions of the Government Regulations, the Articles and the Bylaws.

        3.02 Voting Rights: The Association shall have two (2) classes of voting
membership.


             Class A: All Owners with the exception of the Developer shall be
Class A Members. Class A Members shall be entitled to one (1) vote for each Lot
which they own in the Property. When more than one parson holds an interest in
any Lot, the vote or votes for such Lot shall be exercised as they among
themselves determine but in no event shall more than one vote be allocated to
any Lot.

             Class B: The Class B Member shall be the Developer. The Class B
Member shall be entitled to six (6) votes for each Undeveloped Lot in which it
holds a fee interest, and one (1) vote for each Lot which is not an Undeveloped
Lot in which it holds a fee interest. The Class B membership shall cease and
be converted to Class A membership when the Developer is no longer an Owner of
at least once (1) Undeveloped Lot.

             This section may not be terminated, extended, modified or amended
pursuant to Section 11.01 and any such attempt shall be null and void and of
no effect.

             All voting rights shall be subject to the restrictions and
limitations provided herein and in the Articles and the Bylaws.

        3.03 Approval of Members: Unless otherwise specifically provided herein,
any provision of this Declaration or the Bylaws which requires the approval of a
specified majority of the voting power of the Members shall be deemed satisfied
by the following:

             (a) The vote of the specified percentage at a meeting duly called
and noticed pursuant to the provisions of the Bylaws dealing with annual or
special meetings of the Members. Such percentage must be no less than a majority
vote of an authorized quorum;

             (b) A writing or writings signed by the specified percentage; or

             (c) A combination of votes or written assents evidencing the
approval of the specified percentage.

        3.04 Vesting of Voting Rights: Voting rights for a Member of the
Association shall not vest until a Regular Assessment has been levied against
that Member pursuant to Section 4.03.

        3.05 Non-Liability of Board: In discharging their duties and
responsibilities, the Board acts on behalf of and as the representative of the
Association which acts on behalf of and as the representative of the Owners, and
no member of the Board shall be individually or personally lia-

                                       5



ble for performance or failure of performance of his duties and
responsibilities unless he fails to act in good faith.

        3.06 Duties and Powers: In addition to the duties and powers enumerated
in the Articles and the Bylaws, or elsewhere provided for herein, and without
limiting the generality thereof, the Association shall:

             (a) Have the duty and obligation to accept into the Association
Maintenance Area any landscaped areas for which a Notice of Completion
pertaining to Landscape Improvements has been accepted by the Architectural
Committee pursuant to Section 6.07 hereof.

             (b) Have the duty and obligation to accept into the Association
Maintenance Area the Detention Basin.

             (c) Have the right to accept any other area of the Property into
the Association Maintenance Area, provided, however, that the Association will
not accept any area into the Association Maintenance Area without the consent of
either (1) the Owner of the area to be accepted, or (2) if sufficient to assure
access, the holder of an easement over the area to be accepted, where the
easement allows the holder and the Association to enter the area for landscape
maintenance purposes; provided further that the Association shall not accept any
area into the Association Maintenance Area under this subsection unless the
Board first determines, in its sole and reasonable discretion, that the
acceptance of such area is in keeping with the purpose of these Restrictions and
the Government Regulations.

             (d) Have the right to accept into the Association Maintenance Area
any dedicated public right of way or easement for streets or pedestrian and
non-motor-vehicle sidewalks for which the Association has obtained encroachment
permits, encroachment removal agreements, and any other approvals required from
the City of San Diego by the PID Permit or Government Regulations.

             (e) Have the duty and obligation to maintain and repair the
Improvements, including Landscape Improvements, in the Association Maintenance
Area. Should the Association incur the expense of repairing or maintaining any
portion of the Property which the City of San Diego or any other public agency
is obligated to incur, the Association shall use its reasonable efforts to
obtain reimbursement.

             (f) Have the duty and obligation to obtain, for the benefit of the
Association Maintenance Area, all water, gas and electric services and refuse
collection.

             (g) Have the duty and obligation to pay taxes and charges assessed
against the Association and to pay real and personal property taxes and other
charges assessed against any property owned by the Association, if any.

             (h) Have the duty and obligation to purchase, carry, and at all
times maintain in full force insur-



                                       6



ance covering the Association Maintenance Area in such amounts and with such
endorsements and coverage as shall be considered good sound insurance coverage
for properties similarly developed and improved. Such insurance to be obtained
by the Association may include, but need not be limited to:

                    (i) Comprehensive public liability insurance, in such limits
as the Association deems necessary.

                    (ii) Workers' Compensation Insurance as the Association
deems necessary;

                    (iii) Association Directors' and Officers' liability
insurance; and

                    (iv) Any other insurance deemed necessary by the
Association.

                The insurance coverage shall be written in the name of, and the
proceeds thereof shall be payable to, the Association. Premiums for all
insurance carried by the Association is a common expense includable in the
Assessments made by the Association.

                (i) Have the right and obligation, in accordance with its
Articles and the Bylaws, to borrow money for the purpose of improving, repairing
or reconstructing the Association Maintenance Area.

                (j) Have the right to employ a manager or other persons and to
contract with independent contractors or managing agents to perform all or any
part of the duties and responsibilities of the Association.

                (k) Have the duty and obligation to establish and maintain a
working capital and contingency fund in an amount to be determined by the Board
of Directors of the Association.

                (l) Have the right to acquire property subject to the provisions
of Section 5.03 herein.

                (m) Have the right to grant easements where necessary for
utilities and sewer facilities over the Association Maintenance Area to serve
the Association Maintenance Area and the Lots.

                (n) Have the right to enforce the provisions of this Declaration
by appropriate means, including without limitation, the expenditure of funds
of the Association, the employment of legal counsel and the
commencement of legal proceedings.

                (o) Have the right to delegate powers to committees, officers
and/or employees of the Association as expressly authorized by the governing
instruments.

                (p) Have the right to adopt, amend, and repeal such rules and
regulations as it deems reasonable to


                                       7



govern any matters in furtherance of the purpose of the Association, including,
without limitation, the use of the Association Maintenance Areas, the regulation
of Improvements and the use of the Lots; provided, however, that the Association
rules and regulations may not discriminate among Owners, and shall not be
inconsistent with the Government Regulations, this Declaration, the Articles or
the Bylaws. Such rules and regulations may include the establishment of system
of fines and penalties enforceable as Special Assessments.

                                   ARTICLE IV

                            COVENANT FOR ASSESSMENTS

            4.01 Creation of Liens: The Developer, for each Lot owned, hereby
covenants, and each Owner of a Lot by acceptance of a deed therefor, whether or
not it shall be so expressed in such deed, is deemed to covenant and agrees to
pay to the Association: (i) Regular Assessments, (ii) Special Assessments, and
(iii) Capital Improvement Assessments, such Assessments to be established and
collected as provided herein. The Regular, Special and Capital Improvement
Assessments, together with interest, cost, penalties and reasonable attorney's
fees, shall be a charge on the Lot and shall be a continuing lien upon the Lot
against which each such Assessment is made. Each such Assessment, together with
interest, costs, penalties and reasonable attorney's fees, shall also be the
personal obligation of the person who was the Owner of such Lot at the time when
the Assessment fell due.

            4.02 Purpose of Assessments: The Assessments levied by the
Association shall be used exclusively for the purpose of promoting the health,
safety and welfare of the Members of the Association, to provide funds for the
Association to carry out its duties and obligations and, in particular, for the
improvement, landscaping and maintenance of the Association Maintenance Area and
other services and facilities devoted to this purpose, if any.

            4.03 Regular Assessments: The amount of Regular Assessments for a
fiscal year of the Association shall be determined by the Board of Directors of
the Association pursuant to the Articles of Incorporation and Bylaws of said
Association after giving duo consideration to the current maintenance costs and
future needs, including the buildup of reserves for working capital and
contingencies, of the Association. The Board of Directors of the Association
shall fix the, amount of Regular Assessment against each Lot for each fiscal
year at least thirty (30) days in advance of such year. Written notice of the
Regular Assessments shall be sent to every Owner subject thereto at least
fifteen (15) days prior to each fiscal year of the Association. The Regular
Assessments shall be paid in monthly installments.

            4.04 Special Assessments: Each Owner shall be liable to the
Association by way of Special Assessment for any damages to the Association
Maintenance Area or to any of the equipment or improvements thereon which may be
sustained


                                       8

 by reason of the negligence or willful misconduct of said Owner or of his
employees, agents, guests or invitees, both minor and adult. Any expense
incurred by the Association in repairing such damage, together with costs and
attorneys' fees, shall be a debt of the Owner causing the same, and the Board
may specifically assess, by way of Special Assessment, said Owner for the amount
thereof to the extant that any such damage shall not be covered by a policy of
insurance. The Board may also levy Special Assessments: (i) to reimburse the
Association for steps taken pursuant to Sections 6.07 or 10.01 of this
Declaration; (ii) for Owners who are specifically found to be excessive users of
the services or facilities furnished or provided by the Association, including,
but not limited to, trash removal or parking facilities, or (iii) for steps
taken by the Association to remedy any wrongful violation of this Declaration.

            4.05 Capital Improvement Assessments: In addition to the Regular and
Special Assessments, the Association may levy in any calendar year, a Capital
Improvement Assessment applicable to that year only, provided that any such
Assessment shall have the approval by vote or written consent of Members
entitled to exercise not less than two-thirds (2/3) of the voting power of the
membership of the Association.

            The Board of Directors shall fix the amount of all Capital
Improvements Assessments at least thirty (30) days in advance of the date such
Assessments shall become due and shall give written notice at least fifteen (15)
days in advance of the date such Assessments shall become due to each Owner
subject thereto.

            4.06 Uniform Rate of Collection: The Regular and Capital Improvement
Assessments may be combined and collected on a monthly basis and shall be fixed
at a uniform formula rate for all Lots based upon the Net Useable Square Footage
of each Lot. Fixing Assessments at a uniform formula rate for all Lots does not
apply with respect to Special Assessments.

            4.07 Date of Commencement of Regular Assessments: The Regular
Assessments shall commence as to all Lots on the first day of the month
following the close of escrow for the first conveyance by Developer of any Lot
to any Class A Member of the Association.

            4.08 Certificate of Payment: The Association shall, upon demand,
furnish to any Owner liable for any Assessment, a certificate in writing signed
by an officer of the Association, setting forth whether the Regular and Special
and Capital Improvement Assessments on that Owner's Lot have been paid, and the
amount of the delinquency, if any. A reasonable charge may be made by the Board
for the issuance of these certificates. Such certificate shall be conclusive
evidence of payment of any Assessment therein stated to have been paid.

            4.09 Exempt Property: A11 properties dedicated to and accepted by a
local public authority shall be exempt from assessments.


                                       9


            4.10 Waiver of Use: No Member may exempt himself by any means
whatsoever from personal liability for assessments duly levied by the
Association, nor release the Lot owned by him from the liens and charges
thereof, by abandonment of his Lot or otherwise.

                                    ARTICLE V

                            NONPAYMENT OP ASSESSMENTS

            5.01 Delinquency: Any Assessment which is not paid when due shall be
delinquent. With respect to each Assessment not paid within fifteen (15) days
after the due date, the Association may, at its election, require the Owner to
pay a "late charge" in a sum to be determined by the Association, but not to
exceed ten percent (10%) of the amount of the delinquent Assessment per each
delinquent Assessment. If any such Assessment is not paid within thirty (30)
days after the delinquency date, the Assessment shall bear interest from the
date of delinquency at the maximum rate permitted by law, and the Association
may, at its option, bring an action at law against the Owner personally
obligated to pay the same, or upon compliance with the notice provisions set
forth in Section 5.02 hereof, to foreclose the lien (provided for in Section
4.01 hereof) against the Lot, and there shall be added to the amount of such
Assessment the late charge, the costs of preparing and filing the complaint in
such action, and in the event a judgment is obtained, such judgment shall
include interest and reasonable attorneys' fees, together with the costs of
action. Each Owner vests in the Association or its assigns, the right and power
to bring all actions at law or lien foreclosure against such Owner to other
Owners for the collection of such delinquent Assessments.

            5.02 Notice of Lien: No action shall be brought to foreclose said
Assessment lien or to proceed under the power of sale herein provided until
thirty (30) days from the date a notice of claim of lien is deposited in the
United States mail, certified or registered, postage prepaid, to the Owner of
said Lot, and a copy thereof is recorded by the Association in the Office of the
San Diego County Recorder; said notice of claim must recite a good and
sufficient legal description of any such Lot, the Owner or reputed Owner
thereof, the amount claimed (which shall include interest, reasonable attorneys'
fees and expenses of collection incurred in connection with the debt secured
by said lien and late charges as specified above), and the name and address of
the claimant.

            5.03 Foreclosure Sale: Any such sale provided for above is to be
conducted in accordance with provisions of the Civil Code of the State of
California, as it may hereafter be modified or amended, applicable to the
exercise of powers of sale in mortgages and deeds of trust, or in any other
manner permitted or provided by law. The Association, through its duly
authorized agents, shall have the right to bid on the Lot at foreclosure sale,
and to acquire and hold, mortgage and convey the same.


                                       10


            5.04 Curing of Default: Upon the timely payment or other
satisfaction of (a) all delinquent Assessments specified in the notice of claim
of lien, (b) all other Assessments which have become due and payable with
respect to the Lot as to which such notice of claim of lien was recorded, and
(c) interest, late charges, attorneys` fees and other costs of collection
pursuant to this Declaration which have accrued, officers of the Association or
any other persons designated by the Board are hereby authorized to file or
record, as the case may be, an appropriate release of such notice, upon payment
by the defaulting Owner of an amount, to be determined by the Association, to
cover the costs of preparing and filing or recording such release.

            5.05 Cumulative Remedies: The lien and the rights to foreclosure and
Sale thereunder shall be in addition to and not in substitution for all other
rights and remedies which the Association and its assigns may have hereunder and
by law, including a suit to recover a money judgment for unpaid Assessments, as
provided above.

            5.06 Subordination of Assessment Liens: If any Lot subject to a
monetary lien created by any provision hereof shall be subject to the lien of a
deed of trust: (a) the foreclosure of any lien created by anything set forth in
this Declaration shall not operate to affect or impair the lien of such deed of
trust, and (b) the foreclosure of the lien of died of trust or the acceptance of
a deed in lieu of foreclosure of the deed of trust shall not operate to affect
or impair the lien hereof, except that the lien hereof for said charges as shall
have accrued up to the foreclosure or the acceptance of the deed in lieu of
foreclosure shall be subordinate to the lien of the deed of trust, with the
foreclosure purchaser or deed-in-lieu grantee taking title free of the lien
hereof for all said charges that have accrued up to the time of the foreclosure
or deed given in lieu of foreclosure, but subject to the lien hereof for all
said charges that shall accrue subsequent to the foreclosure or deed given in
lieu of foreclosure.

                                   ARTICLE VI

                              ARCHITECTURAL CONTROL

            6.01 Architectural Committee: There shall be an Architectural
Committee consisting of three (3) persons to be appointed by the Developer.
Except as otherwise provided herein, the members of the Architectural Committee
shall be subject to removal by the Developer at any time, with or without cause.
All vacancies on the Architectural Committee shall be filled by appointment by
the Developer. In the event of failure of the Developer to appoint such
Committee or to fill any vacancies therein, the Board shall have the right by
written document to appoint the members of the Architectural Committee or to
fill any vacancies. The Developer shall surrender and the Board shall assume the
right to appoint and remove the members of the Architectural Committee on the
date that Developer no longer owns at least one (1) Undeveloped Lot, provided
that the Developer shall, at its election, be entitled at all times to appoint
at


                                       11


least one (1) person to the Architectural Committee, whether or not the
Developer is an Owner of a Lot. The Architectural Committee shall act by
majority vote of its members, but a majority of the Architectural Committee may
designate a representative to act for it.

            6.02 Promulgation of Guidelines: The Architectural Committee may
promulgate, from time to time, Guidelines setting forth the procedure for
submission and approval of and the form and content of Submittals for the
erection, construction, installation or alteration of Improvements, including
Landscape Improvements. These rules and regulations shall be promulgated to
assist Members in the submission of plans and specifications. In promulgating
and changing Guidelines, the Architectural Committee shall apply standards
consistent with the Government Regulations and the purpose of this Declaration.

            6.03 Plan Review: No Improvement of any nature whatsoever
(including, but not limited to, any alteration or addition to any Improvements
existing from time to time) shall be constructed, installed, assembled,
maintained or permitted to remain on any Lot until plans and specifications for
such Improvement (the "Submittals") shall have been approved in writing by the
Architectural Committee. All Submittals shall be prepared by an architect and/or
engineer, licensed to practice in the State of California, and shall be
submitted in writing over the signature of the Owner or his authorized agent.
Each Submittal shall conform to the Guidelines and any restrictions contained in
the deed pursuant to which the Developer first conveyed title to the Lot for
which the Submittal is made. Three (3) copies of each Submittal are required.

            6.04 Approvals: The Architectural Committee shall base its approval
or disapproval of any Submittal on, among other things, the adequacy of site
dimensions; the adequacy of structural design; the conformity and harmony of
external design with the neighboring structures; the affect of location and use
of improvements on neighboring sites, operations and uses; the relation of the
topography, grade and finished ground elevation of the site being improved to
that of the neighboring sites; the proper facing of elevations with respect to
nearby streets; and the conformity of the Submittal to the Government
Regulations and the purpose and general plan and intent of this Declaration. The
Committee shall not arbitrarily or unreasonably withhold its approval of such
Submittal. If the Architectural Committee fails either to approve or to
disapprove any Submittal within sixty (60) days after the same has been
submitted to and received by the Architectural Committee, it shall be
conclusively presumed that the Architectural Committee has approved the
Submittal, provided that the Improvements discussed in the Submittal are in
accord with the Government Regulations. Notwithstanding anything herein to the
contrary, approval by the Architectural Committee is not exclusive and all plans
and specifications required to be approved by the City of San Diego, whether
through the building permit process or otherwise, shall be so approved prior to
the commencement of construction.


                                       12


            6.05 Variances: Where circumstances, such as topography, location of
lot lines, location of trees, or other matters require, the Architectural
Committee may allow reasonable variances as to any of the Restrictions contained
in this Declaration and under the jurisdiction of the Architectural Committee,
on such terms and conditions as it shall require; provided, however, that all
such variances shall be in keeping with the provisions of the Government
Regulations and the purpose of this Declaration.

            6.06 Construction: Upon receipt of approval from the Architectural
Committee pursuant to this Section, the Owner to whom the same is given shall,
as soon as practicable, satisfy all conditions thereof and diligently proceed
with the commencement and completion of all approved construction and
alterations. In all cases, work shall be substantially completed within
twenty-four (24) months from the date of such approval. If there is a failure to
comply with this Section, then the approval given pursuant to this Section shall
be deemed revolted unless the Architectural Committee, upon request made prior
to the expiration of said twenty-four (24) month period, extends the time for
completing the work.

            6.07 Certificates of Compliance: Upon completion of construction or
installation of any Improvements, the Owner shall supply the Architectural
Committee with a Notice of Completion from a duly licensed or registered
architect certifying that the Improvements as constructed or installed are in
compliance with the Submittal previously approved by the Architectural
Committee. In the case of work involving Landscape Improvements, a separate
Notice of Completion pertaining to the Landscape Improvements shall be filed by
a landscape architect. If the Architectural Committee determines that the
Improvements are not in compliance with the previously approved Submittals, it
shall notify the Owner in writing of such non-compliance within ninety (90) days
after the receipt of the Notice of Completion. If the Architectural committee
determines that the Owner has not remedied the non-compliance within thirty (30)
days from the date of the notice of non-compliance, the Architectural Committee
shall notify the Association of the non-compliance. The Association shall
thereafter have the right to take such steps to remedy the non-compliance as the
Board in its sole discretion deems reasonable and necessary.

            Unless the Architectural Committee determines within (90) days that
the Improvements are not in compliance with the previously approved Submittal,
the Notice of Completion shall be deemed accepted by the Architectural
Committee.

            6.08 Architectural Fee: The Architectural Committee may charge and
collect a reasonable fee for the examination of any Submittals. The amount of
such fee shall not exceed the cost of making such examination, including the
cost of any architect's or engineer's fees incurred in connection therewith.

            6.09 Waiver: The approval of the Architectural Committee of any
Submittals for any work done or proposed.


                                       13


or for any other matter requiring the approval of said Committee, shall not be
deemed to constitute a waiver of any right to withhold approval of any similar
plans, drawings, specifications or other matters subsequently submitted for
approval.

            6.10 Nonliability for Decisions: Neither the Developer, the
Association, nor the Architectural Committee or the members thereof shall be
liable to anyone submitting plans to them for approval or to any Owner or lessee
of land affected by this Declaration, by reason of mistake in judgment,
negligence or nonfeasance arising out of or in connection with the approval or
disapproval or failure to approve any such plans. Approval or disapproval of any
Submittal by the Architectural Committee shall not constitute a determination as
to the structural integrity, adequacy or fitness of the Improvements
contemplated by such submittal, and neither the Developer, the Association, nor
the Architectural Committee or the members thereof shall be liable to anyone
submitting plans for approval or to any Owner or lessee of land affected by this
Declaration in the event the Improvements contemplated by such Submittal are
inadequate or unfit. Every person who submits plans to the Architectural
Committee for approval agrees, by submission of such plans, and every Owner or
lessee of any of the property agrees, by acquiring title thereto or interest
therein, that he will not bring any action or suit against the Developer, the
Association, the Architectural Committee or any members thereof to recover any
damages for any of the foregoing.

            6.11 General: The members of the Architectural Committee shall not
be entitled to any compensation for services performed pursuant to this
Declaration; however, any architect, engineer or similar party employed by the
Architectural Committee to assist in the review of Submittals shall be entitled
to a fee.

            6.12 Disclosure and Waiver of Conflict of Interest: The Developer
hereby discloses the following:

            (a) The members of the Architectural Committee may be affiliated
with and employed by the Developer.

            (b) Should the Developer submit plans and specifications to the
Architectural Committee, the members of the Architectural Committee appointed by
the Board may be in a conflict of interest in rendering their decisions.

            Neither the Developer nor any member of the Architectural Committee
shall have any liability to any Owner or other person by reason of decision
which may benefit the Developer rendered in good faith by the Architectural
Committee or any member thereof while in a conflict of interest, and each Owner
hereby waives any claim of liability against the Developer, the Architectural
Committee, or any member thereof based on such conflict of interest. Nothing
herein stated is intended to limit the application or meaning of Section 6.10
above or Section 1.03 below.


                                       14


                                   ARTICLE VII

                        REGULATION OF OPERATIONS AND USES

            7.01 Prohibited Operations and Uses: In addition to those operations
prohibited by the Government Regulations, the following operations and uses
shall not be permitted on the Property or any portion thereof:

                  (a) Residential use of any type.

                  (b) Trailer courts or recreational vehicle campgrounds.

                  (c) Junk yards or recycling facilities.

                  (d) Drilling for and removing oil, gas or other hydrocarbon
substances.

                  (e) Refining of petroleum or petroleum products.

                  (f) Commercial storage of petroleum products.

                  (g) Excavation of building or construction materials (except
for excavation necessary in the course of approved construction).

                  (h) Distillation of bones.

                  (i) Dumping, disposal, incineration or reduction of garbage,
sewage, offal, dead animals or other refuse.

                  (j) Fat rendering.

                  (k) Stockyard or slaughter of animals.

                  (l) Smelting of any ore.

                  (m) Cemeteries.

                  (n) Jail or honor farms.

                  (o) Labor or migrant worker camps.

                  (p) Truck terminals.

                  (q) Storage of construction materials and equipment (except as
necessary in the course of approved construction).

                  (r) Any use (other than approved construction) which emits
dust, sweepings, dirt, cinders, fumes, gases, odors, acids, steam or other
substances into the atmosphere, or discharges liquid, solid wastes or other
matter into any water reclamation area or water way which, in the opinion of the
Developer or the Board of Directors, may adversely affect the health, safety, or
comfort of persons within the area or may be harmful to vegetation or property.


                                       15


                  (s) The radiation or discharge of intense glare or heat, or
atomic, electromagnetic, microwave, ultrasonic, laser or other radiation, except
within an area screened and enclosed in such a manner as to be indiscernible
from any point outside the Lot on which the operation is conducted.

                  (t) The emission of any vibration, noise or sound which, in
the opinion of the Developer or the Board of Directors, is objectionable due to
intermittence, frequency, strength, shrillness or volume.

            7.02 Other Operations and Uses: Operations and uses which are
specifically prohibited by these restrictions may be permitted in a specific
case if written detailed operational plans and specifications therefor are
submitted to and approved in writing by the Association. Approval or disapproval
of such plans and specifications shall be based upon the effect of such
operations or uses on other portions of the Property or upon the occupants
thereof. If the Association fails either to approve or to disapprove such plans
and specifications within sixty (60) days after the same have been submitted to
it, it shall be conclusively presumed that the Association has disapproved said
plans and specifications. Notwithstanding anything contained herein to the
contrary, no activity shall be allowed on any Lot if it is prohibited by the
Government Regulations.

            7.03 Exculpation: Neither the Developer, the Association nor the
Board or any members thereof shall bye liable in damages to anyone submitting
operational plans and specifications to them for approval, or to any Owner or
lessee of the Property or any portion thereof by reason of mistake in judgment,
negligence or nonfeasance arising out of or in connection with the approval or
disapproval or failure to approve any such operational plans and specifications.
Approval or disapproval of any Submittal by the Architectural Committee shall
not constitute a determination as to the structural integrity, adequacy or
fitness of the Improvements contemplated by such submittal, and neither the
Developer, the Association, nor the Architectural Committee or the members
thereof shall be liable to anyone submitting plans for approval or to any Owner
or lessee of land affected by this Declaration in the event the Improvements
contemplated by such Submittal are inadequate or unfit. Every person who
submits operational plans and specifications to the Association for approval
agrees, by submission of such plans and specifications, and every Owner and
lessee of any of the Property agrees, by acquiring title thereto or interest
therein, that he will not bring any action or suit against the Developer, the
Association, the Board or any members thereof to recover any damages for any of
the foregoing,


                                       16


                                  ARTICLE VIII

                           ENCROACHMENTS AND EASEMENTS

            8.01 Encroachments: Each Lot is hereby declared to have an easement
over all adjoining property (including Lots) for the purpose of accommodating
minor encroachments due to original engineering or surveying errors, errors in
original construction of Improvements, errors in reconstruction or repair of
Improvements in accordance with plans and specifications approved by the
Architectural Committee, or settlement or shifting or movement of an
Improvement.

            8.02 Utility Easements: The Developer hereby reserves, together with
the right to grant and transfer the same, such rights of way and easements over
the Property as may be necessary or convenient for the purpose of erecting,
constructing, repairing, maintaining, replacing and operating utility services
over, across, under and through the Property within the designated setback
areas, including without limitation wires, poles, pipes and conduits for
lighting, power, television, telephone and other communication facilities, gas,
water, storm sewers, sanitary sewers, and other utility lines. The Developer
shall have the right to grant rights of way or easements to others to carry out
the foregoing purposes. Upon the laying, repair, maintenance or replacement of
any such lines, wires, pipes, conduit. or sewers, the Property shall be restored
to the same condition it was in prior to the doing of such work.

            8.03 Slope and Drainage: The Developer hereby reserves for itself,
each Owner and the Association, easements to allow the drainage of water under,
upon and across each Lot in the established drainage ways existing on each Lot.
"Established drainage ways" shall mean and refer to the Developer's plan
for drainage as shown on the Developer's grading plan for the Property and any
drainage improvements installed by the Developer, the Association or any Owner
pursuant to such grading plans or any Government Regulation.

            8.04 Grades, Cuts and Fills: The Developer hereby reserves, together
with the right to grant and transfer the same, easements to make such cuts and
fills as are necessary to grade the streets or private ways and/or other
Improvements within the Property, whether dedicated or not dedicated to the City
of San Diego or other political subdivision, in accordance with such grades as
the City of San Diego or other political subdivision may establish, and the
rights to provide the necessary support and protection of streets so graded,
including to slope upon abutting Lots.

            8.05 Performance and Discharge of Rights and Duties: The Developer
hereby reserves for itself, the Association and their agents a non-exclusive
easement for ingress and egress over the Property and each Lot for the purpose
of permitting the Association, the Board of Directors, the Architectural
Committee, the Developer and their agents to discharge their rights and
obligations as described in this Declaration.


                                       17


                                   ARTICLE IX

                             MAINTENANCE BY OWNERS

            Except to the extent the Association shall be obligated to maintain
and repair the Landscape Improvements located within a Lot pursuant to Section
3.06 hereof, the Owner of each Lot shall maintain and repair such Lot, including
the Improvements thereon, in good condition and repair and in accordance with
the provisions of this Declaration, the Government Regulations and the rules and
regulations, if any, of the Association and the Architectural Committee. Without
limiting the generality of the foregoing, the Owner of each Lot shall at all
times keep it and the Improvements thereon in a safe, clean and wholesome
condition and comply, at its own expense, in all respects with all applicable
governmental, health, fire and safety ordinances, regulations, requirements and
directives and the Owner shall at regular and frequent intervals remove at its
own expense any rubbish of any character whatsoever which may accumulate upon
such Lot. Each Lot and all Improvements thereon, including all concrete terrace
drains, shall at all times be constructed, kept and maintained by the Owner of
the Lot in first-class condition, repair and appearance similar to that
maintained by other owners of high-class properties of similar class and
construction in San Diego County. All repairs, alterations, replacements or
additions to Improvements shall be at least equal to the original work in class
and quality. The necessity and adequacy of such repairs shall be measured by the
same standard as for the original construction and maintenance. All outdoor
refuse collection areas shall be completely enclosed and screened by a
constructed wall of durable material not less than :six (6) feet in height. All
such areas shall have concrete floors and shall be sufficient in size to
contain all refuse generated on each Lot, but in no event smaller than six (6)
feet by eight (8) feet. No refuse collection areas shall be permitted between a
street and the front of a building.

                                    ARTICLE X

                                   ENFORCEMENT

            10.01 Abatement and Suit: Violation or breach of any Restriction,
easement or reservation now or hereafter imposed by this Declaration shall give
to the Association, the Architectural Committee and the Developer, the right to
enter upon the Lot on which said violation or breach exists and to summarily
abate and remove, at the expense of the Owner thereof, any structure, thing, or
condition that may be or exist thereon contrary to the intent and meaning of the
provisions hereof, and/or to prosecute a proceeding at law or in equity against
the person or persons who have violated or are attempting to violate any such
Restriction, easement or reservation to enjoin or prevent them from so
violating, to cause said violation to be remedied or to recover damages for said
violation.

            10.02 Deemed to Constitute a Nuisance: The result of every action or
omission whereby any Restriction,


                                       18


easement or reservation herein contained is violated in whole or in part, except
for variances from such Restriction, easement or reservation properly approved
by the Architectural Committee or the Association, is hereby declared to be and
to constitute a nuisance, and every remedy allowed at law or equity against
every such result may be exercised by the Association, the Architectural
Committee or any Owner.

            10.03 Suspension of Members: The Association shall have the right to
suspend the voting rights of a Member for any period during which any assessment
against his Lot remains unpaid and delinquent, provided that any suspension of
such voting rights shall be made only by the Association, or a duly appointed
committee thereof, after notice and hearing given and held in accordance with
the Bylaws.

            10.04 Attorney's Fees: If an Owner defaults in the performance or
observance of any provision of this Declaration and any party entitled to
enforce the provisions pursuant to Section 11.01 has obtained the services of an
attorney with respect to the defaults involved, the Owner covenants and agrees
to pay to such party, as a condition of settlement of said default, any costs or
fees involved including reasonable attorneys' fees, notwithstanding the fact
that suit has not yet been instituted. In the event of action to enforce any of
the provisions contained in this Declaration, the party prevailing in such
action shall be entitled to recover from the other party thereof as part of the
judgment reasonable attorneys' fees and costs of such suit.

            10.05 Inspection Rite: The Association, the Developer, the
Architectural Committee or authorized representatives of either, may from time
to time, at any reasonable hour, enter upon and inspect any Lot or any
portion thereof or Improvements thereon, to ascertain compliance with this
Declaration, but without obligation to do so or liability therefor.

            10.06 Failure to Enforce Not a Waiver of Rights: The failure of
the Developer, the Association, the Architectural Committee or any Owner to
enforce any Restriction, easement or reservation now or hereafter imposed by
this Declaration shall in no event be deemed to be a waiver of the right to do
so thereafter nor of the right to enforce any other Restriction.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

            11.01 Termination and Modification: Except as otherwise provided in
Section 3.02, this Declaration or any Restriction contained herein, may be
terminated, modified or amended, as to the whole of the Property or any portion
thereof, with the approval of the Owners of at least eight (8) of the Lots. No
such termination, modification or amendment shall be effective until proper
instrument in writing has been executed and acknowledged and recorded in


                                       19


the office of the County Recorder, San Diego County, California.

            11.02 Assignments of Developer's Rights and Duties: Any and all of
the rights, powers and reservations of the Developer herein contained may be
assigned to any person, corporation, partnership, association or other entity
and any such person, corporation, partnership, association, or entity, to the
extent of such assignment, shall have the same rights and powers and be subject
to the same obligations and duties as are given to and assumed by the Developer
herein.

            11.03 Assignment of Association's Rights and Duties: Any and all of
the rights, powers and reservations of the Association herein contained may be
assigned to any person, corporation, partnership, association or other entity
and any such person, corporation, partnership, association or other entity, to
the extent of such assignment, shall have the same rights and powers and be
subject to the same obligations as are given to and assumed by the Association.

            11.04 Constructive Notice and Acceptance: Every person who now or
hereafter owns or acquires any right, title or interest in or to any portion of
the Property is and shall be conclusively deemed to have consented and agreed to
every Restriction, easement or reservation none or hereafter imposed by this
Declaration, whether or not any reference to this Declaration or such
Restriction, easement or reservation is contained in the instrument by which
such person acquired an interest in said Property.

            11.05 Rights of Mortgagees: All Restrictions herein contained shall
be deemed subject and subordinate to all mortgages and deeds of trust now or
hereafter placed upon the Property subject to these restrictions or any portion
thereof, and none of said restrictions shall supersede or in any way reduce the
security of any such mortgage or deed of trust; provided, however, that if any
portion of the Property is sold through the foreclosure of any mortgage or under
the provisions of any deed of trust, any purchaser at such sale and his
successors and assigns shall hold any and all Property so purchased subject to
all of the restrictions and other provisions of this Declaration.

            11.06 Mutuality, Reciprocity, Runs with Land: All Restrictions,
easements, reservations and agreements contained herein are made for the direct,
mutual and reciprocal benefit of each and every portion and Lot of the Property;
shall create mutual, equitable servitudes upon each Lot in favor of every other
Lot; shall create reciprocal rights and obligations among the respective Owners
of all Lots and privity of contract and estate among all grantees of said Lots,
their heirs, successors and assigns; and shall, as to the Owner of each Lot,
his heirs, successors and assigns, operate as covenants running with the land,
for the benefit of all other Lots.

            11.07 Paragraph Headings: Paragraph headings, where used herein, are
inserted for convenience only and are


                                       20

not intended to be a part of this Declaration or in any way to define, limit or
describe the scope and intent of the particular paragraphs to which they refer.

     11.08   Effect of Invalidation: If any provision of this Declaration is
held to be invalid by any court, the invalidity of such provision shall not
affect the validity of the remaining provisions hereof.

     11.09   Choice of Law. This Declaration shall be construed and enforced in
accordance with the laws of the State of California.

     IN WITNESS WHEREOF, the undersigned have executed this Declaration on the
date first hereinabove written.


                                          CORNERSTONE CORPORATE CENTER,
                                          a California limited
                                          partnership

                                          By: Cornerstone Development
                                              Partnership #4, a
                                              California general
                                              partnership, general
                                              partner


                                              By: /s/ WILLIE E. SHORT
                                                 ------------------------------
                                                 Willie E. Short, II
                                                 general partner


                                              By: /s/ DONALD C. ALFORD, Trustee
                                                  -----------------------------
                                                  Donald C. Alford III,
                                                  Trustee, general partner



CAT NO. ????????????
TD T996 CA (1-63)                            [LOGO] TICOR TITLE INSURANCE
(Partnership as a Partner of a Partnership)


STATE OF CALIFORNIA   }
COUNTY OF San Diego   }  ss.

On April 19, 1985 before me, the undersigned, a Notary Public in and for said
State, personally appeared Willie E. Short and Donald C. Alford, Trustee,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person who executed the within instrument as two of the partners of
Cornerstone Development Partnership #4, the partnership that executed the within
instrument, and acknowledged to me that  ______________________________________
they executed the same on behalf of      |         OFFICIAL SEAL
Cornerstone Corporate Center, a          |        SARAJUAN FADDEN
partnership, and that said last named    |   NOTARY PUBLIC, CALIFORNIA
partnership executed the same.           |      PRINCIPAL OFFICE IN
WITNESS my hand and official seal.       |       SAN DIEGO COUNTY
                                         | My Commission Exp. Oct 19 1987
Signature /s/ SARAJUAN FADDEN            |
                                         |       (This ??? for ?????)



                                  Exhibit "A"


                            Description of Property


     Lots 1 through 11, inclusive, and Lot A, as shown on Map No. 11126 recorded
January 18, 1985 in the Official Records of San Diego County, California.


                                  Exhibit "A"

                     PLANNING DIRECTOR RESOLUTION No. 6032

      GRANTING PLANNED INDUSTRIAL DEVELOPMENT PERMIT AMENDMENT NO. 85-0830

WHEREAS, on April 2, 1984, the Planning Director of The City of San Diego
granted Planned Industrial Development Permit NO. 83-0378 to construct and
operate an industrial development, located on the north side of Mira Mesa
Boulevard, one-half-mile east of Interstate 805 Freeway; and

WHEREAS, PACIFIC CORPORATE ASSOCIATES, a limited partnership, owner/permittee
filed an application for a Planned Industrial Development Permit Amendment to
construct and operate an industrial development, located on the north side of
Mira Mesa Boulevard one-half-mile east of Interstate 805 Freeway described as
Lots 1-11, Pacific Corporate Center Unit 1, Map No. 11126, and Portions of
Section 33, T145, R3W and Portions of Sections 3 and 4, T155, R3W, SBDM in the
A-1-10 and A-1-10 HR (proposed M-IA and M-181) Zones; and

WHEREAS, on February 18, 1986, the Planning Director of The City of San Diego
considered Planned Industrial Development Permit No. 85-0830 pursuant to Section
101.0910 of the Municipal Code of The City of San Diego and; NOW, THEREFORE,

BE IT RESOLVED, by the Planning Director of The City of San Diego, as follows:

1. That the Planning Director adopts as the Findings of the Planning Director
those written Findings dated February 18, 1986, a copy of which is attached
hereto and by this reference incorporated herein.

2. That said Findings are supported by maps and exhibits, all of which are
herein incorporated by reference.

BE IT FURTHER RESOLVED, that based on the Findings hereinbefore ??? by the
Planning Director, Planned Industrial Development Permit No. 85-0830 (Amendment
to PID No. 83-03781, is hereby granted to Owner/Permittee in the form and with
the terms and conditions as set forth in Planned Industrial Development Permit
No. 85-O830, a copy of which is attached hereto and made a part hereof.

FINDINGS

1. The proposed project will fulfill a need and will not adversely affect the
neighborhood, the General Plan, or the Community Plan. The Mire Mesa Community
Plan designates the area for light-industrial uses. The project is a phased
industrial-office development, which is consistent with this land use



                                     O 1946

designation. The development would be compatible with surrounding land uses,
proposed and existing.

