SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                    For Fiscal Year Ended: December 31, 2002

                                       OR

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

                        For the transition period from to

                           Commission File No. 1-8383

                          MISSION WEST PROPERTIES, INC.
             (Exact name of registrant as specified in its charter)


           Maryland                                             95-2635431
           --------                                             ----------
(State or other jurisdiction of                              (I.R.S. Employer
Incorporation or organization)                            Identification Number)

10050 Bandley Drive, Cupertino CA                                 95014
     (Address of principal                                     (Zip Code)
       executive offices)

       Registrant's telephone number, including area code: (408) 725-0700
                                 ---------------

           Securities Registered Pursuant to Section 12(b) of the Act:

  Title of each class                  Name of each exchange on which registered
  -------------------                  -----------------------------------------
Common Stock, par value                          American Stock Exchange
    $.001 per share                               Pacific 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 [X] NO [ ]

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

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  registrant,  based upon the closing  sale price of the Common Stock on June
30,  2002,  as  reported  on the  American  Stock  Exchange,  was  approximately
$212,926,741.  As of  March  25,  2003  there  were  17,653,691  shares  of  the
Registrant's Common Stock outstanding.


<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  proxy  statement  for the 2003 Annual
Meeting of  Stockholders  to be held May 21, 2003,  and to be filed  pursuant to
Regulation  14A are  incorporated  by reference in Part III of this Form 10-K to
the extent stated herein.

                           Forward Looking Information

This annual report contains forward-looking statements within the meaning of the
federal securities laws. We intend such forward-looking statements to be covered
by the safe harbor provisions for  forward-looking  statements  contained in the
Private  Securities  Litigation  Reform  Act of  1995,  and are  including  this
statement  for  purposes  of  complying  with  these  safe  harbor   provisions.
Forward-looking statements,  which are based on certain assumptions and describe
future plans,  strategies and expectations of us, are generally  identifiable by
use  of the  words  "believe,"  "expect,"  "intend,"  "anticipate,"  "estimate,"
"project" or similar  expressions.  Our ability to predict results or the actual
effect of future plans or  strategies  is  inherently  uncertain.  Factors which
could have a material  adverse effect on the operations and future  prospects of
the Company  include,  but are not limited to, changes in:  economic  conditions
generally and the real estate  market  specifically,  legislative  or regulatory
provisions  affecting  the  Company  (including  changes to laws  governing  the
taxation of Real Estate  Investment  Trusts ("REITs")), availability of capital,
interest  rates,  competition,  supply of and demand  for office and  industrial
properties  in our  current and  proposed  market  areas,  tenant  defaults  and
bankruptcies,  and  general  accounting  principles,   policies  and  guidelines
applicable  to  REITs.   In  addition,   the  actual   timing  of   development,
construction,  and  leasing on the  projects  that the  Company  believes it may
acquire in the future under the Berg Land Holdings  Option  Agreement is unknown
presently.  These  risks  and  uncertainties,  together  with  the  other  risks
described  from  time  to time in our  reports  and  documents  filed  with  the
Securities  and  Exchange   Commission,   should  be  considered  in  evaluating
forward-looking  statements  and  undue  reliance  should  not be placed on such
statements. See Part I, Item 1, "Risk Factors."

                                     - i -
<PAGE>


                          MISSION WEST PROPERTIES, INC.


                          2002 FORM 10-K ANNUAL REPORT

                                Table of Contents

<TABLE>
<CAPTION>

                                     PART I
                                                                                                  Page No.
<S>            <C>                                                                                  <C>
Item 1.         Business                                                                             1
Item 2.         Properties                                                                           15
Item 3.         Legal Proceedings                                                                    21
Item 4.         Submission of Matters to a Vote of Security Holders                                  21

                                     PART II

Item 5.         Market for the Registrant's Common Equity and Related
                Stockholder Matters                                                                  22
Item 6.         Selected Financial Data                                                              23
Item 7.         Management's Discussion and Analysis of Financial
                Condition and Results of Operations                                                  25
Item 7A.        Quantitative and Qualitative Disclosures about Market Risk                           42
Item 8.         Financial Statements and Supplementary Data                                          43
Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                                                  69

                                    PART III

Item 10.        Directors and Executive Officers of the Registrant                                   70
Item 11.        Executive Compensation                                                               70
Item 12.        Security Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters                                                                  70
Item 13.        Certain Relationships and Related Transactions                                       70
Item 14.        Controls and Procedures                                                              70

                                     PART IV

Item 15.        Exhibits, Financial Statements, Schedules and Reports
                on Form 8-K                                                                          71
                Signatures                                                                           73
                Rule 13a-14 Certifications                                                           74
</TABLE>

                                     - ii -
<PAGE>


PART I

ITEM 1. BUSINESS

     ORGANIZATION AND GENERAL BUSINESS DESCRIPTION

     Mission West Properties,  Inc. (the "Company") acquires,  markets,  leases,
     and manages Research and Development ("R&D") properties,  primarily located
     in the Silicon Valley portion of the San Francisco Bay Area. As of December
     31, 2002, we owned and managed 101 properties  totaling  approximately  7.2
     million  rentable  square  feet  of R&D  properties  through  four  limited
     partnerships, or operating partnerships,  for which we are the sole general
     partner.  R&D property is designed for research and  development and office
     uses and, in some cases, includes space for light manufacturing  operations
     with loading docks.  We believe that we have one of the largest  portfolios
     of R&D  properties  in the Silicon  Valley.  The four tenants who lease the
     most  square  footage  from  us are  Microsoft  Corporation,  JDS  Uniphase
     Corporation,  Amdahl  Corporation  (a subsidiary of Fujitsu  Limited),  and
     Apple Computer,  Inc. For federal income tax purposes we have operated as a
     self-managed, self-administered and fully integrated Real Estate Investment
     Trust ("REIT") since fiscal 1999.

     Prior to July 1, 1998,  most of our properties  were under the ownership or
     control of Carl E. Berg,  his brother  Clyde J. Berg,  the members of their
     respective  immediate families,  and certain entities in which Carl E. Berg
     and/or Clyde J. Berg held  controlling  or other  ownership  interests (the
     "Berg Group").  We acquired these properties as of July 1, 1998 by becoming
     the general partner of each of the four operating partnerships in an UPREIT
     transaction.  At that time,  we also  acquired  ten  properties  comprising
     approximately  560,000  rentable  square feet from  entities  controlled by
     third parties in which the Berg Group members were significant owners.

     Through  various  property  acquisition  agreements with the Berg Group, we
     have the right to purchase, on pre-negotiated terms, R&D and other types of
     office and light industrial  properties that the Berg Group develops in the
     future.   With  in-house   development,   architectural   and  construction
     personnel,  the Berg  Group  continues  to  focus  on a full  range of land
     acquisition,  development and  construction  activities for R&D properties,
     often  built-to-suit,  to meet the  demands of Silicon  Valley  information
     technology companies.  As the developer,  the Berg Group takes on the risks
     of  purchasing  the  land,  obtaining  regulatory  approvals  and  permits,
     financing construction and leasing the properties. Since September 1998, we
     have acquired  approximately  2,879,000  additional rentable square feet of
     R&D properties from the Berg Group under these agreements.

     OUR RELATIONSHIP WITH THE BERG GROUP

     Through a series of  transactions  occurring  between May 1997 and December
     1998,  we have  become the  vehicle  for  substantially  all of the Silicon
     Valley R&D  property  operating  activities  of the Berg Group.  We are the
     general  partner  pursuant to the  partnership  agreements of the operating
     partnerships   and,  along  with  members  of  the  Berg  Group  and  other
     individuals,  are party to an Exchange  Rights  Agreement and the Berg Land
     Holdings Option  Agreement.  Each agreement defines the material rights and
     obligations  among us, the Berg Group  members,  and other parties to those
     agreements. Among other things, these agreements give us rights to:

     -    control the operating partnerships;

     -    acquire, on pre-negotiated  terms, all future R&D properties developed
          by the Berg Group on land  currently  owned or acquired in the future;
          and

     -    acquire R&D, office and industrial  properties  identified by the Berg
          Group in California, Oregon and Washington.

     Under these agreements,  our charter or our bylaws,  the Berg Group has the
     right to:

     -    designate  two of five  nominees  for  director  to be  elected by our
          stockholders,  subject  to the Berg  Group's  maintenance  of  certain
          ownership interests;

     -    participate in our securities offerings;

     -    exchange their operating  partnership interests ("O.P. Units") for our
          common stock;

     -    vote on major  transactions,  subject  to its  maintenance  of certain
          ownership interests; and

     -    prevent us from selling properties when the sale will have adverse tax
          consequences to the Berg Group members.


                                     - 1 -
<PAGE>

     To comply with REIT  requirements that restrict the percentage of the total
     value of our stock that may be owned by five or fewer individuals to 50% or
     less, our charter generally  prohibits the direct or indirect  ownership of
     more than 9% of our common stock by any  stockholder.  This limit  excludes
     the Berg Group, which has an aggregate  ownership limit of 20%.  Currently,
     the Berg Group  members  collectively  own less than 1% of the  outstanding
     shares of our common stock.

     Carl E. Berg,  the  Company's  Chairman of the Board of Directors and Chief
     Executive  Officer and the controlling  member of the Berg Group,  has been
     engaged in the development  and long-term  ownership of Silicon Valley real
     estate  for  approximately  30 years,  most  recently  through  Berg & Berg
     Developers ("Berg & Berg"), a general partnership of Carl E. Berg and Clyde
     J.  Berg.  In 1969,  Mr.  Berg  foresaw  the rising  demand for  efficient,
     multi-purpose  facilities for the rapidly  growing  information  technology
     industry in the Silicon Valley.  Since 1972, in addition to his real estate
     activities,  Mr. Berg also has been  actively  involved in venture  capital
     investments in many information technology companies in the Silicon Valley,
     including such companies as Amdahl Corporation, Sun Microsystems, Inc., and
     Integrated Device  Technologies,  Inc. He serves on the boards of directors
     of numerous information technology companies.  These activities have helped
     Mr. Berg develop a detailed  understanding of the real estate  requirements
     of information  technology  companies,  acquire valuable market information
     and  increase  his  name   recognition   within  the  venture  capital  and
     entrepreneurial communities.  These activities also manifest his commitment
     to the growth and success of Silicon Valley companies.  We believe that Mr.
     Berg's substantial knowledge of and contacts in the information  technology
     industry provide a significant benefit to the Company.

     BUSINESS STRATEGY

     Our acquisition,  growth and operating strategy  incorporates the following
     elements:

     -    working with the Berg Group to take  advantage of their  abilities and
          resources to pursue development  opportunities which we have an option
          to acquire, on pre-negotiated terms, upon completion and leasing;

     -    capitalizing  on  opportunistic  acquisitions  from  third  parties of
          high-quality R&D properties that provide attractive initial yields and
          significant potential for growth in cash-flow;

     -    focusing  on  general  purpose,   single-tenant   Silicon  Valley  R&D
          properties for information  technology  companies in order to maintain
          low  operating  costs,  reduce tenant  turnover and  capitalize on our
          relationships  with these  companies  and our  extensive  knowledge of
          their real estate needs; and

     -    maintaining  prudent  financial  management  principles that emphasize
          current cash flow while building  long-term  value, the acquisition of
          pre-leased  properties to reduce development and leasing risks and the
          maintenance of sufficient  liquidity to acquire and finance properties
          on desirable terms.

     ACQUIRING PROPERTIES DEVELOPED BY THE BERG GROUP

     We anticipate  that most of our growth,  if any, in rentable square footage
     in the  foreseeable  future  will  come  from  the  acquisition  of new R&D
     properties that are either  currently under  development or to be developed
     in the future by the Berg Group. For example,  in early 2003 we acquired an
     approximate 50% interest in a joint venture,  TBI-Mission  West, LLC, which
     consists of four R&D properties  totaling  approximately  593,000  rentable
     square feet from the Berg Group. In addition to this project, the Berg Land
     Holdings Option Agreement gives us the right to acquire future R&D property
     developments  by the  Berg  Group  on up to 250  additional  acres  of land
     currently  controlled by the Berg Group, which could support  approximately
     3.93 million square feet of new developments. Nevertheless, at this time we
     do not anticipate acquiring any additional newly constructed R&D properties
     from the Berg Group for several years because of current market  conditions
     in the Silicon Valley.

     We also have an option  under the Berg Land  Holdings  Option  Agreement to
     purchase  all land  acquired,  directly or  indirectly,  by Carl E. Berg or
     Clyde J. Berg that has not been approved with completed buildings and which
     is zoned for, intended for or appropriate for R&D, office and/or industrial
     development or use in the states of California,  Oregon and Washington.  In
     addition,  Carl E. Berg has agreed not to directly or indirectly acquire or
     develop any real  property  zoned for office,  industrial or R&D use in the
     states of California,  Oregon and Washington  without first  disclosing and
     making  the  acquisition  opportunity  available  to  us.  Our  independent
     directors  committee  will decide  whether we will  pursue the  opportunity
     presented to us by Mr. Berg. This  restriction will expire when there is no
     Berg Group  nominee on our board of directors  and the Berg  Group's  fully
     diluted ownership percentage,  which is calculated based on all outstanding
     shares  of common  stock and all  shares  of  common  stock  that  could be
     acquired upon the exercise of all outstanding options to acquire our voting
     stock,  as well as all shares of common stock issuable upon exchange of all
     O.P. Units ("Fully Diluted"), falls below 25%.

                                     - 2 -
<PAGE>

     BERG LAND  HOLDINGS  OPTION  AGREEMENT.  We  believe  that  control of high
     quality,  developable  land is an important  strategic factor for continued
     success in the Silicon Valley market. In December 1998, we entered into the
     Berg Land  Holdings  Option  Agreement  under  which we have the  option to
     acquire any future R&D,  office and  industrial  property  developed by the
     Berg  Group on land  currently  owned,  optioned,  or  acquired  for  these
     purposes in the future, directly or indirectly, by Carl E. Berg or Clyde J.
     Berg.  As of December  31, 2002,  we had acquired 18 leased R&D  properties
     totaling approximately  1,864,000 rentable square feet under this agreement
     at a cost of  approximately  $192.2 million,  for which we issued 7,583,686
     O.P. Units and assumed debt of  approximately  $109 million.  The principal
     terms of the agreement include the following:

     -    So long as the Berg Group members and their affiliates own or have the
          right to acquire shares  representing at least 65% of our common stock
          on a Fully  Diluted  basis,  we will have the  option to  acquire  any
          building developed by any member of the Berg Group on the land subject
          to the  Berg  Land  Holdings  Option  Agreement  at  such  time as the
          building has been leased.  Upon our exercise of the option, the option
          price  will  equal  the sum of the  following  or a lesser  amount  as
          approved by the independent directors committee:

          1. the full construction cost of the building; plus

          2. 10% of the full construction cost of the building; plus

          3.  interest  at  LIBOR  plus  1.65%,   on  the  amount  of  the  full
          construction  cost of the  building for the period from the date funds
          were disbursed by the developer to the close of escrow; plus

          4.  the  original   acquisition  cost  of  the  parcel  on  which  the
          improvements will be constructed, which range from $8.50 to $20.00 per
          square foot for land currently owned or under option; plus

          5. 10% per annum of the amount of the original acquisition cost of the
          parcel from the later of January 1, 1998 and the seller's  acquisition
          date, to the close of escrow; minus

          6. the aggregate principal amount of all debt encumbering the acquired
          property.

     -    The  acquisition  cost,  net of any debt,  will be payable in cash, or
          O.P.  Units  valued at the average  closing  price of our common stock
          over the 30-trading-day  period preceding the acquisition or, in cash,
          at the option of the Berg Group.

     -    We also must assume all property tax assessments.

     -    If we elect not to exercise the option with  respect to any  property,
          the Berg Group may hold and lease the property for its own account, or
          may sell it to a third party.

     -    All action taken by us under the Berg Land Holdings Option  Agreement,
          including any  variations  from stated terms outlined  above,  must be
          approved  by a majority of the  members of the  independent  directors
          committee of our board of directors.

     The following  table  presents  certain  information  concerning  currently
     identified land,  projects,  and joint venture interests  projected for R&D
     property  development that we have the right to acquire under the Berg Land
     Holdings Option Agreement.
<TABLE>
<CAPTION>

                                                             Approximate
                                                            Rentable Area            Anticipated             Total Estimated
      Property                            Net Acres         (Square Feet)          Acquisition Date        Acquisition Cost (1)
      ------------------------------ -------------------- ------------------- --------------------------- ---------------------
<S>                                         <C>             <C>                       <C>                       <C>
      Under Development:                                                                                  (dollars in thousands)
      TBI-Mission West JV (2)                 37               593,000                 Q1 2003                   $1,800

                                                             Approximate
                                                            Rentable Area
      Property                            Net Acres         (Square Feet)
      ------------------------------ -------------------- -------------------
      Available Land:

      Piercy & Hellyer                        30               490,000
      Morgan Hill (2)                         24               368,025
      King Ranch                              12               207,000
      Fremont & Cushing                       24               387,000
      Evergreen (3)                          160             2,480,000
                                     -------------------- -------------------
                    Subtotal                  250            3,932.025
                                     -------------------- -------------------
      TOTAL                                   287            4,525,025
                                     ==================== ===================
</TABLE>

                                     - 3 -
<PAGE>


(1)  The estimated  acquisition  value  represents  the estimated cash price for
     acquiring  the projects  under the terms of the Berg Land  Holdings  Option
     Agreement,  which may differ from the actual acquisition cost as determined
     under  accounting  principles  generally  accepted in the United  States of
     America ("GAAP"), if O.P. Units or any other securities based on the market
     value of our common stock are issued in the transaction.
(2)  We expect to own an approximate 50% interest in the partnership through one
     of our operating partnerships. The property will be operated and managed by
     the other joint  venture  partner in the entity.  The  rentable  area shown
     above reflects both the Company's and the other partner's combined interest
     in this joint  venture.  Our net  investment  in this joint venture will be
     shown as investments on the 2003 consolidated balance sheets.
(3)  The  Berg  Group  is  attempting  to  rezone  all or part of this  land for
     residential  use and if successful,  it would no longer be available to the
     Company for purchase.

     The time  required to  complete  the  leasing of  developments  varies from
     property to property. The acquisition dates and acquisition costs set forth
     in the table  are only  estimates  by  management.  Generally,  we will not
     acquire  any of the  above  projects  until  they are fully  completed  and
     leased.  There can be no assurance that the acquisition date and final cost
     to the Company as  indicated  above will be  realized.  No estimate  can be
     given at this time as to our total cost to acquire  projects under the Berg
     Land  Holdings  Option  Agreement,  nor can we be  certain of the period in
     which we will acquire any of the projects.

     The Berg Group  currently  is  seeking  government  approval  of a proposed
     rezoning of the 250-acre Evergreen site to permit  residential  development
     on a  substantial  portion  of the  site.  If the Berg  Group  obtains  the
     requested  rezoning,  it will ask the  independent  directors  committee to
     approve the removal of the rezoned  portions of this property from the Berg
     Land Holdings Option Agreement.

     Although  we  expect  to  acquire  the new  properties  or  joint  ventures
     available to us under the terms of the Berg Land Holdings Option Agreement,
     subsequent to the approval by the independent  directors  committee,  there
     can be no assurance  that we actually will  consummate  any of the intended
     transactions, including those discussed above. Furthermore, we have not yet
     determined  the  means  by  which  we  would  acquire  and pay for any such
     properties  or the  impact  of any of  the  acquisitions  on our  business,
     results of operations, financial condition, Funds From Operation ("FFO") or
     available  cash  for  distribution.  See  Item  1.,  "Risk  Factors  -  Our
     contractual  business  relationships with the Berg Group present additional
     conflicts  of  interest  which may result in the  realization  of  economic
     benefits  or the  deferral  of tax  liabilities  by the Berg Group  without
     equivalent benefits to our stockholders."

     Given the recent  economic  downturn in the Silicon  Valley,  we may not be
     able to  maintain  historical  levels of growth  from  acquisitions  of new
     developments in the future.

     OPPORTUNISTIC ACQUISITIONS

     In addition to our  principal  opportunities  under the Berg Land  Holdings
     Option  Agreement,  we believe  our  acquisitions  experience,  established
     network  of real  estate  and  information  technology  professionals,  and
     overall  financial  condition  will continue to provide  opportunities  for
     external growth.  In general,  we will seek  opportunistic  acquisitions of
     high  quality,  well located  Silicon  Valley R&D  properties in situations
     where  illiquidity  or inadequate  management  permit their  acquisition at
     favorable prices,  and where our management skills and knowledge of Silicon
     Valley  submarkets may  facilitate  increases in cash flow and asset value.
     Furthermore,  our use of the operating  partnership  structure allows us to
     offer  prospective  sellers the  opportunity to contribute  properties on a
     tax-deferred  basis  in  exchange  for  O.P.  Units.  Although  we have not
     consummated any  transactions  like this since our July 1, 1998 acquisition
     of the Berg  Group  properties,  this  capacity  to  complete  tax-deferred
     transactions  with sellers of real property further enhances our ability to
     acquire additional properties.

     FOCUS ON SINGLE TENANT SILICON VALLEY R&D PROPERTIES

     We intend to continue to emphasize the acquisition of single-tenant  rather
     than  multi-tenant  properties,  a  practice  that has  contributed  to the
     relatively  low turnover and high  occupancy  rates on our  properties.  We
     believe that the relatively  small number of tenants (84) occupying our 101
     properties,  mostly  under the  triple  net lease  structure,  allows us to
     efficiently  manage the  properties and to serve our tenants' needs without
     extensive  in-house  staff  or the  assistance  of a  third-party  property
     management organization. In addition, this emphasis allows us to incur less
     expense for tenant  improvements and leasing commissions than multi-tenant,
     high  turnover  property  owners.  This  strategy also reduces the time and
     expense  associated with obtaining  building permits and other governmental
     approvals.  We believe that the relatively stable,  extended  relationships
     that we have  developed  with our key tenants are valuable in the expansion
     of our business.


                                      - 4 -
<PAGE>


     RECENT RENTAL MARKET DEVELOPMENTS

     All of the Company's properties are located in the Northern California area
     known as Silicon  Valley,  which  generally  consists  of portions of Santa
     Clara County,  Southwestern  Alameda County,  Southeastern San Mateo County
     and Eastern  Santa Cruz  County.  The Silicon  Valley  economy and business
     activity have slowed markedly during 2001 and 2002 after fast-paced  growth
     in 1999 and  2000.  In the past  several  years,  the  Silicon  Valley  R&D
     property  market has  fluctuated  with the local  economy.  According  to a
     recent  report by BT  Commercial  Real  Estate,  vacancy  rates for Silicon
     Valley R&D  property  increased  from  approximately  14.8% in late 2001 to
     21.9% at the end of 2002. Total vacant R&D square footage in Silicon Valley
     at the end of the fourth  quarter of 2002  amounted to 33.6 million  square
     feet, of which 38.7%, or 13 million square feet, was sublease space.  Total
     negative net  absorption in 2001 amounted to  approximately  (15.6) million
     square feet.  For the year 2002,  there was a total negative net absorption
     of approximately (10.9) million square feet. The impact of this decline has
     not been  uniform  throughout  the area,  however.  The Silicon  Valley R&D
     property  market  has  been   characterized  by  a  substantial  number  of
     submarkets,  with rent and vacancy  rates varying by submarket and location
     within  each  submarket.  For the years ended  December  31, 2002 and 2001,
     average  occupancy in the Company's  stabilized  portfolio was 90% and 98%,
     respectively.  Prior  to  the  first  quarter  of  2002,  we  had  achieved
     historical  average  occupancy  levels of above 98% since 1999.  We believe
     that maintaining average occupancy levels above 98% will not be sustainable
     given the current economic environment, as evidenced by our occupancy level
     of 84% at December 31, 2002.  Although we have stringent lease underwriting
     standards  and  continually  evaluate  the  financial  capacity of both our
     prospective and existing  tenants to proactively  manage  portfolio  credit
     risk,  a downturn  in tenants'  businesses  may weaken  tenants'  financial
     conditions and could result in defaults under their lease  obligations.  We
     believe that the average 2003 renewal rental rates for our properties  will
     be  approximately  equal to, or perhaps,  below current rents. In addition,
     leasing  activity  for new  build-to-suit  and vacated R&D  properties  has
     slowed considerably during the past year. Leases representing approximately
     527,000  square feet, or 6.3% of the Company's 2003  annualized  base rent,
     are  scheduled  to  expire  during  2003.  If we  are  unable  to  lease  a
     significant portion of any vacant space or space scheduled to expire; if we
     experience  significant tenant defaults as a result of the current economic
     downturn;  or if we are not able to lease space at or above current  market
     rates, our results of operations and cash flows will be adversely affected.

     OPERATIONS

     We operate as a self-administered,  self-advised and self-managed REIT with
     our own employees.  Generally, as the sole general partner of the operating
     partnerships,   we  control  the  business  and  assets  of  the  operating
     partnerships  and  have  full  and  complete   authority,   discretion  and
     responsibility with respect to the operating  partnerships'  operations and
     transactions,   including,   without   limitation,   acquiring   additional
     properties,  borrowing funds,  raising new capital,  leasing  buildings and
     selecting and supervising all agents of the operating partnerships.

     Although  most of our leases are triple net and  building  maintenance  and
     tenant  improvements are the  responsibility  of the tenants,  from time to
     time we may be required to  undertake  construction  and repair work at our
     properties.  We will bid all major work  competitively  to  subcontractors.
     Members of the Berg Group may  participate in the  competitive  bidding for
     the work.

     We generally will market the  properties and negotiate  leases with tenants
     ourselves.  We  make  the  availability  of  our  properties  known  to the
     brokerage  community to garner  their  assistance  in locating  prospective
     tenants.  As a  result,  we expect to  retain  our  policy of paying  fixed
     commissions to tenants' brokers.

     We  believe  that  our  business  practices  provide  us  with  competitive
     advantages, including -

     -    EXTERNAL  DEVELOPMENT  AFFILIATE.  We have the option to purchase  all
          future R&D, office, industrial property developments of the Berg Group
          under the Berg Land Holdings  Option  Agreement on land currently held
          or acquired  directly or  indirectly  by Carl E. Berg or Clyde J. Berg
          that is zoned for those purposes and located in California, Oregon and
          Washington  following  completion  and lease-up of the  property.  Our
          option will terminate when the Berg Group's ownership percentage falls
          below 65% of our common stock  calculated  on a Fully  Diluted  basis.
          Carl E. Berg has agreed to refer to us, and not  acquire  through  the
          Berg  Group,  all  opportunities  to  acquire  the same  kinds of real
          property in these states that he identifies in the future,  until such
          time as the Berg Group's  Fully  Diluted  ownership  percentage  falls
          below  25%  and  there  is no  Berg  Group  nominee  on our  board  of
          directors.  The acquisition  terms and conditions for the existing and
          identified  projects have been pre-negotiated and are documented under
          the Berg Land Holdings Option Agreement. This relationship provides us
          with  the  economic   benefits  of   development   while   eliminating
          development  and  initial  lease-up  risks.  It also  provides us with
          access to one of the most experienced development teams in the Silicon
          Valley without the expense of maintaining development personnel.

                                     - 5 -
<PAGE>

     -    LEAN  ORGANIZATION,  EXPERIENCED  TEAM. In part because of our primary
          focus on Silicon  Valley,  our experience with the special real estate
          requirements  of  information  technology  tenants  and the  long-term
          triple-net  structure of our leases, we are able to conduct and expand
          our  business  with  a  small  management  team  comprised  of  highly
          qualified and  experienced  professionals  working within a relatively
          flat  organizational  structure.  We believe  that the leanness of our
          organization  and our experience  will enable us to rapidly assess and
          respond to market  opportunities  and tenant needs,  control operating
          expenses  and  develop  and  maintain  excellent   relationships  with
          tenants.  We further  believe  that these  advantages  translate  into
          significantly  lower  costs for  operations  and give us the  ability,
          along  with the Berg  Group,  to  compete  favorably  with  other  R&D
          property  developers in Silicon Valley,  especially for  build-to-suit
          projects subject to competitive bidding.  Furthermore, we believe this
          lower  cost  structure  allows  us to  generate  better  returns  from
          properties whose value can be increased through appropriate remodeling
          and efficient property management.

     -    SOUND PROPERTY MANAGEMENT PRACTICES. For each property, the management
          team, along with the Berg Group staff,  develops a specific  marketing
          and property  management program. We select vendors and subcontractors
          on a  competitive  bid basis from a select  group of highly  qualified
          firms  with  whom we  maintain  ongoing  relationships  and  carefully
          supervise their work.

     OPERATING PARTNERSHIP AGREEMENTS

     MANAGEMENT

     The operating  partnerships  consist of four separate limited  partnerships
     engaged in the combined operation and ownership of all our properties.  The
     operating partnership agreements are identical in all material respects for
     all four of the limited  partnerships.  Pursuant to  operating  partnership
     agreements,   we  act  as  the  sole  general   partner  of  the  operating
     partnerships,  in which capacity we have exclusive  control of the business
     and  assets  of the  operating  partnerships  and  generally  have full and
     complete  authority,  discretion  and  responsibility  with  respect to the
     operating  partnerships'  operations and transactions,  including,  without
     limitation, acquisitions of additional properties, borrowing funds, raising
     new capital,  leasing  buildings,  as well as selecting and supervising all
     employees and agents of the operating  partnerships.  Through our authority
     to manage our  business and  affairs,  our board of  directors  directs the
     business of the operating partnerships.

     Notwithstanding  our effective control of the operating  partnerships,  the
     Berg Group holds a substantial  majority of the outstanding  O.P. Units and
     the consent of the limited  partners  holding a majority of the outstanding
     O.P.  Units is  required  with  respect  to certain  extraordinary  actions
     involving the operating partnerships, including:

     -    the   amendment,   modification   or   termination  of  the  operating
          partnership agreements;

     -    a general  assignment for the benefit of creditors or the  appointment
          of a  custodian,  receiver  or  trustee  for any of the  assets of the
          operating partnerships;

     -    the  institution  of any  proceeding  for  bankruptcy of the operating
          partnerships;

     -    the transfer of any general  partnership  interests  in the  operating
          partnerships,  including, with certain exceptions, transfers attendant
          to any merger, consolidation or liquidation of our corporation;

     -    the admission of any additional or substitute  general  partner in the
          operating partnerships; and

     -    a change of control of the operating partnerships.

     In  addition,  until  the  ownership  interest  of the Berg  Group  and its
     affiliates is less than 15% of the common stock on a Fully  Diluted  basis,
     the consent of the limited  partners  holding a majority of the outstanding
     O.P. Units is also required with respect to:

     -    the liquidation of the operating partnerships;

     -    the sale or other transfer of all or  substantially  all of the assets
          of  the  operating  partnerships  and  certain  mergers  and  business
          combinations  resulting in the complete disposition of all O.P. Units;
          and

     -    the issuance of limited  partnership  interests having seniority as to
          distributions, assets and voting over the O.P. Units.

                                     - 6 -
<PAGE>


     TRANSFERABILITY OF O.P. UNITS

     The operating partnership  agreements provide that the limited partners may
     transfer  their O.P.  Units,  subject to  certain  limitations.  Except for
     certain  transfers  by the  limited  partners  to or from  certain of their
     affiliates,  however, all transfers may be made only with our prior written
     consent as the sole general partner of the operating partnerships.

     In addition,  no transfer of O.P. Units by the limited partners may be made
     in violation of certain  regulatory and other restrictions set forth in the
     operating partnership  agreements.  Except in the case of certain permitted
     transfers  to or from  certain  affiliates  of the  limited  partners,  the
     exchange  rights,  the put rights,  rights to  participate in future equity
     financings  and  provisions  requiring  the  approval  of  certain  limited
     partners for certain  matters will no longer be applicable to O.P. Units so
     transferred,  and the  transferee  will  not have any  rights  to  nominate
     persons to our board of directors.

     ADDITIONAL CAPITAL CONTRIBUTIONS AND LOANS

     Each  operating  partnership  agreement  provides  that,  if the  operating
     partnership requires additional funds to pursue its investment  objectives,
     we may fund such  investments  by raising  additional  equity  capital  and
     making a capital contribution to the operating partnerships or by borrowing
     such funds and  lending  the net  proceeds  of such loans to the  operating
     partnerships.   If  we  intend  to  provide   additional  funds  through  a
     contribution  to  capital  and  purchase  of units of  general  partnership
     interest,  the limited  partners will have the right to participate in such
     funding on a pro rata,  pari passu  basis and to  acquire  additional  O.P.
     Units. If the limited  partners do not  participate in such  financing,  we
     will acquire additional units of general  partnership  interest.  In either
     case,  the  number of  additional  units of  partnership  interest  will be
     increased based upon the amount of the additional capital contributions and
     the value of the operating  partnerships as of the date such  contributions
     are made.

     In addition, as general partner of the operating partnerships,  we have the
     ability to cause the operating partnerships to issue additional O.P. Units.
     In the event that the operating  partnerships issue new O.P. Units for cash
     but not property,  the limited partners will have the right to purchase new
     O.P.  Units at the price we offer in the  transaction  giving  rise to such
     participation  right in order,  and to the extent  necessary,  to  maintain
     their respective percentage interests in the operating partnerships.

     EXCHANGE RIGHTS, PUT RIGHTS AND REGISTRATION RIGHTS

     Under the Exchange Rights  Agreement  between us and the limited  partners,
     the limited partners have exchange rights that generally became exercisable
     on December 29, 1999. The Exchange Rights  Agreement  permits every limited
     partner to tender O.P. Units to us, and, at our election, to receive common
     stock on a one-for-one  basis at  then-current  market value, an equivalent
     amount of cash, or a  combination  of cash and common stock in exchange for
     the O.P. Units tendered,  subject to the 9% overall ownership limit imposed
     on non-Berg Group stockholders  under our charter document,  or the overall
     20% Berg Group ownership  limit, as the case may be. For more  information,
     please  refer to this Item 1., "Risk  Factors - Failure to satisfy  federal
     income tax  requirements for REITs could reduce our  distributions,  reduce
     our  income  and cause our stock  price to fall."  This  exchange  ratio is
     subject to adjustment for stock splits, stock dividends,  recapitalizations
     of our common stock and similar  types of corporate  actions.  In addition,
     once in each  12-month  period  beginning  each  December  29, the  limited
     partners,  other  than Carl E. Berg and Clyde J. Berg,  may  exercise a put
     right to sell their O.P.  Units to the  operating  partnerships  at a price
     equal to the average  market price of the common  stock for the  10-trading
     day period immediately  preceding the date of tender.  Upon any exercise of
     the put  rights,  we will have the  opportunity  for a period of 15 days to
     elect to fund  the  purchase  of the O.P.  Units  and  purchase  additional
     general partner  interests in the operating  partnerships for cash,  unless
     the purchase  price  exceeds $1 million in the  aggregate for all tendering
     limited partners,  in which case, the operating  partnerships or we will be
     entitled to reduce  proportionally  the number of O.P. Units to be acquired
     from each tendering limited partner so that the total purchase price is not
     more than $1 million.

     The shares of our common  stock  issuable  in exchange  for the O.P.  Units
     outstanding  at July 1,  1998 and the O.P.  Units  issued  pursuant  to the
     Pending Projects Acquisition Agreement were registered under the Securities
     Act and generally may be sold without  restriction  if they are acquired by
     limited  partners that are not  affiliates,  as defined under SEC Rule 144.
     For more  information  please refer to this Item 1., "Risk Factors - Shares
     eligible  for future sale could  affect the market price of our stock." The
     Exchange  Rights  Agreement  gives the  holders of O.P.  Units the right to
     participate in any registered public offering of the common stock initiated
     by us to the extent of 25% of the total  shares sold in the  offering  upon
     converting  O.P.  Units to shares  of  common  stock,  but  subject  to the
     underwriters'  unlimited right to reduce the  participation  of all selling
     stockholders.  The  holders of O.P.  Units  will be able to request  resale
     registrations  of shares of common stock acquired on exchange of O.P. Units
     on a Form S-3, or any equivalent  form of  registration  statement.  We are
     obligated  to effect no more than two such  registrations  in any  12-month
     period.  We are  obligated  to assist the O.P.  Unit holders in obtaining a
     firm  commitment  underwriting  agreement  for such resale from a qualified
     investment-banking  firm.  If  registration  on Form S-3, or an  equivalent
     form,  is not  available  for any reason,  we will be obligated to effect a
     registration  of the shares to be  acquired  on  exercise  of the  exchange
     rights on Form S-11,  or an  equivalent  form,  in an  underwritten  public
     offering,  upon demand by the holders of no fewer than 500,000 O.P.  Units.
     All  holders  of  O.P.  Units  will  be  entitled  to  participate  in such
     registration.  We


                                     - 7 -
<PAGE>

     will bear all costs of such  registrations  other  than  selling  expenses,
     including commissions and separate counsels' fees of the O.P. Unit holders.
     We will not be required to effect any  registration for resale on Form S-3,
     or  equivalent  form of common stock shares  issuable to the holder of O.P.
     Units if the request is for less than 250,000 shares.

     OTHER MATTERS

     The   operating   partnership   agreements   require  that  the   operating
     partnerships  be  operated  in a manner  that will enable us to satisfy the
     requirements for being classified as a REIT and to avoid any federal income
     or excise tax liability.

     The  operating  partnership   agreements  provide  that  the  combined  net
     operating  cash flow from all the  operating  partnerships,  as well as net
     sales and refinancing  proceeds,  will be distributed  from time to time as
     determined  by our  board  of  directors,  but  not  less  frequently  than
     quarterly,  pro rata in accordance with the partners'  percentage interests
     in the operating partnerships, taken as a whole. This provision is intended
     to cause  the  periodic  distributions  per O.P.  Unit and per share of our
     common stock to be equal. As a consequence of this  provision,  the capital
     interest of a partner in each of the operating partnerships,  including our
     capital interests,  might at times differ  significantly from the partner's
     percentage  interest  in the net  income  and cash  flow of that  operating
     partnership.  We do not believe that such differences would have a material
     impact  on  our  business,  financial  condition  or  Funds  Available  for
     Distributions ("FAD"), however.

     Pursuant  to  the   operating   partnership   agreements,   the   operating
     partnerships will also assume and pay when due, or reimburse us for payment
     of, certain costs and expenses  relating to our continuity of existence and
     operations.

     The operating partnership  agreements provide that, upon the exercise of an
     outstanding  option  under the 1997  Stock  Option  Plan,  we may  purchase
     additional  general  partner  interests in the  operating  partnerships  by
     contributing  the  exercise  proceeds to the  operating  partnerships.  Our
     increased  interest shall be equal to the percentage of outstanding  shares
     of common stock and O.P. Units on an as-converted  basis represented by the
     shares acquired upon exercise of the option.

     TERM

     The  operating  partnerships  will  continue in full force and effect until
     December  31, 2048 or until sooner  dissolved  pursuant to the terms of the
     operating partnership agreements.

     EMPLOYEES

     As of March 25,  2003,  we employed  five  people,  all of whom work at our
     executive offices at 10050 Bandley Drive, Cupertino, California, 95014.

     FACILITIES

     We sublease office space at 10050 Bandley Drive, Cupertino, California from
     Berg & Berg  Enterprises,  Inc. and share clerical staff and other overhead
     on what we consider to be very  favorable  terms.  The total  monthly  rent
     payable by us to Berg & Berg Enterprises, Inc. is $7,520.

     RISK FACTORS

     You should carefully consider the following risks,  together with the other
     information  contained  elsewhere in this Form 10-K.  The  following  risks
     relate  principally  to our  business and the industry in which we operate.
     The risks and uncertainties classified below are not the only ones we face.

     WE ARE DEPENDENT ON CARL E. BERG,  AND IF WE LOSE HIS SERVICES OUR BUSINESS
     MAY BE HARMED AND OUR STOCK PRICE COULD FALL.

     We are  substantially  dependent  upon the  leadership of Carl E. Berg, our
     Chairman and Chief  Executive  Officer.  Losing Mr.  Berg's  knowledge  and
     abilities  could have a material  adverse  effect on our  business  and the
     value of our common stock.  Mr. Berg manages our day-to-day  operations and
     devotes a  significant  portion  of his time to our  affairs,  but he has a
     number of other business  interests as well. These other activities  reduce
     Mr. Berg's attention to our business.

     MR. BERG AND HIS AFFILIATES  EFFECTIVELY  CONTROL OUR  CORPORATION  AND THE
     OPERATING  PARTNERSHIPS  AND MAY ACT IN WAYS  THAT ARE  DISADVANTAGEOUS  TO
     OTHER STOCKHOLDERS.

     SPECIAL BOARD VOTING PROVISIONS.  Our governing corporate documents,  which
     are our articles of amendment and restatement,  or charter, and our bylaws,
     provide  substantial  control  rights for the Berg Group.  The Berg Group's
     control  of our  corporation


                                     - 8 -
<PAGE>

     means that the value and returns from an investment in the Company's common
     stock are subject to the Berg Group's exercise of its rights.  These rights
     include a  requirement  that Mr. Berg or his  designee as director  approve
     certain fundamental corporate actions,  including amendments to our charter
     and bylaws and any merger,  consolidation  or sale of all or  substantially
     all of our assets. In addition,  our bylaws provide that a quorum necessary
     to hold a valid meeting of the board of directors  must include Mr. Berg or
     his designee.  The rights  described in the two preceding  sentences  apply
     only as long as the Berg Group members and their affiliates,  other than us
     and the operating  partnerships,  beneficially  own, in the  aggregate,  at
     least 15% of our  outstanding  shares of  common  stock on a Fully  Diluted
     basis.  Also,  directors  representing more than 75% of the entire board of
     directors must approve other  significant  transactions,  such as incurring
     debt above certain  amounts and conducting  business other than through the
     operating  partnerships.  Without the approval of Mr. Berg or his designee,
     board of directors  approval that we may need for actions that might result
     in a sale of your  stock at a premium or raising  additional  capital  when
     needed could be difficult or impossible to obtain.

     BOARD OF DIRECTORS REPRESENTATION. The Berg Group members have the right to
     designate two of the director nominees  submitted by our board of directors
     to stockholders  for election,  as long as the Berg Group members and their
     affiliates, other than us and the operating partnerships, beneficially own,
     in the aggregate,  at least 15% of our  outstanding  shares of common stock
     calculated on a Fully Diluted basis. If the Fully Diluted  ownership of the
     Berg Group  members and their  affiliates,  other than us and the operating
     partnerships, is less than 15% but is at least 10% of the common stock, the
     Berg Group members have the right to designate one of the director nominees
     submitted by our board of directors to stockholders for election. Its right
     to designate  director nominees affords the Berg Group substantial  control
     and influence  over the management  and direction of our  corporation.  The
     Berg  Group's   interests   could   conflict  with  the  interests  of  our
     stockholders, and could adversely affect the price of our common stock.

     SUBSTANTIAL  OWNERSHIP  INTEREST.  The Berg Group currently owns O.P. Units
     representing  approximately  75.4% of the equity interests in the operating
     partnerships  and  approximately  75.2% of our equity  interests on a Fully
     Diluted basis. The O.P. Units may be converted into shares of common stock,
     subject to limitations  set forth in our charter and other  agreements with
     the Berg Group,  and upon conversion  would represent voting control of our
     corporation. The Berg Group's ability to exchange its O.P. Units for common
     stock permits it to exert  substantial  influence  over the  management and
     direction of our  corporation.  This influence  increases our dependence on
     the Berg Group.

     LIMITED  PARTNER  APPROVAL  RIGHTS.  Mr. Berg and other  limited  partners,
     including other members of the Berg Group,  may restrict our operations and
     activities  through  rights  provided  under the terms of the  amended  and
     restated  agreement  of  limited  partnership  which  governs  each  of the
     operating  partnerships  and  our  legal  relationship  to  each  operating
     partnership  as its  general  partner.  Matters  requiring  approval of the
     holders of a majority of the O.P. Units,  which  necessarily  would include
     the Berg Group, include the following:

     -    the  amendment,  modification  or  termination of any of the operating
          partnership agreements;

     -    the  transfer of any  general  partnership  interest in the  operating
          partnerships,  including, with certain exceptions, transfers attendant
          to any merger, consolidation or liquidation of our corporation;

     -    the admission of any additional or substitute  general partners in the
          operating partnerships;

     -    any other change of control of the operating partnerships;

     -    a general  assignment for the benefit of creditors or the  appointment
          of a  custodian,  receiver  or  trustee  for any of the  assets of the
          operating partnerships; and

     -    the  institution  of  any  bankruptcy  proceeding  for  any  operating
          partnership.

     In addition, as long as the Berg Group members and their affiliates,  other
     than us and the operating partnerships, beneficially own, in the aggregate,
     at least 15% of the  outstanding  shares of common stock on a Fully Diluted
     basis,  the  consent of the  limited  partners  holding the right to vote a
     majority of the total number of O.P.  Units  outstanding  is also  required
     with respect to:

     -    the sale or other transfer of all or  substantially  all of the assets
          of  the  operating  partnerships  and  certain  mergers  and  business
          combinations resulting in the complete disposition of all O.P. Units;

     -    the issuance of limited partnership interests senior to the O.P. Units
          as to distributions, assets and voting; and

     -    the liquidation of the operating partnerships.

                                     - 9 -
<PAGE>

     The liquidity of an investment in the Company's common stock, including our
     ability to respond to acquisition  offers,  will be subject to the exercise
     of these rights.

     OUR  CONTRACTUAL  BUSINESS   RELATIONSHIPS  WITH  THE  BERG  GROUP  PRESENT
     ADDITIONAL  CONFLICTS OF INTEREST,  WHICH MAY RESULT IN THE  REALIZATION OF
     ECONOMIC  BENEFITS  OR THE  DEFERRAL OF TAX  LIABILITIES  BY THE BERG GROUP
     WITHOUT EQUIVALENT BENEFITS TO OUR STOCKHOLDERS.

     Our  contracts  with the Berg Group  provide it with  interests  that could
     conflict with those of our other stockholders, including the following:

     -    our headquarters are leased from an entity owned by the Berg Group, to
          whom we pay rent of $7,520 per month;

     -    the Berg Group is  permitted  to  conduct  real  estate  and  business
          activities other than our business;

     -    if we decline  an  opportunity  that has been  offered to us, the Berg
          Group may pursue it,  which  would  reduce the amount of time that Mr.
          Berg could  devote to our affairs and could result in the Berg Group's
          development  of  properties  that  compete  with  our  properties  for
          tenants;

     -    in general, we have agreed to limit the liability of the Berg Group to
          our  corporation  and our  stockholders  arising from the Berg Group's
          pursuit of these other opportunities;

     -    we acquired most of our  properties  from the Berg Group on terms that
          were not  negotiated  at  arm's  length  and  without  many  customary
          representations  and  warranties  that  we  would  have  sought  in an
          acquisition from an unrelated party; and

     -    we have  assumed  liability  for debt to the Berg  Group  and debt for
          which the Berg Group was liable.

     The Berg Group has agreed that the independent  directors  committee of our
     board of directors must approve all new transactions  between us and any of
     its  members,  or  between  us and any  entity  in  which  it  directly  or
     indirectly owns 5% or more of the equity interests, including the operating
     partnerships for this purpose.  This committee  currently consists of three
     directors who are independent of the Berg Group.

     EXCLUDED PROPERTIES.  With our prior knowledge, the Berg Group retained two
     R&D properties in Scotts Valley,  Santa Cruz County,  California,  in which
     the operating  partnerships and we have no ownership  interest.  Efforts of
     the Berg Group to lease these other properties could interfere with similar
     efforts on our behalf.

     BERG LAND HOLDINGS.  The Berg Group owns several parcels of unimproved land
     in the Silicon Valley that the operating partnerships and we have the right
     to acquire under the terms of the Berg Land Holdings Option  Agreement.  We
     have agreed to pay an amount based on  pre-negotiated  terms for any of the
     properties that we do acquire.  We must pay the  acquisition  price in cash
     unless the Berg Group  elects,  in its  discretion,  to receive O.P.  Units
     valued at the average  market  price of a share of common  stock during the
     30-trading-day  period  preceding  the  acquisition  date.  At the  time of
     acquisition,  which is subject to the approval of the independent directors
     committee of our board of directors,  these properties may be encumbered by
     debt that we or the  operating  partnerships  will be required to assume or
     repay.  The use of our cash or an increase in our  indebtedness  to acquire
     these  properties  could have a material  adverse  effect on our  financial
     condition,  results of operations and ability to make cash distributions to
     our stockholders.

     TAX CONSEQUENCES OF SALE OF PROPERTIES. Because many of our properties have
     unrealized  taxable gain, a sale of those  properties  could create adverse
     income tax consequences for limited partners of the operating partnerships.
     We have agreed  with Carl E. Berg,  Clyde J. Berg and John  Kontrabecki,  a
     limited  partner  in two of  the  operating  partnerships,  that  prior  to
     December  29,  2008,  each  of  them  may  prevent  us  and  the  operating
     partnerships  from selling or transferring  any of the properties that were
     acquired from them in our July 1998 UPREIT acquisition if the proposed sale
     or  other  transfer  will  be  a  taxable  transaction.  As a  result,  our
     opportunities to sell these  properties may be limited.  If we need to sell
     any of these  properties  to raise cash to service  our debt,  acquire  new
     properties,  pay cash  distributions  to  stockholders or for other working
     capital purposes,  we may be unable to do so. These restrictions could harm
     our business and cause our stock price to fall.

     TERMS OF TRANSFERS:  ENFORCEMENT OF AGREEMENT OF LIMITED  PARTNERSHIP.  The
     terms of the Pending Projects Acquisition Agreement, the Berg Land Holdings
     Option Agreement,  the partnership  agreement of each operating partnership
     and other material  agreements through which we have acquired our interests
     in the operating partnerships and the properties formerly controlled by the
     Berg Group were not determined through arm's-length  negotiations and could
     be less  favorable to us than

                                     - 10 -
<PAGE>

     those  obtained  from  an  unrelated  party.  In  addition,  Mr.  Berg  and
     representatives  of the Berg Group sitting on our board of directors may be
     subject to conflicts of interests with respect to their  obligations as our
     directors  to  enforce  the  terms  of the  partnership  agreement  of each
     operating   partnership  when  such  terms  conflict  with  their  personal
     interests.  The terms of our charter  and bylaws  also were not  determined
     through  arm's-length   negotiations.   Some  of  these  terms,   including
     representations and warranties  applicable to acquired properties,  are not
     as  favorable  as those  that we would  have  sought  through  arm's-length
     negotiations  with  unrelated  parties.  As a result,  an investment in our
     common stock may involve  risks not found in  businesses in which the terms
     of material agreements have been negotiated at arm's length.

     RELATED PARTY DEBT. As of December 31, 2002, we had borrowed  approximately
     $58.8  million  under our $100  million line of credit with the Berg Group,
     which is  collateralized by ten of our  properties  and expires March 2004.
     Currently,  there is no debt outstanding under this line of credit,  but we
     have the right to draw on the line of credit and are  liable for  repayment
     of all  amounts  owing under the line of credit.  The line of credit  bears
     interest  at an annual  rate of LIBOR  plus  1.30%.  The Berg  Group has no
     obligation to renew this line of credit when it expires in 2004, and we may
     be unable to obtain a similar credit  facility on comparable  terms. We are
     also  liable  for a  mortgage  loan of $11.1  million  that we  assumed  in
     connection  with our acquisition of a property that we acquired in May 2000
     under the Berg Land Holdings  Option  Agreement.  If we are unable to repay
     our debts to the Berg Group when due,  the Berg Group  could take action to
     enforce our payment  obligations.  They could  result in a reduction in the
     amount of cash  distributions to our  stockholders.  In turn, if we fail to
     meet the minimum  distributions  test  because of a loan default or another
     reason,  we could  lose our REIT  classification  for  federal  income  tax
     purposes.  For more  information  please refer to Item 1., "Risk  Factors -
     Failure to satisfy federal income tax  requirements  for REITs could reduce
     our distributions, reduce our income and cause our stock price to fall."

     OUR OPTION TO ACQUIRE R&D  PROPERTIES  DEVELOPED ON EXISTING  LAND AND LAND
     ACQUIRED  IN THE  FUTURE BY THE BERG  GROUP  WILL  TERMINATE  WHEN THE BERG
     GROUP'S OWNERSHIP INTEREST HAS BEEN REDUCED.

     The Berg Land Holdings Option Agreement, as amended, which provides us with
     significant benefits and opportunities to acquire additional R&D properties
     from the Berg Group,  will expire when the Berg Group and their  affiliates
     (excluding  us and the  operating  partnerships)  own less  than 65% of our
     common  stock  on a Fully  Diluted  basis.  Termination  of the  Berg  Land
     Holdings Option  Agreement could result in limitation of our growth,  which
     could cause our stock price to fall.

     WE MAY CHANGE OUR INVESTMENT AND FINANCING  POLICIES AND INCREASE YOUR RISK
     WITHOUT STOCKHOLDER APPROVAL.

     Our board of directors  determines the investment and financing policies of
     the operating  partnerships  and our policies with respect to certain other
     activities,   including   our   business   growth,   debt   capitalization,
     distribution and operating policies. Our board of directors may amend these
     policies at any time without a vote of the  stockholders.  Changes in these
     policies could materially adversely affect our financial condition, results
     of operations and ability to make cash  distributions to our  stockholders,
     which could harm our business  and cause our stock price to fall.  For more
     information please refer to Item 7., "Management's  Discussion and Analysis
     of Financial Condition and Results of Operations - Policies with Respect to
     Certain Activities."

     ANTI-TAKEOVER  PROVISIONS IN OUR CHARTER COULD PREVENT  ACQUISITIONS OF OUR
     STOCK AT A SUBSTANTIAL PREMIUM.

     Provisions  of our charter and our bylaws could  delay,  defer or prevent a
     transaction  or a  change  in  control  of our  corporation,  or a  similar
     transaction,  that might  involve a premium  price for our shares of common
     stock or otherwise be in the best interests of our stockholders. Provisions
     of the Maryland  general  corporation  law,  which would apply to potential
     business   combinations  with  acquirers  other  than  the  Berg  Group  or
     stockholders  who invested in us in December  1998,  also could prevent the
     acquisition of our stock for a premium, as discussed in "Certain Provisions
     of Maryland Law and of our Charter and Bylaws."

     AN  INVESTMENT  IN  OUR  STOCK   INVOLVES  RISKS  RELATED  TO  REAL  ESTATE
     INVESTMENTS THAT COULD HARM OUR BUSINESS AND CAUSE OUR STOCK PRICE TO FALL.

     RENTAL  INCOME  VARIES.  Real property  investments  are subject to varying
     degrees of risk.  Investment  returns available from equity  investments in
     real estate depend in large part on the amount of income earned and capital
     appreciation,  which  our  properties  generate,  as  well  as our  related
     expenses incurred. If our properties do not generate revenues sufficient to
     meet operating expenses, debt service and capital expenditures,  our income
     and ability to make  distributions  to our  stockholders  will be adversely
     affected.  Income from our  properties  may also be  adversely  affected by
     general economic  conditions,  local economic conditions such as oversupply
     of commercial real estate,  the attractiveness of our properties to tenants
     and prospective tenants,  competition from other available rental property,
     our ability to provide  adequate  maintenance  and  insurance,  the cost of
     tenant  improvements,  leasing  commissions and tenant  inducements and the
     potential of increased operating costs, including real estate taxes.

                                     - 11 -
<PAGE>

     EXPENDITURES FOR PROPERTY  OWNERSHIP ARE FIXED.  Income from properties and
     real estate values are also affected by a variety of other factors, such as
     governmental regulations and applicable laws, including real estate, zoning
     and tax laws,  interest  rate  levels and the  availability  of  financing.
     Various  significant  expenditures  associated  with an  investment in real
     estate,  such as  mortgage  payments,  real  estate  taxes and  maintenance
     expenses, generally are not reduced when circumstances cause a reduction in
     revenue from the investment.  Thus, our operating results and our cash flow
     may decline materially if our rental income is reduced.

     ILLIQUIDITY.  Real estate investments are relatively illiquid, which limits
     our ability to restructure our portfolio in response to changes in economic
     or other conditions.

     GEOGRAPHIC CONCENTRATION. All of our properties are located in the southern
     portion of the San Francisco Bay Area commonly  referred to as the "Silicon
     Valley." The Silicon  Valley  economy has been  weakening  for the past two
     years, and future  increases in values and rents for our properties  depend
     to a significant extent on the recovery of this region's economy.

     LOSS OF KEY  TENANTS.  Single  tenants,  many of whom are  large,  publicly
     traded information technology companies, occupy most of our properties. For
     example,  we may lose tenants when existing leases expire because it may be
     difficult to re-lease the same property due to substantial  overcapacity of
     R&D properties in the Silicon Valley at present.  Losing a key tenant could
     adversely   affect  our   operating   results   and  our  ability  to  make
     distributions  to  stockholders  if we are  unable  to  obtain  replacement
     tenants  promptly.  Moreover,  to retain key tenants upon the expiration of
     existing  leases we may need to reduce  rents,  which also could  adversely
     affect our operating results and ability to make distributions.

     TENANT  BANKRUPTCIES.   Key  tenants  could  seek  the  protection  of  the
     bankruptcy  laws,  which could result in the rejection and  termination  of
     their leases,  thereby causing a reduction in our rental income.  Under the
     bankruptcy  laws,  these  tenants may have the right to reject their leases
     with us and our claim for rent will be limited  to the  greater of one year
     or 15% of the total amount giving under the leases upon default, but not to
     exceed three years of the remaining term of the lease following the earlier
     of the petition filing date or the date on which we gained  repossession of
     the  property,  as well as any rent that was unpaid on the earlier of those
     dates.

     OUR  SUBSTANTIAL  INDEBTEDNESS.  Our  properties are subject to substantial
     indebtedness. If we are unable to make required mortgage payments, we could
     sustain  a  loss  as a  result  of  foreclosure  on our  properties  by the
     mortgagor.  When the Berg Group line of credit  expires in March  2004,  we
     cannot  assure  you that we will be able to  obtain a  replacement  line of
     credit with terms similar to the Berg Group line of credit,  or at all. Our
     cost of borrowing funds could increase  substantially  after the Berg Group
     line  of  credit   expires.   Under  our  mortgage  loan   agreements  with
     Northwestern  Mutual  Life  Insurance  Company,  the  payments  of all $100
     million  outstanding  could be  accelerated  upon the sale or certain other
     transfers  of more than 51% of the total  number of O.P.  Units and  common
     stocks of the Company  held by the  members of the Berg  Group.  We have no
     reason to expect such a sale or transfer in the foreseeable future, but the
     members of the Berg Group have no obligation to us to refrain from any such
     sale  or  other  transfer.  We have  adopted  a  policy  of  maintaining  a
     consolidated ratio of debt to total market  capitalization,  which includes
     for this  purpose the market  value of all shares of common stock for which
     outstanding O.P. Units are  exchangeable,  of less than 50%. This ratio may
     not be exceeded  without the  approval of more than 75% of our entire board
     of  directors.  Our  board of  directors  may vote to change  this  policy,
     however,  and we  could  become  more  highly  leveraged,  resulting  in an
     increased  risk of  default  on our  obligations  and an  increase  in debt
     service  requirements that could adversely affect our financial  condition,
     our  operating  results  and  our  ability  to  make  distributions  to our
     stockholders.

     ENVIRONMENTAL  CLEAN-UP  LIABILITIES.  Our  properties  may  expose  us  to
     liabilities  under applicable  environmental and health and safety laws. If
     these liabilities are material,  our financial condition and ability to pay
     cash distributions may be affected  adversely,  which would cause our stock
     price to fall.

     UNINSURED  LOSSES.  We may sustain uninsured losses with respect to some of
     our properties.  If these losses are material, our financial condition, our
     operating results and our ability to make distributions to our stockholders
     may be affected adversely.

     EARTHQUAKE  DAMAGES ARE  UNINSURED.  All of our  properties  are located in
     areas that are subject to earthquake  activity.  Our insurance  policies do
     not cover damage caused by seismic activity,  although they do cover losses
     from fires after an earthquake. We generally do not consider such insurance
     coverage  to  be  economical.  If  an  earthquake  occurs  and  results  in
     substantial damage to our properties, we could lose our investment in those
     properties,  which  loss  would  have  a  material  adverse  effect  on our
     financial  condition,  our  operating  results  and  our  ability  to  make
     distributions to our stockholders.

     FAILURE TO SATISFY FEDERAL INCOME TAX  REQUIREMENTS  FOR REITS COULD REDUCE
     OUR DISTRIBUTIONS, REDUCE OUR INCOME AND CAUSE OUR STOCK PRICE TO FALL.

                                     - 12 -
<PAGE>

     FAILURE TO QUALIFY AS A REIT.  Although  we  currently  operate in a manner
     designed  to enable us to  qualify  and  maintain  our REIT  status,  it is
     possible that economic,  market,  legal,  tax or other  considerations  may
     cause us to fail to qualify  as a REIT or may cause our board of  directors
     either to refrain from making the REIT  election or to revoke that election
     once made. To maintain REIT status,  we must meet certain tests for income,
     assets,  distributions  to  stockholders,  ownership  interests,  and other
     significant  conditions.  If we fail to  qualify  as a REIT in any  taxable
     year,  we  will  not  be  allowed  a  deduction  for  distributions  to our
     stockholders  in  computing  our  taxable  income  and would be  subject to
     federal income tax,  including any applicable  alternative  minimum tax, on
     our taxable income at regular  corporate  rates.  Moreover,  unless we were
     entitled to relief under  certain  provisions  of the tax laws, we would be
     disqualified  from treatment as a REIT for the four taxable years following
     the year in which our qualification  was lost. As a result,  fund available
     for distribution,  or FAD, to our stockholders would be reduced for each of
     the years involved and, in addition, we would no longer be required to make
     distributions to our stockholders.

     REIT DISTRIBUTION REQUIREMENTS. To maintain REIT status, we must distribute
     as a dividend to our  stockholders  at least 90% of our  otherwise  taxable
     income,  after certain  adjustments,  with respect to each tax year. We may
     also  be  subject  to a 4%  non-deductible  excise  tax  in the  event  our
     distributions  to  stockholders  fail to meet certain  other  requirements.
     Failure to comply with these  requirements could result in our income being
     subject to tax at regular  corporate  rates and could cause us to be liable
     for the excise tax.

     OWNERSHIP  LIMIT NECESSARY TO MAINTAIN REIT  QUALIFICATION.  As a REIT, the
     federal tax laws  restrict the  percentage  of the total value of our stock
     that may be owned by five or fewer  individuals to 50% or less. Our charter
     generally prohibits the direct or indirect ownership of more than 9% of our
     common stock by any stockholder.  This limit excludes the Berg Group, which
     has an aggregate  ownership limit of 20%. In addition,  as permitted by our
     charter,  our board of directors  has  authorized an exception to two other
     stockholders that permits them to collectively own, directly or indirectly,
     up to 18.5% of our common stock on an aggregate basis, subject to the terms
     of  an  ownership  limit  exemption  agreement.  In  general,  our  charter
     prohibits  the  transfer  of  shares  that  result  in a loss  of our  REIT
     qualification  and provides  that any such  transfer or any other  transfer
     that causes a stockholder to exceed the ownership  limit will result in the
     shares  being  automatically  transferred  to a trust for the  benefit of a
     charitable  beneficiary.  Accordingly,  in the event  that  either the Berg
     Group  or the  two  stockholders  increase  their  stock  ownership  in our
     corporation,  a stockholder who acquires  shares of our common stock,  even
     though  his,  her or its  aggregate  ownership  may be less than 9%, may be
     required to transfer a portion of that stockholder's shares to such a trust
     in order to preserve our status as a REIT.

     STOCKHOLDERS ARE NOT ASSURED OF RECEIVING CASH DISTRIBUTIONS FROM US.

     Our  income  will  consist  primarily  of our  share of the  income  of the
     operating  partnerships,  and our cash flow will  consist  primarily of our
     share of  distributions  from the operating  partnerships.  Differences  in
     timing  between  the  receipt of income  and the  payment  of  expenses  in
     arriving  at our  taxable  income or the  taxable  income of the  operating
     partnerships  and the effect of required debt  amortization  payments could
     require us to borrow funds, directly or through the operating partnerships,
     on a short-term basis to meet our intended distribution policy.

     Our  board  of  directors   will   determine   the  amount  and  timing  of
     distributions  by the operating  partnerships  and of  distributions to our
     stockholders.  Our board of directors  will  consider many factors prior to
     making any distributions, including the following:

     -    the amount of cash available for distribution;

     -    the operating partnerships' financial condition;

     -    whether to reinvest funds rather than to distribute such funds;

     -    the operating partnerships' capital expenditures;

     -    the effects of new property acquisitions, including acquisitions under
          our existing agreements with the Berg Group;

     -    the annual distribution  requirements under the REIT provisions of the
          federal income tax laws; and

     -    such other factors as our board of directors deems relevant.

     We  cannot  assure  you that we will be able to meet or  maintain  our cash
     distribution objectives.

                                     - 13 -
<PAGE>

     OUR PROPERTIES COULD BE SUBJECT TO PROPERTY TAX REASSESSMENTS.

     We do not  believe  that the  acquisition  of any of our  interests  in the
     operating partnerships has resulted in a statutory change in ownership that
     could give rise to a  reassessment  of any of our properties for California
     property tax purposes. We cannot assure you, however, that county assessors
     or other tax  administrative  agencies  in  California  will not attempt to
     assert  that  such a change  occurred  as a result  of these  transactions.
     Although  we  believe  that  such  a  challenge  would  not  be  successful
     ultimately,  we cannot  assure you  regarding  the  outcome of any  related
     dispute or proceeding. A reassessment could result in increased real estate
     taxes on our properties  that, as a practical  matter,  we may be unable to
     pass  through to our tenants in full.  This could reduce our net income and
     our FAD and cause our stock price to fall.

     OUR  OBLIGATION  TO PURCHASE  TENDERED  O.P.  UNITS  COULD  REDUCE OUR CASH
     DISTRIBUTIONS.

     Each of the limited partners of the operating partnerships, other than Carl
     E. Berg and Clyde J.  Berg,  has the  annual  right to cause the  operating
     partnerships  to purchase the limited  partner's  O.P.  Units at a purchase
     price  based on the  average  market  value  of the  common  stock  for the
     ten-trading-day  period  immediately  preceding the date of tender.  Upon a
     limited  partner's  exercise of any such right,  we will have the option to
     purchase the tendered O.P. Units with available cash, borrowed funds or the
     proceeds of an offering of newly issued shares of common  stock.  These put
     rights became  exercisable  on December 29, 1999,  and are  available  once
     during a 12-month  period.  If the total  purchase  price of the O.P. Units
     tendered by all of the  eligible  limited  partners in one year  exceeds $1
     million,  the  operating  partnerships  or we will be  entitled  to  reduce
     proportionately the number of O.P. Units to be acquired from each tendering
     limited  partner  so that the  total  purchase  price  does not  exceed  $1
     million.  The  exercise  of these put  rights may reduce the amount of cash
     that we have  available to distribute to our  stockholders  and could cause
     our stock price to fall.

     In addition,  after  December  1999, all O.P. Unit holders may tender their
     O.P.  Units to us in exchange for shares of common  stock on a  one-for-one
     basis at then-current  market value or an equivalent amount in cash, at our
     election.  If we elect to pay cash for the O.P. Units, our liquidity may be
     reduced and we may lack  sufficient  funds to continue paying the amount of
     our  anticipated  or historical  cash  distributions.  This could cause our
     stock price to fall.

     SHARES ELIGIBLE FOR FUTURE SALE COULD AFFECT THE MARKET PRICE OF OUR STOCK.

     We cannot predict the effect, if any, that future sales of shares of common
     stock,  or the  availability  of shares for future sale,  could have on the
     market price of the common stock.  As of December 31, 2002, all outstanding
     shares of our common stock,  other than shares  controlled  by  affiliates,
     were eligible for sale in the public  market  without  resale  restrictions
     under the federal  securities laws. Sales of substantial  amounts of common
     stock,  including  shares  issued in  connection  with the  exercise of the
     exchange rights held by the limited partners of the operating partnerships,
     or the  perception  that such sales could  occur,  could  adversely  affect
     prevailing market prices for the common stock.  Additional shares of common
     stock may be issued to limited  partners,  subject to the  applicable  REIT
     qualification ownership limit, if they exchange their O.P. Units for shares
     of common stock pursuant to their exchange rights,  or may be sold by us to
     raise  funds  required  to purchase  such O.P.  Units if  eligible  limited
     partners elect to tender O.P. Units to us using their put rights. Shares of
     stock  controlled  by our  affiliates  may be sold  subject  to  Rule  144,
     including the limitation under Rule 144(e) on the number of shares that may
     be sold within a three-month period.

     MARKET INTEREST RATES MAY REDUCE THE VALUE OF THE COMMON STOCK.

     One of the factors that investors consider important in deciding whether to
     buy or sell shares of a REIT is the distribution  rate on such shares, as a
     percentage of the price of such shares,  relative to market interest rates.
     If market interest rates go up,  prospective  purchasers of REIT shares may
     expect a  higher  distribution  rate.  Higher  interest  rates  would  not,
     however,  increase the funds available for us to distribute,  and, in fact,
     would likely  increase our borrowing  costs and decrease FAD. Thus,  higher
     market interest rates could cause the price of our common stock to fall.

                                     - 14 -
<PAGE>

ITEM 2.   PROPERTIES

     GEOGRAPHIC AND TENANT FOCUS

     We focus principally on the facility requirements of information technology
     companies in the Silicon Valley, which include space for office, R&D, light
     manufacturing  and assembly.  With the Silicon Valley's highly educated and
     skilled work force,  history of numerous  successful start-up companies and
     large contingent of venture capital firms, we believe that this region will
     continue to spawn successful new high-growth industries and entrepreneurial
     businesses  to an extent  matched  nowhere  else in the United  States.  We
     believe that our focus and  thorough  understanding  of the Silicon  Valley
     real estate market enables us to:

     -    anticipate trends in the market;

     -    identify and  concentrate  our efforts on the most  favorably  located
          sub-markets;

     -    take  advantage  of  our   experience   and  extensive   contacts  and
          relationships with local government agencies,  real estate brokers and
          subcontractors, as well as with tenants and prospective tenants; and

     -    identify strong tenants.

     All of  our  properties  are  general-purpose  R&D  properties  located  in
     desirable  sub-markets of the Silicon  Valley.  Many of our properties have
     been  developed  for or leased to single  tenants,  many of whom are large,
     publicly traded information technology companies. Most of our major tenants
     have occupied our  properties for many years under  triple-net  leases that
     require the tenant to pay  substantially  all  operating  costs,  including
     property insurance, real estate taxes and general operating costs.

     LEASING

     The current  leases for the  properties  typically  have terms ranging from
     three to ten years.  Most of the leases provide for fixed  periodic  rental
     increases.  Substantially  all of the leases are triple-net leases pursuant
     to which the tenant is required to pay  substantially  all of the operating
     expenses of the  property,  property  taxes and  insurance,  including  all
     maintenance and repairs,  excluding only certain  structural repairs to the
     building  shell.  Most of the leases contain renewal options that allow the
     tenant to extend the lease based on adjustments to then  prevailing  market
     rates,  or based on fixed  rental  adjustments,  which may be below  market
     rates.

     PROPERTY PORTFOLIO

     All of our properties are R&D properties.  Generally,  these properties are
     one- to four-story buildings of tilt-up concrete construction,  have 3.5 or
     more  parking  spaces per thousand  rentable  square  feet,  clear  ceiling
     heights  of less  than 18 feet,  and range in size  from  6,000 to  515,000
     rentable  square  feet.  Most of the office  space is open and suitable for
     configuration  to meet the  tenants'  requirements  with the use of movable
     dividers.

     The  following  table  sets  forth  certain  information  relating  to  our
     properties as of December 31, 2002:

<TABLE>
<CAPTION>

                                                                                                       Major Tenants'
                                         Total     Percentage                                            Rentable
                              No. of    Rentable  Leased as of   Average 2002                           Sq. Ft. at     2002 Annual
Location                    Properties   Sq. Ft.  Dec. 31, 2002   Occupancy    Major Tenants             12/31/02     Base Rents (1)
------------------------------------------------------------------------------------------------------------------------------------

<C>                           <C>    <C>             <C>            <C>       <C>                         <C>       <C>
5300-5350 Hellyer Avenue (3)     2      160,000       100%           100%      Tyco International, Inc.    160,000   $  3,219,530

10401-10411 Bubb Road (3)        1       20,330       100%           100%      Celerity Systems, Inc.       20,330        501,009

45365 Northport Loop West        1       64,218        51%            79%      JNI Corporation              19,727        967,167

45700 Northport Loop East        1       47,570       100%           100%      Philips Electronics          47,570        789,180

45738 Northport Loop West        1       44,256       100%           100%      EIC Corporation              44,256        582,033

4050 Starboard Drive             1       52,232       100%           100%      Flash Electronics, Inc.      52,232        814,819

3501 W. Warren Avenue &          1       67,864       100%           100%      Storage Way, Inc.            51,864      1,431,433
46600 Fremont Blvd.

                                     - 15 -
<PAGE>
                                                                                                       Major Tenants'
                                         Total     Percentage                                            Rentable
                              No. of    Rentable  Leased as of   Average 2002                           Sq. Ft. at     2002 Annual
Location                    Properties   Sq. Ft.  Dec. 31, 2002   Occupancy    Major Tenants             12/31/02     Base Rents (1)
------------------------------------------------------------------------------------------------------------------------------------

48800 Milmont Drive              1       53,000       100%           100%      Zhone Technologies, Inc.     53,000        637,185

4750 Patrick Henry Drive         1       65,780         0%            75%      Vacant                                   1,184,608

Triangle Technology Park (3)     7      416,927       100%           100%      JDS Uniphase Corporation    152,362      7,721,587
                                                                               Intevac Corporation         119,583
                                                                               Xicom Technology, Inc.       47,480
                                                                               Solid Data Systems, Inc.     34,248
                                                                               Diligent Software Systems    25,350
                                                                                Corp.
5850-5870 Hellyer Avenue         1      109,715         0%            67%      Vacant                                   1,265,350

5750 Hellyer Avenue              1       73,312         0%            67%      Vacant                                     988,017

800 Branham Lane East            1      239,000         0%            16%      Vacant                                     740,716

5500-5550 Hellyer Avenue         2      196,534        23%            68%      ACT Electronics, Inc.        46,120      2,534,974

5400 Hellyer Avenue              1       77,184       100%           100%      Jetstream Communications,    77,184      1,334,446
                                                                                Inc.