2. The proposed project, because of conditions that have been applied to it,
will not be detrimental to the health, safety and general welfare of persons
residing or working in the area, and will not adversely affect other property in
the vicinity. Land use limitations have been placed on specific lots in the
industrial development. This will ensure that traffic generated by the project
will not exceed the carrying capacity of the community transportation system.

3. The proposed protect will comply with all the relevant regulations in the
Municipal Code. The development meets all of the requirements of the Planned
Industrial Development Ordinance.

                                        [SIGNATURE ILLEGIBLE]
                                       -----------------------------------------
                                       Burch ???, Senior Planner


                                       /s/ JACK VAN CLAAVE
                                       -----------------------------------------
                                       Jack Van Claave, Planning Director



                                                                    Page 1 of 11

                                   --00 1947

               PLANNED INDUSTRIAL DEVELOPMENT PERMIT NO. 85-0830
                         (AMENDMENT TO PID NO. 83-0378)
                               PLANNING DIRECTOR

This Planned Industrial Development Permit Amendment is granted by the Planning
Director of the City of San Diego to PACIFIC CORPORATE ASSOCIATES, a limited
partnership, "Owner/Permittee," under conditions in Section 101.0920 of the
Municipal Code of The City of San Diego.

1.   Permission is granted to Owner/Permittee to construct and operate an
industrial development, located on the north and south sides of Mira Mesa
Boulevard, one-half-mile east of Interstate 805 Freeway, described as Lots
1-11, Pacific Corporate Center Unit 1, Map No. 11126, Portions of Section 33,
T145, R3W, and Portions of Section 3 and 4, T155, R3W SBBM, in the A-1-10 and
A-1-10 HR (Proposed M-1A and M-1B) Zones.

2.   The project shall consist of the following:

     a.   33 industrial lots, individually graded and padded; and six open
          space lots, all on approximately 278 acres;

     b.   Light industrial and office users, totaling a maximum of
          6,240,000 square feet of floor area;

     c.   Landscaping;

     d.   Off-street Parking;

     e.   Incidental accessory uses as may be determined incidental and
          approved by the Planning Director.

3.   Prior to the issuance of any building permits, a community plan amendment
for transportation issues shall be completed and approved as described in EOD
No. 83-0378. This planned industrial development permit shall be consistent
with this community plan amendment.

4.   Before issuance of any grading permits for any unit or phase, complete
grading plans shall be submitted to the Planning Director for approval. Plans
shall be in substantial conformity to Exhibit "A," dated February 18, 1986, on
file in the office of the Planning Department. No change, modification or
alterations shall be made unless appropriate applications or amendment of this
permit shall have been granted.

5.   Grading for the project should be encouraged during the dry season (April
1 through October 31). Grading which occurs during the rainy season (November 1
to March 31) shall require special engineering techniques approved by the City
Engineer, in addition to erosion-control measures contained in the City's Land
Development Ordinance.





PID Permit No. 85-0830                                              Page 2 of 11

6.   Manufactured slopes shall be hydroseeded with native plant mixtures similar
in composition to the existing natural vegetation. Graded pad areas shall be
hydroseeded to prevent erosion, in the event that construction of buildings does
not occur within 30 days following grading, or temporary erosion control
facilities be installed to collect silt and prevent pad erosion satisfactory to
the Planning Director and City Engineer.

7.   Before issuance of any building permits for any unit or phase, a complete
landscape plan, including a permanent irrigation system, shall be submitted to
the Planning Director for approval. The plans shall be in substantial conformity
to Exhibit "A," dated February 18, 1986, on file in the office of the Planning
Department. Approved planting shall be installed before issuance of any
occupancy permit on any building. Such planting shall not be modified or altered
unless this permit has been amended.

8.   Prior to the issuance of any building permits, a development plan package
for each lot or group of lots shall be submitted to the Planning Director for
approval. This development plan package shall include the following:

     a.   a completed Planned Industrial Development Permit Supplemental
          Application Form for each lot or group of lots proposed for
          development;

     b.   One (1) plot drawn in accordance with instructions contained in
          Planned Industrial Development Permit Supplemental Application Form;

     c.   One (1) copy of drawing showing exterior elevations and building
          materials of all sides of all buildings, including signs;

     d.   One (1) set of floor plans depicting general use of the building(s);
          and

     e.   One (1) copy of a landscape/irrigation plan.

9.   The number of parking spaces shall conform to regulations of the underlying
zones. Parking spaces shall be consistent with Division 8 of the Municipal Code
and shall be permanently maintained and not converted for any other use. Parking
spaces and aisles shall conform to Planning Department standards. Parking areas
shall be marked. Five percent of the parking located nearest to building
entrances shall be designated as preferred parking for ride-sharers. This
parking shall be indicated on development plans, to be approved by the Planning
Director.

10.  Lots A-1 to A-11; and B-1, B-2A, B-2B, B-2C, B-5 to B-8, C-2 and C-4 on
Exhibit "A," dated February 18, 1986, shall be

PID Permit No. 85-0830                                              Page 3 of 11



developed with uses permitted in the M-IP Zone only, except that
accessory/support uses, as indicated in the approved development text on file in
the office of the Planning Department, may also be permitted.

11.  Lots D-1 to D-8 on Exhibit "A," dated February 18, 1986, shall be developed
with uses permitted in the M-LI Zone only, except that accessory/support uses,
as indicated in the approved development text on file in the office of the
Planning Department, may also be permitted.

12.  Lots D-1 to D-8 on Exhibit "A," dated February 18, 1986, may be developed
to multi-tenant uses, which shall be limited to those permitted by the M-LI
Zone.

13.  Lots D-1 to D-8 on Exhibit "A," dated February 18, 1986, shall be subject
to the "single company or agency per parcel" requirement of the M-LI Zone, with
respect to office uses as described in Section 101.0431.1, Paragraph 8.5, of the
Municipal Code of the City of San Diego, except that the Planning Director may
authorize temporary occupancy of these premises by third parties not related to
the primary occupant or its business, subject to the following conditions:

    a.   The leasing or letting is appropriate in order to make beneficial use
         of space that is temporarily not needed by the primary occupant because
         either (i) more office space was initially constructed or acquired than
         was initially needed, although the primary occupant in good faith
         reasonably expected at the time of construction or acquisition that it
         would need all of the office space in due course, or (ii) the primary
         occupant has temporarily been required to reduce its office force due
         to conditions beyond its reasonable control.

    b.   The primary occupant in good faith will use reasonable efforts to
         occupy the space itself as soon as practicable.

    c.   The term of the lease or letting shall not exceed the remaining portion
         of the period during which the space is reasonable expected not to be
         needed by the primary occupant.

    d.   The off-street parking regulations of the M-LI Zone will be compiled
         with.

    e.   Such leasing or letting will not materially adversely affect the
         overall purposes and intent of the M-LI Zone in San Diego.

14.  Lots B-3, B-4, C-1 and C-2 may be developed, either in whole or part, with
support commercial uses or M-IP Zone uses.

PID Permit No. 85-0830                                              Page 4 of 11

15. Development of each lot or group of lots shall not exceed the maximum Floor
Area Ratios (FAR) indicated in the following table:

     a. Carroll Canyon Subarea



                                            Maximum
          Lots            Acres             FAR             *Zone
                                                   
          A-1               2.3             0.6             M-1B
          A-2               3.5             0.6             M-1B
          A-3               2.9             0.6             M-1B
          A-4               1.1             0.6             M-1B
          A-5              10.2             0.6             M-1B
          A-6               2.1             0.6             M-1B
          A-7               3.1             0.6             M-1B
          A-8               2.9             0.6             M-1B
          A-9              14.5             0.6             M-1B
          A-10              5.0             0.6             M-1B
          A-11              5.3             0.6             M-1B
                           52.9


     b. Boulevard Subarea



                                            Maximum
          Lots            Acres             FAR             *Zone
                                                   
          B-1               9.4             0.6             M-1B
          B-2A              5.2             0.6             M-1B
          B-2B              8.5             0.6             M-1B
          B-2C              6.5             0.6             M-1B
          B-3               5.8             0.6             M-1A
          B-4               6.9             0.6             M-1B
          B-5               6.4             0.6             M-1A
          B-6               6.0             0.6             M-1B
          B-7               3.9             0.6             M-1B
          B-8               7.3             0.6             M-1B
                           65.9


     c. Central Subarea



                                            Maximum
          Lots            Acres             FAR             *Zone
                                                   
          C-1               8.0             1.055           M-1A
          C-2               4.2             1.055           M-1A
          C-3               4.4             1.055           M-1B
          C-4               4.6             1.055           M-1B
                           21.2


     d. Lopez Canyon Subarea



                                            Maximum
          Lots            Acres             FAR             *Zone
                                                  
          D-1              40.5 (1)         0.54            M-1B
          D-2               4.8 (2)         0.4             M-1B
          D-3               6.0 (3)         0.4             M-1B
          D-4               5.7 (4)         0.4             M-1B
          D-5              18.1             0.54            M-1B
          D-6              17.3 (5)         0.54            M-1B
          D-7               6.0             0.4             M-1B
          D-8               6.0             0.4             M-1B
                          104.4


     Grand Total 244.4 acres


PID Permit No. 85-0830                                              Page 5 of 11

      * Subject to limitations contained in accompanying document "Pacific
        Corporate Center, a Planned Industrial Development," dated February 18,
        1986, prepared by Tarrini and Brink, consultants.

        (1) Includes acreage for Lots E-3 and E-4 for FAR purposes

        (2) Includes acreage for Lot E-2 for FAR purposes

        (3) Includes acreage for Lot E-5 for FAR purposes

        (4) Includes acreage for Lot E-6 for FAR purposes

        (5) Includes acreage for Lot E-1 for FAR purposes

16. Any variance from the standards contained in Conditions No. 10-14 of this
permit and in the document "Pacific Corporate Center, a Planned Industrial
Development," must be approved by the Planning Director after a public hearing
as a formal amendment of this PID.

17. Each development plan package shall become a part of Exhibit "A," dated
February 18, 1986, on file in the office of the Planning Department. The
cumulative total floor area and proposed parking spaces for each phase shall be
monitored in a manner approved by the Planning Director, to ensure that all
conditions of the PID permit are met.

18. A maximum of three traffic-generation studies are to be conducted at
various times during the development of the protect. These traffic-generation
studies will be as required by the City Engineer. These studies will provide the
necessary data for the review of further developments of this type. The final
traffic-generation study should be conducted when Pacific Corporate Center is
completely built out. These traffic-generation studies must count all trips
entering and leaving the development for a minimum of seven consecutive days and
shall conform to the San Diego Association of Governments (SANDAG) standard for
traffic-generation studies. The outcome of these studies shall not affect the
approved project.

19. The applicant or its successor shall enter into a development agreement with
The City of San Diego. The development agreement shall cover at least the
following:

        a.  Financing or otherwise providing for necessary public improvements
            in connection with the project;

        b.  Codifying the conditions contained in the related Tentative Map,
            the Planned Industrial Development Permit and the document "Pacific
            Corporate Center, as Planned Industrial Development;" and

        c.  Retention of the zoning requirements contained in the M-1A and M-1B
            Zones existing at the time of adoption of the City Council,
            throughout the phasing of this project.



                                     O 1952

PID Permit No. 85-0830                                              Page 6 of 11

20. All uses shall be conducted within an enclosed building, except for outdoor
storage. Outdoor storage of materials is permitted, provided the storage area
is completely enclosed by walls, fences, buildings, landscape screening or a
combination thereof. Walls or fences shall be solid and not less than six feet
in height; no merchandise, material or equipment shall be stored to a height
greater than any screening. Landscape screening proposals shall require approval
of the Planning Director or, on appeal, the Planning Commission.

21. If visible from an adjacent street, no mechanical equipment, tank, duct,
elevator enclosure, cooling tower or mechanical ventilator or air conditioner
shall be erected, constructed, converted, established, altered, or enlarged on
the roof of any building, unless all such equipment and appurtenances are
screened by suitable landscaping, or contained within a completely enclosed
structure whose top and sides may include grillwork, louvers and latticework.

22. No merchandise, supplies or equipment shall he stored on the roof of any
building.

23. At the discretion of the Planning Director, screening walls of solid
materials or landscape screening may be required for boundaries of the Planned
Industrial Development not immediately adjoining dedicated and improved public
streets and highways. The height and design of such walls or landscape
screening and the materials utilized shall be determined by the Planning
Director or the Planning Commission.

24. Public utility distribution and similar systems and service facilities
shall be located underground within the boundaries of the development as
provided for in SEC. 102.0221 of The City of San Diego Municipal Code.

25. Only television and radio antennas which are located indoors or screened to
the satisfaction of the Planning Director and which are designed to serve all
the occupants of the development shall be permitted.

26. All streets, alleys, walkways and public areas within the development which
are not dedicated to public use shall he improved in accordance with standards
established by the City Engineer. Provisions acceptable to the City shall be
made for the preservation and maintenance of all streets, alleys, walkways, and
parking areas.

27. The development shall include the following facilities as discussed in the
accompanying document "Pacific Corporate Center, a Planned Industrial
Development," dated February 18, 1986:

        a.  Provision of outdoor eating areas to be developed as attractive
            functional parks on each parcel;



PID Permit No. 85-0830                                             Page 7 of 11

     b.   Requirement for in-plant, food service facilities on Lots B-1, D-1,
          D-5, D-6, D-7 and D-8; and,

     c.   Requirement for in-plant food service facilities on Lots B-7 or B-8,
          and on one of the following three lots; B-2A, B-2B and B-2C.

     d.   Provision of secured bicycle parking on each parcel. This requirement
          may be waived on the M-1A-zoned lots should they developed to support
          commercial uses.

28.  Any restaurant or delicatessen permitted as an accessory use within the PID
shall be oriented to or located in the interior of each lot. Signing for these
food facilities shall be minimal and off-site signage shall be prohibited.

29.  Prior to the use of occupancy of any lot, all of the lot not devoted to
buildings, structures, driveways, sidewalks, parking, outdoor storage, or
loading areas shall be suitably landscaped.

30.  All outdoor lighting shall be so shaded and adjusted that the light is
directed to fall only on the same premises as light sources are located.

31.  This planned industrial development permit amendment must be used within 36
months after the effective date of the concurrent Rezoning Case No. 83-0378
except as may be reflected in the development agreement referenced in Condition
No. 19, above, or the permit shall be void. An extension of time may be granted,
as set forth in Section 101.0920 of the Municipal Code. Any such extension must
meet all Municipal Code requirements and applicable guidelines in effect at the
time the extension is considered.

32.  Construction and operation of the approved use shall comply at all times
with the regulations of this or any other governmental agencies.

33.  After establishment of the project, the property shall not be used for any
other purposes unless:

     a.   Authorized by the Planning Director; or

     b.   The permit has been revoked by the City.

34.  This Planned Industrial Development Permit Amendment may be revoked by the
City if there is a material breach or default in any of the conditions of this
permit.

                                     O 1954

PID Permit No. 85-0830                                             Page 8 of 11

35. No permit for grading or construction of any facility shall be granted nor
shall any activity authorized by this permit be conducted on the premises until:

        a.  The Permittee signs and returns the permit to the planning
            department; and

        b.  The Planned Industrial Development Permit is recorded in the Office
            of the County Recorder.

36. This Planned Industrial Development Permit Amendment is a covenant running
with the lands and shall be binding upon the Permitted and any successor or
successors, and the interests of any successor shall be subject to each and
every condition set out.

37. Prior to the issuance of any building permits for any unit or phase, a
final subdivision map or maps shall be recorded on the site.

38. Mitigation measures identified in the appendices dated April, 1983 of ZOD
No. 83-0378 concerning archaeological resources shall be implemented to the
satisfaction of the Deputy Director of the Environmental Quality Division.

39. The graded areas within the "Penasquitos Canyon Preserve" will be daylight
cuts; no manufactured slopes will be created. The cut areas will be provided
with public access by a ten-foot wide pedestrian easement, connecting to a
public parking lot having a capacity of six to twelve vehicles. Specific design
plans for the graded area will be incorporated into the PID plans and
specifications for abutting lots, when they develop. These improvements will
include development of public overlooks, landscaping, hiking and jogging paths,
benches, and a pathway connecting to the existing path into Lopez Canyon. The
design plans will also be reviewed by the Los Penasquitos Canyon Preserve Task
Force and by the Citizen's Advisory Committee to the task force prior to being
utilized.

40. The project proposes substantial grading directly west of the entrance to
the El Camino Memorial Park. The community plan recommends that development
maintain the tranquil atmosphere of the memorial park. Special landscaping
measures have been incorporated Into the PID which will provide for complete
revegetation of these graded areas. The toe of the slope along Carroll Canyon
Road will be landscaped with ornamental naturalized groundcover which will
visually connect the roadway area with the adjacent native landscaped slopes.
The slopes and the transition area will be planted with trees which will provide
additional blending with the surrounding topography. The size of plant material
used will range from box size trees (e.g. California sycamore) and container
size groundcover in the transition area, to hydroseeded shrubs and container
size trees

                                      1955
                                                                    Page 9 of 11
PID Permit No. 85-0830

of the slopes. A two-year maintenance program, including plant replacement, will
be implemented in lieu of a typical six-month maintenance period.

41.  The development shall include the incorporation of a transit turn-out with
bench and shelter to encourage bus use to be located along Mira Mesa Boulevard
on or near the site subject to approval by the City Engineer, San Diego Transit
District and MTDB.

42.  Building permits shall not be issued for Lots B-2A, B-2B and B-2C until a
lot consolidation map for Lots B-7 and B-8 is recorded.

43.  The three lots being created from former Lot B-2 (Lots B-2A, B-2B, B-2C)
shall be developed by not more than two individual owners. Lots B-2B and B-2C
must be occupied by a single user.

44.  This Planned Industrial Development Permit Amendment shall supersede PID
No. 83-0378.

Passed and Adopted by the Planning Director on February 18, 1986.


PID Permit No. 85-0830                                             Page 10 of 11

AUTHENTICATED BY:

/s/ BURCH E. ERTLE
- ----------------------------------
Burch E. Ertle, Senior Planner
Planning Department

/s/ JACK VAN CLEAVE
- ----------------------------------
Jack Van Cleave, Planning Director


State of California,)
                      ss.
County of San Diego.)

On this 31st day of March, in the year 1986, before me, Catherine L. Meyer, a
Notary Public in and for said county and state, personally appeared BURCH E.
ERTLE, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed this instrument as Senior Planner of The
City of San Diego Planning Department, and JACK VAN CLEAVE, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person who
executed this instrument as Planning Director of The City of San Diego, and
acknowledged to me that The City of San Diego executed it.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in the County
of San Diego, State of California, the day and year in this certificate first
above written.

                                             Name  Catherine L. Meyer
                                                  ---------------------------
                                                    (typed or printed)

                                             Signature /s/ CATHERINE L. MEYER
                                                       ----------------------

NOTARY STAMP

- -----------------------------------------
             OFFICIAL SEAL
[SEAL]     CATHERINE L. MEYER
       NOTARY PUBLIC - CALIFORNIA
          PRINCIPAL OFFICE IN
            SAN DIEGO COUNTY

    My Commission Exp. Aug. 29, 1988
- -----------------------------------------

State of California,)
County of Orange    )

On this 2nd day of July, in the year 1986, before me, Dixie L. Minnesang, a
Notary Public in and for said county and state, personally appeared [ILLEGIBLE],
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person that executed this instrument on behalf of the partnership and
acknowledged to me that the partnership executed it.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in the County
of Orange, State of California, the day and year in this certificate first above
written.

                                        Name   Dixie D. Minnesang
                                             -----------------------------------
                                              (typed or printed)

                                        Signature  /s/ DIXIE D. MINNESANG
                                                 -------------------------------

NOTARY STAMP

- -----------------------------------------
             OFFICIAL SEAL
[SEAL]    DIXIE D. MINNESANG
       NOTARY PUBLIC - CALIFORNIA
             ORANGE COUNTY

    My Commission Exp. [ILLEGIBLE]
- -----------------------------------------



                             C 1958      ??-293418

                             ----------------------


                                  [ILLEGIBLE]


                              ???? JUL 16  AM11:50

                                  VERA L. LYLE
                                COUNTY RECORDER

                             ----------------------


                                                           ----------
                                                             RF 15-
                                                           ----------
                                                             AR 13-
                                                           ----------
                                                             MG 1-
                                                           ----------



                                      86 -

                                   NO. 293418


                                                                   EXHIBIT 10.33

                                CREDIT AGREEMENT

        THIS AGREEMENT is entered into as of November 1, 2002, by and between
FAIR, ISAAC AND COMPANY, INCORPORATED, a Delaware corporation ("Borrower"), and
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

                                    RECITALS

        Borrower has requested that Bank extend or continue credit to Borrower
as described below, and Bank has agreed to provide such credit to Borrower on
the terms and conditions contained herein.

        NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:

                                    ARTICLE I

                                  CREDIT TERMS

        SECTION 1.1. LINE OF CREDIT.

        (a)     Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including February 1, 2004, not to exceed at any time the aggregate
principal amount of Fifteen Million Dollars ($15,000,000.00) ("Line of Credit"),
the proceeds of which shall be used to finance Borrower's working capital
requirements. Borrower's obligation to repay advances under the Line of Credit
shall be evidenced by a promissory note substantially in the form of EXHIBIT A
attached hereto ("Line of Credit Note"), all terms of which are incorporated
herein by this reference.

        (b)     Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue or cause
an affiliate to issue commercial and standby letters of credit for the account
of Borrower to finance general purpose (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided however, that the aggregate undrawn
amount of all outstanding Letters of Credit shall not at any time exceed Five
Million Dollars ($5,000,000.00). The form and substance of each Letter of Credit
shall be subject to approval by Bank, in its sole discretion. Each Letter of
Credit shall be issued for a term not to exceed three hundred sixty-five (365)
days, as designated by Borrower; provided however, that no Letter of Credit
shall have an expiration date subsequent to the maturity date of the Line of
Credit. The undrawn amount of all Letters of Credit shall be reserved under the
Line of Credit and shall not be available for borrowings thereunder. Each Letter
of Credit shall be subject to the additional terms and conditions of the Letter
of Credit agreements, applications and any related documents required by Bank in
connection with the issuance thereof. Each drawing paid under a Letter of Credit
shall be deemed an advance under the Line of Credit and shall be repaid by
Borrower in accordance with the terms and conditions of this Agreement
applicable to such advances; provided however, that if advances under the Line
of Credit are not available, for any reason, at the time any drawing is paid,
then Borrower shall immediately pay to Bank the full amount drawn, together with
interest thereon from the date such drawing is paid to the date such amount is
fully repaid by Borrower, at the rate of interest applicable to advances under
the Line of Credit. In such event Borrower agrees that Bank, in its sole
discretion, may debit any account maintained by Borrower with Bank for the
amount of any such drawing.



        (c)     Borrowing and Repayment. Borrower may from time to time during
the term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.

        SECTION 1.2. FOREIGN EXCHANGE FACILITY.

        (a)     Foreign Exchange Facility. Subject to the terms and conditions
of this Agreement, Bank hereby agrees to make available to Borrower a facility
(the "Foreign Exchange Facility") under which Bank, from time to time up to and
including February 1, 2004, will enter into foreign exchange contracts for the
account of Borrower for the purchase and/or sale by Borrower in United States
dollars of Euro, Pound, Japanese yen, Australian dollars, Rand, Canadian
dollars, Mexican Peso, Singapore dollars and Brazilian real; provided however,
that the maximum amount of all outstanding foreign exchange contracts shall not
at any time exceed an aggregate of Twenty Million United States Dollars
(US$20,000,000.00). No foreign exchange contract shall be executed for a term
which extends beyond February 1, 2004. Borrower shall have a "Delivery Limit"
under the Foreign Exchange Facility not to exceed at any time the aggregate
principal amount of Four Million United States Dollars (US$4,000,000.00), which
Delivery Limit reflects the maximum principal amount of Borrower's foreign
exchange contracts which may mature during any two (2) day period. All foreign
exchange transactions shall be subject to the additional terms of a Foreign
Exchange Agreement, substantially in the form of EXHIBIT B attached hereto
("Foreign Exchange Agreement"), all terms of which are incorporated herein by
this reference.

        (b)     Settlement. Each foreign exchange contract under the Foreign
Exchange Facility shall be settled on its maturity date by Bank's debit to any
deposit account maintained by Borrower with Bank.

        SECTION 1.3. INTEREST/FEES.

        (a)     Interest. The outstanding principal balance of the Line of
Credit shall bear interest, and the amount of each drawing paid under any Letter
of Credit shall bear interest from the date such drawing is paid to the date
such amount is fully repaid by Borrower, at the rate of interest set forth in
the Line of Credit Note.

        (b)     Computation and Payment. Interest shall be computed on the basis
of a 360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in each promissory note or other instrument or document
required hereby.

        (c)     Commitment Fee. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to Seven Thousand Five Hundred
Dollars ($7,500.00), which fee shall be due and payable in full upon execution
of this Agreement.

        (d)     Commercial Letter of Credit Fees. Borrower shall pay to Bank
fees upon the issuance of each Commercial Letter of Credit, upon the payment or
negotiation of each drawing under any Commercial Letter of Credit and upon the
occurrence of any other activity with respect to any Commercial Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
Commercial Letter of Credit) determined in accordance with Bank's standard fees
and charges then in effect for such activity.



        (e)     Standby Letter of Credit Fees. Borrower shall pay to Bank (i)
fees upon the issuance of each Standby Letter of Credit equal to one percent
(1%) per annum (computed on the basis of a 360-day year, actual days elapsed) of
the face amount thereof, and (ii) fees upon the payment or negotiation of each
drawing under any Standby Letter of Credit and fees upon the occurrence of any
other activity with respect to any Standby Letter of Credit (including without
limitation, the transfer, amendment or cancellation of any Standby Letter of
Credit) determined in accordance with Bank's standard fees and charges then in
effect for such activity.

        SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under the Line of Credit by charging Borrower's
deposit account number 4945-010403 with Bank, or any other deposit account
maintained by Borrower with Bank, for the full amount thereof. Should there be
insufficient funds in any such deposit account to pay all such sums when due,
the full amount of such deficiency shall be immediately due and payable by
Borrower.

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES

        Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.

        SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.

        SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each
promissory note, contract, instrument and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.

        SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

        SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.



        SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated June 30, 2002, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.

        SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.

        SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.

        SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.

        SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.

        SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.

        SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.



                                   ARTICLE III
                                   CONDITIONS

        SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:

        (a)     Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.

        (b)     Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:

                (i)    This Agreement and each promissory note or other
                       instrument or document required hereby.

                (ii)   Corporate Resolution: Borrowing.

                (iii)  Certificate of Incumbency.

                (iv)   Loan Disbursement Order.

                (v)    Such other documents as Bank may require under any other
                       Section of this Agreement.

        (c)     Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.

        (d)     Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.

        SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:

        (a)     Compliance. The representations and warranties contained herein
and in each of the other Loan Documents shall be true on and as of the date of
the signing of this Agreement and on the date of each extension of credit by
Bank pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.

        (b)     Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.



                                   ARTICLE IV
                              AFFIRMATIVE COVENANTS

        Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:

        SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.

        SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.

        SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:

        (a)     not later than 90 days after and as of the end of each fiscal
year, an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include a balance sheet, income statement and
statement of cash flow together with all supporting footnotes;

        (b)     not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include a
balance sheet and income statement;

        (c)     not later than 30 days before the end of the each preceding
fiscal year, a projection for the forthcoming fiscal year, prepared by Borrower;

        (d)     from time to time such other information as Bank may reasonably
request.

        SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.

        SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.

        SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals



and replacements thereto so that such properties shall be fully and efficiently
preserved and maintained.

        SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.

        SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower.

        SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):

        (a)     Total Liabilities divided by Tangible Net Worth not at any time
greater than 0.30 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.

        (b)     Maintain in the United States of America, domestically,
unencumbered liquid assets (defined as cash, cash equivalents and/or public
traded/quoted marketable securities acceptable to Bank in its sole discretion)
with an aggregate fair market value not at any time les than $50,000,000.00.

        (c)     Net profit after taxes not less than $1.00 on a quarterly basis,
with one time software development costs expensed as a result of an allowable
acquisition added back to net profit after taxes, determined as of each fiscal
quarter end.

        SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property.

                                    ARTICLE V
                               NEGATIVE COVENANTS

        Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and



until payment in full of all obligations of Borrower subject hereto, Borrower
will not without Bank's prior written consent:

        SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.

        SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of an aggregate of $100,000,000.00.

        SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof.

        SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except: (i) in the ordinary course of its business, and (ii) any merger
or acquisition that does not require more than 75% of Borrower's cash or (iii)
90% of the consideration paid for any acquisition is with Borrower's stock and
Borrower is the surviving entity of any such acquisition or merger.

        SECTION 5.5. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.

        SECTION 5.6. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except any of the foregoing existing as
of, and disclosed to Bank prior to, the date hereof, and additional investments
in treasury stock purchases not to exceed in any fiscal year: (i) shall not
exceed an aggregate of $300,000,000.00.

        SECTION 5.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding; except
dividends shall be allowed: (i) not to exceed 50% of Borrower's cash, and (ii)
not to exceed the aggregate of $10,000,000.00 in any fiscal year.

                                   ARTICLE VI
                                EVENTS OF DEFAULT

        SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:

        (a)     Borrower shall fail to pay when due any principal, interest,
fees or other amounts payable under any of the Loan Documents.



        (b)     Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.

        (c)     Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.

        (d)     Any default in the payment or performance of any obligation,
including but not limited to the August/September 2001 convertible subordinated
notes (the 2001 notes), or any defined event of default, under the terms of any
contract or instrument (other than any of the Loan Documents) pursuant to which
Borrower has incurred any debt or other liability to any person or entity,
including Bank.

        (e)     The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.

        (f)     Borrower shall become insolvent, or shall suffer or consent to
or apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower by any court of competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors.

        (g)     There shall exist or occur any event or condition which Bank in
good faith believes impairs, or is substantially likely to impair, the prospect
of payment or performance by Borrower of its obligations under any of the Loan
Documents.

        (h)     The dissolution or liquidation of Borrower; or Borrower, or any
of its directors, stockholders or members, shall take action seeking to effect
the dissolution or liquidation of Borrower.

        (i)     Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower.

        SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary



notwithstanding, shall at Bank's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are hereby expressly waived by each Borrower; (b) the obligation, if
any, of Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
credit subject hereto and to exercise any or all of the rights of a beneficiary
or secured party pursuant to applicable law. All rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity.

                                   ARTICLE VII
                                  MISCELLANEOUS

        SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.

        SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:

    BORROWER:       FAIR, ISAAC AND COMPANY, INCORPORATED
                    5935 Cornerstone Court West
                    San Diego, CA 92121

    BANK:           WELLS FARGO BANK, NATIONAL ASSOCIATION
                    Carlsbad LPO
                    5857 Owens Avenue, Suite 106
                    Carlsbad, CA 92008

or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

        SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without



limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity.

        SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder.

        SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to each credit subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only in writing signed by each
party hereto.

        SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.

        SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.

        SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.

        SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.

        SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

        SECTION 7.11. ARBITRATION.

        (a)     Arbitration. The parties hereto agree, upon demand by any party,
to submit to binding arbitration all claims, disputes and controversies between
or among them (and their respective employees, officers, directors, attorneys,
and other agents), whether in tort, contract or otherwise arising out of or
relating to in any way (i) the loan and related Loan Documents which are the
subject of this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.



        (b)     Governing Rules. Any arbitration proceeding will (i) proceed in
a location in California selected by the American Arbitration Association
("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the documents between the parties; and (iii) be conducted by the AAA, or such
other administrator as the parties shall mutually agree upon, in accordance with
the AAA's commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA's optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as
applicable, as the "Rules"). If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall control.
Any party who fails or refuses to submit to arbitration following a demand by
any other party shall bear all costs and expenses incurred by such other party
in compelling arbitration of any dispute. Nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. Section 91 or any similar applicable state law.

        (c)     No Waiver of Provisional Remedies, Self-Help and Foreclosure.
The arbitration requirement does not limit the right of any party to (i)
foreclose against real or personal property collateral; (ii) exercise self-help
remedies relating to collateral or proceeds of collateral such as setoff or
repossession; or (iii) obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment or the appointment of a receiver, before
during or after the pendency of any arbitration proceeding. This exclusion does
not constitute a waiver of the right or obligation of any party to submit any
dispute to arbitration or reference hereunder, including those arising from the
exercise of the actions detailed in sections (i), (ii) and (iii) of this
paragraph.

        (d)     Arbitrator Qualifications and Powers. Any arbitration proceeding
in which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator selected according to the Rules, and who shall not render an
award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of California or a neutral retired judge of the
state or federal judiciary of California, in either case with a minimum of ten
years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The arbitrator will determine whether or not an issue
is arbitratable and will give effect to the statutes of limitation in
determining any claim. In any arbitration proceeding the arbitrator will decide
(by documents only or with a hearing at the arbitrator's discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state
a claim or motions for summary adjudication. The arbitrator shall resolve all
disputes in accordance with the substantive law of California and may grant any
remedy or relief that a court of such state could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award. The arbitrator shall also have the power to award recovery of all costs
and fees, to impose sanctions and to take such other action as the arbitrator
deems necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.



        (e)     Discovery. In any arbitration proceeding discovery will be
permitted in accordance with the Rules. All discovery shall be expressly limited
to matters directly relevant to the dispute being arbitrated and must be
completed no later than 20 days before the hearing date and within 180 days of
the filing of the dispute with the AAA. Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.

        (f)     Class Proceedings and Consolidations. The resolution of any
dispute arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.

        (g)     Payment Of Arbitration Costs And Fees. The arbitrator shall
award all costs and expenses of the arbitration proceeding.

        (h)     Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no dispute shall be submitted to arbitration if
the dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

        (i)     Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.



        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.

FAIR, ISAAC AND COMPANY,                  WELLS FARGO BANK,
INCORPORATED                                NATIONAL ASSOCIATION

By: /s/  KENNETH J. SAUNDERS              By: /s/  ALVA DIAZ
    --------------------------------          --------------------------------
                                                 Alva Diaz
Title: Chief Financial Officer                   Vice President
      ------------------------------

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

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


                                   Exhibit A

                          REVOLVING LINE OF CREDIT NOTE


$15,000,000.00                                              Carlsbad, California
                                                                November 1, 2002

        FOR VALUE RECEIVED, the undersigned FAIR, ISAAC AND COMPANY,
INCORPORATED ("Borrower") promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at Carlsbad LPO, 5857 Owens Avenue,
Suite 106, Carlsbad, California, or at such other place as the holder hereof may
designate, in lawful money of the United States of America and in immediately
available funds, the principal sum of Fifteen Million Dollars ($15,000,000.00),
or so much thereof as may be advanced and be outstanding, with interest thereon,
to be computed on each advance from the date of its disbursement as set forth
herein.

DEFINITIONS:

        As used herein, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning set
forth at the place defined:

        (a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.

        (b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2), three (3) or six (6) months, as designated by
Borrower, during which all or a portion of the outstanding principal balance of
this Note bears interest determined in relation to LIBOR; provided however, that
no Fixed Rate Term may be selected for a principal amount less than Two Hundred
Fifty Thousand Dollars ($250,000.00); and provided further, that no Fixed Rate
Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate
Term would end on a day which is not a Business Day, then such Fixed Rate Term
shall be extended to the next succeeding Business Day.

        (c) "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

                      LIBOR =               Base LIBOR
                               --------------------------------------
                                  100% - LIBOR Reserve Percentage

               (i) "Base LIBOR" means the rate per annum for United States
dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.


                                      -1-


               (ii) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.

        (d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.

INTEREST:

        (a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be one and one
quarter percent (1.25%) above LIBOR in effect on the first day of the applicable
Fixed Rate Term. When interest is determined in relation to the Prime Rate, each
change in the rate of interest hereunder shall become effective on the date each
Prime Rate change is announced within Bank. With respect to each LIBOR selection
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.

        (b) Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone (or such other electronic
method as Bank may permit) so long as, with respect to each LIBOR selection, (A)
if requested by Bank, Borrower provides to Bank written confirmation thereof not
later than three (3) Business Days after such notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate
Term, or at a later time during any Business Day if Bank, at it's sole option
but without obligation to do so, accepts Borrower's notice and quotes a fixed
rate to Borrower. If Borrower does not immediately accept a fixed rate when
quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request
from Borrower shall be subject to a redetermination by Bank of the applicable
fixed rate. If no specific designation of interest is made at the time any
advance is requested hereunder or at the end of any Fixed Rate Term, Borrower
shall be deemed to have made a Prime Rate interest selection for such advance or
the principal amount to which such Fixed Rate Term applied.


                                      -2-


        (c) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately
upon demand, in addition to any other amounts due or to become due hereunder,
any and all (i) withholdings, interest equalization taxes, stamp taxes or other
taxes (except income and franchise taxes) imposed by any domestic or foreign
governmental authority and related in any manner to LIBOR, and (ii) future,
supplemental, emergency or other changes in the LIBOR Reserve Percentage,
assessment rates imposed by the Federal Deposit Insurance Corporation, or
similar requirements or costs imposed by any domestic or foreign governmental
authority or resulting from compliance by Bank with any request or directive
(whether or not having the force of law) from any central bank or other
governmental authority and related in any manner to LIBOR to the extent they are
not included in the calculation of LIBOR. In determining which of the foregoing
are attributable to any LIBOR option available to Borrower hereunder, any
reasonable allocation made by Bank among its operations shall be conclusive and
binding upon Borrower.

        (d) Payment of Interest. Interest accrued on this Note shall be payable
on the last day of each month, commencing November 30, 2002.

        (e) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

        (a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon from time to time
by the holder. The outstanding principal balance of this Note shall be due and
payable in full on February 1, 2004.

        (b) Advances. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(i) _____________________ or ________________________, any one acting alone, who
are authorized to request advances and direct the disposition of any advances
until written notice of the revocation of such authority is received by the
holder at the office designated above, or (ii) any person, with respect to
advances deposited to the credit of any deposit account of any Borrower, which
advances, when so deposited, shall be conclusively presumed to have been made to
or for the benefit of each Borrower regardless of the fact that persons other
than those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether any
person requesting an advance is or has been authorized by any Borrower.

        (c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the


                                      -3-


outstanding principal balance of this Note which bears interest determined in
relation to LIBOR, with such payments applied to the oldest Fixed Rate Term
first.

PREPAYMENT:

        (a) Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.

        (b) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00); provided
however, that if the outstanding principal balance of such portion of this Note
is less than said amount, the minimum prepayment amount shall be the entire
outstanding principal balance thereof. In consideration of Bank providing this
prepayment option to Borrower, or if any such portion of this Note shall become
due and payable at any time prior to the last day of the Fixed Rate Term
applicable thereto by acceleration or otherwise, Borrower shall pay to Bank
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Fixed Rate Term matures, calculated as follows for each such month:

       (i)     Determine the amount of interest which would have accrued each
               month on the amount prepaid at the interest rate applicable to
               such amount had it remained outstanding until the last day of the
               Fixed Rate Term applicable thereto.

      (ii)     Subtract from the amount determined in (i) above the amount of
               interest which would have accrued for the same month on the
               amount prepaid for the remaining term of such Fixed Rate Term at
               LIBOR in effect on the date of prepayment for new loans made for
               such term and in a principal amount equal to the amount prepaid.

     (iii)     If the result obtained in (ii) for any month is greater than
               zero, discount that difference by LIBOR used in (ii) above.

Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum two percent (2%) above
the Prime Rate in effect from time to time (computed on the basis of a 360-day
year, actual days elapsed). Each change in the rate of interest on any such past
due prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.

EVENTS OF DEFAULT:

        This Note is made pursuant to and is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of November
1, 2002, as amended from time to time (the "Credit Agreement"). Any default in
the payment or performance of any


                                      -4-


obligation under this Note, or any defined event of default under the Credit
Agreement, shall constitute an "Event of Default" under this Note.

MISCELLANEOUS:

        (a) Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

        (b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.

        (c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.

        IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.

FAIR, ISAAC AND COMPANY, INCORPORATED

By: _____________________________

Title: __________________________

By: _____________________________

Title: __________________________


                                      -5-


                                    Exhibit B


                                                   November 1, 2002


Fair, Isaac and Company, Incorporated
5935 Cornerstone Court West
San Diego, CA 92121


               RE:  Foreign Exchange Agreement

Ladies and Gentlemen:

        You, the customer to whom this letter agreement (the "Agreement") is
addressed, may from time to time request that we, WELLS FARGO BANK, NATIONAL
ASSOCIATION, or, if we are not Wells Fargo Bank, National Association ("Wells
Fargo"), Wells Fargo acting as our agent, enter into foreign exchange contracts
with you (each, a "Contract" and collectively, "Contracts") for spot or forward
delivery of foreign currencies that you want to purchase or sell. Upon receipt
of each such request, we, or Wells Fargo acting as our agent, will decide
whether to enter into a Contract with you. This Agreement sets forth the terms
and conditions governing the Contracts and the transactions contemplated thereby
(each a "Transaction"). You understand and agree that if we are not Wells Fargo,
we may, but are not obligated to, use Wells Fargo as our agent to enter into
Contracts with you in our name or in Wells Fargo's name. You authorize us to use
Wells Fargo as our agent to enter into Contracts with you and to perform any of
our obligations or exercise any of our rights under this Agreement or any
Contract. If we use Wells Fargo as our agent, (a) Wells Fargo will be our agent
having obligations only to us and not to you, (b) the Contracts you enter into
through Wells Fargo will be considered Contracts entered into by us pursuant to
this Agreement, unless any such Contract clearly indicates otherwise, (c) any of
our obligations performed or any of our rights exercised pursuant to, or in
connection with, this Agreement or any Contract by Wells Fargo in our name or in
Wells Fargo's name shall be deemed obligations performed or rights exercised by
us pursuant to, or in connection with, this Agreement or such Contract, and (d)
any collateral heretofore, now or at any time hereafter granted or pledged by
you to us as security for any credit extended to you will also secure all your
obligations to us under or in connection with this Agreement and the Contracts.

        1. REQUESTS TO ENTER INTO, AMEND OR CANCEL CONTRACTS. All requests to us
to enter into, amend or cancel Contracts must be made by telephone, facsimile
transmission ("Fax"), or electronic mail ("E-Mail"). We have no obligation to,
and we will determine in our sole discretion whether or not to, enter into,
amend or cancel any Contract. If we do enter into, amend or cancel any Contract
at your request, we will not be obligated to enter into, amend or cancel any
other Contract. Requests to enter into Contracts must specify (a) whether the
request is to purchase or sell foreign currency, (b) the type of foreign
currency, (c) the amount of foreign currency, and (d) the value date for the
Contract (the "Settlement Date").



Fair, Isaac and Company, Incorporated
November 1, 2002
Page 2


Requests to amend or cancel Contracts must identify the number of the Contract
to be amended or cancelled. In addition to the requirements above, each Fax
request to enter into, amend or cancel a Contract must clearly indicate the name
of the sender and be signed and dated, and each E-Mail request to enter into,
amend or cancel a Contract must clearly indicate the name of the sender and be
dated. Each request for a Contract for spot delivery of foreign currency also
must specify where and how the currency is to be delivered. With respect to each
request for a Contract for forward delivery of foreign currency, you must also
send us settlement instructions by telephone, Fax or E-Mail no later than two
Business Days (with the term "Business Day" meaning a day, other than a
Saturday, Sunday or public holiday, on which we and you are open to conduct
Transactions) before the Settlement Date informing us where and how the currency
is to be delivered. Any settlement instructions sent by Fax must clearly
indicate the name of the sender and be signed and dated, and any settlement
instructions sent by E-Mail must clearly indicate the name of the sender and be
dated. Each request to enter into, amend or cancel a Contract and all settlement
instructions must be directed to your primary foreign exchange advisor with us
or an alternate advisor designated by us. You authorize us to rely on all
information and directions contained in each such request and settlement
instruction. If a settlement instruction for a Contract describes (i) by account
name and number the account to which currency is to be delivered by us upon
settlement and the account name and number do not match, you understand that we
will make payment on the basis of the account number even if it is not the
account number of the person or entity named by you in the settlement
instructions, or (ii) by name and identification number or code a financial
institution to which such currency is to be delivered and the name and
identification number or code do not match, you understand that we may make
payment on the basis of such identification number or code even if such number
or code is not the identification number or code of the financial institution
named by you in the settlement instructions. You understand and agree that if
settlement of a Contract is to be made by "payment against delivery" (A) if you
are to pay United States dollars to us under the Contract, this payment must be
made by you one or two days (as notified to you) before the Settlement Date, and
we will not deliver the foreign currency to you on the Settlement Date if you do
not comply with this requirement, and (B) if you are to deliver foreign currency
to us and we are to pay United States dollars to you under the Contract, we will
pay you such dollars on the Settlement Date only if the bank to which you are to
pay the foreign currency confirms to us that it has received the full amount of
such foreign currency.

        2. CONFIRMATIONS OF CONTRACTS AND AMENDMENTS TO CONTRACTS. Promptly
after we accept a request to enter into or amend a Contract, we will confirm the
Contract or amendment by telephone (which confirmations sometimes will be
re-confirmed by mail, Fax or E-Mail), mail, Fax or E-Mail. We will not be bound
by any Contract or amendment that is not so confirmed by us. Promptly after you
receive our confirmation of a Contract or amendment you will review it
carefully. If such confirmation accurately reflects the terms of the Contract or
amendment you requested and we and you agreed upon, (a) if it is sent by mail or
Fax, sign it and return it to us by mail, Fax, or attached to an E-Mail, or (b)
if it is sent by telephone, promptly sign any written re-confirmation you
receive and return it to us by mail, Fax, or attached to an E-Mail, or (c) if it
is sent by E-Mail, promptly print the E-Mail, sign it, and return it to us by
mail, Fax, or attached to an E-Mail. If such confirmation does not accurately
reflect the terms of the Contract or amendment we and you agreed upon or you
intended, notify us by telephone of such inaccuracy. Each confirmation you sign
and return to us should be sent to us at the address or Fax number indicated on
such confirmation. Each notification of errors in a confirmation must be sent to
us at the telephone number indicated on such confirmation. Until we receive a
notification that a confirmation does not accurately reflect the terms of a
Contract or amendment we and you agreed upon (and our records confirm that this
is true), (i) the first or



Fair, Isaac and Company, Incorporated
November 1, 2002
Page 3

only confirmation of a Contract or amendment will be deemed to contain the
definitive terms of such Contract or amendment, and (ii) we will be authorized
to act on the Contract or amendment as reflected in such confirmation, and
unless we receive such notification from you before we act on or comply with the
terms of such Contract or amendment, you will, except as provided otherwise in
the Limitation of Liability and Indemnity section of this Agreement, indemnify
and reimburse us for, and hold us harmless from and against, all of our Losses
which arise directly or indirectly as a result of, or which are in any way
connected with, our acting on or complying with the terms of the Contract or
amendment as reflected in such confirmation. The term "Losses" as used in this
Agreement will mean all losses, liabilities, claims, damages, obligations,
penalties, actions, judgments, suits, costs and expenses, of any kind
whatsoever, including, without limitation, attorneys' fees and other legal costs
and expenses (which attorneys' fees will include outside counsel fees and all
allocated costs of in-house counsel), paid, suffered or incurred by, or imposed
upon, you or us as the context indicates.

        3. VERIFYING CONFIRMATIONS, REQUESTS TO ENTER INTO, AMEND OR CANCEL
CONTRACTS, AND SETTLEMENT INSTRUCTIONS. We will verify each request to enter
into or amend or cancel a Contract, each instruction for the settlement of a
Contract, and each confirmation you return to us by determining if the name used
by the person requesting the Contract or amendment or cancellation of a
Contract, giving us settlement instructions, or signing the confirmation is the
name of one of the persons you designate to us in writing as being authorized by
you to make such requests and instructions and to sign such confirmations. Other
than as provided in the preceding sentence, we have no obligation to confirm in
any way the identity of any person making a request to enter into or amend or
cancel a Contract, giving an instruction for the settlement of a Contract, or
signing a confirmation of a Contract or an amendment. We will not be required to
verify that (a) the entries on a document sent to us in any way are authentic
entries, (b) the signatures on any such document are authentic signatures, or
(c) the persons actually signing such document are duly authorized to contract
for you in connection with the purposes of the document. The information,
directions or instructions we receive in documents which indicate that they have
been sent from you or which are on your letterhead, other than requests to enter
into or amend or cancel Contracts or settlement instructions for Contracts or
confirmations of Contracts, will be binding on you even if such documents are
not signed or are not properly authorized by you. You agree to be bound by each
request to enter into, amend or cancel a Contract, each instruction for the
settlement of a Contract, and each confirmation of a Contract or amendment if
such request, instruction or confirmation was authorized or transmitted by you,
or made in your name and accepted by us in good faith and in compliance with the
procedures in this Section, even if such request, instruction or confirmation
was not properly authorized by you. Except as provided otherwise in the
Limitation of Liability and Indemnity section of this Agreement, we shall have
no liability for any of your Losses, and you will indemnify us for all our
Losses, which arise directly or indirectly as a result of, or are in any way
connected with, (i) any request to enter into or amend or cancel a Contract, any
instruction for the settlement of a Contract, and any confirmation of a Contract
or amendment being made by Fax or E-Mail, or (ii) any breach of your security
procedures in connection with any request to enter into or amend or cancel a
Contract, any instruction for the settlement of a Contract, and the signing of
any confirmation of a Contract or amendment. Any actions we take to detect
erroneous requests to enter into or amend or cancel Contracts or erroneous
instructions for the settlement of Contracts, or any actions we take beyond
those described above in an attempt to detect unauthorized requests or
instructions or confirmations, will be taken at our sole discretion. No matter
how many times we take such actions they will not become part of our standard
procedures for attempting to detect erroneous or unauthorized



Fair, Isaac and Company, Incorporated
November 1, 2002
Page 4

requests or instructions or confirmations, and we will not in any situation be
liable for failing to take or to correctly perform such actions.

        4. REPRESENTATIONS AND WARRANTIES. We make no express or implied
representations or warranties with respect to the services we are to provide to
you under this Agreement or any Contract, other than those representations or
warranties expressly stated in this Agreement. Each request by you that we enter
into or amend a Contract shall be deemed a representation and warranty by you
that the terms of the Contract or such amendment do not, and your compliance
with such terms will not, violate any laws and regulations applicable to you,
including, without limitation, those affecting your purchase or sale of the
foreign currency covered by the Contract, and that no Event of Default (as
defined in the Events of Default and Remedies section of this Agreement) has
occurred and is continuing.

        5. NO INVESTMENT ADVICE; RISK OF MARKET FLUCTUATIONS. You understand
that we are not an investment advisor. We do not give, and we hereby disclaim,
all investment advice with respect to any Contract or any amendment of a
Contract. You bear the sole risk of any and all market fluctuations in any
currency traded pursuant to the terms of this Agreement or any Contract.

        6. EVENTS OF DEFAULT AND REMEDIES. We may cancel any Contract and
liquidate our position in the currency of such Contract if performance of the
Contract by you or us becomes unlawful as a result of the adoption of, or any
change in, any applicable law after the date on which the Contract is entered
into, or as a result of the promulgation of or any change in, or in the
interpretation by any court or tribunal or regulatory authority with competent
jurisdiction of, any applicable law after such date. Upon the occurrence and at
any time during the continuance of any of the following events (each, an "Event
of Default"), we may also cancel any or all the outstanding Contracts and
liquidate our position in the currency of such Contracts and setoff against any
of your cash, deposit accounts, securities, securities accounts or other
property we hold or any obligation we have to you to recover any amounts you owe
to us as a result of, or in connection with, such cancellation or liquidation:
(a) you fail to give us settlement instructions as provided in this Agreement;
(b) you fail for any other reason to settle a Contract on its Settlement Date;
(c) you fail to perform any of your agreements or obligations under this
Agreement or any Contract; (d) any representation or warranty made by you to us
under this Agreement or any Contract is incorrect or misleading in any material
respect when made or repeated or deemed to have been made or repeated; (e) a
default, event of default or other similar condition or event (however
described) occurs under one or more agreements or instruments relating to any of
your obligations (whether present or future, contingent or otherwise, as
principal or surety or otherwise) in respect of borrowed money ("Indebtedness")
which has resulted in such Indebtedness becoming, or becoming capable at such
time of being declared, due and payable under such agreements or instruments,
before it would otherwise have been due and payable; (f) you (i) dissolve or
liquidate, (ii) are not generally paying your debts as they become due, (iii)
become insolvent, however such insolvency may be evidenced, or (iv) make any
general assignment for the benefit of creditors; (g) a petition is filed by or
against you seeking your liquidation or reorganization under the Bankruptcy
Reform Act, Title 11 of the United States Code, as amended or recodified from
time to time, or a similar action is brought by or against you under any
federal, state or foreign law; (h) a proceeding is instituted by or against you
for any relief under any bankruptcy, insolvency or other law relating to the
relief of debtors, reorganization, readjustment or extension of indebtedness or
composition with creditors; (i) a custodian or a receiver is appointed for, or a
writ or order of attachment, execution or garnishment



Fair, Isaac and Company, Incorporated
November 1, 2002
Page 5

is issued, levied or made against, any of your property or assets; (j) an
application is made by any of your judgment creditors for an order directing us
to pay over money that we hold from you or to deliver other of your property;
(k) any government authority or any court takes possession of any substantial
part of your property or assets or assumes control over your affairs, or (l) we
in our sole discretion make a commercially reasonable determination that such
cancellation is necessary to protect us.

        7. LOSSES RESULTING FROM CANCELLATIONS OR EXTENSIONS OF CONTRACTS. If
you request that we cancel a Contract or amend a Contract by extending its term
and we, in our sole discretion, agree to such request, or if we cancel a
Contract as provided in this Agreement (a) you will, except as provided
otherwise in the Limitation of Liability and Indemnity section of this
Agreement, indemnify and reimburse us for, and hold us harmless from and
against, all our Losses which arise directly or indirectly as a result of, or
are in any way connected with, such cancellation or extension, including,
without limitation, the liquidation of our position in the currency of the
Contract, and (b) we may setoff and apply against your liability to us any of
your cash, deposit accounts, securities, securities accounts or other property
we hold or any other obligations we have to you, without regard to the nature or
due date of such deposits or obligations and notwithstanding that such setoff
may give rise to penalties for early withdrawal of funds.

        8. LIMITATION OF LIABILITY AND INDEMNITY. Except to the extent your
Losses or our Losses are caused directly by our gross negligence or willful
misconduct, and subject to the remaining provisions of this section, we shall
not be liable for any of your Losses, and you shall be liable for our Losses, to
the extent your or our Losses arise directly or indirectly as a result of, or
are in any way connected with, (a) the enactment or imposition after the date of
this Agreement of, or the change after the date of this Agreement in, any laws,
regulations, guidelines or other directives of any government or government
entity affecting the Contracts or Transactions; provided, however, that your
liability for our Losses and the limitation of our liability for your Losses
will not apply to the extent we knew about such enactment, imposition, or change
before it became effective and could have refused to enter into such Contracts
or Transactions without causing any Losses to us and without violating the terms
of this Agreement or any Contract, (b) the errors, acts or omissions of others,
such as communications carriers or correspondents through which we may perform,
or receive or transmit information in performing, our obligations under this
Agreement or any Contract, (c) any event or circumstance beyond our control, or
(d) any actions performed by us, or any actions not performed by us, in
compliance with the terms of this Agreement or any Contract. With respect to
your Losses and our Losses which arise directly or indirectly as a result of, or
which are in any way connected with, your or our performance or failure to
perform obligations under this Agreement or any Contract, we and you will
negotiate in good faith in an effort to reach a mutually satisfactory allocation
of such Losses. It is understood, however, that in such circumstances and unless
otherwise agreed by you and us in such negotiations, we will not be responsible
to you for any of your Losses, and you will indemnify us for any of our Losses,
arising from claims by third parties who through their connection with you are
affected by the Contracts or Transactions, if such Losses result from any cause
other than our breach of this Agreement or any Contract or our negligence, gross
negligence, or willful misconduct. To the extent the Losses referred to in the
preceding sentence are caused by our breach of this Agreement or any Contract or
by our negligence, you understand that (i) if our breach or negligence is the
late payment of any amount due from us to you under any Contract, including, but
not limited to, any late payment caused by our having to re-execute for any
reason a Transaction covered by a Contract, our liability for your Losses in



Fair, Isaac and Company, Incorporated
November 1, 2002
Page 6

such circumstances shall be limited to the interest on the amount due for the
time period such amount remains due and unpaid calculated at that interest rate
which is standard for late payments in the foreign exchange market, and your
indemnification obligations shall extend to only that amount of our Losses which
exceed such interest, and (ii) in all other cases, our liability for your Losses
will be limited to those money damages arising directly as a result of such
breach or negligence, and your indemnification obligations shall extend to only
that amount of our Losses which exceed such direct money damages. You also agree
to indemnify us for our Losses which arise directly or indirectly as a result
of, or which are in any way connected with, the enforcement or protection of our
rights under this Agreement and the Contracts. IN NO EVENT WILL WE BE LIABLE FOR
ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES, WHETHER
ANY CLAIM IS BASED ON CONTRACT OR TORT, WHETHER THE LIKELIHOOD OF SUCH DAMAGES
WAS KNOWN TO US, AND REGARDLESS OF THE FORM OF THE CLAIM OR ACTION. Any action
against us under or related to this Agreement or any Contract must be brought
within twelve (12) months after the cause of action arises.

        9. NETTING. If on any date each party to this Agreement is to pay the
other party the same aggregate amount in the same currency, then, on such date,
unless both parties specifically agree otherwise, each party's obligation to
make payment of such amount will be automatically satisfied and discharged
without any payment being made. If on any date the parties are to pay each other
differing aggregate amounts in the same currency, each party's payment
obligation will be replaced by an obligation of only the party having to pay the
larger aggregate amount to pay to the other party the excess of the larger
aggregate amount over the smaller aggregate amount.

        10. TERMINATION. Either of us may terminate this Agreement at any time
with or without cause upon notice in writing to the other party. Upon such
termination your obligations to us and our obligations to you under this
Agreement will also terminate, except for (a) any obligations in connection with
any Contract which is in existence at such time and cannot be canceled under the
provisions of Section 6 of this Agreement, and (b) any obligations which, by the
terms of this Agreement, survive such termination. All the obligations of the
parties under this Agreement will survive the termination of any or all the
Contracts, and the obligations of the parties under Sections 4, 6, 7, 8, 9 and
10 of this Agreement will survive the termination of this Agreement.

        11. MODIFICATIONS, AMENDMENTS, AND WAIVERS. This Agreement may not be
modified or amended, nor may any provision of this Agreement be waived, except
in a writing signed by you and us.

        12. NOTICES. Notices from one party to this Agreement to the other party
shall be in writing, or be made by a telecommunications device capable of
creating a written record, shall be delivered to the addressee at its address
specified above, or to any other address a party may designate by written notice
to the other party, and shall be effective upon receipt.

        13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of each of your and our respective heirs, legal
representatives, successors and assigns; provided however, that you may not
assign or otherwise transfer any of your rights



Fair, Isaac and Company, Incorporated
November 1, 2002
Page 7

or obligations under this Agreement or any Contract without our prior written
consent, which consent will not be unreasonably withheld.

        14. GOVERNING LAW. This Agreement and all Contracts shall be governed by
and be construed in accordance with the laws of the State of California.

        15. SEVERABILITY. If any provision of this Agreement shall be prohibited
or invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or any remaining provisions of this Agreement.

        16. ENTIRE AGREEMENT. This Agreement, together with each Contract and
any writing referring specifically to this Agreement or any Contract or
referring in general to agreements or contracts which would include this
Agreement or any Contract, contains the entire and only agreement between you
and us with respect to your purchase from us or sale to us of foreign currencies
and the terms of all Contracts for any such purchase or sale.

        Please indicate your acceptance of the terms and conditions of this
Agreement by signing, dating and returning a copy of this Agreement to us at our
address specified above.

                                              Very truly yours,

                                              WELLS FARGO BANK,
                                              NATIONAL ASSOCIATION

                                              By: _______________________
                                                  Alva Diaz
                                                  Vice President

Agreed to and accepted as of ______________:

FAIR, ISAAC AND COMPANY, INCORPORATED

By: _________________________

Title: ______________________

By: _________________________

Title: ______________________


                                                                   EXHIBIT 10.36

                                 LEASE AGREEMENT


         THIS LEASE AGREEMENT is made as of the 17th day of June, 1996, by and
between, Williams Properties I, LLC & Williams Properties II, LLC, California
Limited Liability Companies ("Landlord") and HNC Software, Inc., a Delaware
Corporation ("Tenant"), who agree as follows:

                             ARTICLE 1. DEFINITIONS

          As used herein, the following terms shall have the following meanings:

          1.1     PREMISES: Approximately 31,269 rentable square feet,
consisting of approximately 13,556 rentable square feet with a portion of the
second floor and the entire third floor consisting of approximately 17,713
rentable square feet of the Building (which term is defined in Article 2 hereof)
as depicted on Exhibit A attached hereto and incorporated herein.

          1.2     PROPERTY: The real properly which the Building is located as
described in Exhibit A-1 attached hereto and incorporated herein and commonly
referred to as 6020 Cornerstone Court West, San Diego, California 92121.

          1.3     TERM: Eighty-one (81) months commencing on the Commencement
Date (which is defined in Article 3 hereof).

          1.4     BASIC RENT: Shall refer to a monthly amount of Thirty Five
Thousand Three Hundred Thirty Three and 97/100ths ($35,333.97) Dollars during
the first twelve (12) months of the Lease Term, which is subject to adjustments
as set forth in Article 4 hereof.

          1.5     INITIAL DIRECT OPERATING EXPENSES: Tenant's initial Direct
Operating Expenses shall be the actual Direct Operation Expenses incurred for
the Building during the first twelve (12) months after the Commencement Date
which shall be computed as though the Building had been ninety-five percent
(95%) occupied, provided that any Direct Operating Expenses attributable to
improvements to the Premises costing in excess of the Tenant Improvement
Allowance (as defined below) shall not be included as part of the base year
calculation but shall be included for any subsequent years. In addition, any
maintenance, repairs and/or replacement of specialized improvements and/or
improvements not included in Landlord's Tenant Improvement Allowance shall not
be included in defining expenses herein.

          1.6     TENANT'S PRO RATA SHARE: 72.24% which percentage represents
the proportion that the number of approximate rentable square feet of the
Premises bears to the total number of rentable square feet of the Building
(31,269 rentable square feet / 43,285 rentable square feet in the Building).

          1.7     ESTIMATED COMPLETION DATE: September 1, 1996

          1.8     SECURITY DEPOSIT: Thirty Thousand and No/lOOths ($30,000.00)
Dollars

          1.9     PERMITTED USE: General Office and software/research &
development purposes only

          1.10    TENANT'S NOTICE ADDRESS: For purposes of Article 19 of this
Lease shall be

         PRIOR TO OCCUPANCY:                         AFTER OCCUPANCY:

         5930 Cornerstone Court West                 5930 Cornerstone Court West
         San Diego, CA 92121                         San Diego, CA 92121

          1.11    LEASE: Shall collectively refer to this Agreement of Lease
together with the fol1owing Exhibits and Addenda, attached hereto and
incorporated herein by this reference:

         Exhibit A-1       Premises Floor Plan
         Exhibit A-1       Property Legal Description
         Exhibit B         Rules and Regulations
         Exhibit C         Work Letter Agreement
         Exhibit D         Preliminary Space Plan/Final Plans & Specifications
         Addenda           Addendum

          1.12    BROKER: Landlord and Tenant recognize that The Irving Hughes
Group, Inc. represents Tenant and CB Commercial Real Estate Group, Inc.
represents the Landlord.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                       1

                               ARTICLE 2. PREMISES

         Subject to the terms, provisions and conditions of this Lease, Landlord
hereby leases to Tenant, and Tenant hereby takes and hires from Landlord, the
Premises located in Landlord's Building 6020 Cornerstone Court West, San Diego,
California ("Building"). The location of the Premises, within the Building, is
more particularly shown on the attached Exhibit A-1.

                                 ARTICLE 3. TERM

         3.1      TERM: The term of this Lease ("Term") shall be for the period
specified in Section 1.3 hereof.

         3.2      COMMENCEMENT DATE: The Commencement Date shall be the date of
Substantial Completion of the Tenant Improvements (as such terms are defined in
the Work Letter Agreement).

                                 ARTICLE 4. RENT

         From and after the Commencement Date, Tenant agrees to pay Landlord, in
advance, on the first day of each and every calendar month during the Term, the
Basic Rent, together with rental adjustments as defined below. Such rent for any
fraction of a month at the beginning of the Term will be prorated and paid at
the Commencement Date. Payment of all such rent and other charges shall be
without offset or demand, shall be in lawful money of the United States of
America and shall be made to Landlord at the following address, or at such place
Landlord may direct from time to time by written notice to Tenant:

                        William's Properties I & II, LLC
                        Attention: Elizabeth J. Clarquist
                        6170 Cornerstone Court East, Suite 140
                        San Diego, CA 92121

         Such rent and other charges shall include the following:

         4.1      BASIC RENT: Subject to annual increases pursuant to Section
4.2 below, Tenant agrees to pay Landlord on the first day of each month Basic
Rent in the amount specified in Section 1.4 hereof. Tenant shall pay to
Landlord, immediately upon execution of this Lease (in addition to the Security
Deposit required pursuant to Section 4.7 below), the sum of one (1) month's
prepaid Basic Rent which shall be applied to the first full calendar month of
the Term for which payment of Basic Rent is due.

         4.2      ANNUAL INCREASE OF BASIC RENT: Commencing on the first day of
the thirteenth (13th) calendar month immediately following the Commencement
Date, the remaining Term of the Lease shall be divided into consecutive one year
periods (each of which, including the initial twelve (12) calendar months of the
Term, shall be referred to as "Lease Year"). The Basic Rent provided in Section
4.1 above, shall be increased on the first day of each such Lease Year (i.e., on
the first day of the thirteenth (13th), twenty-fifth (25th), thirty seventh
(37th), forty-ninth (49th), sixty-first (61st), seventy-second (72nd), etc.,
months following the Commencement Date or, if the Commencement Date is the first
day of a calendar month, on each anniversary of the Commencement Date
("Adjustment Date"). Each such increase shall be as set forth in Section 1 of
the attached Addendum.

                  (i)      The increase in Basic Rent provided by this Section
4.2 shall be in addition to any Excess Direct Operating Expenses Rent increases
provided in Section 4.3. All references in this Lease to Basic Rent shall
include any increase in Basic Rent.

         4.3      EXCESS DIRECT OPERATING EXPENSES RENT:

                  (a)      Subject to any limitations or exceptions stated in
Section 1.5 or elsewhere provided, from and after the Commencement Date, Tenant
agrees to pay to Landlord, as additional rent, Tenant's Pro Rata Share of Excess
Direct Operating Expenses (hereinafter defined) incurred by Landlord ("Excess
Direct Operating Expenses Rent"). Tenant shall pay to Landlord, Tenant's Excess
Direct Operating Expenses Rent pursuant to the following procedures:

                           (i)      Landlord  shall  provide to Tenant a good
faith estimate of the annual Direct Operating Expenses and the total amount of
annual Excess Direct Operating Expenses Rent with respect to each lease year of
the Term. Each such estimate shall be provided by Landlord to Tenant as soon as
possible following the first day of such lease year;

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        2

                           (ii)     Each estimate of total annual Excess Direct
Operating Expenses Rent determined by Landlord pursuant to this Section, shall
be divided into twelve (12) equal monthly installments. Tenant shall pay to
Landlord such monthly installment of Excess Direct Operating Expenses Rent with
each monthly payment of Basic Rent pursuant to Section 4.1 above. In the event
the estimated amount of Excess Direct Operating Expenses Rent has not yet been
determined for any lease year, Tenant shall pay the monthly installment in the
estimated amount determined for the preceding lease year until the estimate for
the current lease year has been provided to Tenant, at which time Tenant shall,
within thirty (30) days following receipt of the notice pay to Landlord any
existing shortfall and, thereafter, make the monthly installment payment in
accordance with the current estimate;

                           (iii)    As soon as reasonably possible following the
end of each lease year of the term including the end of any initial particular
lease year, Landlord shall determine and provide to Tenant a statement of the
amount of Direct Operating Expenses actually incurred (except in the event that
the Building is less than ninety-five percent (95%) occupied, in which case the
Direct Operating Expenses shall be computed as though the Building had been
ninety-five percent (95%) occupied) and the amount of Excess Direct Operating
Expenses Rent payable by Tenant with respect to such lease year. In the event
the amount of such Excess Direct Operating Expenses Rent exceeds the sum of the
monthly installments actually paid by Tenant, pursuant to Section 4.3(a)(ii)
above, for such lease year, Tenant shall pay to Landlord, on the first day of
the calendar month immediately following receipt of such statement, the
difference. In the event the sum of such installments exceeds the amount of
Excess Direct Operating Expenses Rent actually due and owing, the difference
shall be applied as a credit to Excess Direct Operating Expenses Rent payable by
Tenant pursuant to Section 4.3(a)(ii). In no event shall the adjustment of
Excess Direct Operating Expenses Rent decrease the amount of Basic Rent due and
payable to Landlord under this Lease.

                  (b)      For purposes of this Section, the following terms
shall have the following prescribed meanings:

                           (i)      The term "Building" means the Building as
defined in Article 2, and the parking areas and other structures servicing the
Building, and the Property upon which the Building and parking area such other
structures are located.

                           (ii)     The term "Direct Operating Expenses" as used
herein means all operating costs and expenses associated with the operation and
maintenance of the Building, exterior landscaping for the Building and such
additional facilities relating to operations of the Property as are now in use
or in subsequent years may be determined by Landlord to be reasonably desirable.
Direct Operating Expenses shall include, by way of illustration, but not
limitation, the following:

                                    (1) Reasonable costs of wages and salaries
of all employees engaged in operating and maintenance or security of the
Building, including taxes, insurance and benefits relating thereto, and the
reasonable rental value of the Building office.

                                    (2) All supplies and materials used in
operation and maintenance or security of the Building.

                                    (3) Costs of all utilities other than
separately metered electricity not utilized for common areas, including
surcharges of the Building (including the cost of water, sewer, gas, power,
heating, lighting, air conditioning and ventilating for the Building).

                                    (4) Costs of all reasonable maintenance and
service agreements for the Building, and equipment therein, including, but not
limited to, common area utility and maintenance charges (including, but not
limited to, assessments or contributions to maintenance associations or special
benefit districts); security and energy management services; window cleaning;
road, sidewalk, driveways and parking facility maintenance or cleaning; elevator
maintenance; HVAC equipment maintenance and janitorial services. Tenant shall be
responsible for any costs associated with its specialized equipment or other
improvements not provided in Landlord's Tenant Improvement Allowance including,
but not limited to, any service maintenance or repair costs.

                                    (5) Cost of all insurance relating to the
Building/Property, including the cost of casualty and liability insurance
applicable to the Building together with Landlord's personal property used in
connection therewith. Landlord agrees to commercially insure the
Building/Property with a reputable insurance company at industry acceptable
levels.

                                    (6) Costs of repairs and general maintenance
(excluding repairs and general maintenance paid by proceeds of insurance or by
Tenant or other third parties).

                                    (7) A management fee for the manager of the
Building not to exceed four percent (4%) of the gross annual rent of the
Building.

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                                       3

                                    (8) The costs of any additional services not
provided to the Building at the Commencement Date but thereafter provided by
Landlord in prudent management of the Building or at the direction of or
resulting from statutes or regulations, or interpretations thereof, promulgated
by any governmental authority in connection with the use or occupancy of the
Building that was not applicable when such improvements were originally
constructed.

                                    (9) The costs of any capital improvements or
alterations made to the Building after the Commencement Date that reduce other
operating expenses or are required at the direction of or resulting from,
statutes or regulations, or interpretations thereof, promulgated by any
governmental authority in connection with the use or occupancy of the Building
that were not applicable when such improvements were originally constructed,
such cost thereof to be amortized over such reasonable period, i.e., generally
acceptable accounting practices, as Landlord shall determine, together with
interest on the unamortized balance at the actual rate paid by Landlord on funds
borrowed for the purpose of constructing said capital improvements plus any
financing costs.

                                    (10) All taxes and assessments levied on the
Building (including, without limitation, the land upon which it is located),
including, but not limited to, real property taxes and assessments, and personal
property taxes and assessments on all personal property of Landlord used in
connection with the maintenance and operation of the Building and the reasonable
costs incurred by Landlord in contesting, in good faith and by appropriate
proceedings the amount or validity of any such tax or assessment.

                           (iii)    The term "Excess Direct Operating Expenses"
shall mean the amount, if any, that Direct Operating Expenses paid or incurred
by Landlord during a lease year, exceeds the Initial Direct Operating Expenses.

         4.4      ADDITIONAL RENT: Tenant shall pay to Landlord as additional
rent ("Additional Rent") and without notice, abatement, deduction or set off,
all sums, costs and expenses which Tenant, in any of the provisions of this
Lease, or through a separate agreement relating to the Premises and/or the
Building, assumes or agrees to pay, including, but not limited to, tenant
improvement work, whether or not any of such sums, costs and expenses are
specifically described in Additional Rent. In the event of any nonpayment of
Additional Rent when required under this Lease, the Landlord shall have (in
addition to all other rights and remedies) all the rights and remedies provided
herein or by law in the case of non-payment of Basic Rent and Excess Direct
Operating Expenses Rent. All references in this Lease to Rent shall mean and
collectively refer to Basic Rent, Excess Direct Operating Expenses Rent and
Additional Rent

         4.5      LATE CHARGES: Tenant's failure to pay Rent promptly on the
first day of each month may cause Landlord to incur unanticipated costs, the
exact amount of which are impractical or extremely difficult to ascertain. Such
costs may include, but are not limited to, processing and accounting charges and
late charges which may be imposed on Landlord by any ground lease, mortgage or
trust deed encumbering the Building. Therefore, if Landlord does not receive any
Rent payment within ten (10) days after it becomes due, Tenant shall pay
Landlord a late charge equal to six percent (6%) of the overdue amount. The
parties agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of such late payment.

         4.6      INTEREST: Any amount owed by Tenant to Landlord which is not
paid when due shall bear interest at the rate of twelve percent (12%) per annum
from the due date of such amount. However, interest shall not be payable on late
charges to be paid by Tenant under this Lease. The payment of interest on such
amounts shall not excuse or cure any default by Tenant under this Lease. If the
interest rate specified in this Lease is higher than the rate permitted by law,
the interest rate is hereby decreased to the maximum legal interest rate
permitted by law.

         4.7      SECURITY DEPOSIT: Tenant shall pay to Landlord, immediately
upon execution of this Lease, the Security Deposit, which shall be held by
Landlord as security for the faithful performance by Tenant of all of the terms,
covenants and conditions of this Lease to be kept and performed by Tenant during
the Term hereof. If Tenant defaults with respect to any provision of the 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 other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord for
any other loss or damage which landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
shall, upon demand therefor, deposit with Landlord cash, in an amount sufficient
to restore the Security Deposit to its original amount and Tenant's failure to
do so shall be a material breach of this Lease. Landlord shall not be required
to keep the Security Deposit separate from its general funds, and Tenant shall
not be entitled to interest on the Security Deposit. 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 expiration of the Term, provided that Landlord may
retain the Security Deposit until such time as any amount due from Tenant in
accordance hereof has been determined paid in full.

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                                 ARTICLE 5. USE

         5.1      PERMITTED USE: Tenant may use the Premises solely for the
Permitted Use and for no other use without the written consent of Landlord,
which may be withheld in Landlord's sole and absolute discretion.

         5.2      COMPLIANCE WITH LAWS: Tenant shall comply with all laws,
ordinances, rules and regulations pertaining to the use of the Premises, and/or
Building. Tenant shall not do or permit anything to be done in or about the
Premises which will, in any way, obstruct or interfere with the rights of other
tenants or occupants of the Building, or injure them, or allow the Premises to
be used for any immoral or unlawful purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. Tenant agrees to abide by all
reasonable rules and regulations established by Landlord from time to time with
respect to the Building. A copy of the rules and regulations in existence on the
date of this Lease is attached hereto as Exhibit B, but Landlord reserves the
right to amend the rules and regulations at any time by giving notice of
amendment to Tenant, if Landlord determines such amendments to be in the best
interest of the Building and its tenants.

         With respect to any floor of the Building that is entirely leased by
Tenant, including initially the third floor, Tenant shall be responsible for
ensuring, at its sole cost and expense, that all areas within such floor
(including restroom and lobby areas) comply with all applicable laws. Landlord
shall be responsible for ensuring that any common areas within the Building
other than on floors that are entirely leased to Tenant comply with all
applicable laws. Notwithstanding the foregoing, Tenant shall be solely
responsible for all costs relating to compliance with legal requirements to the
extent triggered, caused or made applicable by any alteration, addition or
improvement made by Tenant

         5.3      INSURANCE USE REQUIREMENTS: Tenant shall neither use nor
occupy the Premises in any manner, nor commit or omit any act, which would
result in a cancellation or reduction of any insurance or increase in premiums
on any insurance policy covering the Premises, or the property or Building.
Tenant shall, at its expense, comply with all requirements of any insurer
pertaining to use of the Premises and any other requirement which are reasonably
necessary for the maintenance of economic and proper fire, liability and other
insurance desired to be carried by Landlord

                     ARTICLE 6. IMPROVEMENTS TO THE PREMISES

         6.1      LANDLORD'S WORK: INTENTIONALLY DELETED.

         6.2      TENANT IMPROVEMENTS: Improvements to the Premises beyond that
supplied as part of Landlord's Work, including, but not limited to, closures,
ceilings, partitions, air conditioning components within the Premises, window
coverings, carpet, lighting fixtures, electric systems, fire detection systems
and, if required by Tenant's plans and specifications, modifications to the fire
sprinkler system shall be made by or at the direction of Landlord pursuant to
plans and specifications to be approved in writing by Landlord and Tenant
("Tenant Improvements"). The Tenant Improvements and the responsibility for
preparation of plans and specifications required to construct the same are
described in the Work Letter Agreement, attached hereto as Exhibit C. Landlord
shall have complete and absolute discretion to select such persons and companies
as it reasonably deems proper for designing, constructing or supplying all
Tenant Improvements. By accepting occupancy of the Premises, Tenant acknowledges
completion of all improvements constituting the Premises, including, but not
limited to, Tenant Improvements and Landlord's Work.

         6.3      PAYMENT FOR TENANT IMPROVEMENTS: Landlord shall pay, pursuant
to the terms and conditions of the Work Letter Agreement, the cost and expense
of Tenant Improvements in an amount not to exceed the Tenant Improvement
Allowance. The cost and expense of any Tenant Improvements in excess of the
Tenant Improvement Allowance, shall be paid by the Tenant in accordance with the
provisions of the Work Letter Agreement.