5325-5345 Hellyer Ave. (2)(4)    2      256,500       100%           100%      Celestica Asia, Inc.        256,500      4,526,052

5905-5965 Silver Creek           4      346,000       100%           100%      CIENA Corporation           346,000      7,538,370

855 Branham Lane East            1       67,912       100%           100%      Lynuxworks, Inc.             67,912      2,289,056

1065 La Avenida Street           5      515,700       100%           100%      Microsoft Corporation       515,700     20,337,815

1750 Automation Parkway          1       80,641       100%           100%      JDS Uniphase Corporation     80,641      1,776,512

1756 Automation Parkway          1       80,640       100%           100%      JDS Uniphase Corporation     80,640      1,855,040

1762 Automation Parkway          1       61,100       100%           100%      JDS Uniphase Corporation     61,100      2,139,108

1768 Automation Parkway          1      110,592       100%           100%      JDS Uniphase Corporation    110,592      3,189,564

255 Caspian Drive                1       98,500         0%            33%      Vacant                                     673,320

245 Caspian Drive                1            -         0%            33%      Vacant                                     742,560

5900 Optical Court (2)           1      165,000       100%           100%      Stryker Endoscopy           165,000      2,128,500

2610 Orchard Parkway (2)         1       54,093       100%           100%      Cadence Design Systems, Inc. 54,093        924,507

2630 Orchard Parkway (2)         1       60,633         0%            75%      Vacant                                     896,703

55 West Trimble Road (2)         1       91,722       100%           100%      Cadence Design Systems, Inc. 91,722      1,567,564

2251 Lawson Lane                 1      125,000       100%           100%      Amdahl Corporation          125,000      1,431,032

1230 East Arques                 1       60,000       100%           100%      Amdahl Corporation           60,000        323,503

1250 East Arques                 4      200,000       100%           100%      Amdahl Corporation          200,000        755,923

3120 Scott Blvd.                 1       75,000       100%           100%      Amdahl Corporation           75,000      1,238,081

20400 Mariani Avenue             1      105,000       100%           100%      Dade Behring, Inc.          105,000      1,096,200

10500 De Anza Blvd.              1      211,000       100%           100%      Apple Computer, Inc.        211,000      4,845,038

20605-705 Valley Green Dr.       2      142,000       100%           100%      Apple Computer, Inc.        142,000      1,975,382

10300 Bubb Road                  1       23,400       100%           100%      Apple Computer, Inc.         23,400        423,540

10440 Bubb Road                  1       19,500       100%           100%      Luminous Networks, Inc.      19,500        647,400

10460 Bubb Road                  1       45,460       100%           100%      Luminous Networks, Inc.      45,460      1,330,184

1135 Kern Avenue                 1       18,300       100%           100%      Broadmedia, Inc.             18,300        322,761

                                     - 16 -
<PAGE>
                                                                                                       Major Tenants'
                                         Total     Percentage                                            Rentable
                              No. of    Rentable  Leased as of   Average 2002                           Sq. Ft. at     2002 Annual
Location                    Properties   Sq. Ft.  Dec. 31, 2002   Occupancy    Major Tenants             12/31/02     Base Rents (1)
------------------------------------------------------------------------------------------------------------------------------------

1190 Morse Avenue &              1       28,350        66%            89%      Coptech West                 18,750        312,796
405 Tasman Avenue

450 National Avenue              1       36,100       100%           100%      ePeople, Inc.                36,100      1,216,540

3301 Olcott Street               1       64,500         0%            16%      Vacant                                     196,007

2800 Bayview Avenue              1       59,736       100%           100%      Mattson Technology, Inc.     59,736        695,059

6850 Santa Teresa Blvd.          1       30,000        59%            62%      Indala                       17,650        336,508

6810 Santa Teresa Blvd.          1       54,996       100%           100%      Polaris Networks, Inc.       54,996      1,674,695

140-150 Great Oaks Blvd.         2      105,300        81%            84%      Atcor Corporation            31,750      1,645,348
& 6781 Via Del Oro                                                             Amtech Corporation           31,500
                                                                               Saint Gobain                 21,800

6540-6541 Via Del Oro &          2       66,600       100%           100%      Exsil, Inc.                  20,076      1,105,702
6385-6387 San Ignacio Ave.                                                     Alcatel USA, Inc.            17,400
                                                                               Modutek Corporation          17,400

6311-6351 San Ignacio Ave.       5      362,767       100%           100%      On Command Corporation      131,320      5,710,364
                                                                               Saint-Gobain                 82,875
                                                                               Avnet, Inc.                  53,494
                                                                               Photon Dynamics, Inc.        52,000
                                                                               Teledex Corporation          30,000

6320-6360 San Ignacio Ave.       1      157,292        84%            91%      Nortel Networks Corp.        92,692      3,963,975
                                                                               Quantum 3D                   19,600


75 East Trimble Road &           2      170,810       100%           100%      Comerica Bank                93,984      2,590,311
2610 North First Street                                                        County of Santa Clara        76,826

2033-2243 Samaritan Drive        3      235,122        36%            36%      Texas Instruments            48,677      3,352,550
                                                                               State Farm Insurance         23,801

1170 Morse Avenue                1       39,231       100%           100%      CA Parkinsons Foundation     39,231        296,840

3236 Scott Blvd.                 1       54,672       100%           100%      Celeritek, Inc.              54,672      1,030,842

1212 Bordeaux Lane               1       71,800       100%           100%      TRW, Inc.                    71,800      1,350,225

McCandless Technology Park      14      705,956        91%           92%       Larscom, Inc.               118,708
                                                                               Arrow Electronics, Inc.      92,862     11,893,698
                                                                               SDRC                         50,768
                                                                               Chartered Semiconductor      45,312
                                                                               Panasonic Industrial Co.     40,970
                                                                               K-TEC Corporation.           39,800

1600 Memorex Drive               1      107,500       100%           100%      Sasco Electric              107,500        781,299

1688 Richard Avenue              1       52,800       100%           100%      NWE Technology, Inc.         52,800        763,717

1700 Richard Avenue              1       58,783       100%           100%      Broadwing, Inc.              58,783        649,555

                          ----------------------                                                                     -------------
             TOTAL             101    7,163,930                                                                      $129,251,800
                          ======================                                                                     =============
</TABLE>

(1)  Annual  cash rents do not  include  any effect  for  recognition  of rental
     income on the  straight-line  method of  accounting  required by  generally
     accepted accounting  principles in the United States of America under which
     contractual  rent payment  increases are  recognized  evenly over the lease
     term. Cash rents for a property sold in 2002 are also excluded.
(2)  Property was purchased during 2002. The 2002 Annual Base Rent reflects rent
     received from the date of acquisition through December 31, 2002.
(3)  Joint venture properties. Only one property in the Triangle Technology Park
     is a joint venture.
(4)  Only property 5345 Hellyer Avenue was acquired in 2002.

                                     - 17 -
<PAGE>

     We own 100% of all of the  properties,  except for one of the  buildings in
     the Triangle  Technology  Park,  which is owned by a joint venture in which
     we, through an operating  partnership,  own a 75% interest, the property at
     10401-10411  Bubb  Road,  which is owned by a joint  venture  in which  we,
     through  an  operating  partnership,   own  an  83.33%  interest,  and  the
     properties at 5300-5350 Hellyer Avenue,  which are owned by a joint venture
     in which we, through an operating partnership, own a 50% interest.

     EVENTS SUBSEQUENT TO DECEMBER 31, 2002

     On January 1, 2003, we acquired a 50% interest in TBI-Mission  West, LLC, a
     two-member  joint  venture  that owns and  developed  a complex of four R&D
     properties  totaling  approximately  593,000 rentable square feet, from the
     Berg Group.  The  properties  are  operated  and managed by the other joint
     venture partner of TBI-Mission  West, LLC. The total  acquisition price for
     the 50% interest in the joint venture was $1.8  million,  which we financed
     by issuing 181,032 O.P. Units to the Berg Group.

                                     - 18 -
<PAGE>

     LEASE EXPIRATIONS

     The following table sets forth a schedule of the lease  expirations for the
     properties  beginning with 2003, assuming that none of the tenants exercise
     existing  renewal  options  or  termination   rights.  The  table  excludes
     1,156,122 rentable square feet that was vacant as of December 31, 2002.
<TABLE>
<CAPTION>

                            Number of                                                           Percentage of Total Annual
           Year of Lease     Leases      Rentable Square Footage      2003 Annual Base Rent      Base Rent Represented By
            Expiration      Expiring   Subject to Expiring Leases   Under Expiring Leases (1)       Expiring Leases (2)
         --------------------------------------------------------------------------------------------------------------------
<S>                          <C>              <C>                      <C>                                 <C>
               2003            16                527,369                $  8,133,121                         6.3%

               2004            20              1,211,906                  16,227,002                        12.6%

               2005            21                578,513                  11,834,886                         9.2%

               2006            16              1,310,132                  43,571,901                        33.8%

               2007            16              1,074,928                  23,048,393                        17.8%

               2008             4                218,402                   2,407,255                         1.9%

               2009             4                223,783                   6,088,673                         4.7%

               2010             2                100,275                   1,838,767                         1.4%

               2011             2                602,500                  12,546,990                         9.7%

            Thereafter          1                160,000                   3,316,116                         2.6%
                           --------------------------------------------------------------------------------------------------
                              102              6,007,808                $129,013,104                         100%
                           ==================================================================================================
</TABLE>


(1)  The base rent for leases  expiring is based on  scheduled  2003  annualized
     cash rents,  which are different than annual rents determined in accordance
     with GAAP.

(2)  Based upon 2003 annualized cash rents as discussed in Note (1).

     If we are unable to lease a significant  portion of the available  space or
     space  scheduled to expire in 2003 and thereafter at any of our properties,
     if existing tenants do not renew their leases, or if rental rates decrease,
     our  results of  operations,  financial  condition  and cash flows would be
     adversely affected.

     ENVIRONMENTAL MATTERS

     To date, compliance with laws and regulations relating to the protection of
     the environment,  including those regarding the discharge of materials into
     the  environment  has  not  had  any  material  effects  upon  our  capital
     expenditures, earnings or competitive position.

     Under various federal, state and local laws, ordinances and regulations, an
     owner or  operator  of real  property  may be held  liable for the costs of
     removal or remediation of certain hazardous or toxic substances  located on
     or in the  property.  Such laws  often  impose  liability  on the owner and
     expose the owner to governmental  proceedings without regard to whether the
     owner knew of, or was  responsible  for, the  presence of the  hazardous or
     toxic substances.  The cost of any required  remediation or removal of such
     substances may be substantial. In addition, the owner's liability as to any
     specific  property is  generally  not limited and could exceed the value of
     the property and/or the aggregate assets of the owner. The presence of such
     substances, or the failure to properly remove or remediate such substances,
     may also adversely  affect the owner's ability to sell or rent the property
     or to borrow  using the  property  as  collateral.  Persons who arrange for
     treatment  or the disposal of  hazardous  or toxic  substances  may also be
     liable  for  the  costs  of any  required  remediation  or  removal  of the
     hazardous or toxic substances at a disposal facility, regardless of whether
     the  facility is owned or operated by such owner or entity.  In  connection
     with the  ownership  of the  properties  or the  treatment  or  disposal of
     hazardous or toxic substances, we may be liable for such costs.

     Some of our  properties  are  leased,  in part,  to  businesses,  including
     manufacturers  that  use,  store or  otherwise  handle  hazardous  or toxic
     substances  in  their  business  operations.   These  operations  create  a
     potential  for the release of hazardous or toxic  substances.  In addition,
     groundwater   contaminated  by  chemicals  used  in  various  manufacturing
     processes,  including  semiconductor  fabrication,  underlies a significant
     portion of  northeastern  Santa Clara County,  where many of our properties
     are located.

                                     - 19 -
<PAGE>

     Environmental  laws also govern the  presence,  maintenance  and removal of
     asbestos.  These  laws  require  that  owners  or  operators  of  buildings
     containing  asbestos  properly manage and maintain the asbestos,  that they
     adequately  inform or train those who may come into contact  with  asbestos
     and that they undertake  special  precautions,  including  removal or other
     abatement in the event that  asbestos is  disturbed  during  renovation  or
     demolition  of a building.  These laws may impose  fines and  penalties  on
     building owners or operators for failure to comply with these  requirements
     and may allow third  parties to seek  recovery from owners or operators for
     personal injury  associated with exposure to asbestos fibers.  We are aware
     that there are  asbestos-containing  materials, or ACMs, present at several
     of the properties,  primarily in floor coverings.  We believe that the ACMs
     present at these  properties  are  generally in good  condition and that no
     ACMs  are  present  at  the  remaining  properties.  We  believe  we are in
     compliance  in all material  respects with all present  federal,  state and
     local  laws  relating  to ACMs and that if we were  given  limited  time to
     remove all ACMs present at the  properties,  the cost of such removal would
     not have a material adverse effect on our financial  condition,  results of
     operations and ability to make cash distributions to our stockholders.

     Phase I  assessments  are  intended to discover  and  evaluate  information
     regarding  the  environmental   condition  of  the  surveyed  property  and
     surrounding properties.  Phase I assessments generally include a historical
     review, a public records review,  an investigation of the surveyed site and
     surrounding  properties  and the  preparation  and  issuance  of a  written
     report,  but do not include soil sampling or subsurface  investigations and
     typically do not include an asbestos survey. Environmental assessments have
     been conducted for about half of the properties.

     The environmental investigations that have been conducted on our properties
     have not revealed any environmental  liability that we believe would have a
     material adverse effect on our financial  condition,  results of operations
     and assets, and we are not aware of any such liability.  Nonetheless, it is
     possible that there are material environmental  liabilities of which we are
     unaware. We cannot assure you that future laws, ordinances,  or regulations
     will not impose any material environmental  liability,  or that the current
     environmental  condition of the  properties  has not been,  or will not be,
     affected by tenants and  occupants of the  properties,  by the condition of
     properties in the vicinity of the properties, or by third parties unrelated
     to us.

                                     - 20 -

<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

     Neither the operating  partnerships,  the  properties nor we are subject to
     any material  litigation nor, to our knowledge,  is any material litigation
     threatened against the operating  partnerships,  the properties or us. From
     time to time, we are engaged in legal  proceedings  arising in the ordinary
     course of our business.  We do not expect any of such proceedings to have a
     material adverse effect on our cash flows,  financial  condition or results
     of operations.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No  matters  were  submitted  to a vote of  stockholders  during the fourth
     quarter of the year ended December 31, 2002.

                                     - 21 -


<PAGE>


PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     Our common stock is listed on the American Stock Exchange  ("AMEX") and the
     Pacific Exchange,  Inc. and trades under the symbol "MSW." The high and low
     sale  prices per share of common  stock as  reported  on AMEX  during  each
     quarter of 2002 and 2001 were as follows:

<TABLE>
<CAPTION>

                                    2002                              2001
                        -----------------------------     -----------------------------
                            High            Low               High            Low
                        -------------   -------------     -------------   -------------
<C>                       <C>             <C>               <C>             <C>
1st Quarter                $13.22          $11.10            $14.20          $12.50
2nd Quarter                $13.03          $11.91            $14.39          $11.23
3rd Quarter                $11.99          $10.31            $14.35          $11.60
4th Quarter                $11.20          $9.72             $12.85          $10.85
</TABLE>


     On March 25,  2003,  there were 235  registered  holders  of the  Company's
     common  stock.  We declared and paid  dividends in each quarter of 2002 and
     2001.  We expect to pay  quarterly  dividends  during 2003.  The  following
     tables show information for quarterly dividends for 2002 and 2001.
<TABLE>
<CAPTION>

                                          2002
                       -----------------------------------------------
                          Record         Payment           Dividend
                           Date            Date            Per Share
                       -------------   -------------     -------------
<C>                      <C>             <C>                <C>
1st Quarter               03/29/02        04/11/02           $0.24
2nd Quarter               06/28/02        07/11/02            0.24
3rd Quarter               09/30/02        10/10/02            0.24
4th Quarter               12/31/02        01/09/03            0.24
                                                         -------------
     Total                                                   $0.96
                                                         =============
</TABLE>


<TABLE>
<CAPTION>

                                          2001
                       -----------------------------------------------
                           Record         Payment          Dividend
                            Date           Date            Per Share
                       -------------   -------------     -------------
<C>                      <C>             <C>                <C>
1st Quarter               03/30/01        04/10/01           $0.19
2nd Quarter               06/29/01        07/12/01            0.22
3rd Quarter               09/28/01        10/11/01            0.24
4th Quarter               12/31/01        01/10/02            0.24
                                                         -------------
      Total                                                  $0.89
                                                         =============
</TABLE>

     For  federal  income  tax  purposes,  we  have  characterized  100%  of the
     dividends declared in 2002 and 2001 as ordinary income.

     The  closing  price of our common  stock on  December  31,  2002,  the last
     trading day, was $9.90 per share.

                                     - 22 -

<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA

     The following table sets forth selected  historical  financial  information
     for  Mission  West  Properties,  Inc.  See  Part II - Item 7  "Management's
     Discussion and Analysis of Financial  Conditions and Results of Operations"
     - Overview and Company History for discussion of business  combinations and
     property  dispositions  that  materially  affect the  comparability  of the
     selected financial data.  Selected  consolidated  financial data is derived
     from the audited financial statements and notes thereto (see Part II - Item
     8 "Consolidated Financial Statements and Supplementary Data," below) and is
     as follows:
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                         --------------------------------------------------------------------------
                                                              2002           2001           2000           1999           1998
                                                         --------------  -------------  -------------  -------------  -------------
OPERATING DATA:
  Revenue:
<S>                                                       <C>            <C>             <C>            <C>            <C>
     Rental revenues                                         $129,781       $126,229         $97,568        $72,294        $26,637
     Tenant reimbursements                                     20,097         17,474          14,548         10,913          4,142
     Other income, including interest                           4,250          2,465           1,241          1,198            278
     Gain on sale of assets                                         -         11,454             501              -              -
                                                         --------------  -------------  -------------  -------------  -------------
  Total revenues                                              154,128        157,622         113,858         84,405         31,057
                                                         --------------  -------------  -------------  -------------  -------------

  Expenses:
     Property operating, maintenance and real estate taxes     22,015         18,308          14,932         11,367          4,761
     Interest                                                   9,588          8,704           8,290         11,623          4,685
     Interest (related parties)                                 3,422          4,709           4,475          2,246          3,511
     General and administrative                                 1,488          1,284           1,065          1,185          1,501
     Depreciation                                              17,928         16,638          15,178         12,878          5,270
                                                         --------------  -------------  -------------  -------------  -------------
  Total expenses                                               54,441         49,643          43,940         39,299         19,728
                                                         --------------  -------------  -------------  -------------  -------------
     Income before minority interest                           99,687        107,979          69,918         45,106         11,329
     Minority interest                                         83,251         90,129          57,650         38,755         11,610
                                                         --------------  -------------  -------------  -------------  -------------
     Income (loss) from continuing operations                  16,436         17,850          12,268          6,351           (281)
  Discontinued operations, net of minority interests:
     Gain from disposal of discontinued operations              1,018              -               -              -              -
     Income attributable to discontinued operations                47            285             311            180             60
                                                         --------------  -------------  -------------  -------------  -------------
                Income from discontinued operations             1,065            285             311            180             60
                                                         --------------  -------------  -------------  -------------  -------------
  Net income (loss) to common stockholders                   $ 17,501       $ 18,135         $12,579        $ 6,531        $  (221)
                                                         ==============  =============  =============  =============  =============
  Net income to minority interest                            $ 88,576       $ 91,565         $59,054        $39,785        $12,049
                                                         ==============  =============  =============  =============  =============

  Basic net income (loss) from continuing                       $0.94          $1.04            $.72           $.51          $(.17)
     operations per share
  Diluted net income (loss) from continuing                     $0.92          $1.01            $.70           $.50          $(.16)
     operations per share

  Basic net income (loss) per share                             $1.00          $1.06            $.74           $.52          $(.13)
  Diluted net income (loss) per share                           $0.98          $1.03            $.72           $.52          $(.13)

PROPERTY AND OTHER DATA: (2)
  Total properties, end of period                                 101             97              89             80
  Total square feet, end of period (000's)                      7,164          6,799           6,196          5,307
  Average monthly rental revenue per square foot (1)            $1.71          $1.59           $1.36          $1.16
  Occupancy at end of period                                      84%            97%             99%            99%

FUNDS FROM OPERATIONS (3):                                   $117,360       $114,513         $86,303        $59,079        $17,238

  Cash flows from operating activities                       $117,368       $111,157         $84,580        $60,298        $16,264
  Cash flows from investing activities                        (20,744)        (3,040)         (2,736)       (12,084)          (118)
  Cash flows from financing activities                        (97,455)      (107,498)        (83,706)       (41,920)       (21,469)


                                                                                         December 31,
                                                         --------------------------------------------------------------------------
                                                              2002           2001            2000          1999           1998
                                                         --------------  -------------  -------------  -------------  -------------
                                                                                    (dollars in thousands)
BALANCE SHEET DATA:
  Real estate assets, net of accumulated depreciation        $894,728       $860,935        $807,456       $697,616       $516,029
  Total assets                                                929,406        910,255         826,910        712,704        519,866
  Line of credit - related parties                             58,792         79,887          50,886              -              -
  Revolving line of credit                                     23,839              -               -              -              -
  Loan payable                                                 20,000              -               -              -              -
  Debt                                                        125,062        127,416         132,055        133,952        184,389
  Debt - related parties                                       11,078         11,371          11,643         31,193         20,752
  Total liabilities                                           289,817        286,768         255,505        215,212        213,234
  Minority interest                                           528,768        515,063         469,332        396,810        273,379
  Stockholders' equity                                        110,821        108,424         102,073        100,682         33,253

  Common stock outstanding                                 17,487,329     17,329,779      17,025,365     16,972,374      8,218,594
  O.P. Units issued and outstanding                        86,474,032     85,762,541      83,576,027     76,205,789     60,151,697
</TABLE>

                                     - 23 -
<PAGE>

(1)  Average  monthly  rental  revenue  per square foot has been  determined  by
     taking the total base rent for the period,  divided by the number of months
     in the period, and then divided by the total square feet of occupied space.

(2)  Property and other data shown only as of December 31, 2002, 2001, 2000, and
     1999.

(3)  As defined by the National  Association  of Real Estate  Investment  Trusts
     ("NAREIT"),  FFO represents net income (loss) before  minority  interest of
     unit holders  (computed in accordance with GAAP),  including  non-recurring
     events  other than  "extraordinary  items"  under GAAP and gains and losses
     from  sales  of   discontinued   operations,   plus  real  estate   related
     depreciation and amortization (excluding amortization of deferred financing
     costs and depreciation of non-real estate assets) and after adjustments for
     unconsolidated partnerships and joint ventures. Management considers FFO an
     appropriate  measure of performance  of an equity REIT because,  along with
     cash flows from operating  activities,  financing  activities and investing
     activities,  it provides  investors with an understanding of our ability to
     incur and service  debt and make  capital  expenditures.  FFO should not be
     considered  as an  alternative  for  neither  net  income as a  measure  of
     profitability  nor is it  comparable  to cash flows  provided by  operating
     activities  determined in accordance  with GAAP.  FFO is not  comparable to
     similarly  entitled  items  reported by other REITs that do not define them
     exactly as we define FFO. See Part II - Item 7 "Management's Discussion and
     Analysis of  Financial  Condition  and Results of  Operations  - Funds from
     Operations."

                                     - 24 -
<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATIONS

     The following discussion includes forward-looking statements, including but
     not limited to statements with respect to the future financial performance,
     operating  results,  plans and objectives of Mission West Properties,  Inc.
     Actual  results  may differ  materially  from those  currently  anticipated
     depending upon a variety of factors,  including those described in Part I -
     Item 1 "Business - Risk Factors."

     OVERVIEW AND BACKGROUND

     Our original  predecessor was formed in 1969 as Palomar Mortgage Investors,
     a California  business trust,  which operated as a mortgage REIT until 1979
     when, under the name of Mission  Investment Trust, it terminated its status
     as a REIT and began to  develop  and market  its own  properties.  In 1982,
     Mission  West  Properties  was  incorporated  as  a  successor  to  Mission
     Investment Trust. In 1997, our predecessor,  Mission West Properties,  sold
     all its real estate  assets and paid a special  dividend of $9.00 per share
     to stockholders, after which it retained only nominal assets. Subsequently,
     the Berg Group acquired  control of the corporation as a vehicle to acquire
     R&D  properties,  or  interests  in entities  owning such  properties  in a
     transaction  completed  September 2, 1997.  At that time the Berg Group and
     the other  investors  acquired an  aggregate  79.6%  controlling  ownership
     position.  In May 1998, we, the Berg Group members,  John Kontrabecki,  and
     certain  other persons  entered into an  acquisition  agreement  providing,
     among other things,  for our  acquisition  of interests as the sole general
     partner  in  the  operating  partnerships.   At  the  time,  the  operating
     partnerships  held  approximately  4.34 million rentable square feet of R&D
     property  located in Silicon  Valley.  The agreement  also provided for the
     parties to enter into the Pending Projects Acquisition Agreement,  the Berg
     Land Holdings Option Agreement and the Exchange Rights Agreement, following
     stockholder   approval.   Effective  July  1,  1998,  we  consummated   our
     acquisition  of  the  general   partnership   interests  in  the  operating
     partnerships through the purchase of the general partnership interests, and
     all  limited  partnership  interests  in the  operating  partnerships  were
     converted  into  59,479,633  O.P.  Units,  which  represented  ownership of
     approximately 87.89% of the operating partnerships. Our general partnership
     interests  represented  the  balance  of the  ownership  of  the  operating
     partnerships.  At December 31, 2002, we owned a 16.82% general  partnership
     interest in the  operating  partnerships,  taken as a whole,  on a weighted
     average basis.

     On December 28, 1998,  our  stockholders  approved and ratified our sale of
     common stock under two May 1998 private placements.  They also ratified the
     Exchange Rights Agreement between us and the limited partners,  the Pending
     Projects Acquisition  Agreement and the Berg Land Holdings Option Agreement
     between us and the Berg Group,  and  approved  our  reincorporation  in the
     State of Maryland. On December 29, 1998, we sold 6,495,058 shares of common
     stock at a price of $4.50 per share to a number of accredited  investors to
     complete two May 1998 private placements.  The aggregate  proceeds,  net of
     fees and offering  costs, of  approximately  $27.8 million were used to pay
     down  amounts  outstanding  under the  demand  notes  due to the  operating
     partnerships.  Our reincorporation  under the laws of the State of Maryland
     through the merger of Mission West Properties into Mission West Properties,
     Inc.  occurred on December  30, 1998,  at which time all outstanding shares
     issued by our predecessor California corporation were converted into shares
     of our common stock on a one-for-one basis.

     On December 8, 1998, the AMEX  recommenced  trading of our common stock. In
     July 1999, we completed a public offering of 8,680,000 shares of our common
     stock at $8.25 per share. The net proceeds of approximately  $66.9 million,
     after deducting  underwriting discounts and other offering costs, were used
     primarily to repay indebtedness.

     We have two wholly  owned  corporate  subsidiaries,  MIT Realty,  Inc.  and
     Mission West Executive Aircraft Center. Both corporations are inactive.

     Since  the  beginning  of  calendar  year  1999,  we have  been  taxed as a
     qualified REIT.

     CRITICAL ACCOUNTING POLICIES

     We  prepare  the  consolidated  financial  statements  in  conformity  with
     accounting  principles  generally  accepted in the United States of America
     ("GAAP"),  which  requires  us to make  certain  estimates,  judgments  and
     assumptions   that  affect  the  reported   amounts  in  the   accompanying
     consolidated  financial  statements,  disclosure of  contingent  assets and
     liabilities  and related  footnotes.  Actual  results may differ from these
     estimates under different assumptions or conditions.

     Critical  accounting  policies are defined as those that require management
     to make estimates,  judgments and assumptions,  giving due consideration to
     materiality,  in certain  circumstances that affect amounts reported in the
     consolidated  financial  statements,  and potentially  result in materially
     different  results under different  conditions and assumptions.  We believe
     that the following best describe our critical accounting policies:

                                     - 25 -
<PAGE>

     REAL ESTATE  ASSETS.  Real estate assets are stated at cost.  Cost includes
     expenditures for improvements or replacements.  Maintenance and repairs are
     charged to expense as incurred. Gains and losses from sales are included in
     income in  accordance  with  Statement  of  Financial  Accounting  Standard
     ("SFAS") No. 66, "Accounting for Sales of Real Estate."

     We review real estate assets for impairment  whenever  events or changes in
     circumstances  indicate  that the  carrying  amount  of an asset may not be
     recoverable.  If the  carrying  amount of the asset  exceeds its  estimated
     undiscounted  net  cash  flow,  before  interest,   we  will  recognize  an
     impairment loss equal to the difference between its carrying amount and its
     estimated  fair value.  If impairment is recognized,  the reduced  carrying
     amount  of  the  asset  will  be  accounted  for  as its  new  cost.  For a
     depreciable  asset,  the new cost  will be  depreciated  over  the  asset's
     remaining  useful  life.   Generally,   fair  values  are  estimated  using
     discounted cash flow,  replacement cost or market comparison analyses.  The
     process of evaluating for impairment requires estimates as to future events
     and conditions,  which are subject to varying market and economic  factors,
     however.  Therefore,  it is  reasonably  possible that a change in estimate
     resulting from judgments as to future events could occur which would affect
     the recorded amounts of the property.

     ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS  AND  RESERVE.  The  preparation  of the
     consolidated  financial  statements  requires  us  to  make  estimates  and
     assumptions. As such, we must make estimates of the uncollectability of our
     accounts  receivable  based on the  evaluation  of our  tenants'  financial
     position,  analyses of accounts  receivable and current economic trends. We
     also make  estimates for a  straight-line  adjustment  reserve for existing
     tenants  with the  potential  of  bankruptcy  or  ceasing  operations.  Our
     estimates are based on our review of tenants' payment  histories,  publicly
     available financial information and such additional information about their
     financial condition as tenants provided to us. The information available to
     us might lead us to overstate or understate these reserve amounts.  The use
     of different  estimates or  assumptions  could produce  different  results.
     Moreover, actual future collections of accounts receivable or reductions in
     future reported rental income due to tenant  bankruptcies or other business
     failures could differ materially from our estimates.

     CONSOLIDATED  JOINT  VENTURES.  We, through an operating  partnership,  own
     three properties that are in joint ventures of which we have interests.  We
     manage  and  operate  all  three  properties.   The  recognition  of  these
     properties  and  their   operating   results  are  100%  reflected  on  our
     consolidated  financial  statements and minority  interest  because we have
     operational and financial control of the investments. We make judgments and
     assumptions  about the estimated monthly payments made to our joint venture
     partners,  which are  reported  with our  periodic  results of  operations.
     Actual results may differ from these estimates under different  assumptions
     or conditions.

     REVENUE  RECOGNITION.  Rental  revenue is recognized  on the  straight-line
     method of accounting  required by GAAP under which contractual rent payment
     increases are recognized evenly over the lease term. The difference between
     recognized  rental  income and rental cash receipts is recorded as deferred
     rent on the balance  sheet.  Certain  lease  agreements  contain terms that
     provide for additional rents based on reimbursement of certain costs. These
     additional rents are reflected on the accrual basis.

     Rental  revenue is affected if existing  tenants  terminate  or amend their
     leases.  Thus,  if tenants  lengthen  their lease term,  additional  rental
     revenue is recognized.  On the other hand, if tenants terminate their lease
     agreements or shorten their lease terms,  rental revenue  decreases because
     of reduced future  cash flows and a one-time  straight-line  adjustment  to
     deferred rent, which is the difference between recognized rental income and
     rental cash receipts.  We try to identify tenants who have the potential of
     bankruptcy  or of  ceasing  operations.  By  anticipating  these  events in
     advance, we expect to take actions to minimize the effect on the results of
     our operations.  Our judgments and estimations  about tenants'  capacity to
     continue to meet their  lease  obligations  will affect the rental  revenue
     recognized. Material differences may result in the amount and timing of our
     rental  revenue  for  any  period  if  we  made   different   judgments  or
     estimations.

     LEASE TERMINATION.  Lease termination fees are included in revenues.  These
     fees are paid by tenants  who want to  terminate  their  lease  obligations
     before the end of the  contractual  term of the  lease.  There is no way of
     predicting or forecasting the timing or amounts of future lease termination
     fees.

                                     - 26 -

<PAGE>


     RESULTS OF OPERATIONS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2002 TO THE YEAR ENDED  DECEMBER
     31, 2001.

     RENTAL REVENUES
     As of December 31, 2002, through our controlling interests in the operating
     partnerships,  we  owned  101 R&D  properties  totaling  approximately  7.2
     million square feet compared to 97 such properties  totaling  approximately
     6.8 million  square feet as of December 31, 2001.  This  represented  a net
     increase of  approximately  6% in total  rentable  square  footage from the
     prior year. During 2002, we made the following  acquisitions by purchase of
     new  properties  under  the  Berg  Land  Holdings  Option  Agreement  or as
     replacement  property in exchange for existing R&D properties  that we sold
     in 2001 and 2002.
<TABLE>
<CAPTION>

               Date of                                                           Rentable Square
             Acquisition                          Address                            Footage
          -------------------    -------------------------------------------    -------------------
<S>                             <C>                                                  <C>
                 1/02            5345 Hellyer Avenue                                  125,000
                 3/02            2630 Orchard Parkway (1)                              60,633
                 3/02            2610 Orchard Parkway (1)                              54,093
                 3/02            55 West Trimble Road (1)                              91,722
                 7/02            5900 Optical Court                                   165,000
                                                                                -------------------
                                      Total                                           496,448
                                                                                ===================
</TABLE>

(1)  Acquired in exchange for R&D properties located at 5713-5729  Fontanoso Way
     that was sold in year 2001 and 2001  Logic  Drive in San  Jose,  California
     that was sold in year 2002.

     The following  table depicts the amounts of rental revenues from continuing
     operations  for the years ended  December 31, 2002 and 2001  represented by
     our historical properties and the properties acquired in each such year and
     the  percentage  of the total  increase in rental  revenues over the period
     that is represented by each group of properties.
<TABLE>
<CAPTION>

                                          December 31,
                               ----------------------------------     -----------------------------------------------------
                                                                                           % Change by         % of Total
                                    2002                2001           $ Change           Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                               (dollars in thousands)
<S>                              <C>                 <C>                 <C>                   <C>                <C>
Same Property (1)                 $103,076            $112,545            ($9,469)              (8.4%)             (7.5%)
2001 Acquisitions (2)               18,328              13,684              4,644               33.9%               3.7%
2002 Acquisitions                    8,377                   -              8,377                100%               6.6%
                               --------------      --------------     --------------                         --------------
     Total/Overall                $129,781            $126,229             $3,552                2.8%               2.8%
                               ==============      ==============     ==============                         ==============
</TABLE>


(1)  "Same Property" is defined as properties  owned by us prior to 2001 that we
     still owned as of December 31, 2002.
(2)  Operating  rental  revenues for 2001  Acquisitions do not reflect a full 12
     months of  operations  in 2001 because  these  properties  were acquired at
     various times during 2001.

     For the year ended December 31, 2002, our rental  revenues from real estate
     increased  by $3.5  million,  or 3% from $126.2  million for the year ended
     December 31, 2001 to $129.7  million for the same period in 2002.  The $3.5
     million   increase  in  rental   revenues   resulted   from  new   property
     acquisitions,  as "Same  Property"  rents  decreased by ($9.5),  rents from
     newly  developed  properties  acquired in 2001  represented an increased of
     $4.6  million and rents from newly  developed  properties  acquired in 2002
     added approximately $8.4 million of new rental revenue.  Approximately $0.3
     million  and  $2.0  million  in  rental  revenues  were  generated  from  a
     discontinued  operation  for the years  ended  December  31, 2002 and 2001,
     respectively.  The  decline  in rental  revenues  from the "Same  Property"
     portfolio was a result from adverse  market  conditions and loss of several
     tenants due to bankruptcy or cessation of operations. Our overall occupancy
     rate at December 31, 2002 was approximately 84%.

     OTHER INCOME
     The  following  table  depicts the amounts of other income from  continuing
     operations  and gains from sales of assets for the years ended December 31,
     2002 and 2001.
<TABLE>
<CAPTION>

                                           December 31,
                               ----------------------------------
                                                                                           % Change by
                                    2002                2001            $ Change               Group
                               --------------      --------------     --------------      --------------
                                                (dollars in thousands)
<S>                                <C>                <C>                <C>                  <C>
Other income                        $4,250             $ 2,465           $  1,785               72.4%
Gains from sales of assets               -              11,454            (11,454)              (100%)
                               --------------      --------------     --------------
               Total                $4,250             $13,919           $ (9,669)             (69.5%)
                               ==============      ==============     ==============
</TABLE>

                                     - 27 -
<PAGE>


     Other income,  including interest,  was approximately $4.3 million and $2.5
     million for the years ended December 31, 2002 and 2001,  respectively.  The
     $1.8 million increase was primarily from lease termination fees.

     In 2001,  gain from  sales of real  estate  was $11.5  million,  which were
     effected as  tax-deferred  Section 1031  exchanges.  Due to the adoption of
     Statement of Financial  Accounting  Standards No. 144,  "Accounting for the
     Impairment or Disposal of  Long Lived  Assets"  ("SFAS No. 144")  effective
     January 1, 2002, gains from sales of operating properties are classified as
     discontinued operations. In 2002, a gain of approximately $6.1 million from
     the sale of one property  consisting of 72,426 rentable square feet at 2001
     Logic Drive in a Section  1031  exchange has been  classified  as Gain from
     Disposal of Discontinued Operations (see below).

     TENANT REIMBURSEMENTS AND EXPENSES
     The following  table reflects the increase in property  operating  expenses
     and real  estate  taxes  from  continuing  operations  for the  year  ended
     December 31, 2002 over  property  operating  expenses and real estate taxes
     from  continuing  operations  for the year ended  December 31, 2001 and the
     percentage  of  total   increase  in  expenses  over  the  period  that  is
     represented by each group of properties.
<TABLE>
<CAPTION>

                                          December 31,
                               ----------------------------------     -----------------------------------------------------
                                                                                           % Change by         % of Total
                                    2002                2001            $ Change          Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                                (dollars in thousands)

<S>                               <C>                 <C>                 <C>                  <C>                <C>
Same Property (1)                  $18,026             $15,894             $2,132               13.4%              11.6%
2001 Acquisitions (2)                2,777               2,414                363               15.0%               2.0%
2002 Acquisitions                    1,212                   -              1,212                100%               6.6%
                               --------------      --------------     --------------                         --------------
     Total/Overall                 $22,015             $18,308             $3,707               20.2%              20.2%
                               ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2001 that we
     still owned as of December 31, 2002.
(2)  Operating  expenses  and real  estate  taxes for 2001  Acquisitions  do not
     reflect a full 12 months of  operations  in 2001 because  these  properties
     were acquired at various times during 2001.

     Tenant reimbursements from continuing operations increased by $2.6 million,
     or 15%,  from $17.5  million for the year ended  December 31, 2001 to $20.1
     million for the year ended December 31, 2002.  Operating  expenses and real
     estate taxes from continuing operations,  on a combined basis, increased by
     $3.7 million,  or 20%,  from $18.3 million for the year ended  December 31,
     2001 to $22.0  million for the year ended  December 31,  2002.  Of the $3.7
     million increase in operating  expenses and real estate taxes, $2.1 million
     resulted  from  the  Company's  "Same  Property"  portfolio,  $0.4  million
     resulted from  properties  acquired in 2001 and $1.2 million  resulted from
     properties acquired in 2002. The overall increase in tenant reimbursements,
     operating  expenses  and real  estate  taxes is  primarily  a result of the
     growth in the total square footage of the Company's portfolio of properties
     during the periods  presented.  Total  operating  expenses  and real estate
     taxes exceeded tenant  reimbursements  because of vacancies,  which reached
     approximately  1.16  million  square  feet by year-end  2002.  For the same
     reason,  "Same Property" rental revenues  decreased in 2002 over 2001 while
     "Same Property"  operating  expenses increased in 2002 over 2001. We expect
     tenant reimbursements to decrease further in the coming year as our vacancy
     rate  increases.  General and  administrative  expenses  increased  by $0.2
     million  from $1.3  million  for the year ended  December  31, 2001 to $1.5
     million for the year ended December 31, 2002, primarily due to the addition
     of one new employee in 2001 and minor increases in general expenses.