         6.4      ESTIMATED COMPLETION DATE: The Tenant Improvements shall be
completed on or before the Estimated Completion Date. Landlord shall endeavor to
give Tenant minimum thirty (30) day notice of the Estimated Completion Date. In
the event that the Tenant Improvements are not completed on or before the
Estimated Completion Date, for any cause or reason, Landlord, its agents and
employees, shall not be liable or responsible for any damages or liabilities in
connection therewith incurred by Tenant as a result thereof, nor shall the
obligations of Tenant provided herein be excused by reason of any such delay,
except that the failure to complete construction of the Tenant's Improvements on
the Estimated Completion Date is due solely to the unexcused actions of Landlord
hereunder, then, in such event, Tenant's sole remedy and right shall be to delay
the Commencement Date by the number of days that completion of construction of
the Tenant Improvements were delayed solely by the unexcused actions of
Landlord, but in no event shall the Commencement Date be later than the date on
which Tenant takes possession or

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                                        5

commences business operations at the Premises or part thereof. Notwithstanding
the foregoing, if Landlord has not completed construction of the Tenant
Improvements and tendered possession of the Premises to Tenant within one
hundred fifty (150) days from the Estimated Completion Date, and such delay was
not the result of either (i) delays caused by force majeure or (ii) act or
omission of Tenant or anyone for whom Tenant is responsible, then Tenant may, at
its option, by notice in writing to Landlord given within thirty (30) days
thereafter, cancel this Lease. If Tenant cancels this Lease in accordance with
the foregoing, the Landlord shall return to Tenant, without interest, the first
installment of Basic Rent, paid pursuant to Section 4.1 above, plus the Security
Deposit (if previously deposited by Tenant) and the parties shall be discharged
from any and all obligations hereunder. Notwithstanding the foregoing, the
Commencement Date shall be the date when Landlord would otherwise have been able
to tender possession of the Premises or complete construction thereof except for
the delay which was caused by the acts or omissions of Tenant or anyone for whom
Tenant is responsible, even though (i) Tenant may not, in fact, occupy the
Premises on such date; (ii) the Tenant Improvements were not, in fact, completed
on the Estimated Completion Date, and (iii) Landlord actually completes the
Tenant Improvements after the Estimated Completion Date and delivers possession
of the Premises after the Commencement Date. See Work Letter Section 5.

         6.5      EARLY OCCUPANCY: Provided Landlord gives Tenant a minimum
thirty (30) days prior notice and if Tenant occupies the Premises prior to the
Commencement Date, Tenant's occupancy of the Premises shall be subject to all of
the provisions of this Lease. Early occupancy of the Premises shall not advance
the Termination Date of this Lease. Tenant shall pay Base Rent and all other
charges specified in this Lease for the early occupancy period.

            ARTICLE 7. MAINTENANCE, REPAIR AND ALTERATION OF PREMISES

         7.1      MAINTENANCE: Subject to Article 6 and Work Letter Agreement,
by taking possession of the Premises, Tenant shall be deemed to have accepted
the Premises as being in good, sanitary order, condition, and repair except for
punch list items. Tenant shall, at Tenant's sole cost and expense, keep and
maintain the Premises and every part thereof in good condition and repair,
ordinary wear and tear excepted. Except as specifically provided in Section 6.1
of this Lease, Landlord shall have no obligation whatsoever to alter, remodel,
improve, repair, decorate or paint the Premises or any part thereof, and the
parties hereto affirm that Landlord has made no representations to Tenant
respecting the condition of the Premises or the Building.

         7.2      REPAIRS: Notwithstanding the provisions of Section 7.1 above,
Landlord shall repair and maintain the structure portions, structural walls,
utilities underground, sewer, roof structure, foundation and sub-flooring of the
Building unless such maintenance and repairs are caused in part or in whole by
the act, neglect, fault, or omission of any duty by the Tenant, its agents,
servants, employees, contractors, licensees or invites, in which case Tenant
shall pay Landlord the reasonable cost of such maintenance and repairs. Landlord
shall not be liable for any such repairs or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Article 13 hereof, there shall be no abatement of any item 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 Building or the Premises or in or to
fixtures, appurtenances, and equipment therein. Tenant waives the right to make
repairs at Landlord's expense under any law, statute, or ordinance now or
hereafter in effect.

         7.3      ALTERATIONS: Subject to the removal/nonremoval qualifications
stated in Section 7.5, Tenant shall not make any alteration, addition, or
improvement to the Premises (whether structural or nonstructural) without the
prior written consent of Landlord, which consent will not be unreasonably
withheld. Tenant may, with notice to Landlord, make nonstructural
modifications/alterations (to exclude, but not be limited to, base building,
electrical, power, sewer, roof, etc.) if Tenant's expenditure per occurrence is
less than $5,000.00 cumulative. In the event Landlord gives its consent, such
consent may be conditioned upon the requirement that Tenant (i) supply to
Landlord, plans and specifications which must be approved by Landlord in writing
prior to commencement of any work; and (ii) provide, prior to the commencement
of any work, a lien free completion bond in the form and amount satisfactory to
Landlord. Any alteration, addition, or improvement for which Landlord gives its
written consent shall be accomplished by Tenant in a good and workmanlike
manner; in conformity with all applicable laws and regulations and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide to Landlord "as-built" plans, copies, and proof of payment of all labor
and materials. Tenant shall pay, when due, all claims for such labor and
materials and shall give Landlord at least ten (10) days prior written notice of
the commencement of any such work. Landlord may enter upon the Premises, in such
case, for the purpose of posting appropriate notices, including, but not limited
to, notices of non-responsibility. Any Tenant alterations which cause or trigger
an increase in Landlord's tax assessment shall be incrementally passed directly
through to Tenant. Further, the tax increase shall not be computed in
calculating the Initial Base Operating Expenses per Article 1.5 or as provided.
See Addendum Paragraph 6 for other requirements.

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                                        6

         7.4      LIENS: Tenant shall keep the Premises free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by or for Tenant. In the event that Tenant shall not, within ten (10) days
following the imposition of any such lien, cause the same to be released of
record by payment or posting of a proper bond, Landlord shall have, in addition
to all other remedies provided herein and by law, the right, but not the
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of or defense against the claim giving rise to such
lien. All sums paid by Landlord and all expenses incurred by it in connection
therewith shall create automatically an obligation of Tenant to pay an
equivalent amount as additional rent, which additional rent shall be payable by
Tenant on Landlord's demand with interest at the maximum rate per annum
permitted by law until paid.

         7.5      CONDITION ON TERMINATION: Upon the expiration, or sooner
termination, of the Lease, Tenant shall surrender the Premises to Landlord,
broom clean, and in the same condition as received, except for ordinary wear and
tear which Tenant was not otherwise obligated to remedy, under any provision of
this Lease. Except for the improvements constructed pursuant to Article 6
hereof, Landlord may require Tenant to remove any alterations, additions or
improvements made by Tenant prior to the termination of the Lease and to restore
the Premises to its prior condition (i.e., the condition as of the Commencement
Date), all at Tenant's expense. All alterations, additions, and improvements
which Landlord does not require Tenant to remove shall become Landlord's
property and shall be surrendered to Landlord upon termination of the Lease. In
no event shall Tenant remove any materials or equipment (excluding trade
fixtures) from the Premises without Landlord's prior written consent, including,
but not limited to, any power wiring or power panels, lighting or lighting
fixtures, wall coverings, window coverings, carpets, other floor coverings,
heaters, air conditioners or any other heating or air conditioning equipment,
fencing or security gates or other similar Building operating equipment and
decorations. Notwithstanding, if Landlord approves a Tenant alteration as
described in Section 7.3, then Landlord, with its consent, shall condition its
approval either (i) to be removed at Lease expiration at Tenant's expense or
(ii) not be removed.

                        ARTICLE 8. UTILITIES AND SERVICES

         8.1      UTILITIES AND SERVICES FURNISHED BY LANDLORD: Provided Tenant
is not in default hereunder, Landlord shall furnish air conditioning and heating
services to the Premises and common areas, i.e., Building cooling/heating tower.
Such services shall be furnished between the hours of 6:00 a.m. and 8:00 p.m.,
Monday through Friday, and 8:00 a.m. to 6:00 p.m. on Saturday (generally
accepted legal holidays excluded but not to exceed New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Day after Thanksgiving, Christmas
Eve and Christmas Day) excepting electricity to the Premises which shall be
furnished by Tenant. All of the foregoing utilities and services provided by
Landlord shall be included in the Direct Operating Expenses. The common area
electrical, air conditioning and heating services furnished by Landlord are not
represented by Landlord to be adequate for any purpose other than the permitted
use. It is acknowledged that the Landlord does not provide an uninterrupted
source of electrical power and other services. Under no circumstance shall
Landlord be liable to Tenant if any utility service to the Premises and/or
Building is interrupted or terminated because of repairs, installations,
improvements or causes beyond Landlord's control, nor shall any such
interruption or termination be construed as an eviction (actual or constructive)
of Tenant, nor entitle Tenant to an abatement of any item of Rent, nor relieve
Tenant from fulfillment of any covenant or condition of this Lease. Tenant
requested services shall be provided by Landlord, at an hourly rate established
by Landlord from time to time, during additional hours on reasonable notice to
Landlord, at Tenant's sole cost and expense, and payable by Tenant, as billed,
as Additional Rent. See Addendum Paragraph 4 for additional utilities. Any
specialized HVAC including, but not limited to, separate package units shall be
one hundred percent (100%) Tenant's responsibility which includes maintenance,
repairs, replacement and/or removal of said equipment. SEE ADDENDUM ATTACHED
HERETO AND MADE A PART HEREOF.

         8.2      OTHER UTILITIES AND SERVICES: Except as set forth in Sections
8.1 and 8.3 and the Addendum, Tenant shall furnish and pay to the local utility
vendor, at Tenant's sole expense, all electrical service inside the Premises,
all special electrical and Tenant provided HVAC requirements, telephone, cable
and other services which Tenant requires with respect to the Premises.

         8.3      JANITORIAL SERVICES PROVIDED BY LANDLORD: Landlord shall
provide five (5) days per week janitorial services for the Premises and the
common area of the Building consistent with practices found in similar office
buildings. The cost of all such services shall be included in the Direct
Operating Expenses.

                                ARTICLE 9. TAXES

         Tenant shall pay, prior to delinquency, all personal property taxes and
license fees levied, assessed or imposed by reason of Tenant's use of the
Premises, and all taxes on Tenant's personal property located on the Premises.
Landlord shall pay all property taxes or assessment with respect to the
Building, which shall be included in Direct Operating Expenses.

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                                        7

                 ARTICLE 10. LANDLORD'S RIGHT TO ALTER BUILDING

         10.1     LANDLORD'S RIGHT TO ALTER BUILDING: Landlord reserves and
shall, at any and all times, have the right to alter the Building (including,
but not limited to, the parking garage and/or areas, and adjoining common areas)
or add thereto, and may for the purpose erect scaffolding and all other
necessary structures, and Tenant shall not, in that event, claim or be allowed,
or paid, any damage for any injury or inconveniences occasioned thereby nor
shall there be any abatement in any item of Rent. Landlord also reserves the
right to install, use, maintain, repair and replace pipes, ducts, conduits,
wires and appurtenant meters and equipment for service to other parts of the
Building above the ceiling surfaces, below the floor surfaces, within the walls
and in the central core areas, and to relocate any pipes, ducts, conduits, wires
and appurtenant meters and equipment which are located within the Premises or
outside the Premises.

                                ARTICLE 11. SIGNS

         11.1     Landlord shall paint, attach, or affix tenant's trade name
and/or the individual names of its authorized representatives to the first floor
lobby directory that is the principal entry to the Premises, the cost of the
sign and its installation to be paid by Landlord and contained and accounted for
as an initial operating expense.

         11.2     Landlord has the sole right to determine the type of
directory, bulletin board, and sign, and the content of each (including, without
limitation, size of letters, style, color, and whether affixed or painted).

         11.3     Tenant shall not place or permit to be placed, any sign,
advertisement, notice or other similar matter on the doors, windows, exterior
walls, roof or other areas of the Premises and/or Building which are open to the
view of persons in the common area of the Building or grounds, except with the
advance written consent of Landlord, which consent may be withheld for any
reason. If any sign, advertisement, notice or similar matter is improperly
placed by Tenant, Landlord shall have the right to remove the same, and Tenant
shall be liable for any and all expenses incurred by Landlord by the removal.
Any signs, advertisement, notice or similar matter (including, but not limited
to, directories and nameplates) approved by Landlord shall be at the sole cost
and expense of Tenant, except as otherwise provided.

                  ARTICLE 12. LIABILITY INSURANCE AND INDEMNITY

         12.1     TENANT INSURANCE: Tenant, at its own expense, shall provide
and keep in force with companies reasonably acceptable to Landlord or Landlord's
lender/beneficiary the following insurance policies:

                  (a)      Broad form commercial general liability insurance, or
equivalent, written on an occurrence form against liability for bodily injury
and property damage arising out of or in connection with the use, occupancy or
maintenance by Tenant of the Premises (including, without limitation, personal
injury coverage and contractual liability insurance specifically covering
liability with respect to the indemnity described in Section 12.4 below) in the
amount of not less than Three Million Dollars ($3,000,000.00) in respect to
injuries or death, and in the amount of not less than Three Hundred Thousand
Dollars ($300,000.00) per occurrence in respect to damage to property;

                  (b)      Fire insurance with standard form extended coverage
endorsement to the extent of at least one hundred percent (100%) of the full
insurable value of the Tenant Improvements, other additions, alterations and
improvements to the Premises, and all trade fixtures, fixtures, equipment and
other personal property which may, from time to time, be located upon the
Premises; and

                  (c)      Such other insurance as Tenant or Landlord or any
beneficiary of any deed of trust encumbering the Building or the Property of
which the Premises are a part, may from time to time, reasonably require, in
form, amount and protecting against such risks as would be obtained by a prudent
person.

         Each of the foregoing policies of insurance shall name the Landlord and
any mortgagee as an additional insured. The policy limits herein specified shall
be increased, from time to time, upon written demand from Landlord, if Tenant's
use reasonably justifies such increases and/or Landlord's lender/beneficiary or
other third party requires said increase. Tenant may maintain such insurance as
part of blanket policies containing a "per project, per location" endorsement.
Landlord makes no representation that the minimum insurance amounts specified
above are adequate to protect Tenant, and the amount of insurance obtained by
Tenant shall not limit Tenant's liability under this Lease. Tenant shall furnish
Landlord with a certificate of such policy prior to taking possession of the
Premises or occupying any part thereof and whenever requested shall satisfy
Landlord that such policy is in full force and effect. Each policy shall be
primary and non-contributing with any insurance carried by Landlord. Each policy
shall further provide that it shall not be canceled or materially altered
without thirty (30) days prior written notice to Landlord.

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                                       8

         12.2     LANDLORD INSURANCE: Landlord shall carry such insurance with
respect to the Building, of the type and amounts as Landlord, in its sole
discretion, shall deem reasonably appropriate. The cost of any such insurance
shall be included in the Direct Operating Expenses. In addition, in the event
Tenant fails to provide or keep in force any of the insurance as required
pursuant to Section 12.1 above, Landlord, in its discretion, may provide such
insurance, in which event, the cost thereof shall be payable by Tenant to
Landlord, as additional rent on the first day of the calendar month immediately
following demand therefor from Landlord. Notwithstanding, Landlord agrees to
commercially insure the Building/Property with a reputable insurance company at
industry acceptable levels.

         12.3     WAIVER OF LIABILITY OF LANDLORD: Landlord shall not be liable
to Tenant for any injury or damage that may result to any person or property by
or from any cause whatsoever (including, without limiting the generality of the
foregoing, injury or damage due to water leakage of any character from the
walls, basement or other portion of the Premises or Building or caused by gas,
fire, oil, electricity or any use whatsoever, in, on or about the Premises or
Building or any part thereof, or theft), other than injury or damage resulting
from the gross negligence or willful misconduct of Landlord.

         12.4     WAIVER OF SUBROGATION: Tenant and Landlord waive any rights or
claims against the other for property damage to the extent covered by any of the
waiving party's insurance policies required to be maintained hereunder and waive
any right of subrogation against Landlord or Tenant under any insurance policy.
Tenant and Landlord shall cause the insurance carriers to waive all such rights
and to so notify Landlord and Tenant

         12.5     INDEMNITY BY TENANT OF LANDLORD: Tenant agrees to indemnify,
hold Landlord and its agents, employees, affiliates, officers, directors and
shareholders (collectively, the "Indemnities") harmless from and defend Landlord
and the Indemnities against any and all claims, damages, costs, expenses
(including attorneys' fees and costs incurred in connection therewith or to
enforce this indemnity obligation) and liabilities for any injury or damage to
any person or property (i) occurring in, on or about the Premises or any part
thereof, or (ii) occurring in, on or about any part of the Property (including,
without prejudice to the generality of the term "Property", passageways or
hallways) the use of which Tenant may have in conjunction with other tenants of
the Building, when such injury or damage shall be caused in part or in whole, by
the act, negligence or fault of, or omission of any duty with respect to the
same by Tenant, its agents, servants or employees. In case any action, suit or
proceeding is brought against Landlord and/or the Indemnities for which Tenant
is required to provide indemnity pursuant to this Section, Tenant, upon
Landlord's request and at Tenant's sole cost and expense, will resist and defend
such action, suit or proceeding or cause the same to be resisted and defended by
counsel designated by Tenant and approved by Landlord, or counsel designated by
the insurer whose policy covers the cost, claim, damage or liability. At
Landlord's election, Landlord may select and employ counsel to resist and defend
the action, suit or proceeding and Tenant will reimburse Landlord for any
reasonable legal fees or costs incurred by Landlord in connection therewith. The
obligations of Tenant under this Section will survive the expiration or any
termination of this Lease.

                        ARTICLE 13. DAMAGE OR DESTRUCTION

         13.1     DUTY TO RESTORE: In the event the Premises or the Building of
which the Premises are a part are damaged as a result of any cause, then
Landlord shall forthwith repair the same, provided the extent of the destruction
be less than twenty percent (20%) of the full replacement cost of the Premises
or the Building of which the Premises are a part and the insurance proceeds
available to Landlord are adequate to complete such repairs. In the event the
destruction of the Premises or the Building is to an extent greater than twenty
percent (20%) of the full replacement cost, then Landlord shall have the option
(i) to repair or restore such damage and this Lease will continue in full force
and effect provided such repairs may be completed no more than nine (9) months
after said occurrence, except that Tenant shall be entitled to a proportionate
reduction of Basic Rent while such repairs are being made, such proportionate
reduction to be based upon the extent to which the making of such repairs shall
materially interfere with the business carried on by Tenant in the Premises
(provided, however, that if the damage is due to the fault or neglect of Tenant
or its employees, there shall be no abatement of Basic Rent); or (ii) give
notice to Tenant at any time within sixty (60) days after such damage
terminating this Lease as of the date specified in such notice, which date shall
be no more than thirty (30) days after the giving of such notice. In the event
of giving such notice, this Lease shall expire and all interest of the Tenant in
the Premises shall terminate on the date so specified in such notice and Rent
shall be paid up to date of such termination.

         13.2     EXCLUSIONS FROM DUTY TO RESTORE: Notwithstanding anything to
the contrary contained in this Article:

                  (a)      Landlord shall not have any obligation whatsoever to
repair, reconstruct or restore the Premises when the damage resulting from any
casualty covered under this article occurs during the last twelve (12) months of
the term of this Lease or any extension thereof.

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                  (b)      Landlord shall not be required to repair any damage
by fire or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railings, floor covering, partitions, or any other
property installed in the Premises by Tenant.

                  (c)      Tenant shall not be entitled to any compensation or
damages from Landlord for loss of the use of the whole or any part of the
Premises. Tenant's personal property or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.

         13.3     TOTAL TAKING: If the whole of the Premises or so much thereof
as to render the balance unusable by Tenant shall be taken under power of
eminent domain, this Lease shall automatically terminate as of the date of such
condemnation, or as of the date possession is taken by the condemning authority,
whichever is earlier. If a partial taking so renders the balance of the Premises
unusable by Tenant, Tenant shall give written notice thereof to Landlord within
thirty (30) days of the taking. No award of any partial or entire taking shall
be apportioned and Tenant hereby assigns to Landlord any award which may be made
in such taking or condemnation, together with any and all rights of Tenant now
or hereafter arising in or to the same or any part thereof; provided, however,
Tenant shall be entitled to any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant or for Tenant's relocation costs or
business interruption compensation.

         13.4     PARTIAL TAKING: In the event of a partial taking of the
Premises which does not result in a termination of this Lease pursuant to
Section 13.3, rent shall be abated, effective as of the date possession of the
Premises is required to be surrendered, in proportion to the part of the
Premises so made unusable by Tenant. Landlord shall, at its expense, restore the
portion of the Premises remaining usable to as near its former condition as
reasonably possible using that portion of the condemnation award attributable to
such restoration costs.

         13.5     TEMPORARY TAKING: No temporary taking of the Premises and/or
of Tenant's rights therein or under this Lease shall terminate this Lease or
give Tenant any right to any abatement of rent hereunder. Any award made to
Tenant by reason of any such temporary taking shall belong entirely to Tenant
and Landlord shall not be entitled to share therein.

         13.6     SALE: A sale by Landlord to any authority having the power of
eminent domain, either under threat of condemnation or while condemnation
proceedings are pending, shall be deemed a taking under the power of eminent
domain for all purposes under this Article 13.

         13.7     WAIVER: Tenant hereby waives any right under any statutes,
ordinances, court decisions or other application law, whether existing now or in
the future, to terminate this Lease following any taking, condemnation, damage
or destruction of the Premises and/or the Building except as provided in this
Lease.

                          ARTICLE 14. DEFAULT BY TENANT

         14.1     REMEDIES UPON DEFAULT: Tenant agrees that (i) if Tenant fails
to make a payment of any item of Rent and such failure continues for a period of
five (5) days after receipt of written notice thereof; or (ii) if Tenant fails
to faithfully perform or observe this Lease Agreement and such failure continues
for a period of thirty (30) days after written notice thereof; or (iii) if the
Premises be vacated or abandoned; or (iv) if Tenant makes a general assignment
for the benefit of its creditors and becomes unable to pay its debts as they
become due in the normal course, or shall file a petition for bankruptcy or
other reorganization, liquidation, dissolution or similar relief and tenant does
not make payment of any item of rent; or (v) a proceeding is filed against
Tenant seeking any relief mentioned in (iv) above; or (vi) a trustee, receiver
or liquidator shall be appointed for Tenant or a substantial part of its
property; or (vii) if Tenant's lease interest is sold under execution, then any
such events shall constitute a breach of this Lease and Landlord may, at
Landlord's option, exercise any or all rights available to a Landlord under the
laws of the State of California, including, without limitation, the right to do
any of the following:

                  (a)      Terminate the Lease and recover:

                           (i) The worth at the time of the award of unpaid rent
and other charges which had been earned at the time of such termination; plus

                           (ii) The worth at the time of the award of the amount
by which the unpaid rent and other charges which would have been earned after
termination until the time of award exceeds the amount of such rental loss,
which Tenant proves could have been reasonably avoided; plus

                           (iii) The worth at the time of the award of the
amount by which the unpaid rent and other charges for the balance of the term of
this Lease after the time of award exceeds the amount of such rental loss, which
Tenant proves reasonably could be avoided; plus

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                           (iv) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligation under this Lease or which in the ordinary course of things would
be likely to result therefrom, including but not limited to the cost of
restoring the Premises to the condition required in Article 7.5 of this Lease;
plus

                           (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

                  (b)      Utilize the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations), as follows:

                           (i) Landlord can continue this Lease in full force
and effect without terminating Tenant's right of possession, and Landlord shall
have the right to collect rent and other monetary charges when due and to
enforce all other obligations of Tenant hereunder. Landlord shall have the right
to enter the Premises to do acts of maintenance and preservation of the
Premises, to make alterations and repairs in order to relet the Premises, and /
or to undertake other efforts to relet the Premises. Landlord may also remove
personal property from the Premises and store the same in a public or private
warehouse at Tenant's expense and risk. No act by Landlord permitted under this
Paragraph shall terminate this Lease unless a written notice of termination is
given by Landlord to Tenant or unless the termination is decreed by a court of
competent jurisdiction

                           (ii) In furtherance of the remedy set forth in this
Section, Landlord may relet the Premises or any part thereof for Tenant's
account, for such term (which may extend beyond the Lease term), at such rent,
and on such other terms and conditions as Landlord may deem advisable in its
sole discretion. Tenant shall be liable immediately to Landlord for all costs
Landlord incurs in reletting the Premises. Any rents received by Landlord from
such reletting shall be applied to the payment of: (a) first, any indebtedness
other than rent due hereunder from Tenant to Landlord; (b) second, the costs of
such reletting, including brokerage and attorney's fees and the cost of any
alterations and repairs to the Premises; and (c) third, the payment of rent due
and unpaid hereunder. Any remainder shall be held by Landlord and applied in
payment of future amounts as the same become due and payable hereunder. In no
event shall Tenant be entitled to any excess rent received by Landlord after a
breach of this Lease by Tenant and the exercise of Landlord's remedies
hereunder. If the rent from such reletting during any month is less than the
rent payable hereunder, Tenant shall pay such deficiency to Landlord immediately
upon demand.

         14.2     WORTH AT THE TIME OF AWARD. As used in Sections 14.1(a)(i) and
14.1(a)(ii) above, the "worth at the time of award" shall be computed by
allowing interest at the lesser of twelve percent (12%) per annum or the maximum
rate permitted by law. As used in Section 14.1 (a) (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
percentage point.

         14.3     NOTIFICATION OF RELETTING: In the event Landlord terminates
this Lease pursuant to Section 14.1(a) above, and Tenant has made an advance
payment of rent as defined in California Civil Code Article 1951.7, and Tenant
has requested in writing that Landlord notify it of any initial reletting of
Premises, then and only then must Landlord notify Tenant pursuant to California
Civil Code Article 1951.7(c) that the Premises have been relet.

         14.4     RIGHT OF LANDLORD TO RE-ENTER: In the event of any termination
of this Lease, Landlord shall have the immediate right to enter upon and
repossess the Premises, and any personal property of Tenant may be removed from
the Premises and stored in any public warehouse at the risk and expense of
Tenant.

         14.5     LANDLORD'S LIEN: INTENTIONALLY DELETED

         14.6     LANDLORD'S RIGHT TO PURSUE OTHER REMEDIES: In the event of any
breach of this Lease, Landlord may pursue any of the foregoing remedies, and
Landlord may consecutively or concurrently therewith pursue any other remedy or
enforce any right to which Landlord may be entitled by law.

                            ARTICLE 15. SUBORDINATION

          15.1    This Lease and the leasehold estate created hereby are and
shall be, at the option and upon written declaration of Landlord, subject,
subordinate and inferior to the lien and estate of any liens, trust deeds and
encumbrances, and all renewals, extensions or replacements thereof, now or
hereafter imposed by Landlord upon the Premises or any part of the Building.
Landlord hereby expressly reserves the right, at its option and declaration, to
place liens, trust deeds and encumbrances upon and against the Premises

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and/or any part thereof and/or the Building, superior in lien and effect to this
Lease and the estate created hereby. The execution by Landlord and the recording
in the Office of the County Recorder of the county in which the Premises are
situated, of a declaration that this Lease and leasehold estate are subject,
subordinate and inferior to any lien, trust deed or encumbrance placed by
Landlord upon or against the Premises, and/or any part thereof and/or the
Building, shall, of and by itself (in favor of any lien or, mortgagee,
beneficiary, trustee or title insurance company insuring the interest of any
such person) and without further notice to or act or agreement of Tenant, make
this Lease and the estate created hereby subject, subordinate and inferior
thereto. Notwithstanding the foregoing, Tenant agrees, on request of Landlord,
to forthwith execute and acknowledge any reasonable subordination agreement or
other documents required to establish of record the priority of any such
encumbrance over this Lease, and also to execute and deliver to Landlord,
promptly on request, any reasonable estoppel certificate or other statement to
be furnished to any prospective purchaser or lender against the Premises stating
the matters specified in Article 27 hereof.

          15.2    In the event any proceedings are brought for foreclosure, or
in the event of the exercise of the power of sale under any mortgage or deed of
trust made by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease.

          15.3    The provisions of this Article to the contrary
notwithstanding, and so long as Tenant is not in default hereunder, this Lease
shall remain in full force and effect for the full term hereof.

          15.4    Landlord agrees to use reasonable best efforts to obtain and
deliver to Tenant, at Tenant's expense, a commercially reasonable
non-disturbance agreement from any lender with a lien on the Building senior to
this Lease.

                           ARTICLE 16. ATTORNEY'S FEES

          In case any suit shall be brought for any unlawful detainer of the
Premises, for the recovery of any Rent due under this Lease, or because of the
breach or alleged breach of any other covenant herein contained on the part of
either party to be kept or performed, the prevailing party shall recover from
the non-prevailing party all costs and expenses incurred therein, including
reasonable attorney's fees, and reasonable attorney's fees and expenses incurred
in enforcing any judgment. Further, (i) if for any reason Landlord consults
legal counsel or otherwise incurs any reasonable costs or expenses as a result
of its rightful attempt to enforce the provisions of this Lease, even though no
litigation is commenced, or if commenced is not pursued to final judgment or
(ii) Landlord is named as a defendant in any suit brought against Tenant in
connection with or arising out of Tenant's occupancy hereunder, Tenant shall be
obligated to pay to Landlord, in addition to all other amounts for which Tenant
is obligated hereunder, all of Landlord's reasonable costs and expenses incurred
in connection with any such acts, including reasonable attorneys' fees.

                     ARTICLE 17. ASSIGNMENT AND SUBLETTING

          17.1    LANDLORD'S CONSENT REQUIRED: The purpose of this Lease is to
transfer possession of the Premises to Tenant for Tenant's personal use and
Tenant has not entered into this Lease for the purpose of obtaining the right to
convey the leasehold to others. The ability of Tenant to assign or sublet the
Premises is subsidiary and incidental to the underlying purpose of this Lease.
Tenant will not, either voluntarily or by operation of law, assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest herein, and
will not sublet the Premises or any part thereof or any right or privilege
appurtenant thereto, or allow any other person (the employees, agents, servants
and invitees of Tenant excepted) to occupy or use the Premises or any portion
thereof, without the prior written consent of Landlord, which consent will not
be unreasonably withheld. Provided Tenant has received Landlord's consent
herein, Tenant agrees throughout the term of this Lease not to sublease to more
than four (4) tenants total. Any cumulative transfer of more than thirty percent
(30%) of the voting stock will be deemed to be an assignment by Tenant of this
Lease which requires the prior written notice to Landlord provided the
controlling entity has a consolidated net worth equal to or greater than
Tenant's. If notice is given to Landlord, then the controlling entity shall
submit to Landlord for its approval all reasonably required financial
documentation to support the financial qualifications.

          Any transfer or subletting attempted or concluded without Landlord's
prior written consent will be void and will constitute a default under this
Lease. Consent by Landlord to any transfer (including, but not limited to, an
assignment or subletting), shall be limited to the particular transfer approved
by Landlord and shall not be deemed to be Landlord's consent to any subsequent
transfer. Tenant acknowledges Landlord shall have no obligation to sublessees
and Tenant agrees to be responsible for such parties' compliance with all rules,
regulations, and other covenants.

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         17.2     LANDLORD'S ELECTION: Tenant's request for consent to any
transfer, described in Section 17.1 above must be accompanied by a written
statement setting forth the details of the proposed transfer, including the
name, type of business and financial condition (supported by financial
statements) of the prospective transferee, financial details of the proposed
transfer (e.g. the terms of the transaction, the rent and security deposit
payable under any assignment or sublease), copies of all agreements and other
writings pertaining in any way to the proposed transfer. Tenant, in addition to
the foregoing information which must be delivered to Landlord at the time Tenant
requests Landlord's consent to the proposed transfer, shall deliver to Landlord
any additional information concerning the proposed transfer or prospective
transferee as Landlord may reasonably request. Landlord will have the right (i)
to reasonably withhold consent; (ii) to grant written consent to the transfer;
or (iii) to terminate this Lease as of the date of the proposed transfer as to
that portion of the Premises affected by the proposed transfer provided the
third party transfer term is greater than thirty-nine (39) months long. Within
fifteen (15) business days after submission of all required information for the
request for consent of proposed transfer, Landlord shall give notice to Tenant
of its election under this Section. If Landlord does waive in writing its right
to terminate this Lease, such waiver shall be effective only for the transfer
specifically covered in Tenant's notice for a period of sixty (60) days after
the date of the waiver. If Landlord elects to terminate this Lease under Section
1 7.2(iii) above, Tenant shall have the right to withdraw its request to the
proposed transfer within fifteen (15) days after Landlord's election to
terminate this Lease, in which case Landlord shall have no right to terminate
this Lease or any portion thereof. If Landlord does duly exercise its rights
under Section 1 7.2(iii) above to terminate this Lease or any portion thereof,
Landlord shall have the right to enter into a lease or other occupancy agreement
directly with the prospective transferee, and Tenant shall have no right to any
of the rents or other consideration payable by such prospective transferee under
such other lease, even if such rents and other consideration exceed the rent
payable under this Lease by Tenant. If Landlord elects to exercise its rights
under Section 17.2(iii), then Landlord shall have the right to lease the
Premises to any other tenant, or not lease the Premises, in its sole discretion.
in the event of a sublease or assignment of a portion of the Premises, to which
Landlord has elected to exercise its rights under Section 1 7.2(iii) above,
Landlord and Tenant shall enter into an amendment of this Lease to effect a
proportionate reduction in the size of the Premises and in the Basic Rent or
other Additional Rent payable hereunder.

         17.3     WITHHOLDING CONSENT: Under Section 17.2(i), Landlord may
withhold its consent to the proposed transfer on any reasonable ground. Such
reasonable grounds shall include, without limitation, any one or more of the
following:

                  (i)      That the prospective transferee's financial condition
is or may become insufficient to support all of the financial and other
obligations of this Lease;

                  (ii)     That the use to which the Premises will be put by the
prospective transferee is inconsistent with the terms of this Lease or other
existing leases or is otherwise not suitable for a first class office building;

                  (iii)    That the nature of the prospective transferee's
proposed or likely use of the Premises would involve any increased risk of the
use, release or mishandling of hazardous materials;

                  (iv)     That the prospective transferee is not likely to
conduct on the Property a business of a nature substantially equal to that
conducted by Tenant or other tenants on the Property;

                  (v)      That Landlord has not received assurances acceptable
to Landlord in its sole discretion that all past due amounts owing from Tenant
to Landlord (if any) will be paid and all other defaults on the part of Tenant
(if any) will be cured prior to the effectiveness of the proposed transfer.

         If Landlord withholds its consent to the proposed transfer pursuant to
Section 17.2(i), and if Tenant shall so request in writing, Landlord shall
provide to Tenant a statement of the basis on which Landlord denied its consent
within a reasonable time, however, no greater than ten (10) days after the
receipt of Tenant's notice. Landlord and Tenant agree that Tenant shall have the
burden of proving that Landlord's consent to the proposed transfer was withheld
unreasonably, and that such burden may be satisfied if Landlord fails to provide
a statement of a reasonable basis for withholding its consent within a
reasonable time after Tenant's request therefor. Tenant acknowledges and agrees
that each of the rights of Landlord in the event of proposed transfer set forth
in this Article is a reasonable restriction on transfer for purposes of
California Civil Code Section 1951.4.

         17.4     TENANT'S OBLIGATIONS CONTINUING: No transfer within the scope
of this article, whether with or without Landlord's consent, will release Tenant
or change Tenant's primary liability to pay Rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of Rent from any
other person is not a waiver of any provision of this Section. If Tenant's
transferee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord may consent to
subsequent assignments or modifications of this Lease by Tenant's transferee,
without noticing Tenant or obtaining its consent, and such action will not
relieve Tenant of its liability under this Lease.

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         17.5     EXCESS RENTAL: With respect to any sublease entered into by
Tenant with Landlord's consent as herein provided, if the rent and other
compensation paid by the subtenant to Tenant under such sublease, and all
agreements and other instruments pertaining in any way thereto, exceeds the Rent
being paid by Tenant to Landlord computed on a square foot basis (i.e., the
amount by which the rent and other compensation being paid by the subtenant to
Tenant exceeds the Rent being paid by Tenant to Landlord under this Lease for
each square foot leased by such subtenant) then Landlord will be entitled to the
amount of such excess ("Excess Rent") and Tenant will pay to Landlord such
Excess Rent within five (5) days after receipt by Tenant of the same. If Tenant
receives any fee, bonus or other payment (whether payable in one or more
installments) from any assignee or sublessee as partial consideration for the
making of such sublease or assignment ("Bonus Payment"), the entire amount of
such Bonus Payment shall be paid over to Landlord as additional rent hereunder.
Notwithstanding the foregoing, Tenant shall be entitled to receive from any
Excess Rent or Bonus Payment otherwise required to be paid to the Landlord the
amount of out-of-pocket expenses actually incurred by Tenant for reasonable and
customary brokerage commissions, tenant improvements, non-monetary lease
concessions or other expenses in connection with sublease or assignment provided
Tenant delivers sufficient evidence of such expenses to Landlord.

         17.6     SECURITY INTEREST: Tenant immediately and irrevocably assigns
to Landlord as security for Tenant's obligations under this Lease all rent from
any subletting of all or a part of the Premises as permitted by this Lease, and
Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for
Tenant appointed on Landlord's application, may collect such rent and apply it
toward Tenant's obligations under this Lease; except that, until the occurrence
of an event of default by Tenant, Tenant will have the right to collect such
rent.

         17.7     TRANSFER FEE: In the event Landlord consents to a sublease or
assignment hereunder, Tenant shall reimburse Landlord for all attorney's fees
incurred by Landlord in connection with review and preparation of documents in
connection with such sublease or assignment and will pay Landlord a reasonable
fee, not to exceed $250.00, for Landlord's processing of documents necessary to
the giving of such consent and/or assumption by the assignees.

                               ARTICLE 18. PARKING

         Tenant shall have the right to park automobiles in connection with its
use and occupancy of the Premises as more particularly described in the Addendum
attached hereto.

                               ARTICLE 19. NOTICES

         19.1     MANNER OF SERVICE: All notices, demands or requests from one
party to another shall be personally delivered or sent by mail, certified or
registered, postage prepaid, to the address stated in this Article.

         19.2     NOTICE OF LANDLORD: All such notices, demands or requests from
Tenant to Landlord shall be given to Landlord, addressed as follows:

                         Williams Properties I & II, LLC
                         Attention: Elizabeth J. Clarquist
                         6170 Cornerstone Court East, Suite 140
                         San Diego, CA 92121

        with copy to:    Fisher Thurber, Ltd.
                         Attn.: David A. Fisher
                         4225 Executive Square, Suite 1600
                         La Jolla, CA 92037

         Landlord may change its address for notices by giving written notice of
such change to Tenant in the manner provided by this Article 19.

         19.3     NOTICE TO TENANT: All such notices, demands or requests from
Landlord to Tenant shall be given to Tenant, addressed, if prior to the
Commencement Date, to Tenant's Notice Address and, after the Commencement Date,
to 5930 Cornerstone Court West, San Diego, CA 92121.

                       ARTICLE 20. HOLDING OVER BY TENANT

         Tenant agrees upon the expiration or termination of this Lease,
immediately and peaceably to yield up and surrender the Premises, notice to quit
or vacate is hereby expressly waived. Tenant shall be liable to Landlord for any
and all damages incurred by Tenant as the result of any failure by Tenant,
timely, to surrender possession of the Premises as required herein. If Tenant
shall hold over after the expiration of this Lease for any cause, such holding
over shall be deemed a tenancy at sufferance or, at the sole discretion of
Landlord, a tenancy from month-to-month only, in which event such month-to-month
tenancy shall be upon the same terms, conditions and provisions as in this Lease
contained, at one hundred forty percent (140%) of the monthly Rent as was in
effect immediately prior to the termination.

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                               ARTICLE 21. WAIVER

         One or more waivers by Landlord of any breach of any covenant or
condition shall not be construed as a waiver of a subsequent or continuing
breach of the same or of any covenant or condition, and the consent or approval
by Landlord to any act by Tenant requiring Landlord's consent or approval shall
not be deemed to waive or render unnecessary Landlord's consent or approval to
or of any subsequent act. No waiver of any provision of this Lease shall be
deemed to have been made, unless it be in writing and signed by the party to be
charged therewith.