     The following table depicts the amounts of interest expense from continuing
     operations for the years ended December 31, 2002 and 2001.
<TABLE>
<CAPTION>

                                         December 31,
                               ----------------------------------
                                                                                           % Change by
                                    2002                2001            $ Change              Group
                               --------------      --------------     --------------      --------------
                                                (dollars in thousands)
<S>                               <C>                 <C>                 <C>                 <C>
Interest                           $ 9,588             $ 8,704            $   884               10.2%
Interest (related parties)           3,422               4,709             (1,287)             (27.3%)
                               --------------      --------------     --------------
               Total               $13,010             $13,413            $  (403)              (3.0%)
                               ==============      ==============     ==============
</TABLE>
     Interest expense  increased by $0.9 million,  or 10%, from $8.7 million for
     the year  ended  December  31,  2001 to $9.6  million  for the  year  ended
     December 31, 2002. The increased expense resulted from additional debt that
     the Company incurred under a new $20 million uncollateralized loan obtained
     from  Citicorp  USA, Inc. and a $40 million  credit line  established  with
     Cupertino  National Bank.  Interest expense (related parties)  decreased by
     $1.3  million,  or 27%,  from $4.7 million for the year ended  December 31,
     2001 to $3.4 million for the year ended  December 31, 2002.  As a result of
     five R&D property  acquisitions  totaling  approximately  496,000  rentable
     square  feet in 2002,  debt  outstanding,  including  amounts  due  related
     parties,  increased  by $20.1  million,  or 9%, from  $218.7  million as of
     December 31, 2001 to $238.8 million as of December 31,


                                     - 28 -
<PAGE>


     2002.  Interest  rates  declined in 2002,  which lessened the effect of the
     additional debt on total interest  expense.  We expect interest  expense to
     increase if we acquire additional  properties or interest rates increase in
     2003.

     The  following  table  depicts the  amounts of  depreciation  expense  from
     continuing operations for the years ended December 31, 2002 and 2001.
<TABLE>
<CAPTION>

                                           December 31,
                               ----------------------------------
                                    2002                2001            $ Change             % Change
                               --------------      --------------     --------------      --------------
                                                (dollars in thousands)
<S>                               <C>                 <C>                 <C>                   <C>
Depreciation                       $17,928             $16,638             $1,290                7.8%

</TABLE>

     Depreciation expense from continuing  operations increased by $1.3 million,
     or 8%,  from $16.6  million for the year ended  December  31, 2001 to $17.9
     million for the year ended December 31, 2002. The increase was attributable
     to the  acquisition  of five R&D properties in 2002.  Depreciation  expense
     attributable  to  discontinued  operations  was  approximately  $46,000 and
     $278,000 for the years ended December 31, 2002 and 2001, respectively.

     MINORITY INTEREST AND NET INCOME
     The  following  table  depicts  the  amounts of  earnings  attributable  to
     shareholders  and minority  interests for the years ended December 31, 2002
     and 2001.
<TABLE>
<CAPTION>

                                                December 31,
                                  -------------------------------------
                                                                                                     % Change by
                                        2002                 2001               $ Change                Group
                                  ----------------      ---------------      ----------------      ----------------
                                                     (dollars in thousands)
<S>                                   <C>                  <C>                   <C>                     <C>
Net income to shareholders             $ 17,501             $ 18,135              ($  634)                (3.5%)
Net income to minority interest          88,576               91,565               (2,989)                (3.3%)

                                  ----------------      ---------------      ----------------
               Total                   $106,077             $109,700              ($3,623)                (3.3%)
                                  ================      ===============      ================
</TABLE>

     As of December 31, 2002 and 2001, we owned a general  partnership  interest
     of 16.68%,  21.46%, 15.46% and 12.27% and 16.54%, 21.41%, 15.42% and 12.24%
     in Mission West Properties,  L.P., Mission West Properties, L.P. I, Mission
     West  Properties,   L.P.  II  and  Mission  West   Properties,   L.P.  III,
     respectively,  which are the operating partnerships.  We owned a 16.82% and
     16.73% general partnership interest in the operating partnerships, taken as
     a whole,  on a weighted  average  basis as of  December  31, 2002 and 2001,
     respectively.  Net income to shareholders decreased by $0.6 million, or 3%,
     from $18.1  million for the year ended  December 31, 2001 to $17.5  million
     for the year ended December 31, 2002. Our income  attributable  to minority
     interest decreased by $3.0 million,  or 3%, from $91.6 million for the year
     ended  December 31, 2001 to $88.6  million for the year ended  December 31,
     2002. Minority interest represents the limited partners' ownership interest
     of 83.18% and 83.27%,  on a weighted average basis, as of December 31, 2002
     and 2001, respectively, in the operating partnerships.  The decrease in the
     minority  interest  percentage  resulted  from the  issuance of  additional
     common stock in connection  with  exchanging O.P. Units for common stock by
     minority interest holders and exercise of stock options.

     INCOME FROM DISCONTINUED OPERATIONS
     The  following  table  depicts  the  amounts  of income  from  discontinued
     operations for the years ended December 31, 2002 and 2001.
<TABLE>
<CAPTION>

                                                                 December 31,
                                                       ----------------------------------
                                                                                                                % Change by
                                                             2002               2001           $ Change             Group
                                                       --------------     ---------------    --------------    ---------------
                                                                     (dollars in thousands)

<S>                                                        <C>                 <C>               <C>                <C>
Gain from disposal of discontinued operations               $6,103                   -           $ 6,103               100%
Income attributable to discontinued operations                 287              $1,721            (1,434)            (83.3%)
Minority interest in earnings attributable to
  discontinued operations                                    5,325               1,436             3,889             270.8%
                                                       --------------     ---------------    --------------
Total income from discontinued operations                   $1,065              $  285           $   780             273.7%
                                                       ==============     ===============    ==============
</TABLE>


     In  accordance  with our  adoption of SFAS No.  144,  in 2002,  we sold one
     property  consisting of 72,426  rentable  square feet and  recognized a net
     gain of  $6.1  million,  of  which  $1.0  million  and  $5.1  million  were
     attributable  to shareholders  and minority  interests,  respectively.  The
     income to shareholders and minority interests  attributable to discontinued
     operations  from  this  property  in 2002  was  approximately  $47,000  and
     $240,000,  respectively.  For 2001, the income to shareholders and minority
     interests  attributable to  discontinued  operations from this property was
     approximately  $285,000 and $1.4 million,  respectively.  We did not report
     gains from the disposal of  discontinued  operations  or from  discontinued
     operations for any transactions in 2001.

                                     - 29 -

<PAGE>


     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2001 TO THE YEAR ENDED  DECEMBER
     31, 2000.

     RENTAL REVENUES
     As of December 31, 2001, through our controlling interests in the operating
     partnerships, we owned 97 R&D properties totaling approximately 6.8 million
     square  feet  compared to 89 such  properties  totaling  approximately  6.2
     million  square  feet as of  December  31,  2000.  This  represented  a net
     increase of  approximately  10% in total  rentable  square footage from the
     prior year. During 2001, we made the following  acquisitions by purchase of
     new  properties  under  the  Berg  Land  Holdings  Option  Agreement  or as
     replacement properties in exchange for existing R&D properties that we sold
     in 2001.
<TABLE>
<CAPTION>

               Date of                                                           Rentable Square
             Acquisition                          Address                            Footage
          -------------------    -------------------------------------------    -------------------
<S>                             <C>                                                  <C>
                 1/01            5325 Hellyer Avenue                                  131,500
                 2/01            5500 Hellyer Avenue                                  117,740
                 4/01            245 Caspian Drive (1)(3)                              59,400
                 5/01            855 Branham Lane East (1)                             67,912
                 6/01            5550 Hellyer Avenue                                   78,794
                 7/01            5905-5965 Silver Creek Valley Road I (2)             247,500
                 8/01            5750 Hellyer Avenue                                   73,312
                10/01            5905-5965 Silver Creek Valley Road II                 98,500
                                                                                -------------------
                                      Total                                           874,658
                                                                                ===================
</TABLE>

(1)  Acquired in exchange for R&D property  located at 4949 Hellyer Avenue,  San
     Jose, California.
(2)  Three buildings were acquired at this location.
(3)  A lessee was paying rent for this site under a 15-year lease,  although the
     building has not been  completed for occupancy by this lessee.  This lessee
     filed for bankruptcy  protection under Chapter 11 in September 2001 and has
     effectively  terminated  its lease  agreement  in May 2002 in a  negotiated
     settlement with us.

     During 2001,  we sold the  following  two R&D  properties  in  transactions
     effected as tax-deferred Section 1031 exchanges:
<TABLE>
<CAPTION>

               Date of                                                           Rentable Square
             Disposition                          Address                            Footage
          -------------------    -------------------------------------------    -------------------
<S>                             <C>                                                  <C>
                 1/01            4949 Hellyer Avenue                                  200,484
                 9/01            5713-5729 Fontanoso Way                               77,700
                                                                                -------------------
                                      Total                                           278,184
                                                                                ===================
</TABLE>
     The following  table depicts the amounts of rental revenues from continuing
     operations  for the years ended  December 31, 2001 and 2000  represented by
     our historical properties and the properties acquired in each such year and
     the  percentage  of the total  increase in rental  revenues over the period
     that is represented by each group of properties.
<TABLE>
<CAPTION>

                                           December 31,
                               ----------------------------------     -----------------------------------------------------
                                                                                           % Change by         % of Total
                                    2001                2000            $ Change          Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                                (dollars in thousands)
<S>                              <C>                  <C>                <C>                   <C>                <C>
Same Property (1)                 $ 92,394             $85,271            $ 7,123                8.4%               7.3%
2000 Acquisitions (2)               20,151              12,297              7,854               63.9%               8.1%
2001 Acquisitions                   13,684                   -             13,684                100%              14.0%
                               --------------      --------------     --------------                         --------------
     Total/Overall                $126,229             $97,568            $28,661               29.4%              29.4%
                               ==============      ==============     ==============                         ==============
</TABLE>
(1)  "Same Property" is defined as properties  owned by us prior to 2000 that we
     still owned as of December 31, 2001.
(2)  Operating  rental  revenues for 2000  Acquisitions do not reflect a full 12
     months of  operations  in 2000 because  these  properties  were acquired at
     various times during 2000.

     For the year ended December 31, 2001, our rental  revenues from real estate
     increased  by  $28.6  million,  or  29%,  which  included  an  increase  of
     approximately  $6.1  million  over base rental  revenues to reflect  rental
     revenues on a  straight-line  basis,  from $97.6 million for the year ended
     December  31, 2000 to $126.2  million  for the same  period in 2001.  These
     increases  were  primarily  attributable  to scheduled  increases in rental
     rates  and new  acquisitions.  Of the  $28.6  million  increase  in  rental
     revenues,   $7.1  million  resulted  from  the  Company's  "Same  Property"
     portfolio,  $7.8 million resulted from newly developed  properties acquired
     in 2000,  and  $13.7  million  resulted  from  newly  developed  properties
     acquired  in 2001.  Approximately  $2.0  million  in rental  revenues  were
     generated  for each of the years  ended  December  31, 2001 and 2000 from a
     property that we disposed of in a Section 1031 exchange in 2002.

                                     - 30 -
<PAGE>

     OTHER INCOME
     The  following  table  depicts the amounts of other income from  continuing
     operations  and gains from sales of assets for the years ended December 31,
     2001 and 2000.
<TABLE>
<CAPTION>

                                           December 31,
                               ----------------------------------
                                                                                           % Change by
                                    2001                2000             $ Change              Group
                               --------------      --------------     --------------      --------------
                                                (dollars in thousands)
<S>                               <C>                  <C>               <C>                <C>
Other income                       $ 2,465              $1,241            $ 1,224               98.6%
Gains from sales of assets          11,454                 501             10,953            2,186.2%
                               --------------      --------------     --------------
               Total               $13,919              $1,742            $12,177              699.0%
                               ==============      ==============     ==============
</TABLE>

     Other income,  including interest,  was approximately $2.5 million and $1.2
     million for the years ended December 31, 2001 and 2000,  respectively.  The
     $1.3 million  increase was primarily from interest earned on our restricted
     cash account.

     In 2001,  we  recognized a gain of $11.5 million from sales of real estate,
     which were effected as  tax-deferred  Section 1031  exchanges.  We acquired
     replacement  properties  in 2001 and 2002. In 2001, we recognized a gain of
     $0.5 million from the sale of common stock.

     TENANT REIMBURSEMENTS AND EXPENSES
     The following  table reflects the increase in property  operating  expenses
     and real  estate  taxes  from  continuing  operations  for the  year  ended
     December 31, 2001 over  property  operating  expenses and real estate taxes
     from  continuing  operations  for the year ended  December 31, 2000 and the
     percentage  of  total   increase  in  expenses  over  the  period  that  is
     represented by each group of properties.
<TABLE>
<CAPTION>

                                          December 31,
                               ----------------------------------     -----------------------------------------------------
                                                                                           % Change by         % of Total
                                    2001                2000             $ Change         Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                                (dollars in thousands)
<S>                               <C>                 <C>                  <C>                <C>                 <C>
Same Property (1)                  $14,212             $14,219             $  (7)                   -                  -
2000 Acquisitions (2)                1,682                 713                969              135.9%               6.5%
2001 Acquisitions                    2,414                   -              2,414                100%              16.1%
                               --------------      --------------     --------------                         --------------
     Total/Overall                 $18,308             $14,932             $3,376               22.6%              22.6%
                               ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2000 that we
     still owned as of December 31, 2001.
(2)  Operating  expenses  and real  estate  taxes for 2000  Acquisitions  do not
     reflect a full 12 months of  operations  in 2000 because  these  properties
     were acquired at various times during 2000.

     Tenant reimbursements from continuing operations increased by $3.0 million,
     or 21%,  from $14.5  million for the year ended  December 31, 2000 to $17.5
     million for the year ended December 31, 2001.  Operating  expenses and real
     estate taxes from continuing operations,  on a combined basis, increased by
     $3.4 million,  or 23%,  from $14.9 million for the year ended  December 31,
     2000 to $18.3  million for the year ended  December 31,  2001.  Of the $3.4
     million increase in property operating expenses and real estate taxes, $1.0
     million resulted from properties acquired in 2000 and $2.4 million resulted
     from  properties   acquired  in  2001.  The  overall   increase  in  tenant
     reimbursements,  property  operating  expenses  and  real  estate  taxes is
     primarily  a result  of the  growth  in the  total  square  footage  of the
     Company's  portfolio  of  properties  during  the  periods  presented.  The
     increases experienced were consistent with the increase in rental revenues.
     General and  administrative  expenses  increased  by $0.2 million from $1.1
     million for the year ended  December  31, 2000 to $1.3 million for the year
     ended December 31, 2001,  primarily due to the addition of one new employee
     in 2001.

     The following table depicts the amounts of interest expense from continuing
     operations for the years ended December 31, 2001 and 2000.
<TABLE>
<CAPTION>

                                           December 31,
                               ----------------------------------
                                                                                           % Change by
                                    2001                2000             $ Change             Group
                               --------------      --------------     --------------      --------------
                             (dollars in thousands)
<S>                               <C>                 <C>                   <C>                 <C>
Interest                           $ 8,704             $ 8,290               $414                5.0%
Interest (related parties)           4,709               4,475                234                5.2%
                               --------------      --------------     --------------
               Total               $13,413             $12,765               $648                5.1%
                               ==============      ==============     ==============
</TABLE>

     Interest  expense  increased by $0.4 million,  or 5%, from $8.3 million for
     the year  ended  December  31,  2000 to $8.7  million  for the  year  ended
     December 31, 2001,  primarily due to a mortgage loan we  established in May
     2000 in connection with a property  acquisition.  Interest expense (related
     parties)  increased by $0.2 million,  or 5%, from $4.5 million for the year
     ended

                                     - 31 -
<PAGE>

     December 31, 2000 to $4.7 million for the year ended  December 31, 2001. As
     a result of ten R&D property  acquisitions  totaling  approximately 875,000
     rentable  square  feet in 2001,  debt  outstanding,  including  amounts due
     related parties, increased by $24.1 million, or 12%, from $194.6 million as
     of December 31, 2000 to $218.7  million as of December  31, 2001.  Interest
     rates in 2001 were lower than interest  rates in 2000,  which  lessened the
     effect of the additional debt on total debt interest expense.

     The  following  table  depicts the  amounts of  depreciation  expense  from
     continuing operations for the years ended December 31, 2001 and 2000.
<TABLE>
<CAPTION>

                                           December 31,
                               ----------------------------------

                                    2001                2000            $ Change             % Change
                               --------------      --------------     --------------      --------------
                                               (dollars in thousands)
<S>                               <C>                 <C>                 <C>                   <C>
Depreciation                       $16,638             $15,178             $1,460                9.6%
</TABLE>

     Depreciation  expense increased by $1.4 million, or 10%, from $15.2 million
     for the year ended  December  31, 2000 to $16.6  million for the year ended
     December 31, 2001. The increase was  attributable to the acquisition of ten
     R&D  properties  in  2001   Depreciation   expense  from  the  discontinued
     operations of the R&D property sold in 2002 was approximately  $0.3 million
     in both 2001 and 2000.

     MINORITY INTEREST AND NET INCOME
     The  following  table  depicts  the  amounts of  earnings  attributable  to
     shareholders  and minority  interests for the years ended December 31, 2001
     and 2000.

<TABLE>
<CAPTION>

                                               December 31,
                                  -------------------------------------
                                                                                                    % Change by
                                        2001                 2000               $ Change                Group
                                  ----------------      ---------------      ----------------      --------------
                                                     (dollars in thousands)
<S>                                    <C>                  <C>                   <C>                   <C>
Net income to shareholders             $ 18,135              $12,579               $ 5,556               44.2%
Net income to minority interest          91,565               59,054                32,511               55.1%

                                  ----------------      ---------------      ----------------
               Total                   $109,700              $71,633               $38,067               53.1%
                                  ================      ===============      ================
</TABLE>

     As of December 31, 2001 and 2000, we owned a general  partnership  interest
     of 16.54%,  21.41%, 15.42% and 12.24% and 18.15%, 21.36%, 15.38% and 12.21%
     in Mission West Properties,  L.P., Mission West Properties, L.P. I, Mission
     West  Properties,   L.P.  II  and  Mission  West   Properties,   L.P.  III,
     respectively,  which are the operating partnerships.  We owned a 16.73% and
     16.92% general partnership interest in the operating partnerships, taken as
     a whole,  on a weighted  average  basis as of  December  31, 2001 and 2000,
     respectively. Net income to shareholders increased by $5.5 million, or 44%,
     from $12.6  million for the year ended  December 31, 2000 to $18.1  million
     for year ended  December  31,  2001.  Our income  attributable  to minority
     interest  increased by $32.5  million,  or 55%,  from $59.1 million for the
     year ended  December 31, 2000 to $91.6 million for the year ended  December
     31, 2001.  Minority  interest  represents the limited  partners'  ownership
     interest of 83.27% and 83.08%,  on a weighted average basis, as of December
     31,  2001  and  2000,  respectively,  in the  operating  partnerships.  The
     increase in the minority interest  percentage resulted from the issuance of
     additional  O.P.  Units in  connection  with the  acquisition  of eight new
     properties under the Berg Land Holdings Option Agreement.

     INCOME FROM DISCONTINUED OPERATIONS
     The  following  table  depicts  the  amounts  of income  from  discontinued
     operations for the years ended December 31, 2001 and 2000.
<TABLE>
<CAPTION>

                                                                 December 31,
                                                       ----------------------------------
                                                                                                                % Change by
                                                             2001               2000           $ Change            Group
                                                       --------------     ---------------    --------------    ---------------
                                                                       (dollars in thousands)
<S>                                                        <C>                 <C>                  <C>               <C>
Gain from disposal of discontinued operations                    -                   -                 -                  -
Income attributable to discontinued operations              $1,721              $1,715               $ 6                  -
Minority interest in earnings attributable to
   discontinued operations                                   1,436               1,404                32               2.3%
                                                       --------------     ---------------    --------------
Total income from discontinued operations                   $  285              $  311              ($26)             (8.4%)
                                                       ==============     ===============    ==============
</TABLE>

     In accordance with SFAS No. 144, rental revenues, tenant reimbursements and
     expenses attributable to the 72,426 rentable square foot property,  sold in
     a Section 1031  tax-deferred  exchange in 2002, have been  reclassified and
     reflected  on  a  net  basis  as  $0.3  million   income  to   shareholders
     attributable  to  discontinued  operations  in 2001  and  2000.  Income  to
     minority interests attributable to discontinued operations in 2001 and 2000
     was $1.4 million each.

                                     - 32 -
<PAGE>

     CHANGES IN FINANCIAL CONDITION

     YEAR ENDED DECEMBER 31, 2002.

     The most  significant  changes in our financial  condition in 2002 resulted
     from property acquisitions and exchanges. In addition, stockholders' equity
     increased from the exercise of stock options and the exchange of O.P. Units
     for common stock.

     During  2002,  we acquired  two R&D  properties  from the Berg Group,  both
     located in Silicon Valley.  Those acquisitions added approximately  290,000
     square  feet of  rentable  space  and were  acquired  under  the Berg  Land
     Holdings Option Agreement.  The total gross acquisition price for those two
     properties was approximately  $31.0 million. We financed those acquisitions
     by borrowing $18.0 million under our line of credit from the Berg Group and
     issuing  835,491  O.P.  Units to  various  members  of the Berg  Group.  In
     addition  to those  two  property  purchases,  we also  acquired  three R&D
     properties  representing  approximately  206,500  rentable square feet from
     Silicon  Valley  Properties,   LLC  for  approximately   $31.2  million  in
     connection with tax-deferred exchanges involving the property sold to Cisco
     Systems, Inc. in late 2001 and property sold to Xilinx, Inc. in early 2002.
     Until we obtained those three  replacement  properties,  the sales proceeds
     from the properties  sold by the Company were designated as restricted cash
     for use in  tax-deferred  property  exchanges.  No debt or O.P.  Units were
     issued to acquire those three properties.

     In March 2002,  we completed  the sale, in a  tax-deferred  exchange,  of a
     72,400  square foot R&D  property  located at 2001 Logic  Drive,  San Jose,
     California to Xilinx,  Inc.,  which had exercised a purchase  option in the
     same month.  We realized a gain of $6.1  million on the total sale price of
     $18.5  million.  Prior  to our  acquisition  of the  replacement  property,
     described in the  preceding  paragraph,  the proceeds from the sale of this
     property  were  designated as  restricted  cash to be used in  tax-deferred
     property exchanges.

     During the year ended  December 31, 2002,  stock options were  exercised to
     purchase a total of 33,550 shares of common stock at $4.50 per share. Total
     proceeds to the Company were approximately $0.15 million.

     In 2002,  three limited partners  exchanged  124,000 O.P. Units for 124,000
     shares of the  Company's  common stock under the terms of the December 1998
     Exchange Rights Agreement among the Company and all limited partners of the
     operating  partnerships.  In addition,  in 2002,  Carl E. Berg gave 155,000
     O.P.  Units to charitable  institutions,  which  exchanged them for 155,000
     shares of the  Company's  common  stock  pursuant  to the  Exchange  Rights
     Agreement in early January 2003.

     The proceeds from the exercise of stock options and the conversions of O.P.
     Units to shares of the Company's  common stock were applied to increase our
     percentage interest as general partner in the operating partnerships.

     YEAR ENDED DECEMBER 31, 2001.

     The most  significant  changes in our financial  condition in 2001 resulted
     from property acquisitions and exchanges. In addition, stockholders' equity
     increased from the exercise of stock options and the exchange of O.P. Units
     for common stock.

     During 2001,  we  purchased  eight R&D  properties,  all located in Silicon
     Valley.  Those  acquisitions  added  approximately  748,000  square feet of
     rentable  space and were  acquired  from the Berg Group under the Berg Land
     Holdings  Option  Agreement.  The total gross  acquisition  price for these
     eight  properties  was  approximately  $80.7  million.  We  financed  these
     acquisitions  by borrowing  $45.9 million under our line of credit from the
     Berg  Group,  assuming  other  liabilities  of $2.0  million,  and  issuing
     2,422,837 O.P. Units to various  members of the Berg Group.  In addition to
     those  eight  property  purchases,  we also  acquired  two  R&D  properties
     representing approximately 127,000 rentable square feet from the Berg Group
     for approximately  $23.2 million in connection with a tax-deferred  Section
     1031 exchange for properties sold to Cisco Systems,  Inc. in 2001. Until we
     obtained those two  replacement  properties,  the proceeds from the sale of
     properties to Cisco Systems,  Inc. were  classified as restricted  cash for
     use in tax-deferred property exchanges and on our balance sheet at December
     31,  2001.  No debt  or  O.P.  Units  were  issued  to  acquire  those  two
     properties.

     In January 2001, we completed the sale, in a  tax-deferred  exchange,  of a
     200,484 square foot R&D property located at 4949 Hellyer Avenue,  San Jose,
     California  to Cisco  Systems,  Inc.,  which  had  exercised  an  option to
     purchase  that  property  in  November  2000.  We  realized  a gain of $3.1
     million,  which is  included  in other  income,  on the total sale price of
     $23.2  million.  In  September  2001,  we also  completed  the  sale,  in a
     tax-deferred  exchange,  of a 77,700  square foot R&D  property  located at
     5713-5729 Fontanoso Way, San Jose, California to Cisco Systems, Inc., which
     had also exercised an option to purchase that property in November 2000. We
     realized a gain of $8.5 million on the total sale price of $15.4 million.

                                     - 33 -
<PAGE>

     During the year ended  December 31, 2001,  stock options were  exercised to
     purchase a total of 68,088  shares of common  stock,  consisting  of 14,588
     shares  exercised at $4.50 per share,  47,500 shares exercised at $8.25 per
     share,  and 6,000 shares  exercised at $13.00 per share.  Total proceeds to
     the Company were approximately $0.5 million.

     Two limited partners exchanged 236,326 O.P. Units for 236,326 shares of the
     Company's common stock under the terms of the Exchange Rights Agreement.

     The proceeds from the exercise of stock options and the conversions of O.P.
     Units to shares of the Company's  common stock were applied to increase our
     percentage interest as general partner in the operating partnerships.

     YEAR ENDED DECEMBER 31, 2000.

     In 2000,  our  financial  condition  changed  principally  as a  result  of
     property acquisitions. In addition, stockholders' equity increased from the
     exercise of stock  options.  During 2000, we acquired nine R&D  properties,
     all located in Silicon Valley.

     The  property  acquisitions  added  approximately  891,000  square  feet of
     rentable  space and were  acquired  from the Berg Group under the Berg Land
     Holdings Option Agreement and the Pending Projects  Acquisition  Agreement.
     The  total  gross   acquisition   price  for  those  nine   properties  was
     approximately  $122.9 million.  We financed those acquisitions by borrowing
     $39.9  million  under our line of credit  from the Berg  Group,  issuing an
     $11.8 million note to the Berg Group,  assuming  other  liabilities of $2.6
     million,  and issuing  7,370,238 O.P. Units to various  members of the Berg
     Group.

     In May  2000,  we  entered  into a  joint  venture  and  acquired  two  R&D
     properties of  approximately  160,000  square feet located at 5300 and 5350
     Hellyer Avenue in San Jose,  California  from the Berg Group under the Berg
     Land Holdings Option Agreement. Those properties are operated, managed, and
     owned by a partnership, Hellyer Avenue Limited Partnership, in which one of
     the operating partnerships owns a 50% interest. The total acquisition price
     for those  properties  was $17.2 million.  We acquired those  properties by
     issuing an $11.8  million  note  secured by the property to the Berg Group,
     issuing  659,223  O.P.  Units to  various  members of the Berg  Group,  and
     assuming  other  liabilities  of $0.8 million.  The note bears  interest at
     7.65%,  and is due in ten years with principal  payments  amortized over 20
     years.  Included  in  the  acquisition  price  were  construction  fees  of
     approximately  $0.6 million,  loan fees of  approximately  $0.4 million and
     commission fees of approximately $0.3 million.

     Also in May  2000,  we  entered  into a  ten-year  lease  with ONI  Systems
     Corporation  ("ONI") for 444,500  square feet of space to be constructed by
     the Berg  Group on land that is subject  to the Berg Land  Holdings  Option
     Agreement.  As  partial  consideration  for the lease,  we were  allowed to
     purchase 100,000 shares of ONI common stock in its initial public offering.
     We  purchased  and then sold all of the shares and realized net proceeds of
     $6.3  million.  Of this amount,  we recognized  approximately  $0.5 million
     during the second quarter with the balance deferred as prepaid rent that we
     are amortizing ratably over the ten-year lease term.

     In November  2000,  Cisco  Systems,  Inc.  exercised  a purchase  option to
     purchase the properties it was leasing from us at 4949 Hellyer Avenue,  San
     Jose,  California  and  5713-5729  Fontanoso  Way,  San  Jose,  California,
     comprising 200,484 and 77,700 rentable square feet, respectively.  The sale
     at 4949 Hellyer Avenue was effected as a Section 1031 tax-deferred exchange
     in January 2001 and the sale of  5713-5729  Fontanoso  Way,  also a Section
     1031 tax-deferred exchange, closed in the third quarter of 2001.

     During the year ended  December 31, 2000,  stock options were  exercised to
     purchase a total of 52,991  shares of common  stock,  consisting  of 39,237
     shares  exercised at $4.50 per share and 13,754  shares  exercised at $8.25
     per share. Total proceeds to the Company were approximately $0.3 million.

     The proceeds  from the  exercise of stock  options were applied to increase
     our percentage interest as general partner in the operating partnerships.

     LIQUIDITY AND CAPITAL RESOURCES

     We  expect  our  principal   source  of  liquidity  for   distributions  to
     stockholders and O.P. Unit holders,  debt service,  leasing commissions and
     recurring capital expenditures to come from FFO and/or the borrowings under
     the lines of credit with the Berg Group and Cupertino National Bank and the
     Northwestern  Mutual  Life  Insurance  Company  loan,  which we obtained in
     January  2003.  We expect these sources of liquidity to be adequate to meet
     projected  distributions  to stockholders  and other presently  anticipated
     liquidity  requirements in 2003. We expect to meet our long-term  liquidity
     requirements for the funding of property development, property acquisitions
     and other material  non-recurring  capital  improvements  through long-term

                                     - 34 -
<PAGE>

     secured and unsecured  indebtedness  and the issuance of additional  equity
     securities  by us. We have the ability to meet  short-term  obligations  or
     other liquidity  needs based on the Berg Group and Cupertino  National Bank
     lines of credit. Despite the current weakness in the economy, we expect our
     total interest expense to increase, but not significantly, as we incur debt
     through acquisitions of new properties and financing  activities.  In 2003,
     we will be  obligated to make  payments of debt  principal  under  mortgage
     notes without regard to any debt  refinancing or new debt  obligations that
     we might incur, or optional payments of debt principal.

     On March 1,  2002,  we  obtained  a $20  million uncollateralized loan from
     Citicorp USA, Inc.  with an interest rate based on LIBOR.  The loan,  which
     matures on March 1, 2003,  bears a fixed LIBOR  interest  rate of 4.09% for
     the first six months and LIBOR plus 2.0% thereafter.  We paid a loan fee of
     $50,000 and used the loan for acquiring new R&D  properties.  This loan was
     paid off in its entirety in January 2003 and retired in March 2003.

     On July 12, 2002,  we  established a $40 million uncollateralized revolving
     line of credit (the  "Revolving  Line of Credit") with  Cupertino  National
     Bank,  Cupertino,  California.  We have  guaranteed  the Revolving  Line of
     Credit and two operating  partnerships  have pledged four properties  under
     separate guarantees.   The loans under this line of credit bear interest at
     LIBOR plus 2%, and  mature on July 12,  2004.  We pay an annual loan fee of
     $33,000.  The  proceeds  from the  Revolving  Line of Credit may be used to
     repay  debt,  complete  acquisitions  and  finance  other  working  capital
     requirements.

     On July 1,  2001,  our $75.0  million  credit  line with the Berg Group was
     increased to $100.0  million with all other terms  remaining the same.  The
     Berg Group line of credit is currently  collateralized  by ten  properties,
     bears  interest  at LIBOR plus 1.30%,  and  matures in March 2004.  Debt of
     $58.8  million  outstanding  at December 31, 2002 under this line of credit
     was fully repaid in early 2003.  The interest rate was 2.7% at December 31,
     2002.  We believe that the terms of the Berg Group line of credit were more
     favorable  than  those  available  from  institutional   lenders.   We  are
     continually  evaluating  alternative  sources of credit to replace the Berg
     Group line of  credit.  There can be no  assurance  that we will be able to
     obtain a line of  credit  with  terms  similar  to the Berg  Group  line of
     credit, and its cost of borrowing could increase substantially. See "Item 1
     - Business - Risk Factors - Our contractual business relationships with the
     Berg Group  presents  additional  conflicts of interest which may result in
     the realization of economic  benefits or the deferral of tax liabilities by
     the Berg Group without equivalent benefits to our stockholders."

     At December 31, 2002, we had total  indebtedness  of  approximately  $238.8
     million, including approximately $136.2 million of fixed rate mortgage debt
     and approximately $102.6 million under the loan from Citicorp USA, Inc. and
     the lines of credit from the Berg Group and Cupertino  National Bank, as to
     which the  interest  rate  varies with  LIBOR.  Of total  fixed  debt,  the
     Prudential loan represented approximately $123.3 million.

     At December 31, 2002, our debt to total market  capitalization ratio, which
     is computed as our total debt outstanding  divided by the sum of total debt
     outstanding  plus the market  value of common stock (based upon the closing
     price of $9.90 per share on December  31, 2002) on a fully  diluted  basis,
     including  the  conversion  of  all  O.P.  Units  into  common  stock,  was
     approximately  18.8%.  On December 31,  2002,  the last trading day for the
     year, total market  capitalization was approximately  $1.3 billion.

     On January 9, 2003, we paid dividends of $0.24 per share of common stock to
     all common  stockholders  of record as of December  31,  2002.  On the same
     date,  the operating  partnerships  paid a  distribution  of $0.24 per O.P.
     Unit.

     On January 9, 2003, we obtained a $100 million  secured  mortgage loan from
     Northwestern Mutual Life Insurance Company ("Northwestern Loan") that bears
     a fixed  interest  rate at 5.64% and  matures in ten years  with  principal
     payments amortized over 20 years. The mortgage loan is secured by 11 of our
     properties. We paid approximately $675,000 in loan fees and financing costs
     and used the proceeds to pay down the Citicorp USA, Inc.  loan, the balance
     of the Cupertino  National Bank line of credit,  and most of the Berg Group
     line of credit.

     On March 12, 2003, we declared  dividends of $0.24 per common share payable
     on April 10, 2003 to all common stockholders of record on March 31, 2003.

                                     - 35 -
<PAGE>

     The  following  table  sets  forth  certain   information   regarding  debt
     outstanding as of December 31, 2002.

<TABLE>
<CAPTION>


                                                                                             At December 31,  Maturity   Interest
             Debt Description                            Collateral Properties                     2002         Date       Rate
--------------------------------------------  ---------------------------------------------  --------------- ---------- ------------
                                                                                          (dollars in thousands)
Line of Credit:
<S>                                          <C>                                                <C>            <C>         <C>
Berg Group (related parties)                  2033-2043 Samaritan Drive, San Jose, CA            $ 58,792       3/04        (1)
                                              2133 Samaritan Drive, San Jose, CA
                                              2233-2243 Samaritan Drive, San Jose, CA
                                              1310-1450 McCandless Drive, Milpitas, CA
                                              1315-1375 McCandless Drive, Milpitas, CA
                                              1650-1690 McCandless Drive, Milpitas, CA
                                              1795-1845 McCandless Drive, Milpitas, CA
                                              2251 Lawson Lane, Santa Clara, CA (2)
                                              20605-20705 Valley Green Dr, Cupertino, CA (2)

Mortgage Notes Payable (related parties):     5300-5350 Hellyer Avenue, San Jose, CA               11,078       6/10        7.650%

Mortgage Notes Payable (3):
Prudential Capital Group                      20400 Mariani Avenue, Cupertino, CA                   1,423       4/09        8.750%
New York Life Insurance Company               10440 Bubb Road, Cupertino, CA                            -       9/09        9.625%
Washington Mutual (Home S&L Association)      10460 Bubb Road, Cupertino, CA                          297      12/06        9.500%
Prudential Insurance Co. of America (4)       10300 Bubb Road, Cupertino, CA                      123,342      10/08        6.560%
                                              10500 North De Anza Blvd, Cupertino, CA
                                              4050 Starboard Drive, Fremont, CA
                                              45700 Northport Loop, Fremont, CA
                                              45738 Northport Loop, Fremont, CA
                                              450-460 National Ave, Mountain View, CA
                                              6311 San Ignacio Avenue, San Jose, CA
                                              6321 San Ignacio Avenue, San Jose, CA
                                              6325 San Ignacio Avenue, San Jose, CA
                                              6331 San Ignacio Avenue, San Jose, CA
                                              6341 San Ignacio Avenue, San Jose, CA
                                              6351 San Ignacio Avenue, San Jose, CA
                                              3236 Scott Blvd, Santa Clara, CA
                                              3560 Bassett Street, Santa Clara, CA
                                              3570 Bassett Street, Santa Clara, CA
                                              3580 Bassett Street, Santa Clara, CA
                                              1135 Kern Avenue, Sunnyvale, CA
                                              1212 Bordeaux Lane, Sunnyvale, CA
                                              1230 East Arques, Sunnyvale, CA
                                              1250 East Arques, Sunnyvale, CA
                                              1170 Morse Avenue, Sunnyvale, CA
                                              1600 Memorex Drive, Santa Clara, CA
                                              1688 Richard Avenue, Santa Clara, CA
                                              1700 Richard Avenue, Santa Clara, CA
                                              3540 Bassett Street, Santa Clara, CA
                                              3542 Bassett Street, Santa Clara, CA
                                              3544 Bassett Street, Santa Clara, CA
                                              3550 Bassett Street, Santa Clara, CA
                                                                                             ---------------
Mortgage Notes Payable                                                                            125,062

Uncollateralized Loan:
Citicorp USA, Inc.                                                                                 20,000       3/03        (5)

Revolving Line of Credit:
Cupertino National Bank                                                                            23,839       7/04        (6)
                                                                                             ---------------
TOTAL                                                                                            $238,771
                                                                                             ===============
</TABLE>

                                     - 36 -
<PAGE>

(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2004. The interest rate was 2.7% at December 31, 2002.

(2)  Substituted  collateral  properties  for the Berg  Group  line of credit in
     place of properties at 5325-5345  Hellyer Avenue,  2610 North First Street,
     and 75 East Trimble Road. These four properties were  collateralized  under
     the Berg Group line of credit at December 31, 2001.

(3)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2009.  The
     weighted  average  interest  rate of  mortgage  notes  payable was 6.68% at
     December 31, 2002.

(4)  The  Prudential  loan is  payable in monthly  installments  of $827,  which
     includes principal (based upon a 30-year  amortization) and interest.  John
     Kontrabecki,  one of the limited  partners,  has  guaranteed  approximately
     $12,000 of this debt.  Costs and fees  incurred  with  obtaining  this loan
     aggregated approximately $900.

(5)  The  uncollateralized  loan from Citicorp USA,  Inc.  carries a fixed LIBOR
     interest  rate  equal to 4.09% for the first six months and LIBOR plus 2.0%
     thereafter  and is  payable in full in March  2003.  The  interest  rate at
     December 31, 2002 was 3.81%. The full balance was paid off in January 2003.

(6)  The uncollateralized revolving line of credit from Cupertino  National Bank
     carries a variable interest rate equal to LIBOR plus 2.0% and is payable in
     full in July 2004. The interest rate at December 31, 2002 was 3.72%.

     At December 31, 2002, the  outstanding  balance  remaining under the demand
     notes owed to the operating partnerships was $1.37 million. The Company and
     the operating partnerships have agreed to extend the due date of the demand
     notes to September 30, 2005. The principal of the demand notes,  along with
     the  interest   expense,   which  is  interest   income  to  the  operating
     partnerships,  is  eliminated in  consolidation  and is not included in the
     corresponding  line items  within the  consolidated  financial  statements.
     However, the interest income earned by the operating partnerships, which is
     interest  expense to us, in  connection  with this debt, is included in the
     calculation of minority interest as reported on the consolidated  statement
     of  operations,  thereby  reducing our net income by this same  amount.  At
     present, our only means for repayment of this debt is through distributions
     received  from the  operating  partnerships  in  excess  of the  amount  of
     dividends to be paid to our stockholders.


                                     - 37 -

<PAGE>


     HISTORICAL CASH FLOWS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2002 TO THE YEAR ENDED  DECEMBER
     31, 2001.

     Net cash provided by operating  activities  for the year ended December 31,
     2002 was  approximately  $117.4 million,  compared to approximately  $111.2
     million for the prior year.  The increase in cash resulted  from  increased
     rental receipts attributable to newly acquired properties.

     Net cash used in investing activities was approximately ($20.7) million for
     the year ended December 31, 2002, compared to approximately  ($3.0) million
     for the prior year. Cash used in investing  activities  during 2002 related
     to the acquisition of three R&D properties through a tax-deferred  exchange
     transaction  involving  the property sold to Xilinx,  Inc.  pursuant to its
     purchase option as well as new equipment and improvements

     Net cash used in financing activities was approximately ($97.5) million for
     the year ended December 31, 2002, compared to ($107.5) million for the year
     ended  December 31,  2001.  During 2002,  we paid debt  principal  and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating  activities  and other borrowed  funds.  Financing
     activities in 2002 also  consisted of a $20 million  uncollateralized  loan
     from Citicorp USA, Inc. and a $40 million line of credit  established  with
     Cupertino  National  Bank of which  $23.8  million had been drawn as of the
     year end. For the year ended  December 31, 2002,  we paid  dividends to our
     stockholders  and made  distributions  to the O.P.  Unit  holders  totaling
     approximately  $99.7 million,  compared to approximately  $85.0 million for
     the year ended December 31, 2001.

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2001 TO THE YEAR ENDED  DECEMBER
     31, 2000.

     Net cash provided by operating  activities  for the year ended December 31,
     2001 was  approximately  $111.2 million,  compared to  approximately  $84.6
     million for the prior  year.  The change was a direct  result of  increased
     rent from newly acquired  properties and higher rental rates under existing
     leases.

     Net cash used in investing  activities was approximately ($3.0) million for
     the year ended December 31, 2001, compared to approximately  ($2.7) million
     for the prior year. Cash used in investing  activities  during 2001 related
     to improvements and the amortization of the Xilinx purchase option deposit.

     Net cash used in financing  activities was  approximately  ($107.5) million
     for the year ended December 31, 2001,  compared to ($83.7)  million for the
     year ended December 31, 2000.  During 2001, we paid debt principal and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating activities.  For the year ended December 31, 2001,
     we paid dividends to our  stockholders  and made  distributions to the O.P.
     Unit   holders   totaling   approximately   $85.0   million,   compared  to
     approximately $61.1 million for the year ended December 31, 2000.

     CAPITAL EXPENDITURES

     The properties  require periodic  investments of capital for tenant-related
     capital  expenditures and for general capital  improvements.  For the years
     ended  December 31, 1995 through  December 31, 2002,  the recurring  tenant
     improvement  costs and leasing  commissions  incurred  with  respect to new
     leases and lease renewals of the properties  previously owned or controlled
     by members of the Berg Group averaged approximately $1.75 million annually.
     We will have  approximately  527,369  rentable  square feet under  expiring
     leases in 2003. We expect that the average annual cost of recurring  tenant
     improvements and leasing commissions,  related to these properties, will be
     approximately  $1.5  million  during  2003.  We  believe  we  will  recover
     substantially  all of these sums from the tenants  under the new or renewed
     leases  through  increases  in rental  rates.  Until we  actually  sign the
     leases,  however,  we  cannot  assure  you that this  will  occur.  Capital
     expenditures  may  fluctuate  in any given  period  subject to the  nature,
     extent,  and timing of improvements  required to be made to the properties.
     Tenant  improvements  and  leasing  costs may also  fluctuate  in any given
     period year  depending  upon factors such as the property,  the term of the
     lease,  the type of lease and the overall market  conditions.  We expect to
     meet our  long-term  liquidity  requirements  for the  funding of  property
     acquisitions and other material  non-recurring capital improvements through
     long-term secured and unsecured indebtedness and the issuance of additional
     equity  securities  by the  Company,  but cannot be assured that we will be
     able to meet our  requirements on favorable terms. See "Policy with Respect
     to Certain Activities - Financing Policies."

     FUNDS FROM OPERATIONS

     As defined by the NAREIT,  FFO represents net income (loss) before minority
     interest of O.P. Unit holders,  computed in accordance with GAAP, including
     non-recurring events other than "extraordinary  items" under GAAP and gains
     and losses from sales of depreciable operating properties, plus real estate
     related depreciation and amortization,  excluding  amortization of deferred
     financing  costs and  depreciation  of non-real  estate  assets,  and after
     adjustments for unconsolidated partnerships and

                                     - 38 -
<PAGE>

     joint  ventures.   Management  considers  FFO  an  appropriate  measure  of
     performance of an equity REIT because, along with cash flows from operating
     activities,  financing  activities  and investing  activities,  it provides
     investors  with an  understanding  of our ability to incur and service debt
     and make capital  expenditures.  With the recent emphasis on the disclosure
     of  operating  earnings per share,  we will still  continue to use FFO as a
     measure of the  Company's  performance.  FFO should not be considered as an
     alternative  for  net  income  as a  measure  of  profitability  nor  is it
     comparable  to cash flows  provided by operating  activities  determined in
     accordance with GAAP, nor is FFO necessarily  indicative of funds available
     to meet our cash needs,  including our need to make cash  distributions  to
     satisfy REIT requirements. For example, FFO is not adjusted for payments of
     debt principal required under our service debt obligations.

     Our  definition  of FFO also  assumes  conversion  at the  beginning of the
     period of all convertible  securities,  including  minority  interests that
     might be exchanged for common stock.  Our FFO does not represent the amount
     available for management's  discretionary  use; as such funds may be needed
     for capital  replacement  or expansion,  debt service  obligations or other
     commitments and uncertainties.

     Furthermore,  FFO is not comparable to similarly entitled items reported by
     other  REITs  that do not  define  FFO  exactly as we do. FFO for the years
     ended December 31, 2002 and 2001 is as follows:

<TABLE>
<CAPTION>

                                                                           For the Year Ended December 31,
                                                              -----------------------------------------------------------
                                                                        2002                             2001
                                                              --------------------------       --------------------------
                                                                                (dollars in thousands)
<S>                                                                 <C>                              <C>
            Net income                                               $ 17,501                         $ 18,135
            Add:
                Minority interest (1)                                  87,988                           90,915
                Depreciation                                           17,974                           16,917
            Less:
                Gain on sales of assets                                 6,103                           11,454
                                                              --------------------------       --------------------------
            FFO                                                      $117,360                         $114,513
                                                              ==========================       ==========================
</TABLE>

(1)  The  minority  interest  for  unrelated  parties  was  deducted  from total
     minority interest in calculating FFO.

     OVERVIEW OF DISTRIBUTION POLICY

     We intend to make regular quarterly  distributions to stockholders and O.P.
     Unit  holders   based  on  our  FAD,   which  is  calculated  as  FFO  less
     straight-line  rents,  leasing  commissions paid, and capital  expenditures
     made during the respective  period.  Our ability to make such distributions
     will be affected by  numerous  factors  including,  most  importantly,  the
     receipt of distributions from the operating partnerships.

     FAD  does  not  represent  cash  generated  from  operating  activities  in
     accordance with GAAP and is not necessarily indicative of cash available to
     fund cash  needs.  The actual  return  that we will  realize and the amount
     available for distributions to stockholders will be affected by a number of
     factors, including the revenues received from our properties, our operating
     expenses, debt service on borrowings, and planned and unanticipated capital
     expenditures.

     We anticipate that cash available for distribution will exceed earnings and
     profits for federal  income tax  purposes,  as the latter figure takes into
     account non-cash expenses,  such as depreciation and amortization,  that we
     will incur. Distributions,  other than capital gain distributions, by us to
     the extent of our current and accumulated  earnings and profits for federal
     income tax  purposes  most likely will be taxable to U.S.  stockholders  as
     ordinary  dividend  income  unless a  stockholder  is a tax-exempt  entity.
     Distributions  in excess of earnings and profits  generally will be treated
     as a non-taxable  reduction of the U.S.  stockholder's  basis in the common
     stock to the extent of such basis,  and  thereafter  as taxable  gain.  The
     percentage of such distributions in excess of earnings and profits, if any,
     may vary from period to period.

     Distributions are determined by our board of directors and depend on actual
     FAD, our financial condition, capital requirements, the annual distribution
     requirements  under the REIT  provisions of the Code and such other factors
     as the board of directors deems relevant. For a discussion of the risk that
     we will  not  meet  our  distribution  objectives,  see  Part I,  Item  1.,
     "Business - Risk Factors -- Stockholders  are not assured of receiving cash
     distributions from us." The calculation of FAD for the years ended December
     31, 2002 and 2001 is as follows:

                                     - 39 -
<PAGE>


<TABLE>
<CAPTION>


                                                                           For the Year Ended December 31,
                                                              -----------------------------------------------------------
                                                                        2002                             2001
                                                              --------------------------       --------------------------
                                                                                (dollars in thousands)
<S>                                                                 <C>                              <C>
            FFO                                                      $117,360                         $114,513
            Less:
                 Straight-line rents                                       78                            6,054
                 Leasing commissions                                      478                              915
                 Capital expenditures                                     717                            1,042
                                                              --------------------------       --------------------------
            FAD                                                      $116,087                         $106,502
                                                              ==========================       ==========================
</TABLE>

     POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

     We have adopted policies with respect to investment,  financing,  conflicts
     of interest and other  activities.  These policies have been  formulated by
     our board of  directors,  are set forth in our charter,  bylaws,  operating
     partnership agreements or agreements with the Berg Group, and generally may
     be amended or revised from time to time,  subject to  applicable  agreement
     terms,  at the  discretion of the board of directors  without a vote of the
     stockholders. Among other things, these policies provide that:

     -    so long as the Berg Group members and their affiliates,  other than us
          and the operating partnerships, beneficially own, in the aggregate, at
          least 15% of the outstanding shares of common stock on a Fully Diluted
          basis, the approval of a majority of our directors,  including Carl E.
          Berg or his  designee as a director,  and of the holders of a majority
          of the O.P.  Units is required  for us to take title to assets,  other
          than   temporarily  in  connection   with  an  acquisition   prior  to
          contributing such assets to the operating partnerships,  or to conduct
          business other than through the operating  partnerships,  or for us or
          the operating  partnerships  to engage in any business  other than the
          ownership,  construction,  development  and  operation  of real estate
          properties,  or for certain fundamental  corporate actions,  including
          amendments  to  our  charter,  bylaws  or  any  operating  partnership
          agreement   and  any   merger,   consolidation   or  sale  of  all  or
          substantially  all  of  our  assets  or the  assets  of the  operating
          partnerships;

     -    changes in certain policies with respect to conflicts of interest must
          be consistent with legal requirements;

     -    certain  policies  with respect to  competition  by the Berg Group are
          imposed  pursuant to  provisions  of the  acquisition  agreement  that
          cannot be amended or waived  without the  approval of the  independent
          directors committee of our board of directors;

     -    we cannot take any action intended to terminate our qualification as a
          REIT  without  the  approval  of more than 75% of the entire  board of
          directors; and

     -    we cannot undertake  certain other specified  transactions,  including
          the issuance of debt securities, and borrowings in excess of specified
          limits,  or the  amendment  of our  charter  and  bylaws,  without the
          approval of more than 75% of the entire board of directors.


     INVESTMENT POLICIES

     We expect to pursue our  business  and  investment  objectives  principally
     through  the  direct  ownership  by  the  operating   partnerships  of  our
     properties  and  future  acquired  properties.  Development  or  investment
     activities  are not limited to any specified  percentage of our assets.  We
     may also  participate  with other entities in property  ownership,  through
     joint ventures or other types of  co-ownership.  Equity  investments may be
     subject to existing  mortgage  financing and other  indebtedness  that have
     priority over our equity interests.

     While we will  emphasize  equity  real estate  investments,  we may, in our
     discretion and subject to the percentage  ownership  limitations  and gross
     income tests necessary for REIT qualification, invest in mortgage and other
     real estate interests, including securities of other real estate investment
     trusts. We have not previously invested in mortgages or securities of other
     real estate investment  trusts, and we do not have any present intention to
     make such investments.

                                     - 40 -

<PAGE>


     FINANCING POLICIES

     To the extent that our board of  directors  determines  to seek  additional
     capital,  we may raise such capital through  additional  equity  offerings,
     debt financing or retention of cash flow, or through a combination of these
     sources,  after  consideration  of  provisions  of the Code  requiring  the
     distribution  by a REIT of a certain  percentage of its taxable  income and
     taking into account  taxes that would be imposed on  undistributed  taxable
     income. It is our present intention that any additional  borrowings will be
     made through the operating  partnerships,  although we may incur borrowings
     that would be reloaned to the  operating  partnerships.  Borrowings  may be
     unsecured  or may be secured  by any or all of our  assets,  the  operating
     partnerships or any existing or new property,  and may have full or limited
     recourse to all or any portion of our assets, the operating partnerships or
     any existing or new property.

     We have not established any limit on the number or amount of mortgages that
     may be placed on any single property or on our portfolio as a whole. We may
     also determine to finance  acquisitions  through the exchange of properties
     or the issuance of additional  O.P.  Units in the  operating  partnerships,
     shares of common stock or other securities.

     In the event that the board of  directors  determines  to raise  additional
     equity capital,  it has the authority,  without  stockholder  approval,  to
     issue additional  shares of common stock,  preferred stock or other capital
     stock,  including  securities senior to the common stock, in any manner and
     on such terms and for such consideration it deems appropriate, including in
     exchange  for  property.  In the event  that we issue any  shares of common
     stock or securities  convertible  into or exchangeable or exercisable  for,
     shares of common stock, subject to limited exceptions, such as the issuance
     of common  stock  pursuant  to any stock  incentive  plan  adopted by us or
     pursuant to limited  partners'  exercise of the exchange  rights or the put
     rights,  the limited  partners will have the right to purchase common stock
     or such  securities  in  order  to  maintain  their  respective  percentage
     interests  in us on a  Fully  Diluted  basis.  If the  board  of  directors
     determines that we will raise additional equity capital to fund investments
     by the  operating  partnerships,  we  will  contribute  such  funds  to the
     operating  partnerships  as a  contribution  to  capital  and  purchase  of
     additional general  partnership  interest;  however,  holders of O.P. Units
     will have the right to participate in such funding on a pro rata basis.  In
     the event  that  holders of O.P.  Units  sell  their O.P.  Units to us upon
     exercise of their put rights, we are authorized to raise the funds for such
     purchase by issuing  additional shares of common stock.  Alternatively,  we
     may issue  additional  shares of common  stock in exchange for the tendered
     O.P. Units.

     Our  board of  directors  also has the  authority  to cause  the  operating
     partnerships to issue additional O.P. Units in any manner and on such terms
     and for such consideration, as it deems appropriate,  including in exchange
     for property.  In the event that the operating  partnerships issue new O.P.
     Units for cash, but not property,  the limited  partners holding O.P. Units
     in an operating  partnership  will have the right to purchase O.P. Units in
     order, and to the extent necessary, to maintain their respective percentage
     interests  in that  operating  partnership.  The  new  O.P.  Units  will be
     exchangeable  for common stock  pursuant to the  exchange  rights or may be
     tendered to us pursuant to the put rights.

     DISPOSITION POLICIES

     We  have  no  current  intention  of  disposing  of any of our  properties,
     although  we  reserve  the  right to do so.  The tax  basis of the  limited
     partners in the properties in the operating  partnerships is  substantially
     less than current fair market value. Accordingly,  prior to the disposition
     of  their  O.P.  Units,  upon a  disposition  of any of the  properties,  a
     disproportionately  large share of the gain for federal income tax purposes
     would be allocated to the limited partners.  Consequently, it may be in the
     interests of the limited  partners that we continue to hold the  properties
     in order to defer  such  taxable  gain.  In light of this tax  effect,  the
     operating partnership agreements provide that, until January 2009, or until
     the  Berg  Group  members  and  their  affiliates,  other  than  us and the
     operating partnerships,  beneficially own, in the aggregate,  less than 15%
     of the  outstanding  shares of common stock on a Fully  Diluted  basis,  if
     earlier,  Carl E.  Berg  and  Clyde  J.  Berg may  prohibit  the  operating
     partnerships from disposing of properties which they designate in a taxable
     transaction.  Mr.  Kontrabecki has a similar right with respect to seven of
     the  properties,  which  right  will lapse  before the end of the  ten-year
     period if his beneficial ownership interest falls below 750,000 O.P. Units.
     The limited  partners  may seek to cause us to retain the  properties  even
     when such action may not be in the interests of some, or a majority, of our
     stockholders.   The   operating   partnerships   will  be  able  to  effect
     "tax-deferred,"  like-kind  exchanges under Section 1031 of the Code, or in
     connection with other non-taxable  transactions,  such as a contribution of
     property to a new partnership,  without obtaining the prior written consent
     of  these  individuals.  The  approval  of a  majority  of  our  directors,
     including  Carl E. Berg or his  designee,  will be  required to sell all or
     substantially  all of our assets.  The consent of the holders of a majority
     of the O.P.  Units will be  required  to effect a sale or sales of all,  or
     substantially all, of the assets of any of the operating partnerships.

     IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     We do not believe that recently issued accounting standards will materially
     impact our financial position, results of operations, or cash flows.

                                     - 41 -
<PAGE>

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not  generally  hold market risk  sensitive  instruments  for trading
     purposes.  We use fixed and variable  rate debt to finance our  operations.
     Our exposure to market risk for changes in interest rates relates primarily
     to  our  current  and  future  debt  obligations.   We  are  vulnerable  to
     significant  fluctuations  of interest  rates on our floating rate debt. We
     manage  our  market  risk by  monitoring  interest  rates  where  we try to
     recognize the  unpredictability of the financial markets and seek to reduce
     potentially  adverse  effect on the results of our  operations.  This takes
     frequent   evaluation  of  available   lending  rates  and  examination  of
     opportunities  to reduce  interest  expense  through  new  sources  of debt
     financing.  Several  factors  affecting  the  interest  rate  risk  include
     governmental   monetary  and  tax  policies,   domestic  and  international
     economics  and other  factors  that are beyond our control.  The  following
     table provides information about the principal cash flows, weighted average
     interest  rates,  and expected  maturity  dates for debt  outstanding as of
     December 31, 2002. The current terms of this debt are described in Item 7.,
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations - Liquidity and Capital  Resources."  Average interest rates are
     based  on  implied  LIBOR  for  the  respective  time  period.  Fair  value
     approximates book value for fixed rate debt. Of the projected fair value of
     secured  notes  payable,   approximately   $123.3  million  represents  the
     Prudential secured loan.

     For  variable  rate  debt,  the  table  presents  the  assumption  that the
     outstanding  principal  balance  at  December  31,  2002  will be paid upon
     maturity.

     For fixed rate debt, the table presents the assumption that the outstanding
     principal  balance at December 31, 2002 will be paid according to scheduled
     principal  payments  and that we will  not  prepay  any of the  outstanding
     principal balance.
<TABLE>
<CAPTION>


                                                2003       2004       2005      2006      2007   Thereafter    Total   Fair Value
                                                ----       ----       ----      ----      ----   ----------    -----   ----------
<S>                                         <C>        <C>         <C>       <C>       <C>       <C>        <C>        <C>
VARIABLE RATE DEBT:                                                         (dollars in thousands)
   Secured and unsecured debt                $20,000    $82,631                                              $102,631   $102,631
   Weighted average interest rate              3.42%      3.42%

FIXED RATE DEBT:
   Secured notes payable                      $2,465     $2,642     $2,832    $3,000    $3,150    $122,051   $136,140   $136,140
   Weighted average interest rate              6.68%      6.68%      6.68%     6.68%     6.68%       6.68%
</TABLE>

     The variable rate debt represented 43.0% and 36.5%, and the fixed rate debt
     represented  57.0% and 63.5% of all debt  outstanding  for the years  ended
     December 31, 2002 and 2001, respectively. All of the debt is denominated in
     United States dollars. The weighted average interest rate for variable rate
     debt was  approximately  3.42% and 4.88% for the years ended  December  31,
     2002 and 2001,  respectively.  The difference in spread was due to numerous
     cuts in interest  rates by the Federal  Reserve  during 2001 and 2002.  The
     weighted average interest rate for fixed rate debt was approximately  6.68%
     and 6.69% for the years ended December 31, 2002 and 2001, respectively. The
     difference in interest  expense  attributable to the average  interest rate
     difference  between  2001  and  2002  was  $403,000.  We do not  anticipate
     interest  rate  changes in 2003 that would  result in a change in  interest
     expense significantly larger than we experienced from 2001 to 2002.

     The primary market risk we face is the risk of interest rate  fluctuations.
     The Berg Group line of credit,  the Cupertino National Bank line of credit,
     and the Citicorp USA, Inc. loan, which are tied to a LIBOR,  based interest
     rate,  were  approximately  $102.6  million,  or 43.0%, of the total $238.8
     million of debt as of December 31, 2002. As a result, we pay lower rates of
     interest  in  periods of  decreasing  interest  rates and  higher  rates of
     interest in periods of increasing  interest  rates. In early 2003, with the
     proceeds that we received from the $100 million secured  mortgage loan with
     Northwestern Mutual Life Insurance Company, we paid $20 million to Citicorp
     USA,  Inc.,  $23 million to Cupertino  National Bank and $57 million to the
     Berg Group.  The Citicorp USA, Inc. loan was retired in March 2003,  but we
     anticipate drawing upon on the lines of credit with Cupertino National Bank
     and the Berg Group in the future.  At December 31, 2002, we had no interest
     rate caps or interest rate swap contracts.

     The  following  discussion  of market  risk is based  solely on a  possible
     hypothetical   change  in  future   market   conditions   related   to  our
     variable-rate  debt.  It includes  "forward-looking  statements"  regarding
     market risk,  but we are not  forecasting  the  occurrence  of these market
     changes.  Based on the amount of variable debt  outstanding  as of December
     31, 2002, a 1% increase or decrease in interest rates on our $102.6 million
     of floating  rate debt would  decrease or  increase,  respectively,  annual
     earnings and cash flows by approximately  $1.0 million,  as a result of the
     increased or decreased interest expense associated with the change in rate,
     and would not have an impact on the fair value of the  floating  rate debt.
     This  amount is  determined  by  considering  the  impact  of  hypothetical
     interest  rates  on  our  borrowing   cost.  Due  to  the   uncertainty  of
     fluctuations in interest rates and the specific actions that might be taken
     by us to mitigate of such  fluctuations  and their  possible  effects,  the
     foregoing   sensitivity  analysis  assumes  no  changes  on  our  financial
     structure.

                                     - 42 -
<PAGE>



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          MISSION WEST PROPERTIES, INC.
<TABLE>
<CAPTION>

                          INDEX TO FINANCIAL STATEMENTS

                                                                                                                   PAGE
                                                                                                                 ---------
<S>                                                                                                                <C>
Report of Independent Accountants                                                                                   44
Consolidated Balance Sheets of Mission West Properties, Inc. at December 31, 2002 and 2001                          45
Consolidated Statements of Operations of Mission West Properties, Inc. for the years ended                          46
    December 31, 2002, 2001 and 2000
Consolidated Statements of Changes in Stockholders' Equity of Mission West Properties, Inc.                         47
    for the years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows of Mission West Properties, Inc. for the years ended                          48
    December 31, 2002, 2001 and 2000
Notes to the Consolidated Financial Statements                                                                      49
Supplemental Financial Information                                                                                  60
Report of Independent Accountants                                                                                   62
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of                       64
      December 31, 2002
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of                       66
      December 31, 2001

</TABLE>

                                     - 43 -
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



     To the Board of Directors and Stockholders
     of Mission West Properties, Inc.

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
     related consolidated statements of operations,  of changes in stockholders'
     equity and of cash flows  present  fairly,  in all material  respects,  the
     financial  position of Mission West  Properties,  Inc. and its subsidiaries
     (the  "Company")  at December  31, 2002 and 2001,  and the results of their
     operations  and their cash flows for each of the three  years in the period
     ended December 31, 2002, in conformity with accounting principles generally
     accepted in the United States of America.  These  financial  statements are
     the  responsibility of the Company's  management;  our responsibility is to
     express an opinion on these financial  statements  based on our audits.  We
     conducted  our  audits of these  statements  in  accordance  with  auditing
     standards generally accepted in the United States of America, which 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,  assessing  the  accounting
     principles  used  and  significant   estimates  made  by  management,   and
     evaluating the overall financial  statement  presentation.  We believe that
     our audits provide a reasonable basis for our opinion.

     As  discussed  in  Note 2 to the  consolidated  financial  statements,  the
     Company  adopted  Statement  of  Financial  Accounting  Standard  No.  144,
     "Accounting for the Impairment or Disposal of Long Lived Assets", in 2002.


     PricewaterhouseCoopers LLP

     San Francisco, California
     January 28, 2003

                                     - 44 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                           CONSOLIDATED BALANCE SHEETS
             (dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                     ASSETS
                                                                                             December 31,
                                                                             ---------------------------------------------
                                                                                     2002                    2001
                                                                             ----------------------  ---------------------
<S>                                                                                     <C>                    <C>
Real estate assets:
  Land                                                                                   $ 234,707              $ 218,058
  Buildings and improvements                                                               726,581                692,485
                                                                             ----------------------  ---------------------
                                                                                           961,288                910,543
  Less accumulated depreciation                                                            (66,560)               (49,608)
                                                                             ----------------------  ---------------------
Net real estate assets                                                                     894,728                860,935

Cash and cash equivalents                                                                    4,479                  5,310
Restricted cash                                                                                  -                 15,435
Deferred rent, net of allowance                                                             17,001                 16,923
Other assets (net of accumulated amortization of
   $2,663 and $1,317 at December 31, 2002 and 2001, respectively)                           13,198                 11,652
                                                                             ----------------------  ---------------------
    Total assets                                                                         $ 929,406              $ 910,255
                                                                             ======================  =====================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Line of credit (related parties)                                                          $ 58,792               $ 79,887
Revolving line of credit                                                                    23,839                      -
Loan payable                                                                                20,000                      -
Mortgage notes payable                                                                     125,062                127,416
Mortgage notes payable (related parties)                                                    11,078                 11,371
Interest payable                                                                               337                    342
Security deposits                                                                           11,184                  7,337
Prepaid rental income                                                                        9,876                 12,470
Dividends/distributions payable                                                             24,951                 24,742
Refundable option payment                                                                        -                 18,836
Accounts payable and accrued expenses                                                        4,698                  4,367
                                                                             ----------------------  ---------------------
    Total liabilities                                                                      289,817                286,768
                                                                             ----------------------  ---------------------

Commitments and contingencies (Notes 3, 5, 12 and 14)

Minority interest                                                                          528,768                515,063

Stockholders' equity:
Preferred stock, no par value, 200,000 shares authorized,
    none issued and outstanding                                                                  -                      -
Common stock, $.001 par value at December 31, 2002 and 2001,
    200,000,000 shares authorized, 17,487,329 and 17,329,779 shares
    issued and outstanding at December 31, 2002 and 2001, respectively                          17                     17
Paid-in capital                                                                            128,295                126,626
Accumulated deficit                                                                        (17,491)               (18,219)
                                                                             ----------------------  ---------------------
    Total stockholders' equity                                                             110,821                108,424
                                                                             ----------------------  ---------------------
    Total liabilities and stockholders' equity                                           $ 929,406              $ 910,255
                                                                             ======================  =====================
</TABLE>




                 See notes to consolidated financial statements

                                     - 45 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                         -----------------------------------------------------------------
                                                                2002                   2001                  2000
                                                         --------------------  ---------------------  --------------------

<S>                                                              <C>                    <C>                   <C>
Revenues:
Rental revenues from real estate                                   $ 129,781              $ 126,229              $ 97,568
Tenant reimbursements                                                 20,097                 17,474                14,548
Other income, including interest                                       4,250                  2,465                 1,241
Gain on sales of assets                                                    -                 11,454                   501
                                                         --------------------  ---------------------  --------------------
                                                                     154,128                157,622               113,858

Expenses:
Property operating, maintenance and real estate taxes                 22,015                 18,308                14,932
Interest                                                               9,588                  8,704                 8,290
Interest (related parties)                                             3,422                  4,709                 4,475
General and administrative                                             1,488                  1,284                 1,065
Depreciation                                                          17,928                 16,638                15,178
                                                         --------------------  ---------------------  --------------------
                                                                      54,441                 49,643                43,940
                                                         --------------------  ---------------------  --------------------
Income before minority interest                                       99,687                107,979                69,918
Minority interest                                                     83,251                 90,129                57,650
                                                         --------------------  ---------------------  --------------------
Income from continuing operations                                     16,436                 17,850                12,268
                                                         --------------------  ---------------------  --------------------
Discontinued operations, net of minority interests:
Gain from disposal of discontinued operations                          1,018                      -                     -
Income attributable to discontinued operations                            47                    285                   311
                                                         --------------------  ---------------------  --------------------
Income from discontinued operations                                    1,065                    285                   311
                                                         --------------------  ---------------------  --------------------
Net income to common stockholders                                  $  17,501              $  18,135             $  12,579
                                                         ====================  =====================  ====================
Net income to minority interest                                    $  88,576              $  91,565             $  59,054
                                                         ====================  =====================  ====================

Income per share from continuing operations:
Basic                                                               $   0.94               $   1.04              $   0.72
                                                         ====================  =====================  ====================
Diluted                                                             $   0.92               $   1.01              $   0.70
                                                         ====================  =====================  ====================
Income per share from discontinued operations:
Basic                                                               $   0.06               $   0.02              $   0.02
                                                         ====================  =====================  ====================
Diluted                                                             $   0.06               $   0.02              $   0.02
                                                         ====================  =====================  ====================
Net income per share to common stockholders:
Basic                                                               $   1.00               $   1.06              $   0.74
                                                         ====================  =====================  ====================
Diluted                                                             $   0.98               $   1.03              $   0.72
                                                         ====================  =====================  ====================
Weighted average shares of common stock (basic)                   17,455,799             17,103,714            17,016,660
                                                         ====================  =====================  ====================
Weighted average shares of common stock (diluted)                 17,854,892             17,589,353            17,510,650
                                                         ====================  =====================  ====================
Weighted average O.P. Units                                       86,334,548             85,122,715            80,807,389
                                                         ====================  =====================  ====================
Outstanding common stock                                          17,487,329             17,329,779            17,025,365
                                                         ====================  =====================  ====================
Outstanding O.P. Units                                            86,474,032             85,762,541            83,576,027
                                                         ====================  =====================  ====================

</TABLE>

                 See notes to consolidated financial statements

                                     - 46 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    (dollars in thousands, except share data)



<TABLE>
<CAPTION>


                                                Shares of Common   Common    Paid-in-      Accumulated            Total
                                               Stock Outstanding   Stock     Capital         Deficit       Stockholders' Equity
                                               -----------------  -------  ------------  ---------------   --------------------

<S>                                                <C>             <C>      <C>              <C>                   <C>
Balance, December 31, 1999                          16,972,374      $17      $122,746         $(22,081)             $100,682
Issuance of common stock upon option exercise           52,991                    390                                    390
Dividends declared                                                                             (11,578)              (11,578)
Net income                                                                                      12,579                12,579
                                               -----------------  -------  ------------  ---------------   --------------------
Balance, December 31, 2000                          17,025,365       17       123,136          (21,080)              102,073
Issuance of common stock upon option exercise           68,088                    535                                    535
Issuance of common stock upon O.P. Unit conversion     236,326                  2,955                                  2,955
Dividends declared                                                                             (15,274)              (15,274)
Net income                                                                                      18,135                18,135
                                               -----------------  -------  ------------  ---------------   --------------------
Balance, December 31, 2001                          17,329,779       17       126,626          (18,219)              108,424
Issuance of common stock upon option exercise           33,550                    151                                    151
Issuance of common stock upon O.P. Unit conversion     124,000                  1,518                                  1,518
Dividends declared                                                                             (16,773)              (16,773)
Net income                                                                                      17,501                17,501
                                               -----------------  -------  ------------  ---------------   --------------------
Balance, December 31, 2002                          17,487,329      $17      $128,295         $(17,491)             $110,821
                                               =================  =======  ============  ===============   ====================
</TABLE>


                 See notes to consolidated financial statements

                                     - 47 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)


<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                                     2002                2001                 2000
                                                              -------------------  ------------------   ------------------

<S>                                                                <C>                 <C>                  <C>
Cash flows from operating activities:
Net income                                                          $  17,501           $  18,135            $  12,579
Adjustments to reconcile net income to net
          cash provided by operating activities:
     Minority interest                                                 88,576              91,565               59,054
     Depreciation                                                      17,974              16,917               15,456
     Gain on sales of assets                                           (6,103)            (11,454)                   -
     Other                                                                (14)                 14                 (364)
Change in operating assets and liabilities:
     Deferred rent                                                        (78)             (6,054)              (4,905)
     Other assets                                                      (1,546)               (164)                (942)
     Interest payable                                                      (5)                 (5)                (658)
     Security deposits                                                  3,847                 797                1,854
     Prepaid rental income                                             (2,594)              1,172                3,064
     Accounts payable and accrued expenses                               (190)                234                 (558)
                                                              -------------------  ------------------   ------------------

     Net cash provided by operating activities                        117,368             111,157               84,580
                                                              -------------------  ------------------   ------------------

Cash flows from investing activities:
Improvements to real estate                                            (1,902)             (1,041)              (2,007)
Refundable option payment                                             (18,836)             (1,999)                (729)
Proceeds from sales of real estate                                     31,305              38,489                    -
Purchase of real estate                                               (31,311)            (38,489)                   -
                                                              -------------------  ------------------   ------------------

     Net cash used in investing activities                            (20,744)             (3,040)              (2,736)
                                                              -------------------  ------------------   ------------------

Cash flows from financing activities:
Principal payments on mortgage notes payable                           (2,354)             (4,639)              (1,897)
Principal payments on mortgage notes payable (related parties)           (293)               (272)                (149)
Net payments under line of credit (related parties)                   (39,095)            (18,136)             (20,813)
Proceeds from unsecured loan                                           20,000                   -                    -
Proceeds from line of credit                                           28,839                   -                    -
Payment on line of credit                                              (5,000)                  -                    -
Financing costs                                                           (52)                  -                    -
Net proceeds from exercise of stock options                               151                 536                  290
Minority interest distributions                                       (82,916)            (70,636)             (50,250)
Dividends                                                             (16,735)            (14,351)             (10,887)
                                                              -------------------  ------------------   ------------------

     Net cash used in financing activities                            (97,455)           (107,498)             (83,706)
                                                              -------------------  ------------------   ------------------

     Net (decrease) increase in cash and cash equivalents                (831)                619               (1,862)
Cash and cash equivalents, beginning of year                            5,310               4,691                6,553
                                                              -------------------  ------------------   ------------------

Cash and cash equivalents, end of year                              $   4,479           $   5,310            $   4,691
                                                              ===================  ==================   ==================

</TABLE>

            Refer to Note 13 for supplemental cash flow information.


                 See notes to consolidated financial statements

                                     - 48 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


1.   ORGANIZATIONS AND FORMATION OF THE COMPANY

Mission  West   Properties,   Inc.  ("the  Company")  is  a  fully   integrated,
self-administered and self-managed real estate company that acquires and manages
office/R&D/manufacturing properties in the portion of the San Francisco Bay Area
commonly  referred to as Silicon  Valley.  In July 1998,  the  Company  acquired
control of four existing limited  partnerships  (referred to collectively as the
"operating  partnerships"),  by becoming  the sole  general  partner in each one
effective  July 1, 1998 for financial  accounting  and reporting  purposes.  The
Company  purchased  an  approximate  12.11%  interest  in each of the  operating
partnerships.  All limited partnership  interests in the operating  partnerships
were  converted  into  59,479,633  O.P.  Units,  which  represented an ownership
interest of approximately  87.89% of the operating  partnerships.  The operating
partnerships  are the  vehicles  through  which the Company will own its assets,
will make its future acquisitions, and generally conduct its business.