                      ARTICLE 22. LANDLORD'S RIGHT OF ENTRY

         Landlord and its agents may enter upon the Premises at any reasonable
time with prior notice, except in the event of emergencies, to post such notices
as Landlord may reasonably deem necessary to exempt Landlord and Landlord's
title from responsibility on account of any work or repairs done by Tenant upon
or in connection with the Premises; to inspect and examine the Premises and see
that the covenants hereof are being kept and performed; to make such repairs,
additions or improvements as Landlord shall deem necessary; or, to exhibit the
Premises to prospective lessees or purchasers thereof.

                         ARTICLE 23. TIME OF THE ESSENCE

         Time is expressly declared to be of the essence of this Lease, and of
all covenants and conditions herein contained.

                       ARTICLE 24. SUCCESSORS AND ASSIGNS

         The covenants and conditions herein contained shall, subject to the
provisions of Article 17 and this Article, apply to and bind the heirs,
successors, executors, administrators and assigns of the respective parties
hereof. If this Lease is signed by more than one person as Tenant, their
obligation shall be joint and several.

         Landlord may freely and fully assign its interest hereunder. The term
"Landlord" shall mean only the owner at the time in question of the Building or
of a lease of the Building, so that in the event of any transfer or transfers of
title to the Building or of Landlord's interest in a lease of the Building, the
transferor shall be and hereby is relieved and freed of all obligation of
Landlord under this Lease accruing after such transfer, and it shall be deemed,
without further agreement, that such transferee has assumed and agreed to
perform and observe all obligations of Landlord herein during the period it is
the holder of Landlord's interest under this Lease. Tenant shall attorn to and
recognize as its landlord under this Lease any transferee of the Building or
Landlord's interest hereunder. In any event, Tenant shall look only to
Landlord's estate and property in the Building and the land on which it is
located for satisfaction of Tenant's remedies for the collection of a judgment
(or other judicial process) requiring the payment of money by Landlord in the
event of any default by Landlord hereunder, and no other property or assets of
Landlord or its partners or principals, disclosed or undisclosed, shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or Tenant's use or occupancy of the Premises and
no such parties shall be named in any action or suit by Tenant against Landlord.

                            ARTICLE 25. BUILDING NAME

         Tenant shall not use the name of the Building or words to that effect
in connection with any business on the Premises without the written consent of
Landlord. Landlord may change the name of the Building at any time without
consent of or notice to Tenant.

                                ARTICLE 26. KEYS

         Two (2) keys to the Premises will be furnished to Tenant by Landlord.
Additional keys will be furnished upon Tenant paying Landlord the cost thereof.
No additional lock or locks shall be placed by Tenant on any door in the
Premises or Building unless written consent of Landlord shall have been first
obtained; and, should such consent be so obtained, Landlord shall be supplied
with keys to each such lock. Only the employees of Landlord or those it has
authorized in writing shall work on or modify any lock which is part of the
Premises. Tenant shall not cause or allow any keys to be possessed by any person
other than an authorized agent of Tenant. Tenant agrees, at the termination of
the tenancy, to return all keys of all doors and any security cards.

                                                               Initials /s/ EJC
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                                                               Initials
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                                       15

                        ARTICLE 27. ESTOPPEL CERTIFICATES

         Tenant agrees, at any time and from time to time, upon not less than
five (5) days prior written notice by Landlord, to execute, acknowledge and
deliver to Landlord, a statement in writing (i) certifying this Lease is
unmodified and in full force and effect, or, if there have been modifications,
this Lease is in full force and effect as modified, and stating any such
modifications; (ii) certifying that Tenant has accepted possession of the
Premises, and that any improvements required by the terms of this Lease to be
made by the Landlord have been completed to the satisfaction of the Tenant;
(iii) stating that no rent under this Lease has been paid more than thirty (30)
days in advance of its due date; (iv) stating the address to which notices to
Tenant should be sent; (v) certifying, if applicable, that Tenant, as of the
date of any such certification, has no charge, lien or claim of set-off under
this Lease, or otherwise, against rents or other charges due or to become due
hereunder, (vi) stating whether or not, to the best of Tenant's knowledge,
Landlord is in default in the performance of any covenant, agreement or
condition contained in this Lease, and, if so, specifying each such default of
which Tenant may have knowledge and (vii) stating such other matters as Landlord
may reasonably request. Any such statement delivered pursuant hereto may be
relied upon by Landlord, any owner of the Building, any prospective purchaser of
the Building, any mortgagee or prospective mortgagee of the Building or of
Landlord's interest, or any prospective assignee of any such mortgagee.

        Provided Tenant has received written notice of the mailing address
of any mortgagee of Landlord, Tenant further agrees that, from the date of
execution of this Lease, it will not seek to terminate this Lease by reason of
any act or omission of the Landlord, until the Tenant shall have given written
notice of such act or omission to Landlord's mortgagee and until a reasonable
period of time shall have elapsed following the giving of such notice, during
which period of time Landlord's mortgagee shall have the right, but shall not be
obligated, to remedy such action or omission.

                            ARTICLE 28. FORCE MAJEURE

         Landlord shall not be required to perform any of its obligations under
this Lease, nor be liable for loss or damage for failure to do so, nor shall
Tenant thereby be released from any of its obligations under this Lease, where
such failure arises from or through acts of God, strikes, lockouts, labor
difficulties, explosions, sabotage, accidents, riots, civil commotions, acts of
war, results of any warfare or warlike conditions in this or any foreign
country, fire and casualty, legal requirements, energy shortage, or causes
beyond the reasonable control of Landlord, unless such loss or damage results
solely from willful misconduct or negligence of Landlord or its employees.

                   ARTICLE 29. NO REPRESENTATIONS BY LANDLORD

         Neither Landlord nor any agent or employee of Landlord, has made any
representations or promises, with respect to the Premises or the Building except
as herein expressly set forth, and no rights, privileges, easements or licenses
are acquired by Tenant except as herein set forth.

                               ARTICLE 30. BROKER

         Tenant warrants to Landlord that there are no other brokerage
commissions or fees payable in connection with this Lease except to the Broker
named in Section 1.13 of this Lease, whose commission shall be paid by Landlord.
Tenant agrees to indemnify and hold Landlord harmless from any cost, liability
and expense (including attorney's fees) which Landlord may incur as the result
of any breach of the warranty contained in this Article 30.

                            ARTICLE 31. ANNOUNCEMENTS

         Tenant shall not cause or permit to be disseminated, published or
released, by itself or through any of its brokers, employees, agents or
contractors, any public announcements, advertisements or other communication
which, in any way, describes or refers to the general or specific Lease terms or
conditions hereof, without the prior written consent of Landlord, which consent
may be withheld for any reason, except for those announcements required under
Tenant's securities laws.

                            ARTICLE 32. COUNTERPARTS

         This Lease may be executed in two (2) or more counterparts, each of
which shall be an original, but all of which shall constitute one and the same
instrument.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
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                                       16

                       ARTICLE 33. GOVERNING LAW AND VENUE

         This Lease has been negotiated and entered into in the State of
California, and shall be governed by, construed and enforced in accordance with
the internal laws of the State of California applied to contracts made in
California by California domiciliaries to be wholly performed in California.
Venue for any action by any party pertaining to this Lease shall be in the
appropriate court located in San Diego County, California.

                    ARTICLE 34. CAPTIONS AND INTERPRETATIONS

         Articles, Sections, paragraph titles or other captions contained in
this Lease are inserted as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of this Lease or any provision
here of No provision in this Lease is to be interpreted for or against either
party because that party or its legal representative drafted such provision.

                            ARTICLE 35. SEVERABILITY

         If any term, covenant, condition or provision of this Lease is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.

                 ARTICLE 36. LEASE NOT EFFECTIVE UNTIL EXECUTED

         Submission by Landlord of this Lease for examination or signature by
Tenant shall not constitute adoption and this Lease shall not become effective
until executed by both Tenant and Landlord and delivery made of the fully
executed instrument to such parties. The Lease shall not be deemed to be
executed by Landlord until signed by an authorized General Partner of Landlord.

                       ARTICLE 37. LIMITATION OF REMEDIES

         Anything herein to the contrary notwithstanding, Tenant shall look
solely to Landlord's interest in the Premises for the satisfaction of any claim,
judgment or decree based upon any default hereunder by Landlord, and no other
property or assets of Landlord shall be subject to levy, execution or other
enforcement procedure for the satisfaction of such claim, judgment or decree and
no partner, master lessor, officer, agent, affiliate or employee of Landlord
shall be sued or earned as a party in any suit or action, or served with
process, or required to answer or otherwise plead to any service of process,
except to the extent required to bring Landlord under the jurisdiction of the
applicable court, nor will any judgment be take against any partner, master
lessor, officer, agent, affiliate or employee of Landlord.

                        ARTICLE 38. HAZARDOUS SUBSTANCES

         38.1     HAZARDOUS SUBSTANCE RESTRICTION: Tenant shall not cause or
permit any Hazardous Substance to be used, stored, generated, or disposed of on
or in the Premises by Tenant, Tenant's agents, employees, contractors,
licensees, or invitees. If Hazardous Substances are used, stored, generated, or
disposed of on or in the Premises in violation of the foregoing sentence, or if
the Premises become contaminated in any manner due to an act or omission of
Tenant, Tenant's agents, employees, contractors, licensees or invitees, Tenant
shall indemnify and hold harmless Landlord from any and all claims, damages,
fumes, judgments, penalties, costs, liabilities, or losses (including, without
limitation, a decrease in value of the Premises, damages caused by loss or
restriction of rentable or usable space), or any damages caused by adverse
impact on marketing of the space, and any and all sums paid for settlement of
claims, litigation expenses, attorney's fees, consultation, and expert fees of
whatever kind or nature, known or unknown, contingent or otherwise arising
therefrom. This indemnification includes, without limitation any and all costs
incurred because of any investigation of the site or any cleanup, removal, or
restoration mandated by a federal, state, or local agency or political
subdivision. Without limitation of the foregoing, if Tenant caused or permits
the presence of any Hazardous Substances on the Premises and that results in
contamination, Tenant shall promptly, at its sole expense, take any and all
actions necessary to return the Premises to the condition existing prior to the
presence of any such Hazardous Substance on the Premises. Tenant shall first
obtain Landlord's approval for any such remedial action. The provisions of the
Paragraph 37.1 shall be in addition to any other obligations and liabilities
Tenant may have to Landlord under this Lease or at law or equity and shall
survive the transactions contemplated herein and shall survive the termination
of this Lease. Landlord, as of the date of this Lease, has no actual knowledge
of the presence of Hazardous Materials.

                                                               Initials /s/ EJC
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                                                               Initials
                                                                        --------


                                       17

         38.2     HAZARDOUS SUBSTANCE DEFINED: As used in Section 37.1,
("Hazardous Substance" means any substance that is toxic, ignitable, reactive,
or corrosive and that is regulated by any local government, the State of
California, or the United States Government. "Hazardous Substance" includes any
and all material or substances that are defined as "hazardous waste", "extremely
hazardous waste", or a "hazardous substance" or similar term pursuant to state,
federal, or local governmental law now or hereafter enacted. "Hazardous
Substance" includes, but is not restricted to, asbestos, polychlorobiphenyls
("PCB's), and petroleum products.

                        ARTICLE 39. RULES AND REGULATIONS

         Tenant agrees to abide by all rules and regulations of the Building
imposed by Landlord as set forth in Exhibit B attached to the Lease, as the same
may be reasonably changed from time to time upon reasonable notice to Tenant.
Any violation of such Rules and Regulations which continues after written notice
by Landlord shall constitute a default by Tenant. Landlord shall not be liable
for the failure of any Tenant, or its servants, employees, agents, contractors,
licensees or invitees to conform to and comply with such rules and regulations.

                          ARTICLE 40. ENTIRE AGREEMENT

         This Lease constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof, and no oral statements or
representations or prior written matter not contained or referred to herein
shall have any force or effect. This Lease fully supersedes any and all prior
understandings, representations, warranties and agreements between the parties
hereto, or any of them, pertaining to the subject matter hereof, and may be
modified only by written agreement, signed by all of the parties hereto.

LANDLORD:                                    TENANT:

WILLIAMS PROPERTIES I, LLC                   HNC Software Inc., a Delaware Corp.
& WILLIAMS PROPERTIES II, LLC,
California Limited Liability Companies

By: /s/ Elizabeth J. Clarquist               By: /s/ Raymond V. Thomas
   -----------------------------                ------------------------
   Elizabeth J. Clarquist                       Raymond V. Thomas

Title: Vice President                        Title: Chief Financial Officer

ADDENDUM TO OFFICE BUILDING LEASE AGREEMENT DATED JUNE 17, 1996 BY AND BETWEEN
WILLIAMS PROPER'S I, LLC & WILLIAMS PROPERTIES II, LLC, CALIFORNIA LIMITED
LIABILITY COMPANIES, AS LANDLORD AND HNC SOFTWARE, INC., A DELAWARE CORPORATION,
AS TENANT, FOR THAT CERTAIN PROPERTY COMMONLY KNOWN AS 6020 CORNERSTONE COURT
WEST, IN THE CITY OF SAN DEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA.

This Addendum is attached to and forms a part of the Lease. In the event of any
conflict between the terms of the Lease and the terms of this Addendum, the
terms of this Addendum shall govern and control.

1.       BASIC RENT:

         Tenant's Basic Rent per month shall be adjusted pursuant to Section 4.2
         of the Lease as followings:

         Months 13-24    $36,747.33 per month net of utilities    11/97 - 10/98
         Months 25-36    $38,217.22 per month net of utilities    11/98 - 10/99
         Months 37-48    $39,745.91 per month net of utilities    11/99 - 10/00
         Months 49-60    $41,335.75 per month net of utilities    11/00 - 10/01
         Months 61-72    $42,989.18 per month net of utilities    11/01 - 10/02
         Months 73-81    $44,708.74 per month net of utilities    11/02 - 07/03

2.       PARKING:

         Tenant shall have the right to use four (4) parking spaces per 1,000
         square feet of usable area leased, subject to the reasonable rules and
         regulations adopted by Landlord from time to time. Parking shall be
         free of charge for the initial Term and provided on-site on an
         unreserved basis. However, in the event of governmental or governing
         agency imposed fees relating to parking, Tenant shall be required to
         pay any such fees. Should any violation of parking privileges occur,
         Landlord shall notify Tenant and request Tenant to immediately enforce
         internal procedures to comply with its parking obligations. If the
         Tenant's internal procedures do not resolve the parking violation, then
         Landlord, by necessity, may impose reasonable measures to control the
         parking obligations at Tenant's expense which payment shall be due upon
         invoicing to Tenant.

3.       SIGNAGE:

         Subject to all governmental laws, ordinances and regulations, any
         covenants, conditions and restrictions affecting the Premises, and
         space availability Tenant shall have the right, at Tenant's sole cost
         and expense, to install and maintain up to two (2) exclusive building
         signs at locations to be mutually agreed upon. The sign, its
         specifications, size, method of attachment and installation, and design
         shall be subject to the Landlord's reasonable approval. The sign shall
         not be illuminated at night, it is not transferable and is personal
         exclusively to Tenant such that no assignee or sublessee of Tenant
         shall be entitled to any such signage rights. All signage shall read'
         HNC" or '~NC Software". If eighteen (18) months after the Commencement
         Date, Tenant has not installed its sign, Tenant shall have no further
         right to install any signs.

4.       BUILDING HOURS OF OPERATION (HEATING, VENTILATION & AIR CONDITIONING
         [HVAC]).

         SECTION 8.1 OF THE LEASE IS MODIFIED AS FOLLOWS:

         The hours of operation for the Building will be 6:00 am. to 8:00 p.m.
         Monday through Friday and 8:00 am. to 6:00 p.m. on Saturdays, except
         holidays. Tenant may request after hour heating, ventilation and air
         conditioning (HVAC) service. The minimum request for such service shall
         be four (4) hours. Landlord's currently hourly charge to Tenant for
         after hours HVAC shall be equal to Twenty-Five and No/lOOths ($25.00)
         Dollars per hour, subject to increase from time to time. Tenant agrees
         to pay Landlord for such service on the earlier occurrence of: (a)
         within five (5) days after the date on which Tenant receives a written
         invoice from Landlord for site service or (b) the first day of the
         calendar month following the month during which the service is
         rendered.

5.       OPTION TO RENEW LEASE EXTENSION RIGHT:

         Landlord hereby grants to Tenant one (1) option (the "Option") to renew
         the Term for a renewal period of five (5) years (the "Extension").
         During any Extension, the terms and conditions set forth in this Lease
         shall apply, except that Basic Rent for the Extension shall be adjusted
         to an amount agreed upon by the parties in their sole and absolute
         discretion. If, for any reason, the parties do

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        1

ADDENDUM TO OFFICE BUILDING LEASE AGREEMENT DATED JUNE 17, 1996 BY AND BETWEEN
WILLIAMS PROPERTIES I, LLC & WILLIAMS PROPERTIES II, LLC, CALIFORNIA LIMITED
LIABILITY COMPANIES, AS LANDLORD AND HNC SOFTWARE, INC., A DELAWARE CORPORATION,
AS TENANT, FOR THAT CERTAIN PROPERTY COMMONLY KNOWN AS 6020 CORNERSTONE COURT
WEST, IN THE CITY OF SAN DEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA.

         not reach agreement on the amount of Basic Rent applicable during the
         Extension within forty-five (45) days after Tenant's notice of exercise
         of the Option, then the Option shall be of no further force or effect,
         Tenant shall have no right to extend the Term and the Term shall end on
         the date specified in Section 3.1 of the Lease. The Option shall be
         exercised only by written notice delivered to Landlord at least six (6)
         months, but not more than twelve (12) months, before the expiration of
         the initial Term of this Lease. If Tenant fails to timely deliver
         written notice of exercise of the Option to Landlord, the Option shall
         lapse and Tenant shall have no further right to extend the Term of this
         Lease. If Tenant so exercises any Option, then, effective on the
         commencement date of the Extension, all references herein to the Term
         of this Lease shall include such Extension, except for references to
         the "initial Term." Tenant's exercise of the Option shall be subject to
         the express conditions that (i) at the time of exercise, and at all
         times prior to, commencement of the Extension, no Event of Default by
         Tenant shall have occurred and (ii) Tenant has not been ten (10) or
         more days late in the payment of rent more than a total of three (3)
         times during the Term of this Lease and (iii) the Tenant named in this
         Lease occupies the entire Premises as of the date of exercise of the
         Option and the date the Extension commences. The Option is personal to
         Tenant and cannot be transferred to any assignee or sublessee.

6.       FIRST RIGHT OF NEGOTIATION:

         Provided Tenant is not in material default of the terms and conditions
         of this Lease, Tenant shall have a first right of negotiation on the
         terms and conditions described below on all available space on the
         first and second floors of the Building, subject to any existing
         renewal, expansion or similar rights of existing tenants. In the event
         Landlord receives an offer to lease any said available space, Landlord
         shall notify Tenant of such offer. If Tenant delivers written notice of
         Tenant's exercise of the right of first negotiation within five (5)
         business days after delivery of Landlord's notice, Landlord and Tenant
         shall meet and attempt negotiate in good faith terms which are
         acceptable to the parties, each in their sole and absolute discretion.
         If, within fifteen (15) days after Landlord's notice of an offer to
         Tenant, the parties have not entered into a lease agreement for any
         expansion, Tenant's first right of negotiation on available space shall
         be of no further force or effect for said space and Landlord shall have
         the absolute right at any time thereafter to lease such space free of
         any rights of Tenant. If Tenant does not elect to exercise its first
         right of negotiation within five (5) business days after delivery of
         Landlord's notice, then Tenant's right of first negotiation shall be of
         no further force or effect as to such space and Landlord shall have the
         absolute right at any time thereafter to lease such space free of any
         rights of Tenant.

LANDLORD:                                    TENANT:

WILLIAMS PROPERTIES I, LLC                   HNC Software Inc., a Delaware Corp.
& WILLIAMS PROPERTIES II, LLC,
California Limited Liability Companies


By: /s/ Elizabeth J. Clarquist               By: /s/ Raymond V. Thomas
   -----------------------------                ------------------------
   Elizabeth J. Clarquist                       Raymond V. Thomas

Title: Vice President                        Title: Chief Financial Officer

                                                                Initial /s/ EJC
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                                                                Initial
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                                       2

                                  EXHIBIT "A-1"
                                   SITE PLAN


                             [DIAGRAM OF SITE PLAN]


         SITE PLAN IS FOR ILLUSTRATION PURPOSES ONLY AND ACTUAL SITE PLAN,
         PARKING, BUILDINGS, LANDSCAPING ETC MAY VARY FROM TIME TO TIME.


                                                                Initial /s/ EJC
                                                                        --------



                                 EXHIBIT "A-1"
                          3RD FLOOR PLAN & "AS-BUILTS"


                   [DIAGRAM OF 3RD FLOOR PLAN & "AS-BUILTS"]


         "AS-BUILT" PLANS ARE FOR REFERENCE PURPOSES ONLY AND ACTUAL FIELD
         CONDITIONS MAY VARY SLIGHTLY. ALL EQUIPMENT, FURNISHINGS, TRADE
         FIXTURES ETC BUT NOT LIMITED TO ARE PROVIDED BY TENANT AT ITS COST
         AND EXPENSE, IF APPLICABLE.


                                                                Initial /s/ EJC
                                                                        --------



                                 EXHIBIT "A-1"
                          2ND FLOOR PLAN & "AS-BUILTS"


                    [DIAGRAM OF 2ND FLOOR PLAN & "AS-BUILTS"]


         "AS-BUILT" PLANS ARE FOR REFERENCE PURPOSES ONLY AND ACTUAL FIELD
         CONDITIONS MAY VARY SLIGHTLY. ALL EQUIPMENT, FURNISHINGS, TRADE
         FIXTURES ETC BUT NOT LIMITED TO ARE PROVIDED BY TENANT AT ITS COST AND
         EXPENSE, IF APPLICABLE.


                                                                Initial /s/ EJC
                                                                        --------



                                 EXHIBIT "A-1"
                          2ND FLOOR "AS-BUILTS"


                    [DIAGRAM OF 2ND FLOOR "AS-BUILTS"]


         "AS-BUILT" PLANS ARE FOR REFERENCE PURPOSES ONLY AND ACTUAL FIELD
         CONDITIONS MAY VARY SLIGHTLY. ALL EQUIPMENT, FURNISHINGS, TRADE
         FIXTURES ETC BUT NOT LIMITED TO ARE PROVIDED BY TENANT AT ITS COST
         AND EXPENSE, IF APPLICABLE.


                                                                Initial /s/ EJC
                                                                        --------


                                    EXHIBIT B
                              RULES AND REGULATIONS

         Any violation of these rules and regulations, which continues after
written notice by Landlord, shall constitute a default by Tenant.

         Landlord may upon request by Tenant, waive the compliance by Tenant
with any of the following rules and regulations, providing that (i) no waiver
shall be effective unless signed by Landlord or Landlord's authorized agent,
(ii) any such waiver shall not relieve Tenant from the obligation to comply with
such rule or regulation in the future unless expressly consented to, in writing,
by Landlord, and (iii) no waiver granted to any other tenant shall relieve
Tenant from the obligation of complying with the following rules and regulations
unless Tenant has received a similar waiver in writing from Landlord.

1.       Tenant and Tenants employees, shall not loiter in the entrances or
corridors of the Building, or in any way obstruct the sidewalks, walkways,
stairways and elevators, and shall use same only as a means of ingress and
egress from the Premises.

2.       Landlord shall have the right to control and operate the public
portions of the Building, and the facilities furnished for the common use of the
tenants, in such manner as Landlord deems best for the benefit of the tenants
generally. Tenant shall not permit the visit to the Premises of persons in such
numbers or under such conditions as to interfere with the use and enjoyment by
other tenants of the entrances, corridors, elevators and other public portions
or facilities of the Building.

3.       The directory board at the entrance to the Building is provided for the
exclusive display of the name and location in the Building of each tenant, and
Landlord reserves the right to exclude any other name therefrom, and to make a
charge for each and every name in addition to the name of Tenant, placed on the
directory board at the request of Tenant.

4.       The water and janitor closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown "herein. All
damages resulting from any misuse of the fixtures by Tenant or its tenants,
employees, agents, visitors or licensees shall be borne by Tenant.

5.       Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Premises, and must observe strict care and caution
that all water faucets or water apparatus are shut off before Tenant or Tenant's
employees leave and that all electricity shall likewise be carefully shut off,
so as to prevent waste or damage, and for any default or carelessness Tenant
shall make good all injuries sustained by other tenants or occupants of the
Building or Landlord.

6.       All furniture, equipment and freight shall be moved into and out of the
Building only during such hours and pursuant to such rules as shall be
established by Landlord in its reasonable discretion and shall, if Landlord so
requests, be done under the supervision of Landlord. Such moving and deliveries
shall be done through such delivery entrances, and using such freight elevators,
as Landlord may designate from time to time. Landlord will not be responsible
for loss of or damage to any furniture, equipment or freight from any cause.

7.       Except for normal office fixtures and decorations customarily utilized,
Tenant shall not mark, paint, drill into or in any way deface or damage walls,
ceilings, partitions, floors, wood, paint, stone or metal work of the Premises
or the Building. Boring, cutting or stringing of wires is not permitted. Tenant
is not permitted to construct, maintain, use or operate, within the Premises, or
elsewhere within or on the outside of the Building, any electrical device,
wiring or apparatus in connection with a loud speaker system or other sound
system audible outside the Premises. Tenant shall not permit noise (whether
mechanically, electrically, or manually created) to emanate from the Premises.

8.       All electric and telephone wiring shall be installed in a manner
reasonably acceptable to the Landlord. Boring or cutting of floors and
partitions for wiring will not be permitted, except with written consent of
Landlord.

9.       Tenant shall not install or use any machinery in the Premises which may
cause any unreasonable noise, jar or tremor to the floors or walls, or which by
its weight might injure the floors of the Building. Landlord may restrict the
weight, size and position of all files, safes and heavy equipment used in the
Building, and may require such items to be mounted on a wood or metal base
acceptable to Landlord. All damage to the Building caused by installing or
removing any safe, furniture, equipment or other property shall be repaired at
the expense of Tenant.

                                                               Initials /s/ EJC
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                                                               Initials
                                                                        --------


                                        1

10.      Bicycles,  vehicles,  animals,  birds, or pets of any kind are not
permitted in the Building except guide dogs for the blind. Bicycles may be
stored in bicycle racks if provided within the Building

11.      Tenant shall not use, keep or permit to be used, in the Premises, any
inflammable, combustible or explosive substances, paints, chemicals or any toxic
or hazardous materials or substances or other potentially dangerous or offensive
substances or use or permit the use of dangerous or offensive substances or use
or permit the use of the Premises in a manner offensive or objectionable to the
Landlord or occupants of the Building by reason of noise, odors and/or
vibrations.

12.      Tenant shall not use the Building or the Premises for manufacturing or
the storage of merchandise or for the sale of merchandise, goods, or property of
any kind at auction.

13.      Removal and disposal of trash, rubbish or other refuse must take place
during the hours and using such procedures which Landlord or its agent may from
time to time determine.

14.      Contractors or persons employed by Tenant to perform work within the
Premises must obtain Landlord's consent prior to commencing such work, and such
person shall, while in the Building and outside of said Premises, comply with
all instructions issued by the manager/superintendent of the Building.

15.      No more than three (3) vending machines or similar machines of any
description shall be installed, maintained, or operated upon the Premises
without the written consent of the Landlord. Tenant shall not permit any cooking
other than microwave cooking on the Premises.

16.      Landlord reserves the right to exclude from the Building any person
who, in the judgment of the Landlord, is intoxicated or under the influence of
liquor or drugs or who is not known or does not property identify himself to the
Building management or watchman on duty. landlord may, at its option, require
all persons admitted to or leaving the Building during secured hours to register
with Building security guards. Each tenant shall be responsible for all persons
for whom he authorizes entry into the Building, and shall be liable to Landlord
for all acts of such persons.

17.      Canvassing, soliciting or peddling in the Building is prohibited and
Tenant shall cooperate to prevent same.

18.      Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's reasonable opinion tends to impair the reputation of the
Building or its desirability as a Building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.

19.      Tenant shall not install blinds, shades, awnings or other form of
inside or outside window coverings, or window ventilators or similar devices
without the prior written consent of Landlord.

20.      Tenant shall give Landlord prompt notice of any accidents to or defects
in the water pipes, gas pipes, electric lights and fixtures, heating apparatus
or any other service equipment in the Premises or Building.

21.      Landlord reserves the right to close and keep locked all doors of the
Building during hours Landlord may reasonable deem advisable for the adequate
protection of the property. Use of the Building before 7:00 am. or after 6:00
p.m. on Monday through Friday, and before 9:00 a.m. or after 2:00 p.m. on
Saturday, or at any other time during weekends or generally accepted legal
holidays, shall be permissive and subject to the rules and regulations Landlord
may reasonably prescribe. Landlord assumes no responsibility and shall not be
liable for any damage resulting from the entry of any authorized or unauthorized
person to the Building.

22.      Tenant's use of the property is governed by a Declaration of
Restrictions which has been recorded in the Official Records, in the Office of
the County Recorder of San Diego County, a copy of which is included as an
Exhibit to this Lease, and Tenant shall comply with the terms thereof.

23.      Landlord shall have the right to prohibit any use of the Building by
Tenant which in Landlord's opinion impairs the appearance of the Building.

24.      The Building Engineer must be in attendance during all move-ins and
move-outs and for all deliveries of furniture and equipment in order to install
and remove elevator pads, lock off freight elevator, key off security system and
generally oversee moving/delivery operation as appropriate. The hours charge for
the Building Engineer is its actual costs not to exceed Forty Dollars ($40.00)
per hour. This charge does not apply to Tenant's initial move-in. The foregoing
shall also apply to moves of Tenant's subtenants and/for assignees of Tenant.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                       2

25.      The smoking of cigarettes or use of cigarettes or use of tobacco
products in any form whatsoever is prohibited within the confines of 6020
Cornerstone Court West.

26.      Landlord reserves the right, from time to time, to make reasonable
amendments to the foregoing rules and regulations by giving notice to Tenant.

LANDLORD:                                   TENANT:

WILLIAMS PROPERTIES I, LLC                  HNC SOFTWARE, INC., a Delaware Corp.
& WILLIAMS PROPERTIES II, LLC,
California Limited Liability Companies

By: /s/ Elizabeth J. Clarquist              By: /s/ Raymond V. Thomas
   -----------------------------               ------------------------
   Elizabeth J. Clarquist                      Raymond V. Thomas

Title: Vice President                       Title: Chief Financial Officer

                                    EXHIBIT C
                              WORK LETTER AGREEMENT

         THIS WORK LETTER AGREEMENT is attached to and forms a part of that
certain Lease dated June 17,1996 (the "Lease"), by and between Williams
Properties I, LLC & Williams Properties II, LLC, California Limited Liability
Companies ("Landlord") and HNC Software, Inc., a Delaware Corporation ("Tenant")
and relates to the construction of certain improvements ("Tenant Improvements")
to the Premises which shall be constructed by Landlord as described below. All
terms not defined herein shall have the respective meanings set forth in the
Lease.

1.       TENANT IMPROVEMENT ALLOWANCE

         (a)      Landlord agrees to provide Tenant with the following tenant
improvement allowance (the "Tenant Improvement Allowance"): (i) Fifteen Dollars
($15) per rentable square foot within the portion of the Premises on the third
floor of the Building, or a total of Two Hundred Sixty-Five Thousand Six Hundred
Ninety-Five Dollars ($265,695), (ii) Twenty Dollars ($20) per usable square foot
within the portion of the Premises on the portion of the second floor of the
Building that is unimproved shell space, or a total of One Hundred Fifty-Six
Thousand Nine Hundred Sixty Dollars ($156,960), and (iii) Seven Dollars ($7) per
usable square foot for the portion of the Premises on the portion of the second
floor of the Building that has been previously improved, or a total of Thirty
Thousand Two Hundred Forty-Seven Dollars ($30,247). The allowances described in
clauses (i), (ii) and (iii) are specifically allocated to the applicable
portions of the Premises and may not be used for Tenant Improvements to any
other portion of the Premises, provided that Tenant may transfer up to five
percent (5%) of the amounts allocated in such clauses from one such portion of
the Premises to another. For example, Tenant may use not more than One Thousand
Five Hundred Twelve Dollars and Thirty-Five Cents ($1,512.35) of the allowance
for previously improved space on the second Door for Tenant Improvements to
other portions of the Premises. Any other transfers of the Tenant Improvement
Allowance from one portion of the Premises to another shall be subject to
Landlord's prior written approval. All soft costs including, but not limited to,
fees, contractor overhead, profit, processing, permits, architectural
engineering and reimbursables attributable directly or indirectly to the Tenant
Improvements shall be allocated between the portions of the Premises described
above based upon their proportional Tenant Improvement Allowance expenditures.

         (b)      The Tenant Improvement Allowance may be used to pay for the
construction by Landlord's Contractor (as defined below) of Tenant Improvements
permanently installed and incorporated into the realty of the Premises,
including costs of material and labor, fees for permits and licenses paid to any
governmental agency in connection with such construction, and other actual
out-of-pocket costs paid, directly or indirectly, by Landlord for such
construction, but specifically excluding payment for Tenant's fixtures,
furniture, cabling and other personal property, which shall be constructed and
installed at Tenant's sole cost and expense and in accordance with the
requirements of the Lease. Landlord shall not impose any charge upon the Tenant
Improvement Allowance for Landlord's profit, overhead or supervision of the
construction of the Tenant Improvements. Notwithstanding the foregoing, if
Landlord engages any consultants to review specialized or upgraded improvements
requested by Tenant, the reasonable costs incurred by Landlord shall be charged
against the Tenant Improvement Allowance.

         (c)      The Tenant Improvement Allowance may also be used to pay for
the services of the Space Planner (as defined below) to prepare the Space Plan
and the Plans and Specifications (as such terms are defined below) and to
provide construction administration, millwork plans and other space
planning/architectural services customarily provided for similar projects,
provided that the total amount of the Tenant Improvement Allowance that may be
used to pay the Space Planner shall not exceed One Dollar and Forty-Five Cents
($1.45) per usable square foot within the Premises ("Architectural Cap"). Tenant
shall be solely responsible for any fees or other amounts payable to the Space
Planner in excess of the Architectural Cap.

         (d)      Tenant shall be solely responsible for the cost of any Tenant
Improvements in excess of the Tenant Improvement Allowance (or in excess of the
portion of the Tenant Improvement Allowance allocated to each portion of the
Premises, subject to Tenant's limited right to reallocate such amounts as
described in (a) above), for the cost of any fees and costs of the Space Planner
in excess of the Architectural Cap and the cost of any decorating devices,
Tenant's fixtures, cabling, such as nonstandard items requested by Tenant to be
incorporated in the Tenant Improvements. Tenant shall pay to Landlord fifty
percent (50%) of any such excess cost upon presentation of an invoice to Tenant
and the remaining fifty percent (50%) upon Substantial Completion (as defined
below). Any such payments shall be collectible as additional obligations of
Tenant pursuant to the Lease and, in default of payment thereof, Landlord shall
(in addition to all other remedies) have the same rights as in the event of
default in payment of rent. Any portion of the Tenant Improvement Allowance that
is not used by Tenant upon Substantial Completion of the Tenant Improvements
shall be retained by Landlord and Tenant shall have no right or claim, then or
in the future, to any unused portion. The parties agree that the intent of the
Tenant Improvement Allowance is to cause to be constructed generic/building
standard Tenant Improvements throughout the Premises.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        1

         (e)      Tenant hereby agrees to accept the existing improvements
within the previously improved portion of the Premises on the second floor and
entire third floor in an "as-is, where-is" basis subject to Exhibit "A". On
existing improvements, Landlord shall be responsible, at its cost, for the
proper working order of all systems prior to Lease Commencement for only those
improvements which are not to be modified or planned to be modified by the
Landlord provided Tenant Improvement Allowance.

2.       SPACE PLANNER

         (a)      Tenant shall contract directly with Jackson & Bryan (the
"Space Planner") to prepare the Space Plan the Plans and Specifications and
other architectural documentation (collectively, the "Design Documents") and to
provide other space planning services in connection with the Tenant
Improvements.

         (b)      Tenant and the Space Planner shall be solely responsible for
ensuring that the Design Documents are architecturally sound and fully comply
with all applicable building codes, rules, regulations, ordinances and other
applicable laws. Tenant shall indemnify, defend and hold Landlord and its
Indemnitees harmless from all damages, liabilities, claims, penalties, fines,
costs and expenses (including attorneys' fees and costs incurred in connection
therewith or to enforce this indemnity agreement) arising from or relating to
any defects in the Design Documents or the failure of the Design Documents to
comply with all applicable building codes, rules, regulations, ordinances or
other laws.

         (c)      Landlord will disburse payments from the Tenant Improvement
Allowance to the Space Planner, subject to the Architectural Cap, within thirty
(30) days after presentation of invoices and lien releases and waivers
reasonably satisfactory to Landlord.

         (d)      Tenant shall meet with the Space Planner as soon as reasonably
possible following the execution of the Lease for the purpose of advising the
Space Planner of the nature and extent of the Tenant Improvements which Tenant
requests. On or before June 19, 1996, Tenant shall cause the Space Planner to
prepare and deliver to Landlord a space layout and improvement plan for the
Premises which shall have been previously approved by Tenant (the "Space Plan").
The Space Plan and the Final Plans and Specifications shall be attached to the
Lease as Exhibit D.

         (e)      Within twenty-one (21) days after Landlord's approval of the
Space Plan, Tenant shall cause the Space Planner to prepare and deliver to
Landlord the plans and specifications (the "Plans and Specifications") for the
Tenant Improvements which shall have been previously approved by Tenant. The
Plans and Specifications shall include complete architectural drawings and
specifications required to construct the Tenant Improvements, including detailed
plans for doors, partitioning, reflected ceilings, electrical fixtures, outlets
and switches, telephone and computer outlets, plumbing fixtures, extraordinary
floor loads and other special requirements.

         (f)      All Design Documents are subject to Landlord's prior written
approval, which the Landlord agrees shall not be unreasonably withheld, delayed
or conditioned. If Landlord disapproves any Design Documents, Tenant shall cause
the Space Planner to deliver revised Design Documents to Landlord within ten
(10) days. Without limiting the foregoing, Landlord may withhold its approval of
any Design Documents which require work which:

                  (i)      exceeds or affects the structural integrity of the
Building or any part of the heating, ventilating, air conditioning, plumbing,
mechanical, electrical, communication or other systems of the Building;

                  (ii)     violates any agreement which affects the Building or
which binds Landlord;

                  (iii)    Landlord reasonably believes will disproportionately
increase the cost of operation or maintenance of any of the systems of the
Building;

                  (iv)     Landlord reasonably believes will materially reduce
the market value of the Building at the end of the Lease Term;

                  (v)      does not conform to applicable building codes or is
not approved by any governmental authority with jurisdiction over the Premises
and/or the Building; or

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        2

                  (vi)     does not conform to the standards prepared by
Landlord, includes designs that are not generic or upgrades which are
specialized, or requires demolition of existing improvements or improvements
that may adversely impact the Building. Any upgrades or specialized improvements
shall be detailed and specified on an initial single line hand sketch to be
approved by Landlord before any such items may charged against the Tenant
Improvement Allowance.

         (g)      Landlord's review and approval of any Design Documents for the
Tenant Improvements shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with laws,
rules, and regulations of governmental agencies or authorities and shall not
relieve Tenant of its obligations under Section 2(b). Landlord makes no warranty
or representation as to the adequacy, efficiency, performance or desirability of
the Tenant Improvements.