On December 30, 1998, the Company was reincorporated under the laws of the State
of  Maryland  through  a merger  with and into  Mission  West  Properties,  Inc.
Accordingly, shares of the former company, Mission West Properties, a California
corporation  (no par),  which  were  outstanding  at  December  30,  1998,  were
converted  into  shares  of  common  stock  ($.001  par  value  per  share) on a
one-for-one basis.

As of December 31,  2002,  the Company  owns a general  partnership  interest of
16.68%, 21.46%, 15.46% and 12.27% in Mission West Properties, L.P., Mission West
Properties,   L.P.  I,  Mission  West  Properties,  L.P.  II  and  Mission  West
Properties, L.P. III, respectively, for a 16.82% general partnership interest in
the operating partnerships, taken as a whole, on a weighted average basis.

The  Company,  through the  operating  partnerships,  owns  interests in 101 R&D
properties, all of which are located in Silicon Valley.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION:

The accompanying  consolidated  financial statements include the accounts of the
Company  and  its  controlled  subsidiaries,  the  operating  partnerships  (the
"Company").  All significant  intercompany  transactions have been eliminated in
consolidation.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") 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 revenue and expenses during
the reporting periods. Actual results could differ from those estimates.

The Company adopted  Statement of Financial  Accounting  Standard , ("SFAS") No.
144 "Accounting for the Impairment or Disposal of Long Lived Assets" ("SFAS" No.
144), effective January 1, 2002 (see note 15).

REAL ESTATE ASSETS:

Real  estate  assets  are  stated  at  cost.  Cost  includes   expenditures  for
improvements or replacements.  Maintenance and repairs are charged to expense as
incurred.

The Company reviews real estate assets for impairment whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  If  the  carrying  amount  of  the  asset  exceeds  its  estimated
undiscounted  net cash flow,  before  interest,  the Company  will  recognize an
impairment  loss equal to the  difference  between its  carrying  amount and its
estimated fair value. If impairment is recognized,  the reduced  carrying amount
of the asset will be accounted for as its new cost. For a depreciable asset, the
new cost will be depreciated over the asset's remaining useful life.  Generally,
fair values are estimated using discounted cash flow, replacement cost or market
comparison analyses. The process of evaluating for impairment requires estimates
as to future  events and  conditions,  which are  subject to varying  market and
economic factors. Therefore, it is reasonably possible that a change in estimate
resulting from judgments as to future events could occur which

                                     - 49 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


would affect the recorded  amounts of the property.  As of December 31, 2002 and
2001, the properties'  carrying values did not exceed the estimated sum of their
undiscounted net cash flow and no impairment losses were recorded.

DEPRECIATION:

Depreciation is computed using the  straight-line  method over estimated  useful
lives of 40 years for buildings and improvements.

CASH AND CASH EQUIVALENTS:

The  Company  considers  highly  liquid  short-term   investments  with  initial
maturities of three months or less to be cash equivalents.

Cash and cash equivalents are primarily held in a single financial  institution,
and at times,  such balances may be in excess of the Federal  Deposit  Insurance
Corporation insurance limit.

RESTRICTED CASH:

Restricted cash represent proceeds received from property sales that are held in
a separate cash account at a trust company that the Company has  designated  for
future use in tax-deferred exchanges.

DEFERRED RENT:

Deferred rent is the difference between recognized rental income and rental cash
receipts.  Rental income is recognized on the straight-line method of accounting
required by GAAP under which  contractual rent payment  increases are recognized
evenly over the lease term.

OTHER ASSETS:

Included in other assets are costs  associated with obtaining debt financing and
commissions  associated  with new leases.  Such debt  financing  costs are being
amortized  over the term of the associated  debt, by a method that  approximates
the effective  interest method and such lease commissions are amortized over the
term of the related  lease.  Also  included is the Berg  Group's  obligation  of
approximately  $7.5  million to  construct a building  at 245  Caspian  Drive in
Sunnyvale, California.

MINORITY INTERESTS:

Minority interests represent the limited partnership  interests in the operating
partnerships.

REVENUE RECOGNITION:

Rental income is recognized on the straight-line  method of accounting  required
by GAAP under which  contractual  rent payment  increases are recognized  evenly
over the lease term. The difference  between recognized rental income and rental
cash receipts is recorded as deferred rent on the balance  sheet.  Certain lease
agreements   contain   terms  that  provide  for   additional   rents  based  on
reimbursement  of certain  costs.  These  additional  rents are reflected on the
accrual basis.

Gains and losses from sales are included in income in  accordance  with SFAS No.
66, "Accounting for Sales of Real Estate."

INCOME TAXES:

The Company has been taxed as a real estate  investment trust ("REIT") under the
Internal  Revenue Code of 1986,  as amended,  (the "Code")  commencing  with the
taxable year ended  December 31, 1999.  In order for the Company to qualify as a
REIT, it must distribute  annually at least 90% of its REIT taxable  income,  as
defined  in  the  Code,  to its  stockholders  and  comply  with  certain  other
requirements. Accordingly, for the years ended December 31, 2002, 2001 and 2000,
no  provision  for federal  income taxes has been  included in the  accompanying
consolidated financial statements.

For the year ended  December 31, 2002,  the Company's  total  dividends  paid or
payable  to the  stockholders  represent  100%  ordinary  income  for income tax
purposes.

                                     - 50 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


NET INCOME PER SHARE:

The computation of net income per share is based on the weighted  average number
of common  shares  outstanding  during the period.  Diluted  earnings  per share
amounts  are based upon the  weighted  average  of common and common  equivalent
shares outstanding during the year.

ACCOUNTING FOR STOCK-BASED COMPENSATION:

SFAS No. 123, "Accounting for Stock-Based  Compensation,"  encourages,  but does
not require  companies  to record  compensation  cost for  stock-based  employee
compensation  plans at fair value. The Company has chosen to continue to account
for  stock-based  compensation  using the intrinsic  value method  prescribed in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
options is  measured as the excess,  if any, of the quoted  market  price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company's financial instruments include cash and cash equivalents,  accounts
payable, and debt. Considerable judgment is required in interpreting market data
to develop estimates of fair value. Accordingly,  the estimates presented herein
are not necessarily  indicative of the amounts that the Company could realize in
a current  market  exchange.  The use of  different  market  assumptions  and/or
estimation  methodologies may have a material effect on the estimated fair value
amounts.  Cash and cash  equivalents and accounts payable are carried at amounts
that  approximate  their fair  values due to their  short-term  maturities.  The
carrying  amounts of the  Company's  variable rate debt  approximate  fair value
since the interest rates on these  instruments are equivalent to rates currently
offered to the Company. For fixed rate debt, the Company estimates fair value by
using  discounted  cash flow analyses based on borrowing rates for similar kinds
of borrowing  arrangements.  The fair value of the Company's  fixed rate debt at
December 31, 2002 was $145 million.

RECLASSIFICATIONS:

Certain amounts from prior year's financial statements have been reclassified to
conform to the presentation of the current year's financial statements. There is
no impact on net income or stockholders' equity.

CONCENTRATION OF CREDIT RISK:

The Company's properties are not geographically diverse, and its tenants operate
primarily in the  information  technology  industry.  Additionally,  because the
properties  are leased to 84 tenants at December 31, 2002,  default by any major
tenant could  significantly  impact the results of the  consolidated  total. One
tenant,  Microsoft  Corporation,  accounted for approximately  15.7%,  16.0% and
19.9% of the Company's  rental  revenues for the years ended  December 31, 2002,
2001 and 2000,  respectively,  with the next largest tenant  accounting for 8.6,
8.8% and 6.7%,  respectively,  of total  rental  revenues.  Rental  income  from
Microsoft  Corporation  was  $20,338,  $19,556  and  $18,803 for the years ended
December 31, 2002, 2001 and 2000,  respectively.  Future minimum rents from this
tenant are $71,801.  During 2002,  eight of the Company's  tenants  either filed
voluntary  petitions  for  bankruptcy  protection  under  Chapter  11 or  ceased
operations.


3.   STOCK TRANSACTIONS

As of December 31, 2002 and 2001,  $1,369 and $1,274 remained  outstanding under
notes  issued  in  connection  with  the  Company's   purchase  of  its  general
partnership  interests in 1998 (the "demand  notes"),  respectively.  The demand
notes which accrue interest at 7.25%,  along with the interest expense (interest
income to the operating  partnerships),  are eliminated in consolidation and are
not included in the corresponding  line items within the consolidated  financial
statements.

The limited  partners  of the  operating  partnerships  have the right to tender
their O.P.  Units to the Company for shares of common stock or, at the Company's
election,  for cash. Each of the limited partners of the operating  partnerships
(other than Carl E. Berg and Clyde J. Berg) has the annual right to exercise put
rights and cause the operating partnerships to purchase a portion of the limited
partner's  O.P.  Units at a purchase  price based on the average market value of
the common stock for the 10-trading day period immediately preceding the date of
tender, generally limited to one-third of the aggregate number of O.P.

                                     - 51 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

Units owned by each  limited  partner.  Upon the exercise of any such right by a
limited partner,  the Company will have the option to purchase the tendered O.P.
Units with  available  cash,  borrowed  funds or the  proceeds of an offering of
newly issued shares of common stock. These put rights are available once a year.
If the total  purchase  price of the O.P.  Units tendered by all of the eligible
limited  partners in one year exceeds $1 million,  the Company or the  operating
partnerships will be entitled to reduce proportionately the number of O.P. Units
to be acquired from each  tendering  limited  partner so that the total purchase
price does not exceed $1 million.

During the year ended  December 31, 2002,  stock options at $4.50 per share were
exercised to purchase a total of 33,550 shares of common stock.  Total  proceeds
to the Company were approximately $151.

In 2002 and 2001, 124,000 and 236,326 O.P. Units,  respectively,  were exchanged
for 124,000 and 236,326  shares of the  Company's  common  stock,  respectively,
under the terms of the December 1998 Exchange Rights Agreement among the Company
and all limited partners of the operating partnerships.

In 2002,  Carl E. Berg gave 155,000 O.P. Units to charitable  institutions  that
exchanged them for 155,000 shares of the Company's  common stock pursuant to the
Exchange Rights Agreement in January 2003.


4.   MINORITY INTEREST

Minority  interest  represents the separate  private  ownership of the operating
partnerships,  by the Berg Group and other  non-affiliate  interests.  In total,
these interests  account for 83.18% and 83.27%,  on a weighted average basis, of
the  ownership  interests  in the real  estate  operations  of the Company as of
December 31, 2002 and 2001, respectively. Minority interest in earnings has been
calculated  by  taking  the  net  income  of the  operating  partnerships  (on a
stand-alone  basis)  multiplied by the respective  minority  interest  ownership
percentage.

There are three  properties  owned through three separate joint ventures,  which
are not wholly owned by the operating  partnerships.  The operating partnerships
own an 83.33%  interest in one joint venture,  a 75% interest in another,  and a
50% interest in the third.  For the years ended  December 31,  2002,  2001,  and
2000,  income  associated  with the interests held by the  non-affiliated  third
parties of the three joint ventures was $587, $650, and $481, respectively.


5.   REAL ESTATE

BERG LAND HOLDINGS OPTION AGREEMENT
Under the terms of the Berg Land Holdings Option Agreement, the Company, through
the  operating  partnerships,  has the option to acquire any future R&D property
developed by the Berg Group on land currently owned or optioned, or acquired for
these purposes in the future,  directly or indirectly,  by Carl E. Berg or Clyde
J. Berg. At present,  there are  approximately 287 acres of Silicon Valley land,
including  land under  development,  owned  directly or under 50% joint  venture
entities  by certain  members of the Berg Group that are subject to the terms of
the Berg Land Holdings Option  Agreement.  The owners of the future R&D property
developments  may obtain  cash or, at their  option,  O.P.  Units  valued at the
average  closing  price of the shares of common  stock  over the  30-trading-day
period  preceding the  acquisition  date. To date,  the Company has completed 18
acquisitions  under  the  Berg  Land  Holdings  Option  Agreement   representing
approximately  1,864,000 rentable square feet (see Property Acquisitions below).
Upon the  Company's  exercise  of an option to  purchase  any of the  future R&D
property developments,  the acquisition price will equal the sum of (a) the full
construction cost of the building; plus (b) 10% of the full construction cost of
the  building;  plus (c) interest at LIBOR  (London  Interbank  Offer Rate) plus
1.65% on the amount of the full construction cost of the building for the period
from the date funds were disbursed by the developer to the close of escrow; plus
(d) the original  acquisition cost of the parcel on which the improvements  will
be  constructed,  which  range from  $8.50 to $20.00  per  square  foot for land
currently  owned;  plus  (e)  10%  per  annum  of the  amount  of  the  original
acquisition  cost of the  parcel  from the  later  of  January  1,  1998 and the
seller's  acquisition  date to the  close of  escrow;  minus  (f) the  aggregate
principal  amount of all debt  encumbering  the acquired  property,  or a lesser
amount as approved by the members of the independent  directors committee of the
Company's board of directors.

Pursuant to the Berg Land Holdings Option Agreement  between the Company and the
Berg  Group,  the  Company  currently  has the option to acquire any future R&D,
office and industrial  property developed by the Berg Group on land it currently
owns or has under option, or acquires for these purposes in the future, directly
or indirectly by certain members of the Berg Group.

                                     - 52 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


The time required to complete the leasing of developments varies from project to
project.  The acquisition dates and acquisition costs set forth in the table are
only estimates by management. Generally, the Company will not acquire any of the
above  projects  until  they are fully  completed  and  leased.  There can be no
assurance that the  acquisition  date and final cost to the Company as indicated
above  would be  realized.  No  estimate  can be  given  at this  time as to the
Company's  total cost to acquire  projects  under the Berg Land Holdings  Option
Agreement,  nor can it be certain of the period in which it will  acquire any of
the  projects.  Acquisitions  of property  under the Berg Land  Holdings  Option
Agreement must be approved by the independent  directors  committee of the board
of directors.

Although the Company has the right to acquire the new properties available to it
under the  terms of the Berg Land  Holdings  Option  Agreement,  there can be no
assurance that the Company  actually will consummate any intended  transactions,
including all of those  discussed  above.  Furthermore,  the Company has not yet
determined  the means by which it would acquire and pay for any such  properties
or the impact of any of the acquisitions on its business, results of operations,
financial condition, FFO or available cash for distribution.

No  estimate  can be given at this time as to the total  cost to the  Company to
acquire projects under the Berg Land Holdings Option Agreement, or the timing as
to when the  Company  will  acquire  such  projects.  In  addition  to  projects
currently  under  development,  the  Company  has the  right to  acquire  future
developments  by the Berg Group on up to 250 additional  acres of land currently
controlled  by the Berg Group,  which could  support  approximately  3.9 million
square feet of new developments.  Under the Berg Land Holdings Option Agreement,
as  long  as  the  Berg  Group  ownership  in  the  Company  and  the  operating
partnerships taken as a whole is at least 65%, the Company also has an option to
purchase all land acquired,  directly or indirectly, by Carl E. Berg or Clyde J.
Berg in the future which has not been  improved  with  completed  buildings  and
which  is  zoned  for,  intended  for or  appropriate  for  R&D,  office  and/or
industrial  development  or  use  in  the  states  of  California,  Oregon,  and
Washington.

Given the recent economic downturn in the Silicon Valley, the Company may not be
able  to  maintain   historical  levels  of  growth  from  acquisitions  of  new
developments in the future.

                                     - 53 -



<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


6.   DEBT

The following table sets forth certain information regarding debt outstanding as
of December 31, 2002 and 2001.
<TABLE>
<CAPTION>

                                                                                         Balance             Maturity    Interest
        Debt Description                 Collateral Properties                        At December 31           Date        Rate
----------------------------------  ---------------------------------------    --------------------------- ------------ -----------
                                                                                   2002          2001
                                                                               ------------- -------------
Line of Credit:
<S>                                <C>                                          <C>           <C>             <C>         <C>
Berg Group (related parties)        2033-2043 Samaritan Drive, San Jose, CA      $  58,792     $  79,887        3/04         (1)
                                    2133 Samaritan Drive, San Jose, CA
                                    2233-2243 Samaritan Drive, San Jose, CA
                                    1310-1450 McCandless Drive, Milpitas, CA
                                    1315-1375 McCandless Drive, Milpitas, CA
                                    1650-1690 McCandless Drive, Milpitas, CA
                                    1795-1845 McCandless Drive, Milpitas, CA
                                    2251 Lawson Lane, Santa Clara, CA (2)
                                    20605-20705 Valley Green Dr,  Cupertino, CA  (2)

Mortgage  Notes Payable  (related   5300-5350 Hellyer Avenue, San Jose, CA          11,078        11,371        6/10       7.650%
parties):

Mortgage Notes Payable: (3)
Prudential Capital Group            20400 Mariani Avenue, Cupertino, CA              1,423         1,597        4/09       8.750%
New York Life Insurance Company (4) 10440 Bubb Road, Cupertino, CA                       -           347        9/09       9.625%
Washington Mutual (Home S&L         10460 Bubb Road, Cupertino, CA                     297           363       12/06       9.500%
Association)
Prudential  Insurance  Company of   10300 Bubb Road, Cupertino, CA                 123,342       125,109       10/08       6.560%
America (5)                         10500 North De Anza Blvd, Cupertino, CA
                                    4050 Starboard Drive, Fremont, CA
                                    45700 Northport Loop, Fremont, CA
                                    45738 Northport Loop, Fremont, CA
                                    450-460 National Ave, Mountain View, CA
                                    6311 San Ignacio Avenue, San Jose, CA
                                    6321 San Ignacio Avenue, San Jose, CA
                                    6325 San Ignacio Avenue, San Jose, CA
                                    6331 San Ignacio Avenue, San Jose, CA
                                    6341 San Ignacio Avenue, San Jose, CA
                                    6351 San Ignacio Avenue, San Jose, CA
                                    3236 Scott Blvd, Santa Clara, CA
                                    3560 Bassett Street, Santa Clara, CA
                                    3570 Bassett Street, Santa Clara, CA
                                    3580 Bassett Street, Santa Clara, CA
                                    1135 Kern Avenue, Sunnyvale, CA
                                    1212 Bordeaux Lane, Sunnyvale, CA
                                    1230 E. Arques, Sunnyvale, CA
                                    1250 E. Arques, Sunnyvale, CA
                                    1170 Morse Avenue, Sunnyvale, CA
                                    1600 Memorex Drive, Santa Clara, CA
                                    1688 Richard Avenue, Santa Clara, CA
                                    1700 Richard Avenue, Santa Clara, CA
                                    3540 Bassett Street, Santa Clara, CA
                                    3542 Bassett Street, Santa Clara, CA
                                    3544 Bassett Street, Santa Clara, CA
                                    3550 Bassett Street, Santa Clara, CA
                                                                               ------------- -------------
Mortgage Notes Payable                                                             125,062       127,416

Uncollateralized Loan:
Citicorp USA, Inc.                                                                  20,000             -        3/03         (6)

Revolving Line of Credit:
Cupertino National Bank                                                             23,839             -        7/04         (7)

                                                                               ------------- -------------
Total                                                                             $238,771      $218,674
                                                                               ============= =============
</TABLE>


(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2004.  The  interest  rate was 2.7% and 3.3% at December 31, 2002 and 2001,
     respectively.

(2)  Substituted  collateral  properties  for the Berg  Group  line of credit in
     place of properties at 5325-5345  Hellyer Avenue,  2610 North First Street,
     and 75 East Trimble Road. These four properties were  collateralized  under
     the Berg Group line of credit at December 31, 2001.

(3)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2009.  The
     weighted  average  interest  rate of mortgage  notes  payable was 6.68% and
     6.69% at December 31, 2002 and 2001, respectively.

(4)  The New York Life  Insurance  loan was paid off in its entirety in November
     2002.

(5)  The  Prudential  loan is  payable in monthly  installments  of $827,  which
     includes principal (based upon a 30-year  amortization) and interest.  John
     Kontrabecki,  one of the limited  partners,  has  guaranteed  approximately
     $12,000 of this debt.  Costs and fees  incurred  with  obtaining  this loan
     aggregated approximately $900.

(6)  The  uncollateralized  loan from  Citicorp USA,  Inc. carries a fixed LIBOR
     interest  rate  equal to 4.09% for the first six months and LIBOR plus 2.0%
     thereafter  and is  payable in full in March  2003.  The  interest  rate at
     December 31, 2002 was 3.81%. The full balance was paid off in January 2003.

(7)  The uncollateralized revolving line of credit from Cupertino  National Bank
     carries a variable interest rate equal to LIBOR plus 2.0% and is payable in
     full in July 2004. The interest rate at December 31, 2002 was 3.72%.

                                     - 54 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


Scheduled principal payments on debt for the years ending are as follows:
<TABLE>
<CAPTION>

                                           Fixed Rate Debt          Variable Rate Debt
                                    (Including Related Parties)(Including Related Parties)         Total
                                      -----------------------     ----------------------     ----------------

<S>                                        <C>                          <C>                     <C>
December 31, 2003                           $    2,465                   $  20,000               $  22,465
December 31, 2004                                2,642                      82,631                  85,273
December 31, 2005                                2,832                                               2,832
December 31, 2006                                3,000                                               3,000
December 31, 2007                                3,150                                               3,150
Thereafter                                     122,051                                             122,051
                                      -----------------------     ----------------------     ----------------
                                            $  136,140                   $ 102,631               $ 238,771
                                      =======================     ======================     ================
</TABLE>


7.   OPERATING PARTNERSHIP AND STOCKHOLDER DISTRIBUTIONS

During 2002,  the Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.96 per common share and O.P.
Unit for total  distributions of $99,643,  including  $24,951 payable in January
2003. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $75,076,  which was treated as a draw on the Berg Group line
of credit.

During 2001,  the Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.89 per common share and O.P.
Unit for total  distributions of $91,126,  including  $24,742 payable in January
2002. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $70,371,  which was treated as a draw on the Berg Group line
of credit.

During 2000,  the Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.68 per common share and O.P.
Unit for total  distributions of $66,993,  including  $19,115 payable in January
2001. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $52,478,  which was treated as a draw on the Berg Group line
of credit.

8.   STOCK-BASED COMPENSATION PLANS

The Company's 1997 Stock Option Plan was approved by the Company's  shareholders
on November 10, 1997. The 1997 Stock Option Plan was adopted so that the Company
may attract and retain the high quality  employees,  consultants  and  directors
necessary  to  build  the  Company's   infrastructure  and  to  provide  ongoing
incentives  to the  Company's  employees  in the form of options to purchase the
Company's common stock by enabling them to participate in the Company's success.

The 1997 Stock Option Plan  provides for the  granting to  employees,  including
officers (whether or not they are directors) of "incentive stock options" within
the meaning of Section 422 of the Code,  and for the  granting of  non-statutory
options to  employees,  consultants  and  directors of the  Company.  Options to
purchase a maximum of 5,500,000  shares of common stock may be granted under the
1997 Stock Option  Plan,  subject to equitable  adjustments  to reflect  certain
corporate events.

No options were granted in 2002.

During 2001, options were granted to one employee totaling 375,000, which become
exercisable  as follows:  a) six months from date of grant,  8.33%;  and b) each
month thereafter for 66 months,  an additional  1.39%. This option has a term of
eight  years from the date of grant  subject to earlier  termination  in certain
events related to termination  of  employment.  The options  granted during 2001
have an $11.33 per share exercise price.

During 2000, options were granted to five employees and three directors totaling
256,000  and  96,000,  respectively,   which  become  exercisable  in  quarterly
installments  equal to 1/16th of the  underlying  shares  beginning on the first
month  anniversary  of the grant date. In addition,  one employee was granted an
option for 80,000 shares that become  exercisable  as follows:  a) one year from
date of grant,  10%; and b) each month  thereafter for 36 months,  an additional
2.5%.  Each  option  has a term of six years  from the date of grant  subject to
earlier termination in certain events related to termination of employment.

                                     - 55 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

During 1999,  one employee was granted an option for 100,000  shares that become
exercisable  as follows:  a) 10,000  shares on May 10,  2000;  and b) each month
thereafter for 36 months, an additional 2,500 shares.

All options granted to employees in 1998 become  exercisable as follows:  a) six
months from date of grant,  6.25%; b) one year from date of grant, an additional
12.50%; c) each month thereafter for 36 months, an additional 2.26%. Each option
has a term of six years from the date of grant subject to earlier termination in
certain  events  related  to  termination  of  employment.  Options  granted  to
directors  will become  exercisable  cumulatively  with respect to 1/48th of the
underlying  shares on the first day of each month  following  the date of grant.
Generally, the options must be exercised while the optionee is a director of the
Company.  The option price is equal to the fair market value of the common stock
on the date of grant.

The  remaining  contractual  lives of  unexercised  options  granted  range from
January 2004 to April 2007.

The  following  table shows the  activity  and detail for the 1997 Stock  Option
Plan.
<TABLE>
<CAPTION>


                                                               1997 Stock         Option Price
                                                               Option Plan          Per Share
                                                              --------------    ------------------
<S>                                                            <C>                  <C>
                         Balance, December 31, 1998              680,000
                            Options granted                      337,000              $8.25
                            Options exercised                   (191,920)
                            Options cancelled                   (299,722)
                                                              --------------
                         Balance, December 31, 1999              525,358
                            Options granted                       80,000              $8.25
                            Options granted                      352,000             $13.00
                            Options exercised                    (52,991)
                            Options cancelled                   (113,867)
                                                              --------------
                         Balance, December 31, 2000              790,500
                            Options granted                      375,000             $11.33
                            Options exercised                    (68,088)
                            Options cancelled                   (113,500)
                                                              --------------
                         Balance, December 31, 2001              983,912
                            Options exercised                    (33,550)
                                                              --------------
                         Balance, December 31, 2002              950,362
                                                              ==============
</TABLE>

As of December 31, 2002,  3,978,089  additional  shares were available for grant
under the 1997 Stock Option  Plan.  None of the options  granted are  contingent
upon the attainment of performance goals or subject to other restrictions. As of
December  31, 2002,  outstanding  options to purchase  510,654  shares of common
stock were exercisable.

The Company  applies APB 25 and related  interpretations  in accounting  for its
stock-based  compensation plans.  Accordingly,  no compensation expense has been
recognized for its stock-based compensation plans. Had compensation cost for the
Company's  stock option plans been  determined  based upon the fair value at the
grant  date for  awards  under  these  plans  consistent  with  the  methodology
prescribed under SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  the
Company's  net income and net income per share for the year ended  December  31,
2002 would not have changed since no options were granted in 2002.

For the year ended  December 31, 2001,  the  Company's net income and net income
per share would have been  decreased by  approximately  $439 or $0.03 per share,
resulting in a total  consolidated net income of $17,696 or $1.01 per share on a
diluted basis.  The estimated fair value of the options  granted during 2001 was
$13.25 share on the date of grant using the  Black-Scholes  option pricing model
with the following assumptions: dividend yield of 8%, volatility of 23.03%, risk
free rates of 4.85% and an expected life of 5 years.

For the year ended  December 31, 2000,  the  Company's net income and net income
per share would have been  decreased by  approximately  $634 or $0.04 per share,
resulting in a total  consolidated net income of $11,945 or $0.68 per share on a
diluted  basis.  The  estimated  fair value of the options  granted  during 2000
ranged from $9.32 to $14.56 per share on the date of grant

                                     - 56 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


using the  Black-Scholes  option  pricing model with the following  assumptions:
dividend  yield of 8%,  volatility of 25.37%,  risk free rates of 5.70% to 6.61%
and an expected life of 4 years.

The Company has adopted an employee investment plan (the "Plan"),  under Section
401(k) of the Internal Revenue Code. Employees who are at least 21 years old and
who have completed six months of eligibility  service may become participants in
the Plan.  Each  participant may make  contributions  to the Plan through salary
deferrals  in amounts  of at least 1% to a maximum  of 15% of the  participant's
compensation,  subject to certain  limitations  imposed by the Internal  Revenue
Code.  The  Company  contributes  an  amount  up to  15%  of  the  participant's
compensation,  based upon management's discretion. A participant's  contribution
to the Plan is 100% vested and nonforfeitable.  A participant will become vested
in 100% of the Company's  contributions after two years of eligible service. For
the years ended December 31, 2002,  2001 and 2000, the Company  recognized  $95,
$58 and $40 of expense for employer  contributions  made in connection with this
plan, respectively.


9.   NET INCOME PER SHARE

Basic  net  income  per  share  is  computed  by  dividing  net  income  by  the
weighted-average number of common shares outstanding for the period. Diluted net
income  per  share  is  computed   by   dividing   net  income  by  the  sum  of
weighted-average  number of common  shares  outstanding  for the period plus the
assumed exercise of all dilutive securities.

The computation for weighted average shares is detailed below:

<TABLE>
<CAPTION>

                                                                Year Ended            Year Ended           Year Ended
                                                               December 31,          December 31,         December 31,
                                                                   2002                  2001                 2000
                                                            ------------------    ------------------    -----------------
<S>                                                            <C>                   <C>                  <C>
            Weighted average shares outstanding (basic)         17,455,799            17,103,714           17,016,660
            Incremental shares from assumed option exercise        399,093               485,639              493,990
                                                            ------------------    ------------------    -----------------
            Weighted average shares outstanding (diluted)       17,854,892            17,589,353           17,510,650
                                                            ==================    ==================    =================
</TABLE>


The  outstanding  O.P.  Units have been excluded from the diluted net income per
share  calculation as there would be no effect on the amounts since the minority
interests'  share of income would also be added back to net income.  O.P.  Units
outstanding  at  December  31,  2002 and 2001 were  86,474,032  and  85,762,541,
respectively.

10.  OTHER INCOME

Other income,  including interest,  was approximately $4,250, $2,465, and $1,241
for the years ended December 31, 2002, 2001 and 2000, respectively. For the year
ended December 31, 2002,  termination fees accounted for approximately $2,529 of
other income.

Gain on sales of assets was  approximately  $11,454 and $501 for the years ended
December 31, 2001, and 2000, respectively.

11.  RELATED PARTY TRANSACTIONS

As of December 31, 2002 and 2001, the Berg Group owned 78,338,684 and 79,191,923
O.P.  Units,  respectively,  of the total  86,474,032 and 85,762,541  O.P. Units
issued and  outstanding,  respectively.  Along with the Company's  common shares
owned by the Berg Group,  the Berg  Group's  interest in the Company  represents
75.4% and 76.8% of the Company as of December  31, 2002 and 2001,  respectively,
assuming conversion of the O.P. Units into common shares of the Company.

During 2002, the Company  acquired two R&D  properties,  both located in Silicon
Valley.  These acquisitions added approximately  290,000 square feet of rentable
space and were acquired from the Berg Group under the Berg Land Holdings  Option
Agreement.  The total  gross  acquisition  price for  these two  properties  was
approximately  $30,953.  The Company  financed these  acquisitions  by borrowing
$18,000  under the Berg Group line of credit and issuing  835,491 O.P.  Units to
various members of the Berg Group.

During 2001, the Company  acquired eight R&D properties,  all located in Silicon
Valley.  These acquisitions added approximately  748,000 square feet of rentable
space and were acquired from the Berg Group under the Berg Land Holdings  Option
Agreement.  The total gross  acquisition  price for these eight  properties  was
approximately  $80,683.  The Company  financed these  acquisitions  by borrowing
$45,884  under the Berg Group  line of credit,  assuming  other  liabilities  of
$2,024,

                                     - 57 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


and  issuing  2,422,837  O.P.  Units to various  members of the Berg  Group.  In
addition to those eight  property  purchases,  the Company also acquired two R&D
properties   representing   approximately   127,000  rentable  square  feet  for
approximately  $23,197 in a tax-deferred exchange with the Berg Group. The sales
proceeds from the properties  sold by the Company were  classified as restricted
cash for use in tax-deferred  property exchanges and were included in restricted
cash at  December  31,  2001.  No debt or O.P.  Units were  issued for these two
acquisitions.

As of  December  31, 2002 and 2001,  debt in the amount of $58,792 and  $79,887,
respectively,  was due the Berg  Group  under the line of  credit.  This  amount
includes $18,000 and $45,884 of debt assumed in connection with the acquisitions
of properties from the Berg Group in 2002 and 2001, respectively.  Additionally,
during 2002 and 2001, the operating partnerships declared distributions of $0.96
and $0.89 per O.P. Unit, respectively.  Distributions paid to various members of
the Berg Group were  $75,281  and $66,423  during  2002 and 2001,  respectively.
Interest expense incurred in connection with debt due the Berg Group was $2,562,
$3,828  and  $3,914  for the  years  ended  December  31,  2002,  2001 and 2000,
respectively.

As of  December  31, 2002 and 2001,  debt in the amount of $11,078 and  $11,371,
respectively,  was due the Berg Group under a mortgage note  established May 15,
2000 in  connection  with the  acquisition  of a 50% interest in Hellyer  Avenue
Limited  Partnership,  the obligor  under the mortgage  note.  The mortgage note
bears  interest  at  7.65%,  and is due in ten  years  with  principal  payments
amortized over 20 years.

Carl E. Berg has a  significant  financial  interest in one company  that leases
space from the operating partnerships.  This company occupies, in the aggregate,
5,862  square feet at a rate of $2.34 per square foot per month.  This lease was
in  effect  prior  to  the  Company's  acquisition  of its  general  partnership
interests. The lease expires in May 2003.

The Company  currently  leases  office  space owned by Berg & Berg  Enterprises,
Inc.,  an  affiliate  of Carl E.  Berg and Clyde J.  Berg.  Rental  amounts  and
overhead reimbursements paid to Berg & Berg Enterprises,  Inc. were $90, $88 and
$80 for the years ended December 31, 2002, 2001 and 2000, respectively.

12.  FUTURE MINIMUM RENTS

The  Company,  through the  operating  partnerships,  owns  interests in 101 R&D
properties  that are leased to tenants under net  operating  leases with initial
terms extending to the year 2015, and are typically  subject to fixed increases.
Generally,  the leases grant tenants  renewal  options.  Future minimum  rentals
under  non-cancelable  operating  leases,  excluding  tenant  reimbursements  of
expenses are as follows:
<TABLE>
<CAPTION>


<S>                     <C>                                                       <C>
                         2003                                                      $124,841
                         2004                                                       119,498
                         2005                                                       108,946
                         2006                                                        75,638
                         2007                                                        44,126
                         Thereafter                                                 108,616
                                                                                ------------
                               Total                                               $581,665
                                                                                ============
</TABLE>

13.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for  interest  was  $12,752,  $13,307  and $12,676 for the years ended
December 31, 2002, 2001 and 2000, respectively.

In  connection  with the property  acquisitions,  the Company  assumed  $18,000,
$45,884 and  $51,732 of related  party debt due the Berg  Group,  assumed  other
liabilities  of $387,  $2,024 and  $2,636,  and issued  835,491,  2,422,837  and
7,370,238  O.P.  Units for a total  acquisition  value of $62,265,  $103,881 and
$122,875 for the years ended December 31, 2002, 2001 and 2000, respectively.

Amounts  of  $75,281,   $66,423  and  $48,202   were  due  the  Berg  Group  for
distributions  declared to O.P. Unit holders during the years ended December 31,
2002,  2001 and 2000,  respectively,  and were  treated as draws  under the Berg
Group line of credit.

                                     - 58 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

14.  COMMITMENTS AND CONTINGENCIES

The Company and the operating  partnerships,  from time to time,  are parties to
litigation arising out of the normal course of business. Management is not aware
of any litigation  against the Company that would have a material adverse effect
on the cash flows,  consolidated  financial position or results of operations of
the Company.

Insurance  policies  currently  maintained  by the Company do not cover  seismic
activity, although they do cover losses from fires after an earthquake.

15.  DISCONTINUED OPERATIONS

Effective  January 1, 2002, the Company  adopted SFAS No. 144,  which  addresses
financial accounting and reporting for the impairment and disposal of long lived
assets.  In general,  income or loss  attributable to the operations and sale of
property,  and the operations  related to property held for sale, are classified
as  discontinued  operations  in the  statements  of  operations.  Prior  period
statements  of  operations  presented in this report have been  reclassified  to
reflect the income or loss related to properties that were sold and presented as
discontinued operations for the year ended December 31, 2002. Additionally,  all
periods presented in this report will likely require further reclassification in
future periods if additional property sales occur.

As of December 31, 2002,  there were no properties  under contract to be sold or
disposed of which would qualify as discontinued operations.