         (h)      After approval of the Plans and Specifications, Tenant may
authorize changes in the work during construction only by written instructions
from Tenant to Landlord on a form approved by Landlord. All such changes shall
be subject to Landlord's prior written approval. Tenant shall be solely
responsible for the cost of any such changes, and such costs shall be chargeable
against the Tenant Improvement Allowance provided Landlord consents to such
requested change. Prior to commencing any change, Landlord shall prepare and
deliver to Tenant, for Tenant's approval, a change order (the "Change Order")
setting forth the additional time required to perform the change and the total
cost of such change, which will include associated architectural, engineering
and construction contractor's fees. If Tenant fails to approve such Change Order
in writing within two (2) business days after such delivery by Landlord, Tenant
shall be deemed to have withdrawn the proposed Change Order and Landlord shall
not proceed to perform the change. Upon Landlord's receipt of Tenant's approval,
Contractor shall proceed to perform the change and Tenant shall pay for such
Change Order in accordance with Section 1 (d) above. Notwithstanding any minor
change order request(s), in the event Tenant substantially changes the scope of
work, Landlord reserves the right to charge a reasonable administration fee not
to exceed Forty and No/1 00ths ($40.00) Dollars per hour relating to the
administration of the change order(s). Upon Landlord's approval of change
orders, it shall state the fee, if applicable, and then Tenant shall pay
Landlord the fee within ten (10) days of written commencement of the change
order. Change orders caused by existing conditions or unknown conditions shall
be excepted from Landlord's fees.

3.       TENANT IMPROVEMENT CONTRACTOR

         Landlord, based upon approved Plans and Specifications, shall
competitively bid the construction among the following contractors or other
approved contractors: FCC Construction, Bycor and Johnson & Jennings. Landlord
shall select a contractor (the "Contractor") and subcontractors in its
reasonable discretion based upon pricing, reputation and selection of
subcontractors and other factors Landlord deems relevant, and shall seek the
input of Tenant. Landlord will review with Tenant relevant contractor bids.

4.       CONSTRUCTION OF IMPROVEMENTS

         (a)      If the estimated cost ("Estimated Cost") to design and
construct the Tenant Improvements, including the Contractor's bid ("Bid
Amount"), is more than the amount of the Tenant Improvement Allowance, Landlord
shall notify Tenant in writing. Within three (3) business days following receipt
of such notice, Tenant shall either (i) agree in writing to pay the amount by
which the Estimated Cost exceeds the amount of the Tenant Improvement Allowance
in accordance with Section 1 (d) above or (ii) notify Landlord in writing of
Tenant's election to cause the Space Planner to revise the Plans and
Specifications to reduce the Estimated Cost. The revised Plans and
Specifications shall not be rebid, but shall instead be provided to the
Contractor for Contractor to revise the Bid Amount. This procedure shall be
repeated until the Plans and Specifications, the Bid Amount and the Estimated
Cost have been approved by Tenant and Landlord, but all revisions of the Plans
and Specifications and all revised Bid Amounts pursuant to this Section 4.A.
shall be a Tenant delay pursuant to Section 6.4 of the Lease and elsewhere
provided.

         (b)      Contractor shall construct the Tenant Improvements pursuant to
a contract with Landlord. Following approval of the Plans and Specifications,
the Bid Amount and the Estimated Cost by Landlord and Tenant, Contractor will
cause application to be made to the appropriate governmental authorities for
necessary approvals and building permits. Upon receipt of the necessary
approvals and permits, Contractor shall begin construction of the Tenant
Improvements.

         (c)      Landlord shall furnish Tenant, as soon as is reasonably
practicable after Substantial Completion (as defined below) of the Tenant
Improvements, a cost breakdown for the Tenant Improvements. Landlord shall also
provide any reasonable supporting data requested by Tenant in writing.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        3

5.       SUBSTANTIAL COMPLETION

         As used herein and in the Lease, the terms "Substantial Completion" or
"Substantially Complete" (or any other variant of such terms) with respect to
the Tenant Improvements shall mean that (i) the Premises have been approved to
occupy by the City of San Diego Building Inspection Department, and (ii) it has
been determined by a joint inspection of the Premises by a representative of the
Landlord and the Tenant that the Tenant Improvements have been constructed
substantially in accordance with the Plans and Specifications, except for
finishing details of construction, mechanical and other adjustments and other
items of the type commonly found on an architectural punch list, none of which
materially interfere with Tenant's use or occupancy of the Premises for Tenant's
intended normal business operation. Based on such joint inspection, Landlord
shall present to Tenant a Suite Acceptance Letter in Landlord's standard form
which Tenant shall promptly execute and deliver to Landlord. Any items of work
required by the Plans and Specifications and approved change order(s) that have
not been completed upon Substantial Completion shall be listed in the Suite
Acceptance Letter. Landlord shall promptly proceed to complete such items.

         If Substantial Completion is delayed as a result of (a) Tenant's
failure to comply with any time frames set forth herein or in the Lease, (b) any
changes to the approved Plans and Specifications requested by Tenant, (c)
Tenant's failure to furnish any documents required hereby, to approve any item
as required hereby or to perform any other act or obligation imposed on Tenant
by the Lease or this Work Letter as and when required, or (d) any other delay
caused by Tenant, its agents, employees or contractors (collectively, "Tenant
Delay"), then the Commencement Date and Tenant's obligation to pay Rent shall
begin on the date when Substantial Completion would have occurred but for the
Tenant Delay.

6.       AMERICANS WITH DISABILITIES ACT (ADA)/TITLE 24/CODE COMPLIANCE

         In order to establish a baseline, Landlord agrees that it will be
responsible at its sole cost for ensuring the compliance with applicable laws of
all existing unimproved areas and existing improvements within the common areas
of the Building and Premises, including all restrooms, corridors and access
areas. Landlord shall also be responsible for the cost of compliance with
applicable laws relating to areas affected by the Tenant Improvements to the
extent such Tenant Improvements are standard and generic, and such costs shall
not be charged against the Tenant Improvement Allowance. However, Tenant shall
be responsible for such cost of compliance, and such cost shall be charged
against the Tenant Improvement Allowance, to the extent the Tenant Improvements
(i) include special or upgraded improvements beyond those that are standard and
generic and trigger code compliance obligations for previously conforming areas
of the Building and (ii) require replacement and/or modification of the existing
fire rated corridors on floors two and three of the Building.

7.       UNAVOIDABLE DELAYS

         Performance by either party hereunder shall not be deemed to be in
default where delays or defaults are due to war, insurrection, strikes,
lock-outs, riots, floods, earthquakes, fires, casualties, acts of God, acts of
the public enemy, epidemics, quarantine restrictions, freight embargoes, lack of
transportation, governmental restrictions, moratoriums, third party litigation,
unusually severe weather, inability to secure necessary labor, materials or
tools, delays of any contractor or subcontractor or supplier, acts of the other
party, acts or failure to act of any public, private or governmental agency or
entity or any other causes beyond the control or without the fault of the party
claiming an extension of time to perform ("Unavoidable Delays").

LANDLORD:                             TENANT:

WILLIAMS PROPERTIES I, LLC            HNC SOFTWARE, INC., a Delaware Corporation
& WILLIAMS PROPERTIES n, LLC,
California Limited Liability Companies

By: /s/ Elizabeth J. Clarquist        By: /s/ Raymond V. Thomas
   -----------------------------         ------------------------
   Elizabeth J. Clarquist                Raymond V. Thomas

Title: Vice President                 Title: Chief Financial Officer

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        4

                                    EXHIBIT D
               PRELIMINARY SPACE PLAN/FINAL PLANS & SPECIFICATIONS
                                (TO BE ATTACHED)


                                                               Initials
                                                                        --------
                                                               Initials
                                                                        --------


                                        1


                                                                   EXHIBIT 10.47



                              EMPLOYMENT AGREEMENT


        THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
August 5, 2002 by and between FAIR, ISAAC AND COMPANY, INCORPORATED, a Delaware
corporation ("FIC") located at 200 Smith Ranch Road, San Rafael, California
94903, and KENNETH J. SAUNDERS ("Employee").

                              W I T N E S S E T H:

        WHEREAS, Employee is currently employed by HNC Software, Inc. ("HNC") as
Chief Financial Officer and Secretary; and

        WHEREAS, pursuant to an Agreement and Plan of Merger dated as of April
28, 2002, among FIC, HNC and Northstar Acquisition Inc. (the "Merger
Agreement"), FIC is acquiring all of the outstanding shares of HNC by way of the
merger of HNC with a wholly owned subsidiary of FIC (the "Merger"), with HNC as
the surviving entity; and

        WHEREAS, FIC intends to maintain and operate the business of HNC after
the Merger; and

        WHEREAS, FIC desires to have the benefits of Employee's knowledge and
experience as a full-time employee of FIC without distraction by
employment-related uncertainties and considers such employment a vital element
to protecting and enhancing the best interests of FIC and its stockholders, and
Employee desires to be employed full-time with FIC; and

        WHEREAS, FIC and Employee desire to enter into an agreement reflecting
the terms under which Employee will be employed by FIC after the Merger;

        NOW, THEREFORE, in consideration of the mutual covenants set forth in
the Merger Agreement and this Agreement, the parties hereto agree as follows:

        1. Effectiveness.

        This Agreement shall become effective only upon the later of (i) the
Closing of the Merger as defined in the Merger Agreement (the "Closing") or (ii)
approval by FIC Board of Directors (the "Board") of Employee's employment as
Chief Financial Officer of FIC, which date shall be the "Effective Date."

        2. Term.

        FIC hereby agrees to employ Employee and Employee hereby agrees to be
employed by FIC on a full-time basis for a four-year period commencing on the
Effective Date and ending on the fourth anniversary of the Effective Date,
provided that such period shall be automatically extended for one year and from
year to year thereafter until notice of termination is given by FIC or Employee
to the other party hereto at least 60 days prior to the fourth anniversary of
the Effective Date or the one-year extension period then in effect, as the case
may be, unless sooner terminated as provided in Section 9(a) hereof (the
"Term"). Employee's employment is



contingent on his ability to prove his identity and authorization to work in the
United States for FIC and his compliance with the Immigration and Naturalization
Service's employment verification requirements.

        3. Duties.

        Employee shall serve as Chief Financial Officer of FIC upon the terms
and conditions set forth in this Agreement, and shall have the duties and
responsibilities that are customarily associated with such position. Employee
shall report directly to the Chief Executive Officer of FIC. Employee will also
have such other powers and duties as may be prescribed by the Chief Executive
Officer of FIC, the Board or by FIC's bylaws.

        Employee is required to exercise his specialized expertise, independent
judgment and discretion to provide high-quality services, and to devote his full
business time, energies, efforts and abilities exclusively to his employment,
and shall use his best efforts and abilities to promote FIC's interests;
provided, however, that Employee may serve in any capacity with any civic,
educational or charitable organization, so long as such activities do not
interfere with his duties or obligations under this Agreement or arising out of
his position as an employee or an officer of FIC.

        Employee shall follow Employer's written policies, including any
policies published on FIC's internal or external websites, and procedures
adopted from time to time by Employer and to which Employee has had access,
which the Employer may change at any time. During the Term, Employee may not
engage, directly or indirectly, in any business activity that competes with or
is adverse to FIC's business, whether alone or as a partner, officer, director,
employee, consultant or investor in such business activity, including but not
limited to soliciting or assisting or causing others to solicit employees of FIC
or its subsidiaries for competitive employment. Notwithstanding the foregoing,
Employee may own, as a passive investor, securities of any competitor
corporation, provided that Employee's direct holdings in any one such
corporation shall not in the aggregate constitute more than three percent (3%)
of the voting stock of such corporation and further provided that such
investment does not violate Employee's fiduciary duties owed to FIC.

        4. Compensation.

        FIC shall compensate Employee for the services rendered under this
Agreement as follows:

               (a) A base salary at the annual rate of $341,000, less regular
payroll deductions, which covers all hours worked (the "Base Salary"), payable
at such other intervals and in such amounts in accordance with the
then-customary payroll practices of Employer for the payment of its employees.
Employee acknowledges that Employer's current payroll practices provide for
payment of annual base salaries on a bi-weekly basis in arrears. Employer will
review the Base Salary annually and may, in its sole discretion, increase the
Base Salary. Decreases in the Base Salary may be made if such is made generally
with respect to all other similarly situated employees and does not single out
Employee.

               (b) Employee shall be reimbursed for all reasonable business
expenses incurred on behalf of FIC while on business, upon submission of
appropriate documentation in



                                      -2-


accordance with FIC's general policies, as they may be amended from time to time
during the Term.

               (c) Employee shall also be eligible for an annual incentive bonus
under FIC's management incentive plan, as it may be changed or replaced from
time to time, on the same basis that such participation is normally granted to
vice presidents of FIC of similar levels of authority and base compensation.
Under FIC's current management incentive plan Employee shall be eligible for an
annual incentive bonus based on FIC's performance and Employee's achievement of
specific mutually agreed goals and objectives incorporating subjective and
objective measurable outcomes, with an annual payout opportunity from zero to
100% of the Base Salary, which bonus currently is calculated and paid on a
fiscal quarterly basis. Under the current plan, quarterly and year to date
performance will be considered in paying bonuses. Employee's participation will
begin on the first day of the first quarter that commences following the
Effective Date; provided, however, that Employee shall be eligible to receive a
pro-rated bonus for the partial quarter following the Effective Date on similar
terms.

               (d) All payments of compensation made by FIC under this Agreement
to Employee will be subject to tax withholding as required pursuant to
applicable laws and regulations.

        5. Employee Benefits and Expenses.

        In addition to the compensation specified in Section 4 above, Employee
shall be entitled to participate in any benefit plan or arrangement for, or to
receive employment benefits, such as medical, dental, vision care insurance and
life insurance, which are normally available to employees of Employer, on the
same basis that such participation or such benefits are normally granted to such
employees and to perquisites and fringe benefits no less favorable than those
generally received by any other vice-president of FIC of similar levels of
authority (the "Benefit Plans"). Employee shall also be entitled to holidays and
paid time off ("PTO") in accordance with FIC's policies as they may be in effect
from time to time. Employer reserves the right to modify, suspend or discontinue
any and all Benefit Plans and benefits, holidays and PTO policies and practices
at any time without notice to or recourse by Employee, so long as such action is
taken generally with respect to other similarly situated persons and does not
single out Employee. Employee, to the extent not prohibited by law, shall
receive service credit that includes his employment by HNC and Risk Data
Corporation prior to the Closing under all Benefit Plans and paid time off
("PTO") policies. A list and description of the foregoing benefits and policies
has been provided to Employee. These benefits and policies may change from time
to time.

        All expenses reasonably incurred by Employee, including but not limited
to, relocation expenses (if Employer relocates Employee to a work location other
than the San Diego, California metropolitan area after employment hereunder
commences), travel, telephone, entertainment and miscellaneous expenses in
connection with the proper discharge of his duties of employment will be paid by
Employer in accordance with Employer's relocation and/or reimbursement policy as
established and amended from time to time and generally distributed to employees
of Employer.



                                      -3-


        6. Place of Employment.

        During the Term, Employee shall perform the services he is required to
perform at Employer's office in San Diego, California. Employer may from time to
time require Employee to travel temporarily to other locations on Employer's
business; provided, however, that Employee will perform the substantial majority
of his services at the Employer's San Diego, California offices. Subject to
Employee's consent, and subject to Sections 9(b) and 12(c) hereof, Employer
reserves the right to transfer Employee to any other place or places determined
by Employer at any time in good faith deemed necessary or advisable by Employer
for business purposes and in such case, shall pay such relocation expenses as
provided for in Employer's then current written relocation policy.

        7. Stock Options.

               (a) On the first business day following the Closing, Employee
shall be granted options to purchase two hundred thousand (200,000)
non-qualified shares of FIC common stock, at an exercise price equal to the
closing sale price of FIC common stock on the New York Stock Exchange on August
6, 2002, pursuant to the Nonstatutory Stock Option Agreement (attached as
Exhibit A) and the Notice of Grant of Stock Options and Options Agreement to be
entered into as of the Effective Date between FIC and Employee. Such agreement
shall provide that 25% of such options shall be subject to vesting on each of
the first four anniversaries of the grant date, conditioned upon Employee's
continued employment by FIC. The option shall have a term of ten years from the
date of grant.

               (b) Approximately six (6) months after the Effective Date
Employee shall be eligible for additional options to purchase up to sixty
thousand (60,000) non-qualified shares of FIC common stock, at an exercise price
equal to the closing sale price of FIC common stock on the New York Stock
Exchange on the date of grant, pursuant to the Fair, Isaac and Company,
Incorporated 1992 Long-term Incentive Plan (attached as Exhibit B) and the Stock
Option Agreement to be entered into between FIC and Employee for such grant.
Such agreement shall provide that 25% of such options shall be subject to
vesting on each of the first four anniversaries of the grant date, conditioned
upon Employee's continued employment by FIC. The option shall have a term of ten
years from the date of grant. This grant is entirely contingent upon the sole
good faith assessment by the Chief Executive Officer that the following broad
objectives have been satisfactorily achieved by Employee, as solely determined
by the Chief Executive Officer:

                      (i) Significant improvement of core accounting and
reporting function to build process rigor, data reliability, regulatory
compliance and timeliness, including but not limited to staff integration.

                      (ii) Building an effective investor relations strategy and
taking appropriate steps to implement it;

                      (iii) Playing a central role on leading and facilitating
merger integration activities. In this capacity Employee will serve as a
critical regional Employee (San Diego) charged with ensuring real-time
resolution of issues that arise.

               (c) Employee shall be eligible to receive options based on FIC's
annual key manager grant cycle starting with the November, 2003 cycle.



                                      -4-


        8.     Waiver of Certain Rights; Non-Waiver of April 1, 2002 HNC
               Software Letter Agreement.

        Except as specified in the proviso below, Employee agrees to irrevocably
relinquish and waive any rights he has pursuant to any employment or other
service arrangements and agreements he has with HNC, and all such arrangements
and agreements shall be deemed terminated as of the Closing; provided, however,
that the letter agreement by and between Employee and HNC Software effective
April 1, 2002 (the "Letter Agreement") shall remain in full force and effect.

        9.     Termination.

               (a) Employee may terminate his employment hereunder for any
reason upon thirty (30) days' prior written notice to FIC. Employee's employment
hereunder will terminate automatically upon the death or Disability (as defined
below) of Employee or upon expiration of the Term after notice as provided in
Section 2 above. FIC may terminate Employee's employment hereunder, with or
without "Cause" (as defined below), upon thirty (30) days' prior written notice
to Employee; provided, however, that, immediately upon receipt of such notice,
Employee shall cease to hold himself out to any third party as an officer of
FIC, shall refrain from acting as an officer of FIC (including but not limited
to refraining from executing contracts and instruments in the name or on behalf
of FIC) and shall refrain from taking any action which may lead any third party
to believe that he is authorized to act on behalf of FIC.

               (b) In the event that Employee's employment hereunder is
terminated by FIC without "Cause" or by Employee for "Pre-Change of Control Good
Reason" (as defined below) then, if (and only if) Employee has not materially
breached this Agreement and Employee has executed and delivered to FIC a full
and unconditional release and non-solicit agreements in accordance with Section
11 in form satisfactory to FIC, Employee shall be entitled to the following
payments:

                      (i) 200% of the Base Salary, in accordance with the
payroll practices described in Section 4(a) (the "Base Salary Severance");

                      (ii) a bonus equal to 100% of the Base Salary (the
"Severance Bonus"), it being understood that no bonus with respect to any
succeeding anniversary or anniversaries would thereafter be payable; and

                      (iii) any accrued but unused paid time off (PTO) through
the date of termination.

        In addition, Employee's options that would otherwise vest within the
twelve-month period following the termination date shall immediately vest on the
date of termination.

        In the event Employee is in material breach of this Agreement at the
time of termination by FIC without "Cause" or by Employee for "Pre-Change of
Control Good Reason", FIC shall provide Employee written notice of the specific
grounds for such breach within one week of such termination. If Employee cures
such breach within 30 days of receipt of such notice and is not otherwise in
material breach (which breach shall also be subject to 30 days' written notice
and



                                      -5-


opportunity to cure), then Employee shall be entitled to the payments and other
benefits outlined in this Section 9(b).

               (c) In the event that Employee's employment hereunder is
terminated voluntarily by Employee, by FIC with "Cause", by reason of Employee's
death or Disability, or upon expiration of the Term after notice as provided in
Section 2, then Employee shall be entitled to receive his Base Salary and
benefits earned through the Termination Date, in accordance with the practices,
policies and plans of FIC then in effect.

               (d) Termination due to a Change in Control Event shall be
governed by Section 10 below. If Employee is eligible for benefits under Section
10, Employee shall not be entitled to receive any benefits under Section 9(b).

               (e) Regardless of the reason for the termination of this
Agreement or of Employee's employment hereunder, Employee shall continue to be
subject to and bound by the provisions of Sections 14 through 20, inclusive,
after any termination of employment or termination of this Agreement.

               (f) In the event of a termination of employment of Employee for
any reason, possession of each corporate record and file shall be retained by
FIC, and Employee or his heirs, assigns and legal representatives shall have no
right whatsoever in any such material, information or property. Employee agrees
to deliver to FIC at termination of employment or at any time upon written
request by FIC, all memoranda, notes, plans, records, records, reports and other
documents relating to the business of FIC and its subsidiaries which he may have
within his possession or control.

        10. Change in Control Events.

        No amounts or benefits shall be payable or provided for pursuant to this
Section 10 unless a Change in Control Event shall occur during the Term.

               (a) For purposes of this Agreement, a "Change in Control Event"
shall be deemed to have occurred if any of the following occur in one or a
series of related transactions:

                      (i) Any "person" (as defined in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended, or any successor statute
thereto (the "Exchange Act")) acquires or becomes a "beneficial owner" (as
defined in Rule 13d-3 or any successor rule under the Exchange Act), directly or
indirectly, of securities of FIC representing 30% or more of the combined voting
power of FIC's securities entitled to vote generally in the election of
directors ("Voting Securities") then outstanding or 30% or more of the shares of
common stock of FIC ("Common Stock") outstanding, provided, however, that the
following shall not constitute an Event pursuant to this Section 10(a)(i):

                             (A) any acquisition or beneficial ownership by FIC
or a subsidiary of FIC;

                             (B) any acquisition or beneficial ownership by any
employee benefit plan (or related trust) sponsored or maintained by FIC or one
or more of its subsidiaries;



                                      -6-


                             (C) any acquisition or beneficial ownership by any
corporation (including without limitation an acquisition in a transaction of the
nature described in Section 10 (a)(iii)) with respect to which, immediately
following such acquisition, more than 70%, respectively, of (x) the combined
voting power of FIC's then outstanding Voting Securities and (y) the Common
Stock is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who beneficially owned Voting Securities and
Common Stock, respectively, of FIC immediately prior to such acquisition in
substantially the same proportions as their ownership of such Voting Securities
and Common Stock, as the case may be, immediately prior to such acquisition; or

                             (D) any acquisition of Voting Securities or Common
Stock directly from FIC; and;

               Continuing Directors shall not constitute a majority of the
members of the Board of Directors of FIC. For purposes of this Section 10(a)(i),
"Continuing Directors" shall mean: (A) individuals who, on the date hereof, are
directors of FIC, (B) individuals elected as directors of FIC subsequent to the
date hereof for whose election proxies shall have been solicited by the Board of
Directors of FIC or (C) any individual elected or appointed by the Board of
Directors of FIC to fill vacancies on the Board of Directors of FIC caused by
death or resignation (but not by removal) or to fill newly-created
directorships, provided that a "Continuing Director" shall not include an
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the threatened election or removal
of directors (or other actual or threatened solicitation of proxies or consents)
by or on behalf of any person other than the Board of Directors of FIC; or,

                      (ii) Consummation of a reorganization, merger or
consolidation of FIC or a statutory exchange of outstanding Voting Securities of
FIC (other than a merger or consolidation with a subsidiary of FIC), unless
immediately following such reorganization, merger, consolidation or exchange,
all or substantially all of the persons who were the beneficial owners,
respectively, of Voting Securities and Common Stock immediately prior to such
reorganization, merger, consolidation or exchange beneficially own, directly or
indirectly, more than 70% of, respectively, (x) the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the corporation resulting from such reorganization, merger,
consolidation or exchange and (y) the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger, consolidation or
exchange in substantially the same proportions as their ownership, immediately
prior to such reorganization, merger, consolidation or exchange, of the Voting
Securities and Common Stock, as the case may be; or.

                      (iii)(x) Approval by the shareholders of FIC of a complete
liquidation or dissolution of FIC or (y) the sale or other disposition of all or
substantially all of the assets of FIC (in one or a series of transactions),
other than to a corporation with respect to which, immediately following such
sale or other disposition, more than 70% of, respectively, (1) the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (2) the then
outstanding shares of common stock of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the persons who
were the beneficial owners, respectively, of the Voting Securities and Common
Stock immediately prior to such sale or other disposition in substantially the
same proportions as their ownership, immediately prior to such sale or other
disposition, of the Voting Securities and Common Stock, as the case may be; or



                                      -7-


                      (iv) A majority of the members of the Board of Directors
of the Company shall have declared that a Change in Control Event has occurred
or that a Change of Control Event will occur upon satisfaction of specified
conditions, in which case the Change in Control Event shall be deemed to occur
upon satisfaction of such specified conditions; or

                      (v) FIC enters into a letter of intent, an agreement in
principle or a definitive agreement relating to a Change in Control Event
described in Section 10(a)(i), 10(a)(ii), 10(a)(iii) or 10(a)(iv) hereof that
ultimately results in such a Change in Control Event, or a tender or exchange
offer or proxy contest is commenced which ultimately results in a Change in
Control Event described in Section 10(a)(i) hereof; or

                      (v) There shall be an involuntary termination of
employment of the Employee or Termination for Good Reason (as defined below),
and the Employee reasonably demonstrates that such event (x) was requested by a
party other than the Board of Directors of FIC that had previously taken other
steps reasonably calculated to result in a Change in Control Event described in
Section 10(a)(i), 10(a)(ii), 10(a)(iii) or 10(a)(iv) hereof and which ultimately
results in a Change in Control Event described in Section 10(a)(i), 10(a)(ii),
10(a)(iii) or 10(a)(iv) hereof, or (y) otherwise arose in connection with or in
anticipation of a Change in Control Event described in Section 10(a)(i),
10(a)(ii), 10(a)(iii) or 10(a)(iv) hereof that ultimately occurs.

        Notwithstanding anything stated in this Section 10(a), a Change in
Control Event shall not be deemed to occur with respect to Employee if (x) the
acquisition or beneficial ownership of the 30% or greater interest referred to
in Section 10(a)(i) is by Employee or by a group, acting in concert, that
includes Employee or (y) a majority of the then combined voting power of the
then outstanding voting securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity) acquiring all or
substantially all of the assets of FIC shall, immediately after a
reorganization, merger, exchange, consolidation or disposition of assets
referred to in Section 10(a)(ii) or 10(a)(iii), be beneficially owned, directly
or indirectly, by Employee or by a group, acting in concert, that includes
Employee.

        (b) For purposes of this Agreement, a "subsidiary" of FIC shall mean any
entity of which securities or other ownership interests having general voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by FIC.

        (c) If any Change in Control Event shall occur during the Term, then the
Employee shall be entitled to receive from FIC or its successor (which term as
used herein shall include any person acquiring all or substantially all of the
assets of FIC) a cash payment and other benefits on the following basis (unless
the Employee's employment by FIC is terminated voluntarily or involuntarily
prior to the occurrence of the earliest Change in Control Event to occur (the
"First Change in Control Event"), in which case Employee shall be entitled to no
payment or benefits under this Section 10):

               (i) If at the time of, or at any time after, the occurrence of
the First Change in Control Event and prior to the end of the Transition Period,
the employment of Employee with FIC is voluntarily or involuntarily terminated
for any reason (unless such termination is a voluntary termination by Employee
other than for Post-Change of Control Good Reason, is on account of the death or
Disability of the Employee or is a termination by FIC for Cause), subject to the
limitations set forth in Section 11, Employee shall be entitled to the
following:



                                      -8-


                      (A) FIC shall pay Employee's full base salary through the
Termination Date at the rate then in effect.

                      (B) FIC or its successor, within 90 days after the
Termination Date, shall make a cash payment to Employee in an amount equal to
two times the sum of (A) the Base Salary of Employee in effect immediately prior
to the First Change in Control Event plus (B) a cash bonus equal to 100% of the
Base Salary.

                      (C) For a 24-month period after the Termination Date, FIC
shall allow Employee to participate in any health, disability and life insurance
plan or program in which the Employee was entitled to participate immediately
prior to the First Event as if Employee were an employee of FIC during such
24-month period; provided, however, that in the event that Employee's
participation in any such health, disability or life insurance plan or program
of FIC is barred, FIC, at its sole cost and expense, shall arrange to provide
Employee with benefits substantially similar to those which Employee would be
entitled to receive under such plan or program if Employee were not barred from
participation. Benefits otherwise receivable by Employee pursuant to this
section 10(a)(iii) shall be reduced to the extent comparable benefits are
received by Employee from another employer or other third party during such
24-month period, and Employee shall promptly report receipt of any such benefits
to FIC.

                      (D) Any outstanding and unvested stock options granted to
Employee shall be accelerated and become immediately exercisable by Employee and
shall remain exercisable for the lesser of one year from the date of termination
or the original ten-year term of the option and any restricted stock awarded to
Employee and subject to forfeiture shall be fully vested and shall no longer be
subject to forfeiture.

               (ii) FIC shall also pay to Employee all legal fees and expenses
incurred by the Employee as a result of such termination, including, but not
limited to, all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right or
benefit provided by this Section 10.

               (iii) In addition to all other amounts payable to Employee under
this Section 10(c), Employee shall be entitled to receive all benefits payable
to Employee under any other plan or agreement relating to retirement benefits.

               (iv) Employee shall not be required to mitigate the amount of any
payment or other benefit provided for in this Section 10 by seeking other
employment or otherwise, nor shall the amount of any payment or other benefit
provided for in this Section 10(c) be reduced by any compensation earned by
Employee as the result of employment by another employer after the Termination
Date or otherwise, except as specifically provided in this Agreement.

        11. Conditions to Receipt of Termination Benefits.

        Notwithstanding any other provision of this Agreement, FIC will not pay
to Employee, and Employee will not be entitled to receive, any payment pursuant
to Sections 9(b) or 10(c) unless and until:

               (a) Employee executes, and there shall be effective following any
statutory period for revocation or rescission, a release that irrevocably and
unconditionally releases FIC,



                                      -9-


any person acquiring FIC or its assets, and their past and current shareholders,
directors, officers, employees and agents from and against any and all claims,
liabilities, obligations, covenants, rights and damages of any nature
whatsoever, whether known or unknown, anticipated or unanticipated; provided,
however, that the release shall not adversely affect Employee's rights to
receive benefits to which he is entitled under this Agreement or Employee's
rights to indemnification under applicable law, the charter documents of FIC,
any insurance policy maintained by FIC or any written agreement between FIC and
Employee; and

               (b) Employee executes an agreement prohibiting Employee for a
period of one (1) year following the Termination Date from soliciting,
recruiting or inducing, or attempting to solicit, recruit or induce, any
employee of FIC or of any FIC acquiring FIC or its assets to terminate the
employee's employment.

        12. Definitions.

        As used herein, the following terms shall have the meaning set forth in
below for purposes of this Agreement:

            (a) "Cause" shall mean: (i) an act or acts of personal dishonesty
taken by Employee and intended to result in substantial personal enrichment of
Employee at the expense of the Company, (ii) Employee's willful breach of
Employee's material obligations under this Agreement or Employee's willful
failure or repeated refusal to perform or observe Employee's duties,
responsibilities and obligations as an Employee of the Company for reasons other
than disability or incapacity, (iii) the existence of any court order or
settlement agreement prohibiting Employee's continued employment with the
Company; (iv) if Employee has signed and/or entered into a written or oral
non-competition agreement, confidentiality agreement, proprietary information
agreement, trade secret agreement or any other agreement which would prevent
Employee from working for the Company and/or from performing Employee's duties
at the Company; or (v) the willful engaging by Employee in illegal conduct that
is materially and demonstrably injurious to the Company. For the purposes of
this definition, no act or failure to act on Employee's part shall be considered
"dishonest," "willful" or "deliberate" unless done or omitted to be done by
Employee in bad faith and without reasonable belief that Employee's action or
omission was in, or not opposed, to the best interests of the Company. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by Employee in good
faith and in the best interests of the Company.

               (b) "Disability" shall mean Employee's absence from his duties
with FIC on a full time basis for 180 consecutive business days, as a result of
Employee's incapacity due to physical or mental illness, unless within 30 days
after written notice of intent to terminate is given by FIC following such
absence Employee shall have returned to the full time performance of Employee's
duties.

               (c) "Pre-Change of Control Good Reason" shall mean, if, prior to
a Change of Control, without the Employee's express written consent, any of the
following shall occur:

                      (i) The assignment to Employee of any material duties
inconsistent with Employee's status or position with FIC, or any other action by
FIC that results in a substantial diminution in such status or position,
excluding any isolated, insubstantial, or



                                      -10-


inadvertent action not taken in bad faith and which is remedied by FIC promptly
after receipt of notice thereof from Employee.

                      (ii) A material reduction by FIC in Employee's annual Base
Salary or target incentive (other than consistently with a reduction instituted
for all senior executives of FIC);

                      (iii) FIC requiring Employee to relocate to any place
other than a location within forty miles of FIC's San Diego location, except for
required travel on FIC business consistent with Section 6 hereof.

               (d) "Post-Change of Control Good Reason" shall mean, if, on or
following a Change of Control, without the Employee's express written consent,
any of the following shall occur:

                      (i) The Assignment to Employee of any material duties
inconsistent with Employee's status or position with FIC, or any other action by
FIC that results in a substantial diminution in such status or position,
excluding any isolated, insubstantial, or inadvertent action not taken in bad
faith and which is remedied by FIC promptly after receipt of notice thereof from
Employee.

                      (ii) A material reduction by FIC in Employee's annual Base
Salary or target incentive in effect immediately prior to the First Change in
Control Event or Termination;

                      (iii) The failure by FIC to continue to provide Employee
with benefits at least as favorable in the aggregate to those enjoyed by
Employee under FIC's pension, life insurance, medical, health and accident,
disability, deferred compensation, incentive awards, employee stock options or
savings plans in which Employee was participating at the time of the First
Change in Control Event, the taking of any action by FIC that would directly or
indirectly materially reduce any of such benefits or deprive Employee of any
material fringe benefit enjoyed at the time of the First Change in Control
Event, or the failure by FIC to provide Employee with the number of paid
vacation days to which Executive is entitled at the time of the First Change in
Control Event, but excluding any failure or action by FIC that is not taken in
bad faith and which is remedied by FIC promptly after receipt of notice thereof
from Employee;

                      (iv) FIC requiring Employee to relocate to any place other
than a location within forty miles of the location at which Employee performed
his primary duties immediately prior to the First Change in Control Event, or if
Employee is based at FIC's principal executive offices to a location more than
forty miles from its location immediately prior to the First Change in Control
Event, except for required travel on FIC business to an extent substantially
consistent with Employee's prior business travel obligations; or

                      (v) The failure of the Company to obtain agreement form
any successor to assume and agree to perform this Agreement, as contemplated in
Section 22(b).

               (e) Other than in Section 10(a) hereof, the term "person" shall
mean an individual, partnership, corporation, estate, trust or other entity.



                                      -11-


               (f) "Termination Date" shall mean the date of termination of
Employee's employment, which in the case of termination for Disability shall be
the 30th day after notice is given as required in Section 12(b).

               (g) "Transition Period" shall mean the one-year period commencing
on the date of the earliest to occur of an Event described in Section 10(a)(i),
10(a)(ii), 10(a)(iii) or 10(a)(iv) hereof (the "Commencement Date") and ending
on the first anniversary of the Commencement Date.

        13. Excise Tax.

               (a) Notwithstanding anything contained herein to the contrary,
prior to the payment of any amounts pursuant to Section 10(c) hereof, an
independent national accounting firm designated by FIC (the "Accounting Firm")
shall compute whether there would be any "excess parachute payments" payable to
Employee, within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), taking into account the total "parachute
payments," within the meaning of Section 280G of the Code, payable to Employee
by FIC or any successor thereto under this Agreement and any other plan,
agreement or otherwise. If there would be any excess parachute payments, the
Accounting Firm will compute the net after-tax proceeds to Employee, taking into
account the excise tax imposed by Section 4999 of the Code, if (i) the payments
hereunder were reduced, but not below zero, such that the total parachute
payments payable to Employee would not exceed three (3) times the "base amount"
as defined in Section 280G of the Code, less One Dollar ($1.00), or (ii) the
payments hereunder were not reduced. If reducing the payments hereunder would
result in a greater after-tax amount to Employee, such lesser amount shall be
paid to Employee. If not reducing the payments hereunder would result in a
greater after-tax amount to Employee, such payments shall not be reduced. The
determination by the Accounting Firm shall be binding upon FIC and Employee
subject to the application of Section 13(b) hereof.

               (b) As a result of uncertainty in the application of Sections
280G of the Code, it is possible that excess parachute payments will be paid
when such payment would result in a lesser after-tax amount to Employee; this is
not the intent hereof. In such cases, the payment of any excess parachute
payments will be void ab initio as regards any such excess. Any excess will be
treated as an overpayment by FIC to Employee. Employee will return the
overpayment to FIC, within fifteen (15) business days of any determination by
the Accounting Firm that excess parachute payments have been paid when not so
intended, with interest at an annual rate equal to the rate provided in Section
1274(d) of the Code (or 120% of such rate if the Accounting Firm determines that
such rate is necessary to avoid an excise tax under Section 4999 of the Code)
from the date Employee received the excess until it is repaid to FIC.

               (c) All fees, costs and expenses (including, but not limited to,
the cost of retaining experts) of the Accounting Firm shall be borne by FIC and
FIC shall pay such fees, costs, and expenses as they become due. In performing
the computations required hereunder, the Accounting Firm shall assume that taxes
will be paid for state and federal purposes at the highest possible marginal tax
rates which could be applicable to Employee in the year of receipt of the
payments, unless Employee agrees otherwise.

        14. Proprietary Information.



                                      -12-


        Employee is required to, and agrees to sign and abide by the terms of
Employer's Non-Disclosure Agreement (Exhibit C) and Customer Information
Confidentiality Agreement (Exhibit D) (collectively the "Proprietary Information
Agreements") attached hereto as Exhibits C and D. Employee agrees that the
Non-Disclosure Agreement and Customer Information Confidentiality Agreements are
separate agreements independently supported by good and adequate consideration
and, notwithstanding anything in this Agreement to the contrary, shall be
severable from the other provisions of, and shall survive, this Agreement.

        15. Dispute Resolution Procedure.

        If Employee disputes any determination made by FIC regarding Employee's
eligibility for any Change of Control Events benefits under Section 10, the
amount or terms of payment of any benefits under Section 10, or FIC's
application of any provision of Section 10, then Employee shall, before pursuing
any other remedies that may be available to Employee, seek to resolve such
dispute by submitting a written claim notice to FIC. The notice by Employee
shall explain the specific reasons for Employee's claim and basis therefor. The
Board of Directors shall review such claim and FIC will notify Employee in
writing of its response within sixty (60) days of the date on which Employee's
notice of claim was given. The notice responding to Employee's claim will
explain the specific reasons for the decision. Employee shall submit a written
claim hereunder before pursuing any other process for resolution of such claim.
This Section 15 does not otherwise affect any rights that Employee or FIC may
have in law or equity to seek any right or benefit under this Agreement.

        Nothing herein shall limit any remedy available under the Proprietary
Information Agreements with respect to violations or threatened violations
thereof, including the pursuit of injunctive relief in court.

        16. Representations and Warranty of Employee.

        Employee represents and warrants to FIC that the performance of his
duties hereunder will not violate any agreement with or any trade secret of any
other person or entity.

        17. Notices.

        All notices, requests, demands and other communication called for or
contemplated hereunder shall be in writing and shall be deemed to have been duly
given when delivered personally or when mailed by United States certified or
registered mail, postage prepaid, addressed to the parties or their successors
in interest at the following addresses or such other addresses as the parties
may designate by notice in the manner aforesaid:

        If to FIC:                   Fair, Isaac and Company, Incorporated.
                                     4295 Lexington Avenue North
                                     St. Paul, MN 55126 USA
                                     Attn:  Chief Executive Officer



                                      -13-


        With a copy to:              Fair, Isaac and Company, Incorporated
                                     4295 Lexington Avenue North
                                     St. Paul, MN 55126 USA
                                     Attn: General Counsel

        If to Employee:


        18. Governing Law.

        This Agreement and the resolution of any disputes hereunder shall be
governed by and construed in accordance with the laws of the State of
California.

        19. Entire Agreement.

        The terms of this Agreement are intended by the parties to be the final
expression of their agreement with respect to the subject matter hereof and may
not be contradicted by evidence of any prior or contemporaneous agreements,
representations or promises of any kind, whether written, oral, express or
implied, between HNC or FIC and Employee with respect to the subject matters
herein, including any former employment agreements. This Agreement is intended
as the complete and exclusive agreement between the parties with respect to
Employee's employment by FIC, and no extrinsic evidence whatsoever may be
introduced in any judicial, administrative, or other legal proceeding involving
this Agreement

        20. Validity.

        If any provision of this Agreement, or the application thereof to any
person, place or circumstance, shall be held to be invalid, unenforceable or
void, the remainder of this Agreement and such provision as applied to other
persons, places and circumstances shall remain in full force and effect.

        21. Employee Acknowledgment.

        Employee acknowledges that he has had an opportunity to consult with his
own separate counsel regarding the terms of this Agreement.

        22. Successors and Assigns.

               (a) This Agreement shall be binding upon and inure to the benefit
of the successors, legal representatives and assigns of the parties hereto;
provided, however, that the Employee shall not have any right to assign, pledge
or otherwise dispose of or transfer any interest in this Agreement or any
payments hereunder, whether directly or indirectly or in whole or in part,
without the written consent of FIC or its successor.

               (b) FIC will require any successor (whether direct or indirect,
by purchase of a majority of the outstanding voting stock of FIC or all or
substantially all of the assets of FIC, or by merger, consolidation or
otherwise), by agreement in form and substance satisfactory to Employee, to
assume expressly and agree to perform this Agreement in the same manner and to



                                      -14-


the same extent that FIC would be required to perform it if no such succession
had taken place. Failure of FIC to obtain such agreement prior to the
effectiveness of any such succession (other than in the case of a merger or
consolidation) shall be a breach of this Agreement and shall entitle Employee to
compensation from FIC in the same amount and on the same terms as Employee would
be entitled hereunder in the event of termination by FIC without Cause. As used
in this Agreement, "FIC" shall mean FIC as hereinbefore defined and any
successor to its business and/or assets as aforesaid that is required to execute
and deliver the agreement as provided for in this Section 22(b) or that
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.

        23. Integration.

        In the event that any payments or benefits become payable to Employee
pursuant to Section 9 or 10 of this Agreement, then this Agreement will
supersede and replace any other agreement, plan or program applicable to
Employee to the extent that such other agreement, plan or program provides for
payments or benefits to Employee arising out of the involuntary termination of
Employee's employment or termination by Employee for Good Reason. In addition,
the acceleration of stock options and lapsing of forfeiture provisions of
restricted stock provided pursuant to Section 10(c)(i)(D) of this Agreement
shall not be subject to the provisions of Article 13 of FIC's 1992 Long-Term
Incentive Plan (or similar successor provision or plan).

        24. No Offsets. No amount payable to Employee pursuant to this Agreement
shall be reduced for purposes of offsetting either directly or indirectly any
indebtedness or liability of Employee to FIC, unless FIC claims in good faith
that an indebtedness or liability of Employee to FIC exists as a result of acts
by Employee that are illegal or constitute a violation of Employee's fiduciary
duties to FIC.

        25. Attorney Fee Reimbursement.

Employee shall be entitled to reimbursement of reasonable attorneys' fees for
reviewing this Agreement and related documentation, not to exceed $10,000.

        26. Miscellaneous.

        No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the parties, and, to the extent required, is approved by the Board. No waiver
by either party hereto at any time of any breach by the other party to this
Agreement of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior to similar time.



                                      -15-


        IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

                                        FAIR, ISAAC AND COMPANY, INCORPORATED


                                        By
                                           -------------------------------------

                                        Title
                                             -----------------------------------


                                        EMPLOYEE


                                        /s/ Kenneth J. Saunders
                                        ----------------------------------------
                                        KENNETH J. SAUNDERS


Exhibits attached:

Exhibit A      Nonstatutory Stock Option Agreement
Exhibit B      1992 Long-Term Incentive Plan
Exhibit C      Employer's Non-Disclosure Agreement
Exhibit D      Customer Information Confidentiality Agreement



                                      -16-


- --------------------------------------------------------------------------------
                                    EXHIBIT A
- --------------------------------------------------------------------------------

                         NOTICE OF GRANT OF STOCK OPTION

                      Fair, Isaac and Company, Incorporated
                                 Id: 94:1499887
                              200 Smith Ranch Road
                              San Rafael, CA 94903

- --------------------------------------------------------------------------------

Kenneth J. Saunders                          OPTION NUMBER: _________________
                                             PLAN:               None
                                             ID:            _________________

- --------------------------------------------------------------------------------

Effective 8/6/2002, you have been granted a Non-Qualified Stock Option to buy
200,000 shares of common stock of Fair, Isaac and Company, Incorporated ("Fair,
Isaac") at $31.2600 per share (the "Option"). The Option will expire on August
5, 2012 (the "Expiration Date"). This Option is not granted pursuant to the
terms of the Fair, Isaac 1992 Long-Term Incentive Plan.

The total option price of the shares granted is $6,252,000.00.

Subject to the Terms and Conditions of Nonstatutory Stock Option Agreement
attached to this Notice, the Option shall become exercisable as to the number of
shares of common stock on the dates specified below.



               SHARES                        VESTING DATE
               ------                        ------------
                                          
               50,000                        8/6/2003
               50,000                        8/6/2004
               50,000                        8/6/2005
               50,000                        8/6/2006


By your signature and Fair, Isaac's signature below, you and Fair, Isaac agree
that this Notice of Grant of Stock Option and the Terms and Conditions of
Nonstatutory Stock Option Agreement, which is attached hereto constitute the
Nonstatutory Stock Option Agreement governing this Option.

- --------------------------------------------------------------------------------

- ----------------------------------------               -------------------------
Andrea M. Fike, Vice President                         Date:
Fair, Isaac and Company, Incorporated


- ----------------------------------------               -------------------------
Kenneth J. Saunders                                    Date:



                                      -17-


                      FAIR, ISAAC AND COMPANY, INCORPORATED

           TERMS AND CONDITIONS OF NONSTATUTORY STOCK OPTION AGREEMENT

                             FOR EXECUTIVE OFFICERS

               These are the terms and conditions applicable to the NONSTATUTORY
STOCK OPTION granted by Fair, Isaac and Company, Incorporated, a Delaware
corporation ("Fair, Isaac"), to you, the optionee listed on the Notice of Grant
of Stock Option attached hereto as the cover page (the "Cover Page"), effective
as of the date of grant. The Cover Page together with these Terms and Conditions
of Nonstatutory Stock Option Agreement constitute the Nonstatutory Stock Option
Agreement (the "Option Agreement").

NONSTATUTORY          This Option is not intended to qualify as an incentive
                      stock option under Section 422 of the Internal Revenue
                      Code.

VESTING               Your Option vests and will be exercisable on the Vesting
                      Dates, as shown on the Cover Page. In addition, your
                      entire Option vests and will be exercisable in full in the
                      event that:

                      -   your service as an employee or director of Fair, Isaac
                          (or any subsidiary) terminates because of your
                          Disability or death, or

                      -   any written employment agreement (other than an option
                          agreement) between you and Fair, Isaac provides for
                          acceleration of this Option in connection with a
                          change in control of Fair, Isaac or upon any other
                          specified event or combination of events.

                      No additional shares become exercisable after your
                      employment or service with Fair, Isaac has terminated for
                      any reason.

EXERCISE PERIOD       The right to purchase shares under this Option Agreement
                      terminates at 3:00 p.m. Pacific Time on the earliest of

                      -   the Expiration Date shown on the Cover Page; or

                      -   the 90th day after the termination date of your
                          service as an employee or director of Fair, Isaac (or
                          any subsidiary), except if your termination results
                          from Retirement, Disability or death or if your
                          termination was in connection with a change in control
                          of Fair, Isaac and any employment agreement or other
                          written agreement between you and Fair, Isaac requires
                          that any payments be made to you as a result of such
                          termination; or

                      -   the anniversary date of your Retirement as an employee
                          or director of Fair, Isaac (or any subsidiary); or

                      -   the anniversary date of the commencement of your
                          Disability, if you become disabled while an employee,
                          director, consultant or advisor of Fair, Isaac (or any
                          subsidiary); or

                      -   the anniversary date of your death, if you die while
                          an employee or director of Fair, Isaac (or any
                          subsidiary); or

                      -   the anniversary date of your termination, if your
                          termination was in connection with a change in control
                          of Fair, Isaac and any employment agreement or other
                          written agreement between you and Fair, Isaac requires
                          that any payments be made to you as a result of such
                          termination.

LEAVES OF             For purposes of this Option, your service does not
ABSENCE               terminate when you go on a military leave, a sick leave or
                      another bona fide leave of absence, if the leave was
                      approved by Fair, Isaac in writing. Unless you return to
                      active work upon termination of your approved leave, your
                      service will be treated as terminating on the later of 90
                      days after you went on leave or the date that your right
                      to return to active work is guaranteed by law or by a
                      contract.



RESTRICTIONS          You may not exercise this Option if the issuance of shares
ON EXERCISE           at that time would violate any law or regulation, as
                      determined by Fair, Isaac. Moreover, you cannot exercise
                      this Option unless you have returned a signed copy of the
                      Option Agreement to Fair, Isaac.

NOTICE OF             If you do not exercise this Option through an automated
EXERCISE              electronic exercise vehicle approved by Fair, Isaac, then
                      you must notify Fair, Isaac of your intent to exercise
                      this Option by completing the appropriate Notice of
                      Exercise form and delivering it to the address provided on
                      the Notice of Exercise before your right to purchase
                      shares under this Option Agreement terminates. If you send
                      your Notice of Exercise by facsimile transmission, it will
                      be effective only if it is promptly confirmed by filing a
                      form with an original signature.

                      The Notice of Exercise must specify how many shares you
                      wish to purchase and must specify how your shares should
                      be registered (in your name only or in your and your
                      spouse's names as community property or as joint tenants
                      with right of survivorship).

                      If someone else wants to exercise this Option after your
                      death, that person must prove to Fair, Isaac's
                      satisfaction that he or she is entitled to do so.

FORM OF PAYMENT       When you submit your Notice of Exercise, you must include
                      payment of the exercise price shown on the Cover Page for
                      the shares you are purchasing. Payment may be made in one
                      (or a combination of two or more) of the following forms
                      as approved by Fair, Isaac in its sole discretion:

                      -   Your personal check, a cashier's check or a money
                          order;

                      -   Irrevocable directions to a securities broker approved
                          by Fair, Isaac to sell shares underlying this Option
                          and to deliver all or a portion of the sale proceeds
                          to Fair, Isaac in payment of the exercise price and
                          the balance of the sale proceeds to you; all pursuant
                          to a special "Notice of Exercise" form provided by
                          Fair, Isaac; or

                      -   Certificates for shares of Fair, Isaac common stock
                          that you have owned for at least 12 months, along with
                          any forms needed to effect a transfer of those shares
                          to Fair, Isaac with the value of the shares,
                          determined as of the effective date of the exercise of
                          this Option, applied to the exercise price.

WITHHOLDING           You will not be allowed to exercise this Option unless you
TAXES                 make acceptable arrangements to pay any withholding taxes
                      that may be due as a result of the exercise of this
                      Option. These arrangements must be satisfactory to Fair,
                      Isaac. You may direct Fair, Isaac to withhold shares with
                      a market value equal to the withholding taxes due from the
                      shares to be issued as a result of your exercise of this
                      Option.

RESTRICTIONS          By signing the Option Agreement, you agree not to sell any
ON RESALE             shares at a time when applicable laws or Fair, Isaac
                      policies prohibit a sale.

TRANSFER OF           Prior to your death, only you or a permitted assignee as
OPTION                defined herein may exercise this Option (unless this
                      Option or a portion thereof has been transferred to your
                      former spouse by a domestic relations order by a court of
                      competent jurisdiction). You may transfer this Option or a
                      portion of this Option by gift to members of your
                      immediate family, a partnership consisting solely of you
                      and/or members of your immediate family, or to a trust
                      established for the benefit of you and/or members of your
                      immediate family (including a charitable remainder trust
                      whose income beneficiaries consist solely of such
                      persons). For purposes of the foregoing, "immediate
                      family" means your spouse, children or grandchildren,
                      including step-children or step-grandchildren. Any of
                      these persons is a "permitted assignee." However, such
                      transfer shall not be effective until you have delivered
                      to Fair, Isaac notice of such transfer. You cannot
                      transfer, pledge, hypothecate, assign or otherwise dispose
                      of this Option, including using this Option as security
                      for a loan. Any attempts to do any of these things
                      contrary to the provisions of this Option, and the levy of
                      any attachment or similar process upon this Option, shall
                      be null and void. You may, however, dispose of this Option
                      in your will or by a written beneficiary designation. Such
                      a designation must be filed with Fair, Isaac on the proper
                      form.



                                      -2-


RETENTION             Neither your Option nor the terms of this Option Agreement
RIGHTS                give you the right to continue as an employee or director
                      of Fair, Isaac (or any subsidiaries) in any capacity.
                      Fair, Isaac (and any subsidiaries) reserve the right to
                      terminate your service at any time, with or without cause,
                      subject to the terms of any written employment agreement
                      signed by you and Fair, Isaac.

STOCKHOLDER           You, or your assignees, estate, beneficiaries or heirs,
RIGHTS                have no rights as a stockholder of Fair, Isaac until a
                      certificate for any portion of the shares underlying this
                      Option has been issued. No adjustments are made for
                      dividends or other rights if the applicable record date
                      occurs before your stock certificate is issued.

ADJUSTMENTS           In the event of a subdivision of the common stock of Fair,
                      Isaac ("Common Stock") outstanding, a declaration of a
                      divided payable in Common Stock, a declaration of a
                      dividend payable in a form other than Common Stock in an
                      amount that has a material effect on the price of the
                      Common Stock, a combination or consolidation of the
                      outstanding Common Stock (by reclassification or
                      otherwise) into a lesser number of shares, a
                      recapitalization, a spinoff or a similar occurrence, the
                      Compensation Committee of the Board of Directors of Fair,
                      Isaac shall make appropriate adjustments in one or more of
                      (a) the number of shares underlying this Option, or (b)
                      the exercise price of this Option. Except as provided
                      herein, you shall have no rights by reason of any issue by
                      Fair, Isaac of stock of any class or securities
                      convertible into stock of any class, any subdivision or
                      consolidation of shares of stock of any class, the payment
                      of any stock dividend or any other increase or decrease in
                      the number of shares of stock of any class. In the event
                      that Fair, Isaac is a party to a merger or other
                      reorganization, this Option shall be subject to the
                      agreement of merger or reorganization. Such agreement may
                      provide, without limitation, for the assumption of this
                      Option by the surviving corporation or its parent, for its
                      continuation by Fair, Isaac (if Fair, Isaac is a surviving
                      corporation), for accelerated vesting or for settlement in
                      cash.

APPLICABLE LAW        This Agreement will be interpreted and enforced under the
                      laws of the State of Delaware (without regard to its rules
                      on choice of law).

OTHER                 This Option Agreement and any written agreement between
AGREEMENTS            you and Fair, Isaac (or any subsidiaries) providing for
                      acceleration of options granted to you by Fair, Isaac upon
                      a change in control of Fair, Isaac constitute the entire
                      understanding between you and Fair, Isaac regarding this
                      Option. Any other prior agreements, commitments or
                      negotiations concerning this Option are superseded. This
                      Agreement may be amended only in writing.

DEFINITIONS           "Retirement" means that you are eligible for normal
                      retirement or early retirement, as defined as follows:

                      -   "Normal Retirement Age" means age 65

                      -   "Early Retirement" means age 55 and completed 10 Years
                          of Service. One Year of Service is the completion of
                          at least 1,000 hours of service during the year.

                      "Disability" means that you are unable to engage in any
                      substantial gainful activity by reason of a medically
                      determinable, physical or mental impairment which can be
                      expected to result in death or which has lasted (or can be
                      expected to last) for a continuous period of not less than
                      12 months.

BY SIGNING THE COVER PAGE, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED ABOVE.



                                      -3-


                                                                   Exhibit 10.49

                           INDEMNIFICATION AGREEMENT

        This Indemnification Agreement (this "Agreement"), dated as of _________
___, 2002, between Fair, Isaac and Company, Incorporated, a Delaware corporation
(the "Corporation"), and _____________ ("Indemnitee"),

                              W I T N E S S E T H:

        WHEREAS, Indemnitee is either a member of the board of directors of the
Corporation (the "Board of Directors") or an officer of the Corporation, or
both, and in such capacity or capacities, or otherwise as an Agent (as
hereinafter defined) of the Corporation, is performing a valuable service for
the Corporation; and

        WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Corporation on the condition that
he or she be indemnified as herein provided; and

        WHEREAS, it is intended that Indemnitee shall be paid promptly by the
Corporation all amounts necessary to effectuate in full the indemnity and
advancement of expenses provided for herein:

        NOW, THEREFORE, in consideration of the premises and the covenants in
this Agreement, and of Indemnitee continuing to serve the Corporation as an
Agent and intending to be legally bound hereby, the parties hereto agree as
follows:

        1. Services by Indemnitee. Indemnitee agrees to serve (a) as a director
or an officer of the Corporation, or both, so long as Indemnitee is duly
appointed or elected and qualified in accordance with the applicable provisions
of the Restated Certificate of Incorporation and By-Laws of the Corporation, and
until such time as Indemnitee resigns or fails to stand for election or is
removed from Indemnitee's position, or (b) otherwise as an Agent of the
Corporation. Indemnitee may from time to time also perform other services at the
request or for the convenience of, or otherwise benefiting the Corporation.
Indemnitee may at any time and for any reason resign from such position (subject
to any other contractual obligation or other obligation imposed by operation of
law), in which event the Indemnitee shall have no obligation under this
Agreement to continue to serve in any such position and the Corporation shall
have no obligation under this Agreement to continue Indemnitee in any such
position. The Corporation acknowledges that the execution of this Agreement by
Indemnitee represents Indemnitee's written demand for an indemnification
contract as contemplated by Section 6(b) of Article Third of this Corporation's
Restated Certificate of Incorporation.

        2. Indemnification. Subject to the terms and conditions of this
Agreement, the Corporation hereby agrees to indemnify Indemnitee as follows:

        The Corporation shall, with respect to any Proceeding (as hereinafter
defined) associated with Indemnitee's being an Agent (as hereinafter defined),
indemnify Indemnitee to the fullest extent permitted by applicable law and the
Restated Certificate of Incorporation of the Corporation in effect on the date
hereof or as such law or Restated Certificate of Incorporation may from time



to time be amended (but, in the case of any such amendment, only to the extent
such amendment permits the Corporation to provide broader indemnification rights
than the law or Restated Certificate of Incorporation permitted the Corporation
to provide before such amendment). The right to indemnification conferred herein
and in the Restated Certificate of Incorporation shall be presumed to have been
relied upon by Indemnitee in serving or continuing to serve the Corporation as
an Agent and shall be enforceable as a contract right. Without in any way
limiting or diminishing the scope of the indemnification provided by this
Section 2, the Corporation agrees to indemnify Indemnitee to the fullest extent
permitted by law if and wherever Indemnitee is or was a party to, or is
threatened to be made a party to, any Proceeding, including without limitation
any Proceeding brought by or in the right of the Corporation, by reason of the
fact that Indemnitee is or was an Agent or by reason of anything done or not
done by Indemnitee in such capacity as an Agent, against all Expenses (as
hereinafter defined) and Liabilities (as hereinafter defined) actually and
reasonably incurred by Indemnitee or on his or her behalf in connection with the
investigation, defense, settlement or appeal of such Proceeding. In addition to,
and not as a limitation of, the foregoing, the rights of indemnification of
Indemnitee provided under this Agreement shall include those rights set forth in
Sections 3 and 8 below. Notwithstanding the foregoing, the Corporation shall not
be required to indemnify Indemnitee in connection with a Proceeding commenced by
Indemnitee unless (i) such Proceeding was commenced by Indemnitee to enforce
Indemnitee's rights under this Agreement or (ii) the commencement of such
Proceeding was authorized by the Board of Directors.

        3. Advancement of Expenses; Letter of Credit.

        (a) Advancement of Expenses. The Corporation agrees with Indemnitee that
all reasonable Expenses incurred by or on behalf of Indemnitee (including costs
of enforcement of this Agreement) in connection with a Proceeding shall be
advanced from time to time by the Corporation to Indemnitee within thirty (30)
days after the receipt by the Corporation of a written request by or on behalf
of Indemnitee for an advance of such Expenses, whether prior to, during or after
final disposition of a Proceeding (including without limitation any Proceeding
brought by or in the right of the Corporation), except to the extent that there
has been a Final Adverse Determination (as hereinafter defined) that Indemnitee
is not entitled to be indemnified for such Expenses. A written request by an
Indemnitee for an advancement of any and all Expenses under this paragraph shall
contain reasonable detail of the Expenses incurred by Indemnitee for which the
Indemnitee is seeking an advance. In the event that such written request shall
be accompanied by an affidavit of counsel to Indemnitee to the effect that such
counsel has reviewed such Expenses and that such Expenses are reasonable in such
counsel's view, then such expenses shall be deemed reasonable in the absence of
clear and convincing evidence to the contrary. By execution of this Agreement,
Indemnitee shall be deemed to have made whatever undertaking as may be required
by law at the time of any advancement of Expenses with respect to repayment to
the Corporation of such advanced Expenses. In the event that the Corporation
shall breach its obligation to advance Expenses under this Section 3, the
parties hereto agree that Indemnitee's remedies available at law would not be
adequate and that Indemnitee would be entitled to the remedies of specific
performance and injunctive relief to enforce such obligation of the Corporation.
The Corporation acknowledges that it has agreed to advance Expenses hereunder in
order to promote the business interests of the Corporation and the Corporation
agrees with Indemnitee that it will not fail to comply with its obligation to
advance Expenses to Indemnitee as required under this Agreement on the ground
that such advancement violates or would violate Section 13(k) of the


                                      -2-



Securities Exchange Act of 1934, as amended, unless the Corporation has received
an affirmative and unqualified written opinion of Independent Legal Counsel to
the effect that such an advance of Expenses would result in a violation of said
Section 13(k).

        (b) Witness Expenses in Certain Proceedings. Notwithstanding any other
provision of this Agreement to the contrary, to the extent that Indemnitee was
or is, by reason of the fact that the Indemnitee is or was an Agent, a witness
or other non-party participant in any Proceeding to which the Indemnitee is not
made a party, the Corporation shall indemnify the Indemnitee against all
Expenses actually and reasonably incurred by the Indemnitee or on the
Indemnitee's behalf solely in connection with the Indemnitee's being a witness
or other non-party participant in such Proceeding, and in preparing to be a
witness or such other non-party participant in such Proceeding without the need
for any determination with respect to the Indemnitee's conduct pursuant to
Section 5 of this Agreement.

        (c) Letter of Credit. In order to secure the obligations of the
Corporation to indemnify and advance Expenses to Indemnitee pursuant to this
Agreement, the Corporation agrees that it shall obtain and have in force at the
time of any Change in Control (as hereinafter defined) an irrevocable standby
letter of credit naming Indemnitee as the sole beneficiary (the "Letter of
Credit"). The Letter of Credit shall be in an appropriate amount not less than
one million dollars ($1,000,000), shall be issued by a commercial bank
headquartered in the United States having assets in excess of $20 billion and
capital according to its most recent published reports equal to or greater than
the then applicable minimum capital standards promulgated by such bank's primary
federal regulator and shall contain terms and conditions reasonably acceptable
to Indemnitee. The Letter of Credit shall provide that Indemnitee may from time
to time draw certain amounts thereunder, upon written certification by
Indemnitee to the issuer of the Letter of Credit that (i) Indemnitee has made
written request upon the Corporation for an amount not less than the amount
Indemnitee is drawing under the Letter of Credit and that the Corporation has
failed or refused to provide Indemnitee with such amount in full within thirty
(30) days after receipt of the request, and (ii) Indemnitee believes that he or
she is entitled under the terms of this Agreement to the amount that Indemnitee
is drawing upon under the Letter of Credit. The issuance of the Letter of Credit
shall not be an exclusive remedy, nor shall it in any way diminish the
Corporation's obligations to advance Expenses and to indemnify Indemnitee
against Expenses and Liabilities to the full extent required by this Agreement.

        (d) Term of Letter of Credit. Once the Corporation has obtained the
Letter of Credit, the Corporation (or its successor) shall maintain in effect
and renew the Letter of Credit or a substitute letter of credit meeting the
criteria of Section 3(c) during the term of this Agreement. The Letter of Credit
shall have an initial term of five (5) years, be renewed for successive
five-year terms, and always have at least one (1) year of its term remaining.

        4. Presumptions and Effect of Certain Proceedings. Upon making a request
for indemnification, Indemnitee shall be presumed to be entitled to
indemnification under this Agreement and the Corporation shall have the burden
of proof to overcome that presumption in reaching any contrary determination.
The termination of any Proceeding by judgment, order, settlement (whether with
or without court approval), arbitration award or conviction, or upon a plea of
nolo contendere or its equivalent shall not affect this presumption or, except
as determined by a judgment or other final adjudication adverse to Indemnitee,
establish a presumption with


                                      -3-



regard to any factual matter relevant to determining Indemnitee's rights to
indemnification hereunder. If the forum so empowered to make a determination of
Indemnitee's entitlement to indemnification pursuant to Section 5 hereof shall
have failed to make the requested determination within sixty (60) days after any
judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, or other disposition
or partial disposition of any Proceeding or any other event that could enable
the Corporation to determine Indemnitee's entitlement to indemnification, the
requisite determination that Indemnitee is entitled to indemnification shall be
deemed to have been made.

        5. Procedure for Determination of Entitlement to Indemnification.

        (a) Whenever Indemnitee believes that Indemnitee is entitled to
indemnification pursuant to this Agreement, Indemnitee shall submit a written
request for indemnification to the Corporation. The Corporation's obligation to
comply with such request for indemnification is subject to the condition that
the matter of the Indemnitee's entitlement to such indemnification under
applicable law has been heard before a forum referred to in Section 5(b) below
and such forum shall not have determined that the Indemnitee did not meet the
required standard of conduct under applicable law; provided, however, that such
condition shall not be applicable (and no such hearing or determination shall be
required) (i) where indemnification is mandatory under applicable law, (ii) with
respect to any request for indemnification by an Indemnitee under Section 3(b)
or (iii) in any case in which such determination is, by the express terms of
this Agreement (including but not limited to Section 4 hereof), deemed to have
been made or is otherwise not required to be made under this Agreement, and in
each such case payment of indemnification to which an Indemnitee is entitled
under this Agreement shall be made within thirty (30) days after such request is
received by the Corporation. Any request for indemnification shall include
sufficient documentation or information reasonably available to Indemnitee for
the determination of entitlement to indemnification. In any event, Indemnitee
shall submit Indemnitee's claim for indemnification within a reasonable time,
not to exceed five (5) years after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or its
equivalent, or final determination, whichever is the later date for which
Indemnitee requests indemnification. The Secretary or other appropriate officer
of the Corporation shall, promptly upon receipt of Indemnitee's request for
indemnification, advise the Board of Directors in writing that Indemnitee has
made such request. Determination of Indemnitee's entitlement to indemnification
shall be made not later than sixty (60) days after the Corporation's receipt of
Indemnitee's written request for such indemnification, provided that any request
for indemnification for Liabilities, other than amounts paid in settlement,
shall have been made after a determination thereof in a Proceeding.

        (b) The Indemnitee shall be entitled to select the forum in which the
Indemnitee's entitlement to indemnification will be heard, which selection shall
be included in the written request for indemnification referred to in Section
5(a), except that the Indemnitee may not choose to have the stockholders of the
Corporation make such determination without the consent of the Board of
Directors. Subject to the foregoing, the forum shall be any one of the
following:

               (i) the stockholders of the Corporation (with such approval being
        sufficient if it is given by stockholders holding a majority of the
        shares present at a meeting of the stockholders at which a quorum is
        present);


                                      -4-



               (ii) a majority vote of Disinterested Directors (as hereinafter
        defined), even though less than a quorum;

               (iii) Independent Legal Counsel, whose determination shall be
        made in a written opinion; or

               (iv) a panel of three arbitrators, one selected by the
        Corporation, another by Indemnitee and the third by the first two
        arbitrators; or if for any reason three arbitrators are not selected
        within thirty (30) days after the appointment of the first arbitrator,
        then selection of additional arbitrators shall be made by the American
        Arbitration Association. If any arbitrator resigns or is unable to serve
        in such capacity for any reason, the American Arbitration Association
        shall select such arbitrator's replacement. The arbitration shall be
        conducted pursuant to the commercial arbitration rules of the American
        Arbitration Association now in effect.

        (c) Payment of indemnification for Liabilities and Expenses as to which
Indemnitee is entitled determined pursuant to Section 5 or deemed determined
pursuant to Section 4 shall be made as promptly as practicable after such
determination or deemed determination and in any event within thirty (30) days
thereafter.

        6. Specific Limitations on Indemnification. Notwithstanding anything in
this Agreement to the contrary, the Corporation shall not be obligated under
this Agreement to make any payment to Indemnitee with respect to any Proceeding:

        (a) To the extent that such payment is actually made to Indemnitee under
any insurance policy, or is made to Indemnitee by the Corporation or an
affiliate otherwise than pursuant to this Agreement. Notwithstanding the
availability of such insurance, Indemnitee also may claim indemnification from
the Corporation pursuant to this Agreement by assigning to the Corporation any
claims under such insurance to the extent Indemnitee is paid by the Corporation;

        (b) Provided there has been no Change in Control, for Liabilities in
connection with Proceedings settled by the Indemnitee without the Corporation's
consent, which consent, however, shall not be unreasonably withheld or delayed;

        (c) For an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Corporation within the meaning of Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
similar provisions of any state statutory or common law; or

        (d) To the extent it would be otherwise prohibited by law, if so
established by a judgment or other final adjudication adverse to Indemnitee.

        7. Fees and Expenses of Forum. The Corporation agrees to pay all
reasonable fees and expenses associated with the determination of the
Indemnitee's entitlement to indemnification in accordance with Section 5(b),
including, without limitation, fees and expenses in connection with a meeting of
the stockholders of the Corporation and the reasonable fees and expenses of
Disinterested Directors, Independent Legal Counsel or a panel of three
arbitrators should such Disinterested Directors, Independent Legal Counsel or
such arbitrators be retained to make a


                                      -5-



determination of Indemnitee's entitlement to indemnification pursuant to Section
5(b) of this Agreement, and the Corporation shall fully indemnify such
Disinterested Directors, Independent Legal Counsel or arbitrators against any
and all expenses and losses incurred by any of them arising out of or relating
to this Agreement or their engagement pursuant hereto.

        8. Remedies of Indemnitee.

        (a) In the event that (i) a determination pursuant to Section 5 hereof
is made that Indemnitee is not entitled to indemnification, (ii) advances of
Expenses are not timely made pursuant to this Agreement, (iii) payment of
indemnification to the Indemnitee has not been timely made pursuant to this
Agreement, or (iv) Indemnitee otherwise seeks enforcement of this Agreement,
then Indemnitee shall be entitled to a final adjudication in the Court of
Chancery of the State of Delaware of the Indemnitee's rights and remedies under
this Agreement (which remedies may include, without limitation, an order
compelling enforcement of the Corporation's obligations under this Agreement
through the remedy of specific performance or injunctive relief). Alternatively,
unless (i) the determination of the Indemnitee's entitlement to indemnification
was made by a panel of arbitrators pursuant to Section 5(b)(iv) hereof, or (ii)
court approval is required by law for the indemnification sought by Indemnitee,
Indemnitee at Indemnitee's option may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the commercial arbitration rules of
the American Arbitration Association now in effect, which award is to be made
within ninety (90) days following the filing of the demand for arbitration. The
Corporation shall not oppose Indemnitee's right to seek any such adjudication or
arbitration award. In any such proceeding or arbitration Indemnitee shall be
presumed to be entitled to indemnification and advancement of Expenses under
this Agreement and the Corporation shall have the burden of proof to overcome
that presumption.

        (b) In the event that a determination that Indemnitee is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 8 shall be made de novo on the merits and
Indemnitee shall not be prejudiced by reason of such prior determination that
Indemnitee is not entitled to indemnification.

        (c) If a determination that Indemnitee is entitled to indemnification
has been made pursuant to Section 5 hereof, or is deemed to have been made
pursuant to Section 4 hereof or otherwise pursuant to the terms of this
Agreement, then the Corporation shall be bound by such determination or deemed
determination in the absence of an intentional misrepresentation or omission of
a material fact by Indemnitee in connection with such determination.

        (d) The Corporation shall be precluded from asserting that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable. The Corporation shall stipulate in any such court or before any
such arbitrator that the Corporation is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary.

        (e) Expenses reasonably incurred by Indemnitee in connection with
Indemnitee's request for indemnification under this Agreement, seeking
enforcement of this Agreement or to recover damages for breach of this Agreement
shall be borne by the Corporation when and as


                                      -6-



incurred by Indemnitee irrespective of any Final Adverse Determination that
Indemnitee is not entitled to indemnification.

        9. Contribution. If the Indemnitee is not entitled to the
indemnification provided in Section 2 for any reason other than the statutory
limitations set forth in the Delaware General Corporation Law, then the
Corporation, in lieu of indemnifying Indemnitee, shall contribute to the amount
of Expenses and Liabilities actually and reasonably incurred and paid or to be
paid by the Indemnitee in such proportion as is deemed fair and reasonable in
light of all the circumstances of the relevant Proceeding to reflect (i) the
relative benefits received by the Corporation on the one hand and the Indemnitee
on the other hand from the transaction from which such Proceeding arose and (ii)
the relative fault of the Corporation on the one hand and of the Indemnitee on
the other hand in connection with the events which resulted in such Expenses and
Liabilities, as well as any other relevant equitable considerations. The
relative fault of the Corporation on the one hand and of the Indemnitee on the
other hand shall be determined by reference to, among other things, the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent the circumstances resulting in such Expenses and Liabilities. The
Corporation agrees that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation or any other
method of allocation which does not take account of the foregoing equitable
considerations.

        10. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or a
portion of any Expenses or Liabilities of any type whatsoever, but the
Indemnitee is not entitled, however, to indemnification for the total amount
thereof, then the Corporation shall nevertheless indemnify the Indemnitee for
the portion thereof to which the Indemnitee is entitled.

        11. Maintenance of Insurance; Notice.

        (a) The Corporation represents that it presently has in place certain
directors' and officers' liability insurance policies covering its directors and
officers. Subject only to the provisions within this Section 11, the Corporation
agrees that so long as Indemnitee shall have consented to serve or shall
continue to serve as a director or officer of the Corporation, or both, or as an
Agent of the Corporation, and thereafter so long as Indemnitee shall be subject
to any possible Proceeding (such periods being hereinafter sometimes referred to
as the "Indemnification Period"), the Corporation will use all reasonable
efforts to maintain in effect for the benefit of Indemnitee one or more valid,
binding and enforceable policies of directors' and officers' liability insurance
from established and reputable insurers, providing, in all respects, coverage
both in scope and amount which is no less favorable than that presently
provided. Notwithstanding the foregoing, the Corporation shall not be required
to maintain said policies of directors' and officers' liability insurance during
any time period if during such period such insurance is not reasonably available
or if it is determined in good faith by the then Board of Directors either that:

               (i) The premium cost of maintaining such insurance is
        substantially disproportionate to the amount of coverage provided
        thereunder; or


                                      -7-



               (ii) The protection provided by such insurance is so limited by
        exclusions, deductions or otherwise that there is insufficient benefit
        to warrant the cost of maintaining such insurance.

        Anything in this Agreement to the contrary notwithstanding, to the
extent that and for so long as the Corporation shall choose to continue to
maintain any policies of directors' and officers' liability insurance during the
Indemnification Period, the Corporation shall maintain similar and equivalent
insurance for the benefit of Indemnitee during the Indemnification Period
(unless such insurance shall be less favorable to Indemnitee than the
Corporation's existing policies).

        (b) If, at the time of the receipt of a written request for
indemnification pursuant to Section 5(a), the Corporation has directors' and
officers' liability insurance in effect, the Corporation shall give prompt
notice of the commencement of the Proceeding to which such indemnification
request relates to the insurer or insurers providing such directors' and
officers' liability insurance in accordance with the procedures set forth in the
respective directors' and officers' liability insurance policies. The
Corporation shall thereafter take all necessary or desirable action to cause
such insurers to pay, on behalf of the Indemnitee, all amounts payable by such
insurers as a result of such proceeding in accordance with the terms of such
directors' and officers' liability insurance policies.

        12. Modification, Waiver, Termination and Cancellation. No supplement,
modification, termination, cancellation or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver.

        13. Subrogation. In the event of a payment to the Indemnitee under this
Agreement, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee with respect to the circumstances
giving rise to such payment, and such Indemnitee shall execute all papers
reasonably required and shall do everything that may be necessary to secure any
such subrogation rights, including the execution of such documents reasonably
necessary to enable the Corporation effectively to bring suit to enforce such
rights.

        14. Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly
notify the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
matter, whether civil, criminal, administrative or investigative, but the
omission so to notify the Corporation will not relieve it from any liability
that it may have to Indemnitee if such omission does not prejudice the
Corporation's rights. If such omission does prejudice the Corporation's rights,
the Corporation will be relieved from liability only to the extent of such
prejudice. Notwithstanding the foregoing, such omission will not relieve the
Corporation from any liability that it may have to Indemnitee otherwise than
under this Agreement. With respect to any Proceeding as to which Indemnitee
notifies the Corporation of the commencement thereof:

        (a) The Corporation will be entitled to participate therein at its own
expense; and


                                      -8-



        (b) The Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee; provided, however, that the Corporation shall not be
entitled to assume the defense of any Proceeding without the Indemnitee's
written consent if there has been a Change in Control or if Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Corporation and Indemnitee with respect to such Proceeding. After notice from
the Corporation to Indemnitee of the Corporation's election to assume the
defense thereof, the Corporation will not be liable to Indemnitee under this
Agreement for any Expenses subsequently incurred by Indemnitee in connection
with the defense thereof, other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ Indemnitee's
own counsel in such Proceeding, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of Indemnitee unless:

               (i) the employment of counsel by Indemnitee has been authorized
        by the Corporation;

               (ii) Indemnitee shall have reasonably concluded that counsel
        engaged by the Corporation may not adequately represent Indemnitee due
        to, among other things, actual or potential differing interests; or

               (iii) the Corporation shall not in fact have employed counsel to
        assume the defense in such Proceeding or shall not in fact have assumed
        such defense and be acting in connection therewith with reasonable
        diligence; in each of which cases the fees and expenses of such counsel
        shall be at the expense of the Corporation.