In March 2002,  the Company sold one  property  for a gain of $6,103.  Condensed
results of operations  for this property for the years ended  December 31, 2002,
2001 and 2000 are as follows:

<TABLE>
<CAPTION>

                                                                       For the Year Ended December 31,
                                                        2002                         2001                       2000
                                                ---------------------      ----------------------      ---------------------
                                                                           (dollars in thousands)
<S>                                                    <C>                          <C>                        <C>
Rental income from real estate                          $  333                       $1,999                     $1,999
Tenant reimbursements                                      293                           96                         87
                                                ---------------------      ----------------------      ---------------------
     Total revenues                                        626                        2,095                      2,086
                                                ---------------------      ----------------------      ---------------------

Real estate taxes                                          293                           96                         93
Depreciation                                                46                          278                        278
                                                ---------------------      ----------------------      ---------------------
     Total expenses                                        339                          374                        371
                                                ---------------------      ----------------------      ---------------------

Net income from discontinued operations                    287                        1,721                      1,715
Net gain on disposition of discontinued                  6,103                            -                          -
   operations
Minority interest in earnings attributable to           (5,325)                      (1,436)                    (1,404)
   discontinued operations

                                                ---------------------      ----------------------      ---------------------
Total income from discontinued operations               $1,065                        $ 285                      $ 311

                                                =====================      ======================      =====================
</TABLE>

                                     - 59 -

<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

16.  SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)

Quarterly  financial  information for the year ended December 31, 2002 (1) is as
follows:
<TABLE>
<CAPTION>

                                               First            Second            Third            Fourth
                                            ------------     -------------     ------------     -------------

<S>                                        <C>              <C>               <C>              <C>
Rental revenue from continuing operations   $     32,484     $      32,753     $     32,165     $      32,378
Income before minority interest             $     24,905     $      24,896     $     24,594     $      25,293
Income from continuing operations           $      4,136     $       4,073     $      4,558     $       3,670
Income from discontinued operations         $      1,065     $           -     $          -     $           -
Net income                                  $      5,201     $       4,073     $      4,558     $       3,670
Per share data:
     Basic net income per share             $       0.30     $        0.23     $       0.26     $        0.21
     Diluted net income per share           $       0.29     $        0.23     $       0.26     $        0.21
Weighted average shares of common
   stock (basic)                              17,404,568        17,464,692       17,467,329        17,485,590
Weighted average shares of common
   stock (diluted)                            17,853,809        17,902,853       17,856,688        17,800,971



Quarterly  financial  information for the year ended December 31, 2001 (1) is as
follows:

                                               First            Second            Third            Fourth
                                            ------------     -------------     ------------     -------------

Rental revenue from continuing operations   $     29,179     $      31,154     $     32,728     $      33,168
Income before minority interest             $     24,879     $      23,484     $     34,361     $      25,255
Income from continuing operations           $      4,147     $       3,911     $      5,659     $       4,132
Income from discontinued operations         $         72     $          72     $         71     $          71
Net income                                  $      4,219     $       3,983     $      5,730     $       4,203
Per share data:
     Basic net income per share             $       0.25     $        0.23     $       0.33     $        0.24
     Diluted net income per share           $       0.24     $        0.23     $       0.33     $        0.24
Weighted average shares of common
   stock (basic)                              17,037,201        17,093,710       17,120,279        17,162,111
Weighted average shares of common
   stock (diluted)                            17,242,821        17,308,601       17,320,462        17,596,536



Quarterly  financial  information for the year ended December 31, 2000 (1) is as
follows:

                                               First            Second            Third            Fourth
                                            ------------     -------------     ------------     -------------

Rental revenue from continuing operations   $     20,736     $      23,399     $     26,322     $      27,111
Income before minority interest             $     14,033     $      16,128     $     18,935     $      20,822
Income from continuing operations           $      2,556     $       2,845     $      3,281     $       3,586
Income from discontinued operations         $         75     $          85     $         76     $          75
Net income                                  $      2,631     $       2,930     $      3,357     $       3,661
Per share data:
     Basic net income per share             $       0.15     $        0.17     $       0.20     $        0.21
     Diluted net income per share           $       0.15     $        0.17     $       0.20     $        0.21
Weighted average shares of common
   stock (basic)                              16,990,353        17,025,365       17,025,365        17,025,365
Weighted average shares of common
   stock (diluted)                            17,389,409        17,113,346       17,191,306        17,249,144
</TABLE>


(1)  The  summation  of the  quarterly  financial  data may not equal the annual
     number reported on the consolidated  financial statements of operations due
     to rounding differences.

                                     - 60 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

17.  SUBSEQUENT EVENTS

On January 1, 2003,  the  Company  acquired a 50%  interest  in a joint  venture
consisting of four properties with  approximately  593,000  rentable square feet
from the Berg Group.  These properties are operated and managed by the Company's
joint venture partner,  TBI-Mission  West, LLC. The total  acquisition price for
the 50% interest in the joint venture was $1,800.  The Company  acquired the 50%
interest by issuing 181,032 O.P. Units to various members of the Berg Group.

On January 9, 2003, the Company  obtained a $100,000  secured mortgage loan from
Northwestern  Mutual Life Insurance  Company that bears a fixed interest rate at
5.64% and matures in ten years with principal  payments amortized over 20 years.
The mortgage loan is collateralized by real estate properties.  The Company paid
approximately  $675 in loan fees and  financing  costs and used the  proceeds to
primarily  pay down  short-term  debt.  The  balances  of  Citicorp  USA,  Inc.,
Cupertino National Bank line of credit and most of the Berg Group line of credit
were paid with the proceeds from the Northwestern  Mutual Life Insurance Company
loan.

On January 9, 2003,  the  Company  paid  dividends  of $0.24 per share of common
stock to all common  stockholders of record as of December 31, 2002. On the same
date, the operating partnerships paid a distribution of $0.24 per O.P. Unit.

On March 12,  2003,  the Company  declared  dividends  of $0.24 per common share
payable  on April 10,  2003 to all  common  stockholders  of record on March 31,
2003.

                                     - 61 -


<PAGE>

                      Report of Independent Accountants on
                          Financial Statement Schedules


To the Board of Directors and Stockholders
of Mission West Properties, Inc.

Our audits of the consolidated  financial  statements  referred to in our report
dated  January 28, 2003  included in this Form 10-K of Mission West  Properties,
Inc. also included audits of the financial  statement  schedules  listed in Item
15(a)(2) of this Form 10-K. In our opinion,  the financial  statement  schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

San Francisco, California
January 28, 2003

                                     - 62 -
<PAGE>





                               INTENTIONALLY BLANK



                                     - 63 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2002
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                        Initial Cost
                                                                  ----------------------------      Cost
                                                     December 31,                  Buildings    Subsequent to
                                                        2002                          and       Construction/
Property Name                      City             Encumbrances       Land       Improvements   Acquisition
--------------------------------------------------  ------------  --------------  ------------  -------------
<C>                               <C>                <C>             <C>           <C>                 <C>
5300-5350 Hellyer Avenue           San Jose    E      $   11,078      $    5,742    $   11,442
10401-10411 Bubb Road              Cupertino   A                             632         3,078
45365 Northport Loop               Fremont                                 2,447         5,711          $  11
47000 Northport Loop               Fremont                     B           1,184         5,760              7
45738 Northport Loop               Fremont                     B             891         4,338              5
4050 Starboard Drive               Fremont                     B           1,329         6,467              8
3501 W. Warren Ave/Fremont Blvd    Fremont                                 1,866         9,082
48800 Milmont Blvd                 Fremont                                 1,013         4,932            153
4750 Patrick Henry Drive           Santa Clara                             1,604         7,805
3520 Bassett Street                Santa Clara C                           1,104         5,371
3530 Bassett Street                Santa Clara C,D                           849         4,133
5850-5870 Hellyer Avenue           San Jose                                2,787         6,502
5750 Hellyer Avenue                San Jose                                3,266         3,354
800 Branham Lane East              San Jose                                5,508        12,851             16
5500 Hellyer Avenue                San Jose                                4,735        13,073              3
5550 Hellyer Avenue                San Jose                                3,261         3,872
5400 Hellyer Avenue                San Jose                                3,238         5,358            215
5325 Hellyer Avenue                San Jose                                4,684        10,789             34
5345 Hellyer Avenue                San Jose                                4,866         8,786
5905-5965 Silver Creek Valley Road San Jose                                8,437        18,554
5905-5965 Silver Creek Valley Road San Jose                                3,438         3,220
855 Branham Lane East              San Jose                                3,289         6,521             68
1065-1105 La Avenida Street        Mountain View                          46,832       109,275             65
1750 Automation Parkway            San Jose                                4,789        11,174            315
1756 Automation Parkway            San Jose                                4,378        10,216             15
1762 Automation Parkway            San Jose                                4,804        12,224             20
1768 Automation Parkway            San Jose                                8,195        19,121             14
255 Caspian Drive                  Sunnyvale                               3,491         8,146          1,047
245 Caspian Drive                  Sunnyvale                               5,894             -
5900 Optical Court                 San Jose                                3,634        13,667             52
2630 Orchard Parkway               San Jose                                3,065         6,131
2610 Orchard Parkway               San Jose                                2,735         5,470
55 West Trimble Road               San Jose                                4,637         9,274
2251 Lawson Lane                   Santa Clara                 F           1,952         9,498
1230 East Arques                   Sunnyvale                   B             540         2,628             39
1250 East Arques                   Sunnyvale                   B           1,335         6,499
3120 Scott Blvd                    Santa Clara                             2,044         9,948
20400 Mariani Avenue               Cupertino               1,423           1,670         8,125
10500 De Anza Blvd                 Cupertino                   B           7,666        37,304
20605-20705 Valley Green Drive     Cupertino                   F           3,490        16,984
10300 Bubb Road                    Cupertino                   B             635         3,090
10440 Bubb Road                    Cupertino                                 434         2,112
10460 Bubb Road                    Cupertino                 297             994         4,838          1,161
1135 Kern Avenue                   Sunnyvale                   B             407         1,982
405 Tasman Drive                   Sunnyvale                                 550         2,676             90
450 National Avenue                Mountain View               B             611         2,973
3301 Olcott Street                 Santa Clara                             1,846         8,984
2800 Bayview Avenue                Fremont                                 1,070         5,205
6850 Santa Teresa Blvd             San Jose                                  377         1,836            820
6810 Santa Teresa Blvd             San Jose                                2,567         5,991             12
140-160 Great Oaks Blvd            San Jose                                1,402         6,822            205
6541 Via del Oro/6385 San Ignacio  San Jose                                1,039         5,057
6311-6351 San Ignacio Avenue       San Jose                    B           6,246        30,396            145
6320-6360 San Ignacio Avenue       San Jose                                2,616        12,732            353
75 E. Trimble Rd./2610 N. First St San Jose                                3,477        16,919             85
2033-2243 Samaritan Drive          San Jose               58,792F          5,046        24,556            154
1170 Morse Avenue                  Sunnyvale                   B             658         3,201
3236 Scott Blvd                    Santa Clara                 B           1,234         6,005
1212 Bordeaux Lane                 Sunnyvale                   B           2,250        10,948
</TABLE>

<PAGE>
                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2002
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                          Total Cost
                                                    ------------------------
                                                                 Buildings
                                                                    And                     Accumulated     Date of    Depreciable
Property Name                      City                Land     Improvements     Total      Depreciation  Acquisition     Life
--------------------------------------------------  ----------  ------------  ------------  ------------  -----------  -----------
<C>                               <C>               <C>          <C>           <C>             <C>          <C>        <C>
5300-5350 Hellyer Avenue           San Jose    E     $   5,742    $   11,442    $   17,184      $    751      5/00      40 Years
10401-10411 Bubb Road              Cupertino   A           632         3,078         3,710           348      7/98      40 Years
45365 Northport Loop               Fremont               2,447         5,722         8,169           322     10/00      40 Years
47000 Northport Loop               Fremont               1,184         5,767         6,951           650      7/98      40 Years
45738 Northport Loop               Fremont                 891         4,343         5,234           491      7/98      40 Years
4050 Starboard Drive               Fremont               1,329         6,475         7,804           731      7/98      40 Years
3501 W. Warren Ave/Fremont Blvd    Fremont               1,866         9,082        10,948         1,024      7/98      40 Years
48800 Milmont Blvd                 Fremont               1,013         4,932         5,945           556      7/98      40 Years
4750 Patrick Henry Drive           Santa Clara           1,604         7,958         9,562           893      7/98      40 Years
3520 Bassett Street                Santa Clara C         1,104         5,371         6,475           605      7/98      40 Years
3530 Bassett Street                Santa Clara C,D         849         4,133         4,982           466      7/98      40 Years
5850-5870 Hellyer Avenue           San Jose              2,787         6,502         9,289           680     11/98      40 Years
5750 Hellyer Avenue                San Jose              3,266         3,354         6,620           119      8/01      40 Years
800 Branham Lane East              San Jose              5,508        12,867        18,375           911      3/00      40 Years
5500 Hellyer Avenue                San Jose              4,735        13,076        17,811           627      2/01      40 Years
5550 Hellyer Avenue                San Jose              3,261         3,872         7,133           153      6/01      40 Years
5400 Hellyer Avenue                San Jose              3,238         5,573         8,811           344      7/00      40 Years
5325 Hellyer Avenue                San Jose              4,684        10,823        15,507           540      1/01      40 Years
5345 Hellyer Avenue                San Jose              4,866         8,786        13,652           220      1/02      40 Years
5905-5965 Silver Creek Valley Road San Jose              8,437        18,554        26,991           696      7/01      40 Years
5905-5965 Silver Creek Valley Road San Jose              3,438         3,220         6,658           101     10/01      40 Years
855 Branham Lane East              San Jose              3,289         6,589         9,878           274      5/01      40 Years
1065-1105 La Avenida Street        Mountain View        46,832       109,340       156,172        10,248      4/99      40 Years
1750 Automation Parkway            San Jose              4,789        11,489        16,278         1,005      7/99      40 Years
1756 Automation Parkway            San Jose              4,378        10,231        14,609           767      1/00      40 Years
1762 Automation Parkway            San Jose              4,804        12,244        17,048           841      4/00      40 Years
1768 Automation Parkway            San Jose              8,195        19,135        27,330           996     12/00      40 Years
255 Caspian Drive                  Sunnyvale             3,491         9,193        12,684           618      4/00      40 Years
245 Caspian Drive                  Sunnyvale             5,894             -         5,894             -      4/01      40 Years
5900 Optical Court                 San Jose              3,634        13,719        17,353           171      7/02      40 Years
2630 Orchard Parkway               San Jose              3,065         6,131         9,196           128      3/02      40 Years
2610 Orchard Parkway               San Jose              2,735         5,470         8,205           114      3/02      40 Years
55 West Trimble Road               San Jose              4,637         9,274        13,911           193      3/02      40 Years
2251 Lawson Lane                   Santa Clara           1,952         9,498        11,450         1,070      7/98      40 Years
1230 East Arques                   Sunnyvale               540         2,667         3,207           301      7/98      40 Years
1250 East Arques                   Sunnyvale             1,335         6,499         7,834           732      7/98      40 Years
3120 Scott Blvd                    Santa Clara           2,044         9,948        11,992         1,122      7/98      40 Years
20400 Mariani Avenue               Cupertino             1,670         8,125         9,795           916      7/98      40 Years
10500 De Anza Blvd                 Cupertino             7,666        37,304        44,970         4,200      7/98      40 Years
20605-20705 Valley Green Drive     Cupertino             3,490        16,984        20,474         1,914      7/98      40 Years
10300 Bubb Road                    Cupertino               635         3,090         3,725           349      7/98      40 Years
10440 Bubb Road                    Cupertino               434         2,112         2,546           240      7/98      40 Years
10460 Bubb Road                    Cupertino               994         5,999         6,993           635      7/98      40 Years
1135 Kern Avenue                   Sunnyvale               407         1,982         2,389           226      7/98      40 Years
405 Tasman Drive                   Sunnyvale               550         2,766         3,316           303      7/98      40 Years
450 National Avenue                Mountain View           611         2,973         3,584           335      7/98      40 Years
3301 Olcott Street                 Santa Clara           1,846         8,984        10,830         1,013      7/98      40 Years
2800 Bayview Avenue                Fremont               1,070         5,205         6,275           588      7/98      40 Years
6850 Santa Teresa Blvd             San Jose                377         2,656         3,033           267      7/98      40 Years
6810 Santa Teresa Blvd             San Jose              2,567         6,003         8,570           576      3/99      40 Years
140-160 Great Oaks Blvd            San Jose              1,402         7,027         8,429           780      7/98      40 Years
6541 Via del Oro/6385 San Ignacio  San Jose              1,039         5,057         6,096           570      7/98      40 Years
6311-6351 San Ignacio Avenue       San Jose              6,246        30,541        36,787         3,429      7/98      40 Years
6320-6360 San Ignacio Avenue       San Jose              2,616        13,085        15,701         1,452      7/98      40 Years
75 E. Trimble Rd./2610 N. First St San Jose              3,477        17,004        20,481         1,911      7/98      40 Years
2033-2243 Samaritan Drive          San Jose              5,046        24,710        29,756         2,771      7/98      40 Years
1170 Morse Avenue                  Sunnyvale               658         3,201         3,859           362      7/98      40 Years
3236 Scott Blvd                    Santa Clara           1,234         6,005         7,239           678      7/98      40 Years
1212 Bordeaux Lane                 Sunnyvale             2,250        10,948        13,198         1,235      7/98      40 Years
</TABLE>

                                     - 64 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2002
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                        Initial Cost
                                                                  ----------------------------      Cost
                                                     December 31,                  Buildings    Subsequent to
                                                        2002                          and       Construction/
Property Name                      City             Encumbrances       Land       Improvements   Acquisition
--------------------------------------------------  ------------  --------------  ------------  -------------
<C>                        <C>                       <C>             <C>           <C>               <C>
1325-1810 McCandless Drive         Milpitas                    F          13,994        66,213          1,056
1600 Memorex Drive                 Santa Clara                 B           1,221         5,940             36
1688 Richard Avenue                Santa Clara                 B           1,248         2,913              6
1700 Richard Avenue                Santa Clara                 B           1,727         4,030
3506-3510 Bassett Street           Santa Clara C                             943         4,591            116
3540-3544 Bassett Street           Santa Clara C               B           1,565         7,615            189
3550 Bassett Street                Santa Clara C               B           1,079         5,251             33
3560 Bassett Street                Santa Clara C               B           1,075         5,233              8
3570-3580 Bassett Street           Santa Clara C               B           1,075         5,233
        Prudential Insurance Company of America Loan    123,342B
                                                    ------------  --------------   -----------  -------------
                                                      $  194,932      $  234,707    $  720,025        $ 6,556
                                                    ============  ==============   ===========  =============
</TABLE>
<TABLE>
<CAPTION>



                                                          Total Cost
                                                    ------------------------
                                                                 Buildings
                                                                    And                     Accumulated     Date of    Depreciable
Property Name                      City                Land     Improvements     Total      Depreciation  Acquisition     Life
--------------------------------------------------  ----------  ------------  ------------  ------------  -----------  -----------
<C>                        <C>                     <C>           <C>           <C>            <C>            <C>       <C>
1325-1810 McCandless Drive         Milpitas             13,994        67,269        81,263         7,507      7/98      40 Years
1600 Memorex Drive                 Santa Clara           1,221         5,976         7,197           645      7/98      40 Years
1688 Richard Avenue                Santa Clara           1,248         2,919         4,167           327      9/98      40 Years
1700 Richard Avenue                Santa Clara           1,727         4,030         5,757           345      8/99      40 Years
3506-3510 Bassett Street           Santa Clara C           943         4,707         5,650           526      7/98      40 Years
3540-3544 Bassett Street           Santa Clara C         1,565         7,804         9,369           874      7/98      40 Years
3550 Bassett Street                Santa Clara C         1,079         5,284         6,363           596      7/98      40 Years
3560 Bassett Street                Santa Clara C         1,075         5,241         6,316           591      7/98      40 Years
3570-3580 Bassett Street           Santa Clara C         1,075         5,233         6,308           591      7/98      40 Years
        Prudential Insurance Company of America Loan
                                                    ----------  ------------  ------------  ------------
                                                    $  234,707    $  726,581    $  961,288     $  66,560
                                                    ==========  ============  ============  ============

</TABLE>


(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  Encumbered by the $123,342  Prudential  Insurance Company of America loan -
     full amount of loan shown at the bottom of the schedule.
(C)  Part of the property group referred to as Triangle Technology Park.
(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(E)  50% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(F)  Four properties at McCandless  Drive,  three  properties at Samaritan Drive
     and three other various  properties  are encumbered by the $58,792 debt due
     the Berg Group under the line of credit.

                                     - 65 -

<PAGE>







                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2001
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                                        Initial Cost
                                                                  ----------------------------      Cost
                                                     December 31,                  Buildings    Subsequent to
                                                        2002                          and       Construction/
Property Name                      City             Encumbrances       Land       Improvements   Acquisition
--------------------------------------------------  ------------  --------------  ------------  -------------
<C>                               <C>                <C>                <C>          <C>               <C>
5300-5350 Hellyer Avenue           San Jose    E      $   11,371         $ 5,742      $ 11,442          $  16
10401-10411 Bubb Road              Cupertino   A                             632         3,078
2001 Logic Drive                   San Jose                                2,288        11,134
45365 Northport Loop               Fremont                                 2,447         5,711             11
47000 Northport Loop               Fremont                     B           1,184         5,760              7
45738 Northport Loop               Fremont                     B             891         4,338              5
4050 Starboard Drive               Fremont                     B           1,329         6,467              8
3501 W. Warren Ave/Fremont Blvd    Fremont                                 1,866         9,082
48800 Milmont Blvd                 Fremont                                 1,013         4,932
4750 Patrick Henry Drive           Santa Clara                             1,604         7,805            153
3520 Bassett Street                Santa Clara C                           1,104         5,371
3530 Bassett Street                Santa Clara C,D                           849         4,133
5850-5870 Hellyer Avenue           San Jose                                2,787         6,502
5750 Hellyer Avenue                San Jose                                3,266         3,354
800 Branham Lane East              San Jose                                5,508        12,851             16
5500 Hellyer Avenue                San Jose                                4,735        13,073              3
5550 Hellyer Avenue                San Jose                                3,261         3,872
5400 Hellyer Avenue                San Jose                                3,238         5,358             77
5325 Hellyer Avenue                San Jose                    F           4,684        10,789             34
5905-5965 Silver Creek Valley Rd   San Jose                                8,437        18,554
5905-5965 Silver Creek Valley Rd   San Jose                                3,438         3,220
855 Branham Lane East              San Jose                                3,289         6,521             68
1065-1105 La Avenida Street        Mountain View                          46,832       109,275             65
1750 Automation Parkway            San Jose                                4,789        11,174            315
1756 Automation Parkway            San Jose                                4,378        10,216             15
1762 Automation Parkway            San Jose                                4,804        12,224             20
1768 Automation Parkway            San Jose                                8,195        19,121             14
255 Caspian Drive                  Sunnyvale                               3,491         8,146
245 Caspian Drive                  Sunnyvale                               5,894             -
2251 Lawson Lane                   Santa Clara                             1,952         9,498
1230 East Arques                   Sunnyvale                   B             540         2,628             39
1250 East Arques                   Sunnyvale                   B           1,335         6,499
3120 Scott Blvd                    Santa Clara                             2,044         9,948
20400 Mariani Avenue               Cupertino               1,597           1,670         8,125
10500 De Anza Blvd                 Cupertino                   B           7,666        37,304
20605-20705 Valley Green Drive     Cupertino                               3,490        16,984
10300 Bubb Road                    Cupertino                   B             635         3,090
10440 Bubb Road                    Cupertino                 347             434         2,112
10460 Bubb Road                    Cupertino                 363             994         4,838          1,161
1135 Kern Avenue                   Sunnyvale                   B             407         1,982
405 Tasman Drive                   Sunnyvale                                 550         2,676
450 National Avenue                Mountain View               B             611         2,973
3301 Olcott Street                 Santa Clara                             1,846         8,984
2800 Bayview Avenue                Fremont                                 1,070         5,205
6850 Santa Teresa Blvd             San Jose                                  377         1,836            780
6810 Santa Teresa Blvd             San Jose                                2,567         5,991             12
140-160 Great Oaks Blvd            San Jose                                1,402         6,822            158
6541 Via del Oro/6385 San Ignacio  San Jose                                1,039         5,057
6311-6351 San Ignacio Avenue       San Jose                    B           6,246        30,396             94
6320-6360 San Ignacio Avenue       San Jose                                2,616        12,732            338
75 E. Trimble Rd/2610 N. First St  San Jose                    F           3,477        16,919             82
2033-2243 Samaritan Drive          San Jose               79,887 F         5,046        24,556            125
1170 Morse Avenue                  Sunnyvale                   B             658         3,201
3236 Scott Blvd                    Santa Clara                 B           1,234         6,005
1212 Bordeaux Lane                 Sunnyvale                   B           2,250        10,948
1325-1810 McCandless Drive         Milpitas                    F          13,994        66,213            703
1600 Memorex Drive                 Santa Clara                 B           1,221         5,940
1688 Richard Avenue                Santa Clara                 B           1,248         2,913              6
1700 Richard Avenue                Santa Clara                 B           1,727         4,030

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                          Total Cost
                                                    ------------------------
                                                                 Buildings
                                                                    And                     Accumulated     Date of    Depreciable
Property Name                      City                Land     Improvements     Total      Depreciation  Acquisition     Life
--------------------------------------------------  ----------  ------------  ------------  ------------  -----------  -----------
<C>                               <C>                <C>          <C>           <C>              <C>        <C>        <C>
5300-5350 Hellyer Avenue           San Jose    E      $  5,742     $  11,458     $  17,200        $  465      5/00      40 Years
10401-10411 Bubb Road              Cupertino   A           632         3,078         3,710           271      7/98      40 Years
2001 Logic Drive                   San Jose              2,288        11,134        13,422           975      7/98      40 Years
45365 Northport Loop               Fremont               2,447         5,722         8,169           179     10/00      40 Years
47000 Northport Loop               Fremont               1,184         5,767         6,951           506      7/98      40 Years
45738 Northport Loop               Fremont                 891         4,343         5,234           383      7/98      40 Years
4050 Starboard Drive               Fremont               1,329         6,475         7,804           569      7/98      40 Years
3501 W. Warren Ave/Fremont Blvd    Fremont               1,866         9,082        10,948           797      7/98      40 Years
48800 Milmont Blvd                 Fremont               1,013         4,932         5,945           433      7/98      40 Years
4750 Patrick Henry Drive           Santa Clara           1,604         7,958         9,562           694      7/98      40 Years
3520 Bassett Street                Santa Clara C         1,104         5,371         6,475           471      7/98      40 Years
3530 Bassett Street                Santa Clara C,D         849         4,133         4,982           363      7/98      40 Years
5850-5870 Hellyer Avenue           San Jose              2,787         6,502         9,289           518     11/98      40 Years
5750 Hellyer Avenue                San Jose              3,266         3,354         6,620            35      8/01      40 Years
800 Branham Lane East              San Jose              5,508        12,867        18,375           589      3/00      40 Years
5500 Hellyer Avenue                San Jose              4,735        13,076        17,811           300      2/01      40 Years
5550 Hellyer Avenue                San Jose              3,261         3,872         7,133            57      6/01      40 Years
5400 Hellyer Avenue                San Jose              3,238         5,435         8,673           203      7/00      40 Years
5325 Hellyer Avenue                San Jose              4,684        10,823        15,507           270      1/01      40 Years
5905-5965 Silver Creek Valley Rd   San Jose              8,437        18,554        26,991           232      7/01      40 Years
5905-5965 Silver Creek Valley Rd   San Jose              3,438         3,220         6,658            20     10/01      40 Years
855 Branham Lane East              San Jose              3,289         6,589         9,878           109      5/01      40 Years
1065-1105 La Avenida Street        Mountain View        46,832       109,340       156,172         7,515      4/99      40 Years
1750 Automation Parkway            San Jose              4,789        11,489        16,278           718      7/99      40 Years
1756 Automation Parkway            San Jose              4,378        10,231        14,609           512      1/00      40 Years
1762 Automation Parkway            San Jose              4,804        12,244        17,048           535      4/00      40 Years
1768 Automation Parkway            San Jose              8,195        19,135        27,330           518     12/00      40 Years
255 Caspian Drive                  Sunnyvale             3,491         8,146        11,637           357      4/00      40 Years
245 Caspian Drive                  Sunnyvale             5,894             -         5,894             -      4/01      40 Years
2251 Lawson Lane                   Santa Clara           1,952         9,498        11,450           832      7/98      40 Years
1230 East Arques                   Sunnyvale               540         2,667         3,207           234      7/98      40 Years
1250 East Arques                   Sunnyvale             1,335         6,499         7,834           569      7/98      40 Years
3120 Scott Blvd                    Santa Clara           2,044         9,948        11,992           873      7/98      40 Years
20400 Mariani Avenue               Cupertino             1,670         8,125         9,795           713      7/98      40 Years
10500 De Anza Blvd                 Cupertino             7,666        37,304        44,970         3,268      7/98      40 Years
20605-20705 Valley Green Drive     Cupertino             3,490        16,984        20,474         1,490      7/98      40 Years
10300 Bubb Road                    Cupertino               635         3,090         3,725           272      7/98      40 Years
10440 Bubb Road                    Cupertino               434         2,112         2,546           187      7/98      40 Years
10460 Bubb Road                    Cupertino               994         5,999         6,993           485      7/98      40 Years
1135 Kern Avenue                   Sunnyvale               407         1,982         2,389           177      7/98      40 Years
405 Tasman Drive                   Sunnyvale               550         2,676         3,226           236      7/98      40 Years
450 National Avenue                Mountain View           611         2,973         3,584           261      7/98      40 Years
3301 Olcott Street                 Santa Clara           1,846         8,984        10,830           789      7/98      40 Years
2800 Bayview Avenue                Fremont               1,070         5,205         6,275           457      7/98      40 Years
6850 Santa Teresa Blvd             San Jose                377         2,616         2,993           201      7/98      40 Years
6810 Santa Teresa Blvd             San Jose              2,567         6,003         8,570           426      3/99      40 Years
140-160 Great Oaks Blvd            San Jose              1,402         6,980         8,382           606      7/98      40 Years
6541 Via del Oro/6385 San Ignacio  San Jose              1,039         5,057         6,096           443      7/98      40 Years
6311-6351 San Ignacio Avenue       San Jose              6,246        30,490        36,736         2,666      7/98      40 Years
6320-6360 San Ignacio Avenue       San Jose              2,616        13,070        15,686         1,125      7/98      40 Years
75 E. Trimble Rd/2610 N. First St  San Jose              3,477        17,001        20,478         1,486      7/98      40 Years
2033-2243 Samaritan Drive          San Jose              5,046        24,681        29,727         2,153      7/98      40 Years
1170 Morse Avenue                  Sunnyvale               658         3,201         3,859           282      7/98      40 Years
3236 Scott Blvd                    Santa Clara           1,234         6,005         7,239           527      7/98      40 Years
1212 Bordeaux Lane                 Sunnyvale             2,250        10,948        13,198           961      7/98      40 Years
1325-1810 McCandless Drive         Milpitas             13,994        66,916        80,910         5,831      7/98      40 Years
1600 Memorex Drive                 Santa Clara           1,221         5,940         7,161           497      7/98      40 Years
1688 Richard Avenue                Santa Clara           1,248         2,919         4,167           254      9/98      40 Years
1700 Richard Avenue                Santa Clara           1,727         4,030         5,757           244      8/99      40 Years
</TABLE>

                                     - 66 -
<PAGE>
<TABLE>
<CAPTION>
                                                                        Initial Cost
                                                                  ----------------------------      Cost
                                                     December 31,                  Buildings    Subsequent to
                                                        2002                          and       Construction/
Property Name                      City             Encumbrances       Land       Improvements   Acquisition
--------------------------------------------------  ------------  --------------  ------------  -------------
<S>                               <C>                <C>              <C>           <C>              <C>
3506-3510 Bassett Street           Santa Clara C                             943         4,591             99
3540-3544 Bassett Street           Santa Clara C               B           1,565         7,615            189
3550 Bassett Street                Santa Clara C               B           1,079         5,251             33
3560 Bassett Street                Santa Clara C               B           1,075         5,233              8
3570-3580 Bassett Street           Santa Clara C               B           1,075         5,233
  Prudential Insurance Company of America Loan           125,109B
                                                    ------------  --------------  ------------  -------------
                                                      $  218,674       $ 218,058     $ 687,831        $ 4,654
                                                    ============  ==============  ============  =============
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                          Total Cost
                                                    ------------------------
                                                                 Buildings
                                                                    And                     Accumulated     Date of    Depreciable
Property Name                      City                Land     Improvements     Total      Depreciation  Acquisition     Life
--------------------------------------------------  ----------  ------------  ------------  ------------  -----------  -----------
<S>                               <C>               <C>          <C>            <C>             <C>          <C>       <C>
3506-3510 Bassett Street           Santa Clara C           943         4,690         5,633           408      7/98      40 Years
3540-3544 Bassett Street           Santa Clara C         1,565         7,804         9,369           678      7/98      40 Years
3550 Bassett Street                Santa Clara C         1,079         5,284         6,363           463      7/98      40 Years
3560 Bassett Street                Santa Clara C         1,075         5,241         6,316           460      7/98      40 Years
3570-3580 Bassett Street           Santa Clara C         1,075         5,233         6,308           460      7/98      40 Years
  Prudential Insurance Company of America Loan
                                                    ----------  ------------  ------------  ------------
                                                     $ 218,058    $  692,485     $ 910,543       $49,608
                                                    ==========  ============  ============  ============
</TABLE>



(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  Encumbered by the $125,109  Prudential  Insurance Company of America loan -
     full amount of loan shown at the bottom of the schedule.
(C)  Part of the property group referred to as Triangle Technology Park.
(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(E)  50% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(F)  Four properties at McCandless  Drive,  three  properties at Samaritan Drive
     and four other various  properties  are  encumbered by the $79,887 debt due
     the Berg Group under the line of credit.


                                     - 67 -


<PAGE>




                          MISSION WEST PROPERTIES, INC.
                              NOTE TO SCHEDULE III
                           December 31, 2002 and 2001
                             (dollars in thousands)

1.   Reconciliation of real estate and accumulated depreciation:
<TABLE>
<CAPTION>

                                                                      2002                       2001
                                                            ------------------------   ------------------------
<S>                                                              <C>                        <C>
Real estate investments:
     Balance at beginning of year                                 $  910,543                 $  841,478
     Additions                                                        64,167                     97,422
     Dispositions                                                    (13,422)                   (28,357)
                                                            ------------------------   ------------------------
     Balance at end of year                                       $  961,288                 $  910,543
                                                            ========================   ========================

Accumulated depreciation:
     Balance at beginning of year                                 $   49,608                 $   34,022
     Additions                                                        17,974                     16,917
     Dispositions                                                     (1,022)                    (1,331)
                                                            ------------------------   ------------------------
     Balance at end of year                                       $   66,560                 $   49,608
                                                            ========================   ========================
</TABLE>

                                     - 68 -

<PAGE>

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         Not applicable.

                                     - 69 -
<PAGE>


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required by Item 10 is incorporated by reference from the
     sections  titled  "Directors  and Executive  Officers"  and "Section  16(a)
     Beneficial  Ownership  Reporting  Compliance"  in the Company's  definitive
     proxy statement for its annual stockholders' meeting.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  required by Item 11 is incorporated by reference from the
     section titled "Executive  Compensation" in the Company's  definitive proxy
     statement for its annual  stockholders'  meeting,  excluding,  however, the
     sections titled "Executive Compensation - Performance Graph" and "Executive
     Compensation  -  Report  on  Executive  Compensation  by  the  Compensation
     Committee of the Board of  Directors,"  none of which are  incorporated  by
     reference in response to this item.

ITEM 12. SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

     The  information  required by Item 12 is incorporated by reference from the
     sections titled "Share  Ownership" and "Securities  Authorized for Issuance
     Under  Equity  Compensation  Plans"  in  the  Company's   definitive  proxy
     statement for its annual stockholders' meeting.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by Item 13 is incorporated by reference from the
     sections titled "Certain  Relationships  and Related  Transactions"  in the
     Company's definitive proxy statement for its annual stockholders' meeting.

ITEM 14. CONTROLS AND PROCEDURES

     EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.  Within the 90 days prior
     to the date of this report, the Company has conducted an evaluation,  under
     the supervision  and with the  participation  of the Company's  management,
     including  the  Company's  Chief  Executive  Officer  and  Chief  Financial
     Officer,  of the effectiveness of the design and operation of the Company's
     disclosure  controls and procedures  pursuant to Exchange Act Rule 13a-14c.
     Base upon that evaluation,  the Chief Executive Officer and Chief Financial
     Officer concluded that the Company's disclosure controls and procedures are
     effective in timely alerting them to material  information  relating to the
     Company  (including  its  subsidiaries)  required  to be  included  in  the
     Company's periodic SEC filings.

     CHANGES IN  INTERNAL  CONTROLS.  There were no  significant  changes in our
     internal  controls  or to  our  knowledge,  in  other  factors  that  could
     significantly affect such internal controls subsequent to the date of their
     evaluation.

                                     - 70 -

<PAGE>

PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

<S>               <C>
3.2.1+             Articles of Amendment and Restatement of Mission West Properties, Inc.
3.2.2+             Restated Bylaws of Mission West Properties, Inc.
10.1.1**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P.
10.1.2**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. I
10.1.3**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. II
10.1.4**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. III
10.2**             Exchange Rights Agreement between Mission West Properties and the Limited Partners
10.3.1*            1997 Stock Option Plan
10.3.2*            Form of Incentive Stock Option Agreement
10.3.3*            Form of Non-statutory Stock Option Agreement
10.3.4*            Form of Directors Stock Option Agreement
10.4.1*            Acquisition Agreement, dated as of May 14, 1998, among Mission West Properties, certain partnerships and the Berg
                   Group (as defined therein)
10.4.2*            Amendment of Acquisition Agreement, dated as of July 1, 1998
10.4.3*            Form of Partnership Interest Purchase Demand Note
10.5.1*            Stock Purchase Agreement dated as of May 4, 1998, between Mission West Properties and the purchasers of Common
                   Stock in a private placement of 5,800,000 shares and Subscription Agreement relating to same
10.5.2*            Stock Purchase Agreement dated as of May 4, 1998 between Mission West Properties and the purchasers of Common
                   Stock in a private placement of 695,058 shares and Subscription Agreement relating to same
10.5.3**           Form of Registration Rights Agreement for purchasers, who acquired shares of Common Stock under the May 4, 1998
                   Stock Purchase Agreements (filed as Exhibits 10.8 to Post-effective Amendment No. 1 to S-4 Registration Statement
                   filed on Form S-3 on February 11, 1999. Commission File No. 333-52835-99)
10.6**             Pending Projects Acquisition Agreement among Mission West Properties, the Operating Partnership and the Berg
                   Group
10.7**             Berg Land Holdings Option Agreement between Mission West Properties and certain members of the Berg Group
10.8*              Berg & Berg Enterprises, Inc. Sublease Agreement
10.9               Not In Use
10.10              Not In Use
10.11              Not In Use
10.12*             Lease Agreement with Apple Computer, Inc.
10.13*             Lease Agreement with Cisco Systems, Inc,
10.14*             Lease Agreement with Amdahl Corporation
10.15*             Prudential Promissory Note
10.16*             Prudential Deed of Trust
10.17*             Prudential Certificate Regarding Distribution
10.18*             Prudential Guaranty
10.19+             Waiver Agreement
10.20**            Ownership Limit Exemption Agreement dated December 29, 1999 between Mission West Properties and Dan and Paul
                   McCarthy
10.21x             Lease Agreement with Microsoft Corporation 10.22x Contribution Agreement
10.23xx            Assumption Agreement for Wells Fargo Line of Credit
10.24xx            Not In Use
10.25xx            Not In Use
10.26xx            Supplemental Agreement among Mission West Properties, Inc., Carl E. Berg and Clyde J. Berg
10.27              Berg Group Revolving Credit - $100,000,000 Secured Promissory Note

                                     - 71 -
<PAGE>


10.28              Berg Group Deed of Trust Securing Revolving Promissory Note
10.29              Cupertino National Bank Revolving Credit Loan Agreement
10.30              Mission West Properties, LP Continuing Guaranty
10.31              Mission West Properties, LP II Continuing Guaranty
10.32              Mission West Properties, L.P. Promissory Note to Northwestern Mutual Life Insurance Company
10.33              Mission West Properties, L.P. I Promissory Note to Northwestern Mutual Life Insurance Company
10.34              Mission West Properties, L.P. II Promissory Note to Northwestern Mutual Life Insurance Company
10.35              Mission West Properties, L.P. Deed of Trust and Security Agreement (First Priority)
10.36              Mission West Properties, L.P. Deed of Trust and Security Agreement (Second Priority)
10.37              Mission West Properties, L.P. I Deed of Trust and Security Agreement (First Priority)
10.38              Mission West Properties, L.P. I Deed of Trust and Security Agreement (Second Priority)
10.39              Mission West Properties, L.P. II Deed of Trust and Security Agreement (First Priority)
10.40              Mission West Properties, L.P. II Deed of Trust and Security Agreement (Second Priority)
10.41              Mission West Properties, L.P. Absolute Assignment of Leases and Rents (First Priority)
10.42              Mission West Properties, L.P. I Absolute Assignment of Leases and Rents (First Priority)
10.43              Mission West Properties, L.P. II Absolute Assignment of Leases and Rents (First Priority)
21.1++             Subsidiaries of the Registrant
23.1               Consent of Independent Public Accountants
24.1               Powers of Attorney (included on the signature page hereto)
99.1               Section 1350 Certificate
</TABLE>

*    Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Company's  Registration  Statement  on Form S-4  filed on May 15,  1998 and
     declared effective on November 23, 1998.
**   Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Company's  Post-effective Amendment No. 1 to Registration Statement on Form
     S-4  filed  on  Form  S-3  on  February  11,  1999.  (Commission  File  No.
     333-52835-99).
+    Incorporated herein by reference to the same-numbered  exhibit to Amendment
     No. 4 to the Registration  Statement on Form S-4 filed on November 16, 1998
     and declared effective on November 23, 1998.
++   Incorporated herein by reference to the same-numbered exhibit to the annual
     report on Form 10-K for 1998 filed on March 31, 1999.
x    Incorporated  herein by reference to the  same-numbered  exhibit to current
     report on Form 8-K filed on May 14, 1999 (Commission File No. 000-25235).
xx   Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Registration  Statement on Form S-11 filed on June 8, 1999 (Commission File
     No. 333-80203).