        (c) The Corporation shall not settle any Proceeding in any manner that
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; provided, however, that Indemnitee will not unreasonably
withhold his or her consent to any proposed settlement.

        15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:

        (a)    If to Indemnitee, to:

               --------------------------------

               --------------------------------

               --------------------------------

        (b)    If to the Corporation, to:
               Fair, Isaac and Company, Incorporated
               200 Smith Ranch Road
               San Rafael, California 94903
               Attn:  General Counsel


                                      -9-



or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.

        16. Nonexclusivity. The rights of Indemnitee hereunder shall not be
deemed exclusive of any other rights to which Indemnitee may be entitled under
applicable law, the Corporation's Restated Certificate of Incorporation or
By-laws, or any agreements, vote of stockholders, resolution of the Board of
Directors or otherwise, and to the extent that during the Indemnification Period
the rights of the then existing directors and officers are more favorable to
such directors or officers than the rights currently provided to Indemnitee
thereunder or under this Agreement, Indemnitee shall be entitled to the full
benefits of such more favorable rights.

        17. Certain Definitions.

        (a) "Agent" shall mean any person who: (i) is or was a director or
officer of the Corporation or a Subsidiary (as defined below) of the Corporation
or serves or served as a member of any committee of the board of directors of
the Corporation of any Subsidiary; (ii) is or was serving at the request of, for
the convenience of, or to represent the interest of, the Corporation or a
Subsidiary of the Corporation as a director or officer of, or member of a
committee of the board of directors of (or comparable management body of),
another foreign or domestic corporation, partnership, joint venture, limited
liability company, trust or other enterprise or an affiliate of the Corporation;
or (iii) is or was a director or officer (or member of a committee of the board
of directors) of a foreign or domestic corporation which was a predecessor
corporation of the Corporation or a Subsidiary of the Corporation, or is or was
a director or officer (or member of a committee of the board of directors) of
another enterprise or affiliate of the Corporation at the request of, for the
convenience of, or to represent the interests of, such predecessor corporation.
The term "ENTERPRISE" includes, without limitation, any employee benefit plan of
the Corporation, its Subsidiaries, affiliates and predecessor corporations. The
term "SUBSIDIARY" means any corporation of which more than fifty percent (50%)
of the outstanding voting securities is owned directly or indirectly by (i) the
Corporation, (ii) the Corporation and one or more of its Subsidiaries or (iii)
one or more of the Corporation's Subsidiaries.

        (b) "Change in Control" shall mean the occurrence after the date of this
Agreement of any of the following:

               (i) Both (A) any "person" (as defined below) is or becomes the
        "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
        directly or indirectly, of securities of the Corporation representing at
        least 15% of the total voting power represented by the Corporation's
        then outstanding voting securities; and (B) the beneficial ownership by
        such person of securities representing such percentage has not been
        approved by a majority of the "continuing directors" (as defined below);

               (ii) Any "person" is or becomes the "beneficial owner" (as
        defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
        of securities of the Corporation representing at least 50% of the total
        voting power represented by the Corporation's then outstanding voting
        securities;


                                      -10-



               (iii) A change in the composition of the Board of Directors
        occurs, as a result of which fewer than two-thirds of the incumbent
        directors are directors who either (A) had been directors of the
        Corporation on the "look-back date" (as defined below) (the "Original
        Directors") or (B) were elected, or nominated for election, to the Board
        of Directors with the affirmative votes of at least a majority in the
        aggregate of the Original Directors who were still in office at the time
        of the election or nomination and directors whose election or nomination
        was previously so approved (the "continuing directors");

               (iv) The stockholders of the Corporation approve a merger or
        consolidation of the Corporation with any other corporation, if such
        merger or consolidation would result in the voting securities of the
        Corporation outstanding immediately prior thereto representing (either
        by remaining outstanding or by being converted into voting securities of
        the surviving entity) 50% or less of the total voting power represented
        by the voting securities of the Corporation or such surviving entity
        outstanding immediately after such merger or consolidation; or

               (v) The stockholders of the Corporation approve (A) a plan of
        complete liquidation of the Corporation or (B) an agreement for the sale
        or disposition by the Corporation of all or substantially all of the
        Corporation's assets.

        For purposes of Subsection (i) above, the term "person" shall have the
same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act, but
shall exclude (x) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or of a parent or subsidiary of the
Corporation or (y) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as their
ownership of the common stock of the Corporation.

        For purposes of Subsection (iii) above, the term "look-back date" shall
mean the later of (x) the date hereof or (y) the date 24 months prior to the
date of the event that may constitute a "Change in Control."

        Any other provision of this Section 17(b) notwithstanding, the term
"Change in Control" shall not include a transaction, if undertaken at the
election of the Corporation, the result of which is to sell all or substantially
all of the assets of the Corporation to another corporation (the "surviving
corporation"); provided that the surviving corporation is owned directly or
indirectly by the stockholders of the Corporation immediately following such
transaction in substantially the same proportions as their ownership of the
Corporation's common stock immediately preceding such transaction; and provided,
further, that the surviving corporation expressly assumes this Agreement.

        (c) "Disinterested Director" shall mean a director of the Corporation
who is not or was not a party to or otherwise involved in the Proceeding in
respect of which indemnification is being sought by Indemnitee.

        (d) "Expenses" shall include all direct and indirect costs (including,
without limitation, attorneys' fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees, all


                                      -11-



other disbursements or out-of-pocket expenses and reasonable compensation for
time spent by Indemnitee for which Indemnitee is otherwise not compensated by
the Corporation or any third party) actually and reasonably incurred in
connection with either the investigation, defense, settlement or appeal of a
Proceeding or establishing or enforcing a right to indemnification under this
Agreement, any similar agreement, the Restated Certificate of Incorporation or
By-laws of the Corporation or any Subsidiary, applicable law or otherwise;
provided, however, that "Expenses" shall not include any Liabilities.

        (e) "Final Adverse Determination" shall mean that a determination that
Indemnitee is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (i) a final adjudication in the Court of Chancery of
the State of Delaware or decision of an arbitrator pursuant to Section 8(a)
hereof shall have denied Indemnitee's right to indemnification hereunder, or
(ii) Indemnitee shall have failed to file a complaint in a Delaware court or
seek an arbitrator's award pursuant to Section 8(a) for a period of one hundred
eighty (180) days after the determination made pursuant to Section 5 hereof.

        (f) "Independent Legal Counsel" shall mean a law firm or a member of a
firm selected by the Corporation and approved by Indemnitee (which approval
shall not be unreasonably withheld) or, if there has been a Change in Control,
selected by Indemnitee and approved by the Corporation (which approval shall not
be unreasonably withheld), that neither is presently nor in the past five (5)
years has been retained to represent: (i) the Corporation or any of its
Subsidiaries or affiliates, or Indemnitee or any corporation of which Indemnitee
was or is a director, officer, employee or agent, or any subsidiary or affiliate
of such a corporation, in any material matter, or (ii) any other party to the
Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Legal Counsel" shall not include any person
who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing either the Corporation or
Indemnitee in an action to determine Indemnitee's right to indemnification under
this Agreement.

        (g) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in respect
of such judgments, fines, penalties or amounts paid in settlement) of any
Proceeding.

        (h) "Proceeding" shall mean any threatened, pending or completed action,
claim, suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative, including any appeal therefrom, that is
associated with Indemnitee's being an Agent of the Corporation.

        18. Binding Effect; Duration and Scope of Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns (including any direct
or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Corporation), spouses, heirs
and personal and legal representatives. This Agreement shall continue in effect
during the Indemnification Period, regardless of whether Indemnitee continues to
serve as an Agent.


                                      -12-



        19. Severability. If any provision or provisions of this Agreement (or
any portion thereof) shall be held to be invalid, illegal or unenforceable for
any reason whatsoever:

        (a) the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby; and

        (b) to the fullest extent legally possible, the provisions of this
Agreement shall be construed so as to give effect to the intent of any provision
held invalid, illegal or unenforceable.

        20. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within the State of Delaware, without regard to conflict of laws rules.

        21. Consent to Jurisdiction. The Corporation and Indemnitee each
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding that arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.

        22. Entire Agreement. This Agreement represents the entire agreement
between the parties hereto, and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except (a) as specifically referred to in Section 16 hereof or
(b) [identify any applicable agreements].

        23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement.

        IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by a duly authorized officer and Indemnitee has executed this Agreement
as of the date first above written.

                                       FAIR, ISAAC AND COMPANY, INCORPORATED



                                       By
                                          --------------------------------
                                       INDEMNITEE


                                      -13-



                                                                   EXHIBIT 10.58

                      FAIR, ISAAC AND COMPANY, INCORPORATED
                             STOCK OPTION AGREEMENT
                                FEBRUARY 5, 2002
                             (FOR A. GEORGE BATTLE)

NONSTATUTORY
STOCK OPTION                      This option is not intended to qualify as an
                                  incentive stock option under Section 422 of
                                  the Internal Revenue Code.

VESTING                           Your entire option is 100% vested and
                                  exercisable in full at all times.


TERM                              Your option will expire at the close of
                                  business at Fair, Isaac and Company,
                                  Incorporated ("Fair, Isaac") headquarters on
                                  the earlier of (a) the Expiration Date shown
                                  on the Notice of Grant of Stock Options and
                                  Options Agreement ("Option Agreement,) or (b)
                                  12 months after the date on which your
                                  service, whether as a non-employee director,
                                  consultant or employee with Fair, Isaac
                                  terminates.

                                  Fair, Isaac determines when your service
                                  terminates for this purpose.

RESTRICTIONS ON
EXERCISE                          You agree not to exercise this option if the
                                  issuance of shares at that time would violate
                                  any law or regulation, as determined by Fair,
                                  Isaac. Moreover, you cannot exercise this
                                  option unless you have returned a signed copy
                                  of the Option Agreement to Fair, Isaac.

NOTICE OF EXERCISE                When you wish to exercise this option, you
                                  must notify Fair, Isaac by filing Fair,
                                  Isaac's "Notice of Exercise" form at the
                                  address given on the form. The notice will be
                                  effective when it is received by Fair, Isaac.
                                  If your notice was sent by facsimile
                                  transmission, it will be effective only if it
                                  is promptly confirmed by filing a form with an
                                  original signature.

                                  Your notice must specify how many shares you
                                  wish to purchase. Your notice must also
                                  specify how your shares should be registered
                                  (in your name only or in your and your
                                  spouse's names as community property or as
                                  joint tenants with right of survivorship).

                                  If someone else wants to exercise this option
                                  after your death, that person must prove to
                                  Fair, Isaac's satisfaction that he or she is
                                  entitled to do so.

FORM OF PAYMENT                   When you submit your Notice of Exercise, you
                                  must include payment of the exercise price for
                                  the shares you are purchasing, as shown on the
                                  Option Agreement. Payment may be made in one
                                  (or a combination) of the following forms:

                                        -  Cash or certified check.

                                        -  Irrevocable directions to a
                                           securities broker approved by Fair,
                                           Isaac to sell your option shares and
                                           to deliver all or a portion of the
                                           sale proceeds to Fair, Isaac in
                                           payment of the exercise price. (The


                                      -1-



                                           balance of the sale proceeds, if any,
                                           will be delivered to you via your
                                           broker.) The directions must be given
                                           by signing a special "Notice of
                                           Exercise" form provided by Fair,
                                           Isaac.

                                        -  Certificates for Fair, Isaac stock
                                           that you have owned for at least 12
                                           months, along with any forms needed
                                           to effect a transfer of the shares to
                                           Fair, Isaac. The value of the shares,
                                           determined as of the effective date
                                           of the option exercise, will be
                                           applied to the exercise price.

WITHHOLDING TAXES                 Fair, Isaac will not withhold taxes on stock
                                  option exercises made by non-employee
                                  directors.

RESTRICTIONS ON RESALE            By signing the Option Agreement, you agree not
                                  to sell any shares at a time when applicable
                                  laws or Fair, Isaac policies prohibit a sale.
                                  This restriction will apply as long as you are
                                  a non-employee director of Fair, Isaac (or a
                                  subsidiary).

TRANSFER OF OPTION                Prior to your death, only you or a permitted
                                  assignee as defined herein may exercise this
                                  option (unless this option or a portion
                                  thereof has been transferred to your former
                                  spouse by a domestic relations order by a
                                  court of competent jurisdiction). You may
                                  transfer this option or a portion of this
                                  option by gift to members of your immediate
                                  family, a partnership consisting solely of you
                                  and/or members of your immediate family, or to
                                  a trust established for the benefit of you
                                  and/or members of your immediate family
                                  (including a charitable remainder trust whose
                                  income beneficiaries consist solely of such
                                  persons). For purposes of the foregoing,
                                  "immediate family" means your spouse, children
                                  or grandchildren, including step-children or
                                  step-grandchildren. Any of these persons is a
                                  "permitted assignee." However, such transfer
                                  shall not be effective until you have
                                  delivered to Fair, Isaac notice of such
                                  transfer. You cannot otherwise transfer or
                                  assign this option. For instance, you may not
                                  sell this option or use it as security for a
                                  loan. If you attempt to do any of these
                                  things, this option will immediately become
                                  invalid. You may, however, dispose of this
                                  option in your will or by a written
                                  beneficiary designation. Such a designation
                                  must be filed with Fair, Isaac on the proper
                                  form and will be recognized only if it is
                                  received at Fair, Isaac headquarters before
                                  your death.

RETENTION RIGHTS                  Neither the Option Agreement nor the terms of
                                  this Agreement give you the right to be
                                  retained by Fair, Isaac (or any subsidiaries)
                                  in any capacity.

STOCKHOLDER RIGHTS                You, or your estate, beneficiaries or heirs,
                                  have no rights as a stockholder of Fair, Isaac
                                  until a certificate for your option shares has
                                  been issued. No adjustments are made for
                                  dividends or other rights if the applicable
                                  record date occurs before your stock
                                  certificate is issued, except as otherwise
                                  described herein.


                                      -2-



ADJUSTMENTS                       In the event of a subdivision of the
                                  outstanding common stock of Fair, Isaac, a
                                  declaration of a dividend payable in common
                                  stock, a declaration of a dividend payable in
                                  a form other than common stock in an amount
                                  that has material effect on the price of
                                  common stock, a combination or consolidation
                                  of the outstanding common stock (by
                                  reclassification or otherwise) into a lesser
                                  number of common stock, a recapitalization, a
                                  spinoff or a similar occurrence, the
                                  Compensation Committee of the Board of
                                  Directors shall make appropriate adjustments
                                  in (a) the number of shares of common stock
                                  underlying this option and (b) the exercise
                                  price under this option. Except as provide
                                  herein you shall have no rights by reason of
                                  any issue by the Company of stock of any class
                                  or securities convertible into stock of any
                                  class, any subdivision or consolidation of
                                  shares of stock of any class, the payment of
                                  any stock dividend or any other increase or
                                  decrease in the number of shares of stock of
                                  any class.

                                  In the event that the Company is a party to a
                                  merger or other reorganization, this option
                                  shall be subject to the agreement of merger or
                                  reorganization. Such agreement may provide,
                                  without limitation, for the assumption of this
                                  option by the surviving corporation or its
                                  parent, for their continuation by the Company
                                  (if the Company is a surviving corporation),
                                  or for settlement in cash.

APPLICABLE LAW                    This Agreement will be interpreted and
                                  enforced under the laws of the State of
                                  Delaware (without regard to its rules on
                                  choice of law).

OTHER AGREEMENTS                  This Agreement constitutes the entire
                                  understanding between you and Fair, Isaac
                                  regarding this option. Any prior agreements,
                                  commitments or negotiations concerning this
                                  option are superseded. This Agreement may be
                                  amended only in writing.

                                  BY SIGNING THE NOTICE OF GRANT AND STOCK
                                  OPTION AGREEMENT, YOU AGREE TO ALL OF THE
                                  TERMS AND CONDITIONS DESCRIBED ABOVE.


                                      -3-


                                                                   EXHIBIT 10.59

                      FAIR, ISAAC AND COMPANY, INCORPORATED

                       NONSTATUTORY STOCK OPTION AGREEMENT

                                NOVEMBER 16, 2001

                              FOR THOMAS GRUDNOWSKI

NONSTATUTORY                       This option is not intended to qualify as an
                                   incentive stock STOCK OPTION option under
                                   Section 422 of the Internal Revenue Code.

VESTING                            Your entire option vests and will be
                                   exercisable in full on the Vesting Date, as
                                   shown on the Notice of Grant of Stock Options
                                   and Options Agreement ("Option Agreement").
                                   In addition, your entire option vests and
                                   will be exercisable in full in the event
                                   that:

                                    - Your service as an employee or director
                                      of Fair, Isaac (or any subsidiary)
                                      terminates because of your disability or
                                      death, or

                                    - Fair, Isaac is subject to a Change in
                                      Control while you are still an employee or
                                      director of Fair, Isaac (or any
                                      subsidiary).

                                   No additional shares become exercisable after
                                   your Fair, Isaac service has terminated for
                                   any reason.

DEFINITIONS                       "Retirement" means that you are eligible for
                                   normal retirement or early retirement, as
                                   defined as follows:

                                    - "Normal Retirement Age" means age 65

                                    - "Early Retirement" means age 55 and
                                      completed 10 Years of Service. One Year of
                                      Service is the completion of at least
                                      1,000 hours of service during the year.

                                   "Disability" means that you are unable to
                                   engage in any substantial gainful activity by
                                   reason of a medically determinable, physical
                                   or mental impairment which can be expected to
                                   result in death or which has lasted (or can
                                   be expected to last) for a continuous period
                                   of not less than 12 months.

                                   "Change in control" shall be deemed to occur
                                   upon the occurrence of BOTH (A):

                                   i.   The sale, lease conveyance or other
                                        disposition of all or substantially all
                                        of Fair, Isaac's assets as an entirety
                                        or substantially as an entirety to any
                                        person, entity or group of persons
                                        acting in concert;

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

                                   iii. A merger or consolidation of Fair,
                                        Isaac with any other corporation, other
                                        than a merger or consolidation which
                                        would result in the voting securities of
                                        Fair, Isaac outstanding



                                        immediately prior thereto continuing to
                                        represent (either by remaining
                                        outstanding or by being converted into
                                        voting securities of the surviving
                                        entity) at least 50% of the total voting
                                        power represented by the voting
                                        securities of the Company or such
                                        surviving entity outstanding immediately
                                        after such merger or consolidation;

                                   AND (B):

                                   i.   A material adverse change in your
                                        position with Fair, Isaac which
                                        materially reduces your responsibility,
                                        without "cause" and without your written
                                        consent;

                                   ii.  A material reduction in your
                                        compensation without your written
                                        consent; or

                                   iii. A relocation of your place of
                                        employment without your written consent.

TERM                               Your option will expire in any event at the
                                   close of business at Fair, Isaac headquarters
                                   on the Expiration Date shown on the Option
                                   Agreement. (It will expire earlier if your
                                   Fair Isaac service terminates, as described
                                   below.)

REGULAR
TERMINATION                        If your service as an employee, director,
                                   consultant or advisor of Fair, Isaac (or any
                                   subsidiary) terminates for reasons other than
                                   retirement, disability or death, then your
                                   option will expire at the close of business
                                   at Fair, Isaac headquarters on the earlier of
                                   the expiration date stated in the Option
                                   Agreement or the 90th day after your
                                   termination date.

                                   Fair, Isaac determines when your service
                                   terminates for this purpose.

RETIREMENT                         If you retire as an employee or director of
                                   Fair, Isaac (or any subsidiary), or your
                                   service as a non-employee director terminates
                                   for any reason, then your option will expire
                                   at the close of business at Fair, Isaac
                                   headquarters on the earlier of the expiration
                                   date stated in the Option Agreement or the
                                   date 12 months after the date of your
                                   retirement. During that 12-month period, you
                                   may exercise your option.

                                   Fair, Isaac determines your retirement date
                                   for this purpose.

DISABILITY                         If you become disabled as an employee,
                                   director, consultant or advisor of Fair,
                                   Isaac (or any subsidiary), then your option
                                   will expire at the close of business at Fair,
                                   Isaac headquarters on the earlier of the
                                   expiration date stated in the Option
                                   Agreement or the date 12 months after the
                                   commencement of your disability.

                                   Fair, Isaac determines the commencement date
                                   of your disability for this purpose.

DEATH                              If you die as an employee, director,
                                   consultant or advisor of Fair, Isaac (or any
                                   subsidiary), then your option will expire at
                                   the close of business at Fair, Isaac
                                   headquarters on the earlier of the expiration
                                   date stated in the Option Agreement or the
                                   date 12 months after the date of death.
                                   During that 12-month period, your estate,
                                   beneficiary or heirs may exercise your
                                   option.


                                      -2-



LEAVES OF
ABSENCE                            For purposes of this option, your service
                                   does not terminate when you go on a military
                                   leave, a sick leave or another bona fide
                                   leave of absence, if the leave was approved
                                   by Fair, Isaac in writing. But your service
                                   will be treated as terminating 90 days after
                                   you went on leave, unless your right to
                                   return to active work is guaranteed by law or
                                   by a contract. And your service terminates in
                                   any event when the approved leave ends,
                                   unless you immediately return to active work.

                                   Fair, Isaac determines which leaves count for
                                   this purpose.

RESTRICTIONS
ON EXERCISE                        You agree not to exercise this option if the
                                   issuance of shares at that time would violate
                                   any law or regulation, as determined by Fair,
                                   Isaac. Moreover, you cannot exercise this
                                   option unless you have returned a signed copy
                                   of the Option Agreement to Fair, Isaac.

NOTICE OF
EXERCISE                           When you wish to exercise this option, you
                                   must notify Fair, Isaac by filing the proper
                                   "Notice of Exercise" form at the address
                                   given on the form. The notice will be
                                   effective when it is received by Fair, Isaac.
                                   But if your notice was sent by facsimile
                                   transmission, it will be effective only if it
                                   is promptly confirmed by filing a form with
                                   an original signature.

                                   Your notice must specify how many shares you
                                   wish to purchase. Your notice must also
                                   specify how your shares should be registered
                                   (in your name only or in your and your
                                   spouse's names as community property or as
                                   joint tenants with right of survivorship).

                                   If someone else wants to exercise this option
                                   after your death, that person must prove to
                                   Fair, Isaac's satisfaction that he or she is
                                   entitled to do so.

FORM OF
PAYMENT                            When you submit your Notice of Exercise, you
                                   must include payment of the exercise price
                                   for the shares you are purchasing, as shown
                                   on the Option Agreement. Payment may be made
                                   in one (or a combination of two or more) of
                                   the following forms:

                                    - Your personal check, a cashier's check
                                      or a money order.

                                    - Irrevocable directions to a securities
                                      broker approved by Fair, Isaac to sell
                                      your option shares and to deliver all or a
                                      portion of the sale proceeds to Fair,
                                      Isaac in payment of the exercise price.
                                      (The balance of the sale proceeds, if any,
                                      will be delivered to you via your broker.)
                                      The directions must be given by signing a
                                      special "Notice of Exercise" form provided
                                      by Fair, Isaac.

                                    - Certificates for Fair, Isaac stock that
                                      you have owned for at least 12 months,
                                      along with any forms needed to effect a
                                      transfer of the shares to Fair, Isaac. The
                                      value of the shares, determined as of the
                                      effective date of the option exercise,
                                      will be applied to the exercise price.

WITHHOLDING
TAXES                              You will not be allowed to exercise this
                                   option unless you make acceptable
                                   arrangements to pay any withholding taxes
                                   that may be due as a result of the option
                                   exercise. These arrangements must be
                                   satisfactory to Fair, Isaac. You may direct
                                   Fair, Isaac to withhold shares with a market
                                   value equal to the withholding taxes due from


                                      -3-



                                   the shares to be issued as a result of your
                                   exercise.

RESTRICTIONS
ON RESALE                          By signing the Option Agreement, you agree
                                   not to sell any shares at a time when
                                   applicable laws or Fair, Isaac policies
                                   prohibit a sale. This restriction will apply
                                   as long as you are an employee or director of
                                   Fair, Isaac (or a subsidiary).

TRANSFER OF
OPTION                             Prior to your death, only you or a permitted
                                   assignee as defined herein may exercise this
                                   option (unless this option or a portion
                                   thereof has been transferred to your former
                                   spouse by a domestic relations order by a
                                   court of competent jurisdiction). You may
                                   transfer this option or a portion of this
                                   option by gift to members of your immediate
                                   family, a partnership consisting solely of
                                   you and/or members of your immediate family,
                                   or to a trust established for the benefit of
                                   you and/or members of your immediate family
                                   (including a charitable remainder trust whose
                                   income beneficiaries consist solely of such
                                   persons). For purposes of the foregoing,
                                   "immediate family" means your spouse,
                                   children or grandchildren, including
                                   step-children or step-grandchildren. Any of
                                   these persons is a "permitted assignee."
                                   However, such transfer shall not be effective
                                   until you have delivered to Fair, Isaac
                                   notice of such transfer. You cannot otherwise
                                   transfer or assign this option. For instance,
                                   you may not sell this option or use it as
                                   security for a loan. If you attempt to do any
                                   of these things, this option will immediately
                                   become invalid. You may, however, dispose of
                                   this option in your will or by a written
                                   beneficiary designation. Such a designation
                                   must be filed with Fair, Isaac on the proper
                                   form and will be recognized only if it is
                                   received at Fair, Isaac headquarters before
                                   your death.

RETENTION
RIGHTS                             Your option, the Option Agreement or the
                                   terms of this Agreement do not give you the
                                   right to be retained by Fair, Isaac (or any
                                   subsidiaries) in any capacity. Fair, Isaac
                                   (and any subsidiaries) reserve the right to
                                   terminate your service at any time, with or
                                   without cause.

STOCKHOLDER
RIGHTS                             You, or your estate, beneficiaries or heirs,
                                   have no rights as a stockholder of Fair,
                                   Isaac until a certificate for your option
                                   shares has been issued. No adjustments are
                                   made for dividends or other rights if the
                                   applicable record date occurs before your
                                   stock certificate is issued, except as
                                   described in the Plan.

ADJUSTMENTS                        In the event of a stock split, a stock
                                   dividend or a similar change in Fair, Isaac
                                   stock, the number of shares covered by this
                                   option and the exercise price per share may
                                   be adjusted as Fair, Isaac may determine
                                   pursuant to the Plan.

APPLICABLE LAW                     This Agreement will be interpreted and
                                   enforced under the laws of the State of
                                   Delaware (without regard to its rules on
                                   choice of law).


                                      -4-



OTHER
AGREEMENTS                         The Option Agreement and this Nonstatutory
                                   Stock Option Agreement constitute the entire
                                   understanding between you and Fair, Isaac
                                   regarding this option. Any prior agreements,
                                   commitments or negotiations concerning this
                                   option are superseded. This Agreement may be
                                   amended only in writing.

BY SIGNING THE NOTICE OF GRANT AND STOCK OPTION AGREEMENT, YOU AGREE TO ALL OF
THE TERMS AND CONDITIONS DESCRIBED ABOVE.


                                      -5-


                                                                   EXHIBIT 10.60

                      FAIR, ISAAC AND COMPANY, INCORPORATED

           TERMS AND CONDITIONS OF NONSTATUTORY STOCK OPTION AGREEMENT

                            EFFECTIVE OCTOBER 7, 2002

               These are the terms and conditions applicable to the NONSTATUTORY
STOCK OPTION granted by Fair, Isaac and Company, Incorporated, a Delaware
corporation ("Fair, Isaac"), to you, the optionee listed on the Notice of Grant
of Stock Option attached hereto as the cover page (the "Cover Page"), effective
as of the date of grant. The Cover Page together with these Terms and Conditions
of Nonstatutory Stock Option Agreement constitute the Nonstatutory Stock Option
Agreement (the "Option Agreement"). This Option is granted pursuant to the terms
of Fair, Isaac's 1992 Long-Term Incentive Plan (the "Plan").

NONSTATUTORY                       This Option is not intended to qualify as an
                                   incentive stock option under Section 422 of
                                   the Internal Revenue Code.

VESTING                            Your Option vests and will be exercisable on
                                   the Vesting Dates, as shown on the Cover
                                   Page. In addition, your entire Option vests
                                   and will be exercisable in full in the event
                                   that:

                                   - your service as an employee or director of
                                     Fair, Isaac (or any subsidiary) terminates
                                     because of your Disability or death, or

                                   - any written employment agreement (other
                                     than an option agreement) between you and
                                     Fair, Isaac provides for acceleration of
                                     this Option upon a change in control of
                                     Fair, Isaac or upon any other specified
                                     event or combination of events.

                                   No additional shares become exercisable after
                                   your employment or service with Fair, Isaac
                                   has terminated for any reason.

EXERCISE PERIOD                    The right to purchase shares under this
                                   Option Agreement terminates at 3:00 p.m.
                                   Pacific Time on the earliest of

                                    - the Expiration Date shown on the Cover
                                      Page; or

                                    - the 90th day after the termination date
                                      of your service as an employee, director,
                                      consultant or advisor of Fair, Isaac (or
                                      any subsidiary), except if your
                                      termination results from Retirement,
                                      Disability or death; or

                                    - the anniversary date of your Retirement
                                      as an employee or director of Fair, Isaac
                                      (or any subsidiary); or


                                    - the anniversary date of the commencement
                                      of your Disability, if you become disabled
                                      while an employee, director, consultant or
                                      advisor of Fair, Isaac (or any subsidiary)
                                      or

                                    - the anniversary date of your death, if
                                      you die while an employee or director of
                                      Fair, Isaac (or any subsidiary).



LEAVES OF
ABSENCE                            For purposes of this Option, your service
                                   does not terminate when you go on a military
                                   leave, a sick leave or another bona fide
                                   leave of absence, if the leave was approved
                                   by Fair, Isaac in writing.

                                   Unless you return to active work upon
                                   termination of your approved leave, your
                                   service will be treated as terminating on the
                                   later of 90 days after you went on leave or
                                   the date that your right to return to active
                                   work is guaranteed by law or by a contract..
                                   Fair, Isaac will determine which leaves count
                                   for this purpose.

RESTRICTIONS
ON EXERCISE                        You may not exercise this Option if the
                                   issuance of shares at that time would violate
                                   any law or regulation, as determined by Fair,
                                   Isaac. Moreover, you cannot exercise this
                                   Option unless you have returned a signed copy
                                   of the Option Agreement to Fair, Isaac.

NOTICE OF
EXERCISE                           If you do not exercise this option through an
                                   automated electronic exercise vehicle
                                   approved by Fair, Isaac, then you must notify
                                   Fair, Isaac of your intent to exercise this
                                   Option by completing the appropriate Notice
                                   of Exercise form before your right to
                                   purchase shares under this Option Agreement
                                   terminates. If you send your Notice Of
                                   Exercise by facsimile transmission, it will
                                   be effective only if it is promptly confirmed
                                   by filing a form with an original signature.

                                   The Notice of Exercise must specify how many
                                   shares you wish to purchase and must specify
                                   how your shares should be registered (in your
                                   name only or in your and your spouse's names
                                   as community property or as joint tenants
                                   with right of survivorship).

                                   If someone else wants to exercise this Option
                                   after your death, that person must prove to
                                   Fair, Isaac's satisfaction that he or she is
                                   entitled to do so.

FORM OF
PAYMENT                            When you submit your Notice of Exercise, you
                                   must include payment of the exercise price
                                   shown on the Cover Page for the shares you
                                   are purchasing. Payment may be made in one
                                   (or a combination of two or more) of the
                                   following forms, as approved by Fair, Isaac
                                   in its sole discretion:

                                    - Your personal check, a cashier's check
                                      or a money order;

                                    - Irrevocable directions to a securities
                                      broker approved by Fair, Isaac to sell
                                      shares underlying this Option and to
                                      deliver all or a portion of the sale
                                      proceeds to Fair, Isaac in payment of the
                                      exercise price and the balance of the sale
                                      proceeds to you; all pursuant to a special
                                      "Notice of Exercise" form provided by
                                      Fair, Isaac; or

                                    - Certificates for shares of Fair, Isaac
                                      common stock that you have owned for at
                                      least 12 months, along with any forms
                                      needed to effect a transfer of those
                                      shares to Fair, Isaac with the value of
                                      the shares, determined as of the effective
                                      date of the exercise of this Option,
                                      applied to the exercise price.


                                      -2-



WITHHOLDING
TAXES                              You will not be allowed to exercise this
                                   Option unless you make acceptable
                                   arrangements to pay any withholding taxes
                                   that may be due as a result of the exercise
                                   of this Option. These arrangements must be
                                   satisfactory to Fair, Isaac. You may direct
                                   Fair, Isaac to withhold shares with a market
                                   value equal to the withholding taxes due from
                                   the shares to be issued as a result of your
                                   exercise of this Option.

RESTRICTIONS
ON RESALE                          By signing the Option Agreement, you agree
                                   not to sell any shares at a time when
                                   applicable laws or Fair, Isaac policies
                                   prohibit a sale.

TRANSFER OF
OPTION                             Prior to your death, only you or a permitted
                                   assignee as defined herein may exercise this
                                   Option (unless this Option or a portion
                                   thereof has been transferred to your former
                                   spouse by a domestic relations order by a
                                   court of competent jurisdiction). You may
                                   transfer this Option or a portion of this
                                   Option by gift to members of your immediate
                                   family, a partnership consisting solely of
                                   you and/or members of your immediate family,
                                   or to a trust established for the benefit of
                                   you and/or members of your immediate family
                                   (including a charitable remainder trust whose
                                   income beneficiaries consist solely of such
                                   persons). For purposes of the foregoing,
                                   "immediate family" means your spouse,
                                   children or grandchildren, including
                                   step-children or step-grandchildren. Any of
                                   these persons is a "permitted assignee."
                                   However, such transfer shall not be effective
                                   until you have delivered to Fair, Isaac
                                   notice of such transfer. You cannot transfer,
                                   pledge, hypothecate, assign or otherwise
                                   dispose of this Option, including using this
                                   Option as security for a loan. Any attempts
                                   to do any of these things contrary to the
                                   provisions of this Option, and the levy of
                                   any attachment or similar process upon this
                                   Option, shall be null and void. You may,
                                   however, dispose of this Option in your will
                                   or by a written beneficiary designation. Such
                                   a designation must be filed with Fair, Isaac
                                   on the proper form.

RETENTION
RIGHTS                             Neither your Option nor the terms of this
                                   Option Agreement give you the right to
                                   continue as an employee or director of Fair,
                                   Isaac (or any subsidiaries) in any capacity.
                                   Fair, Isaac (and any subsidiaries) reserve
                                   the right to terminate your service at any
                                   time, with or without cause, subject to the
                                   terms of any written employment agreement
                                   signed by you and Fair, Isaac.

STOCKHOLDER
RIGHTS                             You, or your assignees, estate, beneficiaries
                                   or heirs, have no rights as a stockholder of
                                   Fair, Isaac until a certificate for any
                                   portion of shares underlying this Option has
                                   been issued. No adjustments are made for
                                   dividends or other rights if the applicable
                                   record date occurs before your stock
                                   certificate is issued, except as described in
                                   the Plan.

ADJUSTMENTS                        In the event of any adjustments to the
                                   capital stock of Fair, Isaac as described in
                                   Article 10 of the Plan, the number of shares
                                   covered by this Option and the exercise price
                                   per share may be adjusted as Fair, Isaac may
                                   determine pursuant to the Plan.


                                      -3-



APPLICABLE LAW                     This Agreement will be interpreted and
                                   enforced under the laws of the State of
                                   Delaware (without regard to its rules on
                                   choice of law).

OTHER
AGREEMENTS                         This Option Agreement, the Plan and any
                                   written agreement between you and Fair, Isaac
                                   (or any subsidiaries) providing for
                                   acceleration of options granted to you by
                                   Fair, Isaac upon a change in control of Fair,
                                   Isaac constitute the entire understanding
                                   between you and Fair, Isaac regarding this
                                   Option. Any other prior agreements,
                                   commitments or negotiations concerning this
                                   Option are superseded. If there is any
                                   inconsistency between the provisions of this
                                   Agreement and the Plan, the provisions of the
                                   Plan shall govern. This Agreement may be
                                   amended only in writing.

DEFINITIONS                        "Retirement" means the date that you are
                                   eligible for normal retirement or early
                                   retirement, as defined as follows:

                                    - "Normal Retirement Age" means age 65

                                    - "Early Retirement" means age 55 and
                                      completed 10 Years of Service. One Year of
                                      Service is the completion of at least
                                      1,000 hours of service during the year.

                                   "Disability" means that you are unable to
                                   engage in any substantial gainful activity by
                                   reason of a medically determinable, physical
                                   or mental impairment which can be expected to
                                   result in death or which has lasted (or can
                                   be expected to last) for a continuous period
                                   of not less than 12 months.

BY SIGNING THE COVER PAGE, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED ABOVE AND IN THE PLAN.



                                      -4-


                                                                    EXHIBIT 21.1



                                 SUBSIDIARIES OF
                      FAIR, ISAAC AND COMPANY, INCORPORATED




Name of company and name                                    Jurisdiction of incorporation
under which it does business                                       or organization
- ----------------------------                                -----------------------------
                                                         
    Fair, Isaac International Corporation(1)                   California

    Risk Management Technologies(1)                            California

    Data Research Technologies(1)                              Minnesota

    Lindaro Office Park, Inc.(1)                               California

    Fair, Isaac International Germany Corporation(2)           California

    Fair, Isaac International Canada Corporation(2)            California

    Fair, Isaac International UK Corporation(2)                California

    Fair, Isaac International Japan Corporation(2)             California

    Fair, Isaac International Ltd(2)                           England

    Fair, Isaac International France Corporation(2)            California

    Fair, Isaac International Mexico Corporation(2)            California

    Fair, Isaac International Spain Corporation(2)             California

    Fair, Isaac Brazil, LLC(2)                                 Delaware

    Fair, Isaac Do Brasil Ltda.(3)                             Brazil

    Fair, Isaac UK Limited(2)                                  England

    HNC Software Inc.(1)                                       Delaware

    HNC Software International Inc.(4)                         Delaware

    HNC Software LLC (4)                                       Delaware


Footnotes:

    (1)    100% owned by Fair, Isaac and Company, Incorporated

    (2)    100% owned by Fair, Isaac International Corporation

    (3)    99% owned by Fair, Isaac International Corporation and 1% owned by
           Fair, Isaac Brazil, LLC

    (4)    100% owned by HNC Software Inc.


Revised 10-02


                                                                    EXHIBIT 23.1


                               CONSENT OF KPMG LLP

The Board of Directors
Fair, Isaac and Company, Incorporated:


We consent to incorporation by reference in the registration statements (Nos.
33-63426, 333-02121, 333-32309, 333-65179, 333-83905, 333-95889, 333-32396,
333-32398, 333-66348 and 333-66332) on Form S-8 and the registration statements
(Nos. 333-20537 and 333-42473) on Form S-3 of Fair, Isaac and Company,
Incorporated, of our report dated October 25, 2002, except as to note 20, which
is as of November 18, 2002, relating to the consolidated balance sheets of Fair,
Isaac and Company, Incorporated, and subsidiaries as of September 30, 2002 and
2001, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income (loss) and cash flows for each of
the years in the three-year period ended September 30, 2002, which reports
appear in the September 30, 2002 annual report on Form 10-K of Fair, Isaac and
Company, Incorporated. Our report dated October 25, 2002, except as to note 20,
which is as of November 18, 2002, contains an explanatory paragraph describing
the Company's change in accounting for Business Combinations.

/s/ KPMG LLP
San Francisco, California
November 18, 2002