     (b)  Reports on Form 8-K.

     The  registrant  has not  filed any  reports  on Form 8-K  during  the last
     quarter of the period covered by this report.

                                     - 72 -
<PAGE>


                                   SIGNATURES

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

                                        MISSION WEST PROPERTIES, INC.

Date: March 26, 2003                    By: /s/ CARL E. BERG
                                        ----------------------
                                        Carl E. Berg
                                        Chief Executive Officer

Date: March 26, 2003                    By: /s/ WAYNE N. PHAM
                                        ----------------------
                                        Wayne N. Pham
                                        Vice President of Finance and Controller
                                        (Principal Accounting Officer)

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below constitutes and appoints Carl E. Berg his true and lawful attorney-in-fact
with the power of  substitution,  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 each of said  attorney-in-fact,  or his or her
substitute, may do or choose to be done by virtue hereof.

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

<TABLE>
<CAPTION>

     Signature                        Title                                Date
     ---------                        -----                                ----

<S>                       <C>                                        <C>
/s/  CARL E. BERG
-----------------------
Carl E. Berg               Chairman of the Board, Chief               March 26, 2003
                           Executive Officer and Director

/s/  RAYMOND V. MARINO
-----------------------
Raymond V. Marino          President, Chief Operating Officer         March 26, 2003
                           and Director

/s/  JOHN C. BOLGER
-----------------------
John C. Bolger             Director                                   March 26, 2003


/s/  WILLIAM A. HASLER
-----------------------
William A. Hasler          Director                                   March 26, 2003


/s/  LAWRENCE B. HELZEL
-----------------------
Lawrence B. Helzel         Director                                   March 26, 2003

</TABLE>

                                     - 73 -


<PAGE>




                             CERTIFICATE PURSUANT TO
                 RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

I, Carl E. Berg, certify that:

     1. I have  reviewed  this  Annual  Report  on  Form  10-K of  Mission  West
Properties, Inc. (the "Company") for the year ended December 31, 2002;

     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 we have:

          a)   designed such  disclosure  controls and  procedures to ensure the
               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 function):

          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  offices and I have indicated in this
annual report whether or not 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.



Carl E. Berg
Chairman and CEO

March 26, 2003



                                     - 74 -


<PAGE>



                             CERTIFICATE PURSUANT TO
                 RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

I, Wayne N. Pham, certify that:

     1. I have  reviewed  this  Annual  Report  on  Form  10-K of  Mission  West
Properties, Inc. (the "Company") for the year ended December 31, 2002;

     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 we have:

          a)   designed such  disclosure  controls and  procedures to ensure the
               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 function):

          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  offices and I have indicated in this
annual report whether or not 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.




Wayne N. Pham
Vice President of Finance and Controller


March 26, 2003



                                     - 75 -
<PAGE>


EXHIBIT 99.1


                    CERTIFICATION OF CEO AND CFO PURSUANT TO
                               18 U.S.C. ss. 1350,
                             AS ADOPTED PURSUANT TO
                    ss. 906 OF THE SARBANES-OXLEY ACT OF 2002

     In  connection  with  the  Annual  Report  on  Form  10-K of  Mission  West
Properties,  Inc. (the  "Company") for the year ended December 31, 2002 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
each of Carl E. Berg,  Chairman of the Board and Chief Executive  Officer of the
Company,  and Wayne N. Pham,  Vice  President of Finance and  Controller  of the
Company, hereby certify,  pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
ss. 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.

/s/ Carl E. Berg
----------------------------
Carl E. Berg
Chairman of the Board and Chief Executive Officer
March 26, 2003

/s/ Wayne N. Pham
----------------------------
Wayne N. Pham
Vice President of Finance and Controller
March 26, 2003


This  certification   accompanies  this  Report  pursuant  to  ss.  906  of  the
Sarbanes-Oxley  Act of 2002 and shall not,  except to the extent required by the
Sarbanes-Oxley  Act of 2002,  or  otherwise  required,  be  deemed  filed by the
Company  for  purposes  of ss. 18 of the  Securities  Exchange  Act of 1934,  as
amended.

A signed  original of this  written  statement  required by section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.

                                     - 77 -
<PAGE>







EXHIBIT 10.29

                             CUPERTINO NATIONAL BANK

                         REVOLVING CREDIT LOAN AGREEMENT



     THIS  REVOLVING  CREDIT  LOAN  AGREEMENT  (this  "Agreement")  is made  and
delivered  this 12th day of July 2002, by and between  Mission West  Properties,
Inc., a Maryland  corporation  ("Borrower")  and  Cupertino  National  Bank (the
"Bank").

                                   WITNESSETH

     WHEREAS,  the  Borrower  desires  to  borrow  up to Forty  Million  Dollars
($40,000,000.00)  from the Bank  from time to time to meet the  working  capital
needs of the Borrower; and

     WHEREAS,  the Bank is willing to supply such financing subject to the terms
and conditions set forth in this Agreement;

     NOW,  THEREFORE,  in  consideration of the premises and the mutual promises
herein contained and in reliance upon Borrower's  representations and warranties
set forth herein, the Borrower and the Bank agree as follows:

1.   DEFINITIONS.

     1.1  DEFINED TERMS.  As used in this  Agreement,  the following terms shall
          have the following respective meanings:

          "Affiliate"  shall mean,  when used with  respect to any  person,  any
     other person which, directly or indirectly, controls or is controlled by or
     is under common control with such person.  For purposes of this definition,
     "control"  (including the correlative meanings of the terms "controlled by"
     and "under common control  with"),  with respect to any person,  shall mean
     possession,  directly  or  indirectly,  of the power to direct or cause the
     direction of the  management and policies of such person,  whether  through
     the ownership of voting securities or by contract or otherwise.

          "Agreement" is defined in the first paragraph of this Agreement.

          "Annual Gross Rental Income" shall mean with respect to any of the MWP
     Pool  Properties  and any of the MWP II Pool  Properties,  the annual gross
     rental  income  received  by MWP or MWP II from  each of  their  respective
     properties,  except that, for purposes of  determining  Annual Gross Rental
     Income  hereunder,  income shall be  calculated  on a stabilized  basis and
     shall not  include  security or other  deposits or letters of credit,  late
     fees,  lease   termination  or  other  similar  charges,   delinquent  rent
     recoveries  unless  previously  reflected  in  reserves,   or  proceeds  of
     insurance or any other items of a non-recurring nature.

          "Automatic Loan Calculation  Time" is defined in Section 2.4.1 of this
     Agreement.

          "Automatic  Loan  Repayment  Time" is defined in Section 2.4.2 of this
     Agreement.

          "Automatic  Variable  Rate Loan" is  defined in Section  2.4.1 of this
     Agreement.

          "Bank" is defined in the first paragraph of this Agreement.

          "Bankruptcy  Code" shall mean Title 11 of the United  States Code,  as
     amended, or any successor act or code.

          "Borrower" is defined in the first paragraph of this Agreement.

          "Borrower's  Deposit  Account"  is  defined  in  Section  6.12 of this
     Agreement.

          "Business  Day" shall mean a day on which the Bank is open to carry on
     its normal commercial lending business.

<PAGE>

          "Commitment"  shall mean the Bank's  agreement  to lend to Borrower in
     accordance with and subject to the terms of this Agreement.

          "Commitment   Amount"  shall  mean,  as  of  any  applicable  date  of
     determination, Forty Million Dollars and no cents ($40,000,000.00).

          "Consolidated" or "consolidated"  shall mean, when used with reference
     to any  financial  term in this  Agreement,  the  aggregate for two or more
     persons  of the  amounts  signified  by  such  term  for all  such  persons
     determined  on a  consolidated  basis in  accordance  with GAAP as  defined
     below.  Unless  otherwise  specified  herein,  reference to  "consolidated"
     financial  statements or data of the Borrower includes  consolidation  with
     its Subsidiaries in accordance with GAAP.

          "Debt" shall mean, as of any  applicable  date of  determination,  all
     items of indebtedness, obligation or liability of a person, whether matured
     or unmatured,  liquidated or unliquidated,  direct or indirect, absolute or
     contingent,  joint or several,  that should be classified as liabilities in
     accordance with GAAP.

          "Debt Service Coverage Ratio" shall mean, as of any applicable date of
     determination,  the ratio of: (1) the sum of  Borrower's  net income,  plus
     interest  (related  parties),  plus all other  interest  (including but not
     limited to any interest  paid to any other party),  plus minority  interest
     distributions  paid by Borrower  (as set forth in  Borrower's  Consolidated
     Statement of Cash Flows),  plus dividends paid by Borrower (as set forth in
     Borrower's Consolidated Statement of Cash Flows), plus depreciation,  minus
     deferred  rent (as set forth in Borrower's  Consolidated  Statement of Cash
     Flows),  and minus Borrower's gains on sale of real estate;  to (2) the sum
     of interest (related parties),  plus all other interest  (including but not
     limited to any interest paid to any other party),  plus the current portion
     of  Borrower's  long term debt.  The Debt Service  Coverage  Ratio shall be
     determined by the Bank as of each Fiscal  Quarter (as defined below) and on
     the basis of the  preceding  twelve (12) month  period  (actual or based on
     annualized  quarters) as follows:  (i) as to each Fiscal  Quarter ending on
     March 31, June 30, and  September 30, from  Borrower's  SEC Form 10-Q filed
     with the Securities and Exchange Commission relating to such quarter,  with
     such quarter results annualized;  and (ii) as to each Fiscal Quarter ending
     on December 31, from  Borrower's  SEC Form 10-K relating to the year ending
     on such  date.  Notwithstanding  the  foregoing,  the Bank may also rely on
     other  information  that  Borrower  is  obligated  to  provide  to the Bank
     pursuant to Section  6.1 of this  Agreement.  Exhibit E hereto  includes an
     example of the calculation of Debt Service Coverage Ratio as defined herein
     from  Borrower's SEC Form 10-K for the period ending December 31, 2001, and
     is provided for example purposes only.

          "Default"  shall mean a condition or event  which,  with the giving of
     notice or the passage of time, or both, would become an Event of Default as
     defined below.

          "Default  Rate"  shall  mean,  as of the  applicable  date  or time of
     determination, LIBOR as defined below plus nine percent (9%).

          "Deposit  Account  Excess  Amount" is defined in Section 2.4.2 of this
     Agreement.

          "Deposit Account Shortfall Amount" is defined in Section 2.4.1 of this
     Agreement.

          "Effective Date" shall mean the date this Agreement  becomes effective
     as set forth in Section 9.1 herein.

          "Election" shall mean that election referred to in Section 2.3.2.2.2.1
     of this Agreement.

          "ERISA"  shall mean the  Employee  Retirement  Income  Security Act of
     1974, as amended, or any successor act or code.

          "Event of Default" shall mean any of those conditions or events listed
     in Section 8.1 of this Agreement.

          "Financial  Statements"  shall  mean all  those  consolidated  balance
     sheets,  consolidated earnings statements and other consolidated  financial
     data  which  have been  furnished  to the Bank for the  purposes  of, or in
     connection with, this Agreement and the transactions  contemplated  hereby,
     including  without  limit the  following:  the  "Proposed  Pool Of Assets -
     Multi-Tenant"  provided by Borrower to the Bank,  Borrower's  SEC Form 10-K
     for the periods ending December 31, 2000, and December 31, 2001, Borrower's
     SEC Form 10-Q dated  November 12, 2001 for the period ending  September 30,
     2001, and Borrower's SEC Form 10-Q dated May 14, 2002 for the period ending
     March 31, 2002.

          "Fiscal  Quarter" shall mean each  three-month  period ending on March
     31, June 30, September 30, and December 31 of each year.

          "Funding Date" shall mean,  with respect to any Revolving Loan made by
     the Bank hereunder, the date of the funding of such Revolving Loan by Bank.

<PAGE>

          "GAAP"  shall  mean,  as of  any  applicable  date  of  determination,
     generally accepted accounting principles consistently applied in the United
     States.

          "Guarantor"  shall mean  Mission  West  Properties,  L.P.,  a Delaware
     limited  partnership,  and Mission  West  Properties,  L.P.  II, a Delaware
     limited partnership, and any other person who may execute a Guaranty of all
     or part of the Indebtedness, jointly and severally.

          "Guaranty" shall mean a guaranty (or separate  guaranties) in the form
     and content of Exhibit A to this Agreement pursuant to which the Guarantors
     (jointly and severally)  unconditionally guarantee repayment to the Bank of
     all the Indebtedness and other obligations as provided therein.

          "Indebtedness"   shall   mean  all  loans,   advances,   indebtedness,
     obligations  and  liabilities of Borrower to the Bank under this Agreement,
     together  with  all  other   indebtedness,   obligations   and  liabilities
     whatsoever  of the  Borrower  to the Bank,  whether  matured or  unmatured,
     liquidated or  unliquidated,  direct or indirect,  absolute or  contingent,
     joint or several, due or to become due, now existing or hereafter arising.

          "Initial  LIBOR  Period"  shall mean, as to each LIBOR Loan as defined
     below,  the LIBOR  Period  selected by Borrower in its Notice of  Borrowing
     applicable to such LIBOR Loan.

          "Initial  LIBOR  Rate"  shall  mean,  as to each LIBOR Loan as defined
     below,  the interest  rate payable for such LIBOR Loan in  accordance  with
     Section  2.3.2.2.1  herein as of the first day of the Initial  LIBOR Period
     for such LIBOR Loan.

          "Interest  Coverage  Ratio" shall mean, as of any  applicable  date of
     determination,  the ratio of: (1) the sum of  Borrower's  net income,  plus
     interest  (related  parties),  plus all other  interest  (including but not
     limited to any interest  paid to any other party),  plus minority  interest
     distributions paid by Borrower (as set forth in the Consolidated  Statement
     of Cash  Flows),  plus  dividends  paid by  Borrower  (as set  forth in the
     Consolidated  Statement of Cash Flows),  plus depreciation,  minus deferred
     rent (as set forth in Borrower's Consolidated Statement of Cash Flows), and
     minus Borrower's  gains on sale of real estate;  to (2) the sum of interest
     (related  parties),  plus all other interest  (including but not limited to
     any interest paid to any other party). The Interest Coverage Ratio shall be
     determined by the Bank as of each Fiscal  Quarter (as defined below) and on
     the basis of the  preceding  twelve (12) month  period  (actual or based on
     annualized  quarters) as follows:  (i) as to each Fiscal  Quarter ending on
     March 31, June 30, and  September 30, from  Borrower's  SEC Form 10-Q filed
     with the Securities and Exchange Commission relating to such quarter,  with
     such quarter results annualized;  and (ii) as to each Fiscal Quarter ending
     on December 31, from  Borrower's  SEC Form 10-K relating to the year ending
     on such  date.  Notwithstanding  the  foregoing,  the Bank may also rely on
     other  information  that  Borrower  is  obligated  to  provide  to the Bank
     pursuant to Section  6.1 of this  Agreement.  Exhibit F hereto  includes an
     example of the  calculation  of Interest  Coverage  Ratio as defined herein
     from  Borrower's SEC Form 10-K for the period ending December 31, 2001, and
     is provided for example purposes only.

          "Internal  Revenue Code" shall mean the Internal Revenue Code of 1986,
     as amended from time to time and hereafter, and any successor statute.

          "Legal Rate" shall mean the maximum interest rate allowed by law to be
     paid  by  the  Borrower  or  received  by  the  Bank  with  respect  to the
     Indebtedness represented by the Note.

          "Lender" shall mean any bank, financial institution,  finance company,
     insurance or other financial institution or any other person who extends or
     has extended any credit or loan or line of credit to any other person.

          "LIBOR" shall mean the London Inter-Bank  Offered Rate, rounded up, if
     necessary, to the nearest whole 1/100 of 1%.

          "LIBOR  Loan"  shall mean a  Revolving  Loan as to which,  pursuant to
     Sections 2.3.1,  2.3.2,  and 2.3.4,  Borrower has selected an interest rate
     based on a thirty (30), sixty (60), or ninety (90) day LIBOR Period.

          "LIBOR  Period"  shall mean the period  beginning on and including the
     Funding  Date and  ending  on (but  excluding)  the day  which  numerically
     corresponds  to such date  thirty  (30),  sixty  (60) or  ninety  (90) days
     thereafter,  in each case as Borrower may select in its relevant  Notice of
     Borrowing pursuant to Section 2.3.4.1 herein or in its Election pursuant to
     Section 2.3.2.2.2.1 herein (except that if the LIBOR Period would otherwise
     end on a day which is not a Business  Day, then such LIBOR Period shall end
     on the next following  Business Day and except that no LIBOR Period may end
     later than the Termination Date as defined below).

          "Loan" shall mean the Revolving Loans.

<PAGE>

          "Loan Documents"  shall mean this Agreement,  the Note, each Guaranty,
     the  Non-Encumbrance  Agreement and all other  agreements,  instruments and
     documents  (together  with  all  amendments  and  supplements  thereto  and
     replacements  thereof) now or  hereafter  executed by Borrower or Guarantor
     that evidence, guaranty or secure all or any portion of the Indebtedness or
     Borrower's obligations hereunder.

          "Material  Adverse Effect" or "Materially  Adverse Effect" shall mean,
     with  respect to a Person,  a material  adverse  effect upon the  condition
     (financial or otherwise),  operations,  performance or properties or assets
     of such Person.

          "Minimum  Tangible Net Worth" shall be calculated  each Fiscal Quarter
     and  shall  mean,  as  of  any  applicable  date  of  determination,  Total
     Stockholders' Equity (but not including Minority Interest) as stated in the
     Consolidated  Balance Sheet of Borrower in Borrower's  SEC Form 10-Q or, as
     applicable,  SEC Form 10-K (or other  financial  information  that Bank may
     obtain  regarding  Borrower  or that may be provided by Borrower to Bank in
     accordance with), less intangibles calculated in accordance with GAAP.

          "MWP" shall mean Mission  West  Properties,  L.P., a Delaware  limited
     partnership, and its successors and assigns.

          "MWP II" shall  mean  Mission  West  Properties,  L.P.  II, a Delaware
     limited partnership, and its successors and assigns.

          "MWP  Pool  Properties"   shall  mean  those  real  estate  properties
     identified in Schedule 1 to the Non-Encumbrance  Agreement as defined below
     including any "Replacement Properties" as defined in such agreement.

          "MWP II Pool  Properties"  shall  mean those  real  estate  properties
     identified in Schedule 2 to the Non-Encumbrance  Agreement as defined below
     including any "Replacement Properties" as defined in such agreement.

          "Non-Encumbrance  Agreement"  shall mean a  non-encumbrance  agreement
     between Bank, Borrower, MWP and MWP II in the form and content of Exhibit C
     to this Agreement  pursuant to which Borrower,  MWP and MWP II (jointly and
     severally)  agree not to encumber  the MWP Pool  Properties  and the MWP II
     Pool Properties in accordance with the terms therein.

          "Note" shall mean the Revolving Credit Note.

          "Notice of Borrowing" shall mean, with respect to a proposed Revolving
     Loan pursuant to Section 2.3 of this Agreement,  a notice  substantially in
     the form of Exhibit D hereto.

          "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation  or any
     person  succeeding  to the  present  powers and  functions  of the  Pension
     Benefit Guaranty Corporation.

          "Person"  or  "person"   shall  mean  any   individual,   corporation,
     partnership, joint venture, association, trust, unincorporated association,
     joint stock company,  government,  municipality,  political  subdivision or
     agency, or other entity.

          "Prepayment Date" is defined in Section 2.3.2.3 of this Agreement.

          "Prepayment Penalty" is defined in Section 2.3.2.3 of this Agreement.

          "Prime  Variable Rate" shall mean that variable rate of interest equal
     to the Prime Rate as published in the Wall Street Journal minus 3/4 percent
     (3/4%), per annum, with the interest rate to be initially calculated by the
     Bank as of approximately  10:00 a.m. San Jose,  California time on the date
     on which the Bank  exercises  its option under  Section 2.16 if such option
     date is the first day of the month, or, if not, as of  approximately  10:00
     a.m. San Jose,  California  time as the first day of the month during which
     such option date occurs, and with the interest rate to thereafter fluctuate
     with changes in such Prime Rate with such fluctuations to be effective, and
     the interest rate to be adjusted, on the first day of each month.

          "Revolving  Credit Note" shall mean a promissory  note  conforming  to
     Section 2.5 of this  Agreement  and in the form and content of Exhibit B to
     this Agreement.

          "Revolving  Loan" shall mean advances or loans made by the Bank to the
     Borrower under this Agreement.

          "Section" when used to refer to a portion of this Agreement shall mean
     the section to which  reference is made plus all  subparts and  subsections
     thereof.

          "Solvent"  shall mean, as to any person at the time of  determination,
     that such person (a) owns  property  and assets the value of which (both at
     fair  valuation  and at present  fair  salable  value) is greater  than the
     amount required to pay all of such person's liabilities

<PAGE>

     (including contingent liabilities and debts); (b) is able to pay all of its
     debts as such debts mature;  and (c) has capital sufficient to carry on its
     business and  transactions and all business and transactions in which it is
     about to engage.

          "Subsidiary"  shall mean any  corporation  (whether  now  existing  or
     hereafter  organized or acquired) in which more than fifty percent (50%) of
     the outstanding securities having ordinary voting power for the election of
     directors,  as of any  applicable  date of  determination,  shall  be owned
     directly, or indirectly through one or more Subsidiaries, by the Borrower.

          "Termination Date" shall mean July 12, 2004.

          "Total  Loans  of  Borrower"  shall  mean,  as of the date of any such
     determination,  the sum of the total  outstanding  principal balance of all
     secured  loans to Borrower from any Lender plus the total amount of all the
     balances  and the credit  commitments  under any and all  unsecured  loans,
     unsecured  lines  of  credit,  unsecured  credit  facilities  of  any  kind
     (including  but not  limited  to the  Commitment  Amount),  and  any  other
     commitments  evidencing  any extension of unsecured debt to Borrower by any
     Lender.

          "Value" as to each and any of the MWP Pool Properties and each and any
     of the MWP II Pool  Properties  shall be based upon the Annual Gross Rental
     Income from each such property less a fifteen  percent  reserve for vacancy
     and expenses, and using a ten percent income capitalization rate, and shall
     mean at any time an amount equal to (i) the Annual Gross Rental Income from
     such property for the preceding twelve month period multiplied by 0.85, and
     (ii) which amount shall be divided by 0.10, illustrated as follows:

          (Annual Gross Rental Income x 0.85) / 0.10 = Value of subject property

          "Value  (Borrower  Aggregate)"  shall be  determined as of each Fiscal
     Quarter and shall mean, as of the applicable date of determination, the sum
     of total  quarterly  rental revenue as reported by Borrower in its SEC Form
     10-Q filed with the  Securities  Exchange  Commission  (or as determined by
     Bank from such other financial  information as Bank may reasonably  request
     and Borrower may provide in  accordance  with Section 6.1 herein or as Bank
     may  obtain)  multiplied  by  four  (which  sum  shall  be  referred  to as
     "Annualized  Quarterly  Rental  Revenue"),  multiplied  by 0.85,  and which
     amount shall be divided by 0.10, illustrated as follows:

          "Quarterly Rental Revenue x 4 = Annualized Quarterly Rental Revenue

          (Annualized  Quarterly Rental Revenue x 0.85) / 0.10 = Value (Borrower
          Aggregate)"

          "UCC" shall mean Uniform  Commercial  Code of the State of  California
     (approved June 8, 1968) as amended.

          "Variable Rate" shall mean that variable rate of interest equal to the
     sum of LIBOR applicable to funds borrowed for a thirty (30) day period plus
     two percent (2%), per annum,  the interest rate to be initially  calculated
     by the Bank as of approximately 10:00 a.m. San Jose, California time on the
     Funding Date if the Funding  Date is the first day of a month,  or, if not,
     as of approximately  10:00 a.m. San Jose,  California time on the first day
     of the month during  which the Funding  Date occurs,  and with the interest
     rate  to  thereafter  fluctuate  with  changes  in  such  LIBOR  with  such
     fluctuations to be effective,  and the interest rate to be adjusted, on the
     first day of each month.

          "Variable  Rate Loan" shall mean a Revolving Loan as to which Borrower
     has selected a Variable Rate pursuant to Sections 2.3.1,  2.3.3, and 2.3.4,
     any LIBOR Loan that has  converted  to a  Variable  Rate Loan  pursuant  to
     Section  2.3.2.2.2.2 or Section 2.13.2;  and/or an Automatic  Variable Rate
     Loan under Section 2.4.1.

          "Variable Rate Loans  Outstanding  Amount" is defined in Section 2.4.2
     of this Agreement.

     1.2  ACCOUNTING  TERMS. All accounting  terms not  specifically  defined in
          this Agreement shall be construed in accordance with GAAP.

     1.3  SINGULAR AND PLURAL.  Where the context herein requires,  the singular
          number  shall be deemed to include the plural,  the  masculine  gender
          shall include the feminine and neuter genders, and vice versa.

2.   COMMITMENT, PROCEDURES, INTEREST AND FEES.

     2.1  REVOLVING  CREDIT  COMMITMENT.  Subject to the terms and conditions of
          this  Agreement  and at any time  from the  Effective  Date  until the
          earlier of (a) the  Termination  Date, (b) such earlier date on which,
          pursuant to the terms of this  Agreement and a result of  acceleration
          or otherwise,  the  Indebtedness is fully due and payable,  or (c) the
          termination of the Bank's  Commitment  pursuant to Section 8.2 of this
          Agreement or otherwise, the Bank agrees to make Revolving Loans to the
          Borrower on a revolving basis

<PAGE>

          up to an aggregate  principal  amount  outstanding  at any time not to
          exceed the Commitment Amount.  Notwithstanding the foregoing, the Bank
          shall not be obligated to make the  Revolving  Loan if: (i) any of the
          conditions  precedent set forth in Section 4 of this  Agreement  shall
          not have  been  satisfied  or waived  by the Bank in  accordance  with
          Section 9.4 of this  Agreement,  or (ii) such proposed  Revolving Loan
          would cause the  aggregate  unpaid  principal  amount of the Revolving
          Loans outstanding under this Agreement to exceed the Commitment Amount
          on the Funding Date.

     2.2  REVOLVING  LOANS MADE  PURSUANT TO NOTICE OF BORROWING  AND  AUTOMATIC
          LOANS. Pursuant to the terms of this Agreement,  Revolving Loans shall
          be made  pursuant to a Notice of Borrowing  pursuant to Section 2.3 or
          automatically pursuant to Section 2.4.

     2.3  REVOLVING LOANS MADE PURSUANT TO NOTICE OF BORROWING.

          2.3.1BORROWER'S SELECTION OF LOAN TYPE. Pursuant to the procedures set
               forth  in  Section  2.3.4  and as to  each  Revolving  Loan  made
               pursuant to a Notice of Borrowing,  Borrower shall select whether
               the Loan shall be a LIBOR Loan or a Variable Rate Loan, and, if a
               LIBOR Loan, the applicable LIBOR Period (whether 30-day,  60-day,
               or  90-day).  Borrower  may  select a LIBOR Loan only if there is
               sufficient time for the selected LIBOR Period to commence and end
               prior to the Termination Date.

          2.3.2 LIBOR LOANS. The following provisions apply to each LIBOR Loan:

               2.3.2.1 MAXIMUM NUMBER OF LIBOR LOANS;  REVOLVING LOAN AMOUNT. At
                    any one  time,  there  shall  not be  more  than  eight  (8)
                    outstanding  LIBOR Loans. The amount of each LIBOR Loan must
                    be in the amount of One Million Dollars  ($1,000,000.00)  or
                    integral multiples of One Million Dollars ($1,000,000.00).

               2.3.2.2  INTEREST  RATE.  Except  as  otherwise  provided  herein
                    (including  without  limitation  Section 2.6 relating to the
                    Default  Rate),  each  LIBOR  Loan  will  bear  interest  as
                    follows:

                    2.3.2.2.1  INITIAL  LIBOR  RATE.  During the  Initial  LIBOR
                         Period,  the LIBOR  Loan  shall  bear  interest  on the
                         unpaid  principal  amount  thereof  at a rate per annum
                         equal to the sum of  LIBOR  applicable  to the  Initial
                         LIBOR Period calculated by the Bank as of approximately
                         10:00 a.m. San Jose,  California  time on the first day
                         of the Initial  LIBOR Period plus two percent (2%) (the
                         "Initial LIBOR Rate").

                    2.3.2.2.2 SUBSEQUENT  RATES.  Upon expiration of the Initial
                         LIBOR  Period,  the LIBOR Loan shall bear  interest  as
                         follows:

                         2.3.2.2.2.1  BORROWER'S  TIMELY ELECTION OF  ADDITIONAL
                              LIBOR PERIOD(S).  Borrower  may elect to  continue
                              the  LIBOR  Loan after  expiration of the  Initial
                              LIBOR  Period for  additional,  successive  LIBOR
                              Periods  as long as,  (i) there is sufficient time
                              for the additional  LIBOR  Period to  commence and
                              end prior to the  Termination Date;  (ii) there is
                              no Default or Event of Default; and (iii) not less
                              than two (2) nor more than five (5) Business  Days
                              prior  to the  expiration  of each  LIBOR  Period,
                              Borrower  provides to the  Bank at  20230  Stevens
                              Creek  Boulevard,  Cupertino,  California   95014,
                              Attention Michael Zukin,  or to such other persons
                              or entities  as the Bank may designate,  a written
                              election  (the "Election")  to continue the  LIBOR
                              Loan for an additional LIBOR Period.  The Election
                              shall specify the additional LIBOR Period (whether
                              30-day, 60-day, or 90-day). During each additional
                              LIBOR Period, the  LIBOR Loan shall bear  interest
                              on the unpaid principal  amount thereof  at a rate
                              per annum equal to the sum of  LIBOR applicable to
                              such  additional  LIBOR  Period  calculated by the
                              Bank as of approximately  10:00 a.m. on the  first
                              Business Day  immediately following  expiration of
                              the Initial LIBOR Period plus two percent (2%).

                         2.3.2.2.2.2   BORROWER'S   FAILURE  TO  MAKE  A  TIMELY
                              ELECTION   OF   ADDITIONAL  LIBOR   PERIOD(S)   OR
                              INSUFFICIENT TIME LEFT PRIOR TO  TERMINATION DATE.
                              If, during any LIBOR Period, (i) Borrower fails to
                              provide the  Election in  accordance with  Section
                              2.3.2.2.2.1,  or  (ii) there  is insufficient time
                              for an additional LIBOR Period to commence and end
                              prior  to  the  Termination  Date,  then  upon the
                              expiration of such  LIBOR Period,  the  LIBOR Loan
                              will convert automatically to a Variable Rate Loan
                              and shall bear  interest on  the unpaid  principal
                              amount thereof at the Variable Rate.

                    2.3.2.3  Prepayment  Penalty.   Borrower  acknowledges  that
                         prepayment  or  acceleration  of a LIBOR Loan  during a
                         LIBOR   Period  may   result  in  the  Bank   incurring
                         additional costs,  expenses and/or liabilities and that
                         it is extremely  difficult and impractical to ascertain
                         the extent of such costs,  expenses and/or liabilities.
                         Therefore,  on a date a LIBOR  Loan is so prepaid or so
                         accelerated (the "Prepayment Date"),  Borrower will pay
                         to the Bank (in  addition to all other sums then owing)
                         an  amount  (a  "Prepayment   Penalty")  equal  to  the
                         following:  (i) the present value as of the  Prepayment
                         Date of the amount of interest  that would have accrued
                         on the LIBOR Loan for the remainder of the LIBOR Period
                         at the rate  applicable  to such LIBOR Loan,  less (ii)
                         the  present  value  as of the  Prepayment  Date of the
                         amount of interest  that would accrue on the same LIBOR
                         Loan  for the  same  period  if  LIBOR

<PAGE>

                         were  set on  the  Prepayment Date.  The present  value
                         shall be calculated  by using as a discount  rate LIBOR
                         quoted on the Prepayment Date.  Upon notice to Borrower
                         by the Bank, Borrower shall immediately pay to the Bank
                         the  Prepayment  Penalty  as  calculated  by the  Bank.
                         Exhibit G hereto includes an  example  of a  prepayment
                         calculation and is provided for example purposes only.

          2.3.3VARIABLE  RATE  LOANS.  The  following  provisions  apply to each
               Variable Rate Loan:

               2.3.3.1  INTEREST  RATE.  Except  as  otherwise  provided  herein
                    (including  without  limitation  Section 2.6 relating to the
                    Default Rate), each Variable Rate Loan will bear interest on
                    the unpaid principal amount thereof at the Variable Rate.

          2.3.4BORROWING  PROCEDURES FOR REVOLVING LOANS MADE PURSUANT TO NOTICE
               OF BORROWING.

               2.3.4.1 NOTICE OF BORROWING.  Whenever Borrower desires to Borrow
                    under  Section 2.3,  Borrower  shall  provide to the Bank at
                    20230 Stevens Creek Boulevard,  Cupertino, California 95014,
                    Attention  Michael  Zukin,  or  to  such  other  persons  or
                    entities  as Bank  may  designate,  an  original  Notice  of
                    Borrowing.  Such Notice of Borrowing shall be provided by no
                    later than 11:00 A.M. (San Jose,  California  time) for each
                    Revolving  Loan requested and not less than two (2) nor more
                    than five (5)  Business  Days prior to the  noticed  Funding
                    Date of each such Revolving  Loan.  Each Notice of Borrowing
                    shall  specify  (A)  the  Funding  Date  (which  shall  be a
                    Business  Day) in respect  of the  Revolving  Loan,  (B) the
                    amount of the  proposed  Revolving  Loan,  (C)  whether  the
                    Borrower  selects a LIBOR Loan or a Variable  Rate Loan and,
                    if a  LIBOR  Loan,  the  applicable  LIBOR  Period,  (D) the
                    deposit  account  number of Borrower  with Bank to which the
                    funds are to be  directed,  and (E) the proposed use of such
                    Revolving   Loan.   Any   Notice  of   Borrowing   shall  be
                    irrevocable.  At the time of execution of this Agreement and
                    as a condition to the Bank's obligations hereunder, Borrower
                    shall   provide   the  Bank   with   written   documentation
                    satisfactory  to the  Bank  specifying  the  names  of those
                    employees,  officers  or agents of  Borrower  authorized  by
                    Borrower to execute and submit  Notices of  Borrowing to the
                    Bank ("Authorized  Agent") and a signature  exemplar of each
                    such  Authorized  Agent,  and the Bank shall be  entitled to
                    rely on such  documentation  until  notified  in  writing by
                    Borrower  of any  change(s)  of the  persons so  authorized.
                    Borrower  agrees  to  indemnify,  defend  and  hold the Bank
                    harmless  from and  against any and all  liabilities,  costs
                    (including  but not  limited to  attorneys'  fees),  claims,
                    damages  and  demands  arising  from or  related  to  Bank's
                    acceptance  of  instructions  in  any  Notice  of  Borrowing
                    executed and submitted an Authorized Agent, unless caused by
                    the gross negligence or willful  misconduct of the Person to
                    be indemnified.

               2.3.4.2 BANK OBLIGATIONS.  Subject to the terms and conditions of
                    this Agreement  including without limitation Section 2.1 and
                    subject to Borrower's performance of and compliance with the
                    terms hereof including  without  limitation  Section 2.3.4.1
                    herein,  the Bank agrees to make the Revolving Loan pursuant
                    to a Notice of Borrowing on the Funding Date  established by
                    the Notice of Borrowing by crediting the deposit  account of
                    the  Borrower  with  the Bank  specified  in the  Notice  of
                    Borrowing in the amount of such Revolving Loan.

     2.4  AUTOMATIC VARIABLE RATE LOANS AND AUTOMATIC REPAYMENTS. Subject to the
          terms and conditions of this Agreement  including  without  limitation
          Section 2.1, the Bank is hereby authorized and shall, without the need
          for any Notice of Borrowing  or other  authorization,  make  Automatic
          Variable Rate Loans to Borrower and make automatic  repayments  toward
          Variable Rate Loans as follows:

          2.4.1AUTOMATIC VARIABLE RATE LOANS. If, after close of business on any
               Business Day (the "Automatic Loan Calculation  Time"), the amount
               on  deposit  in the  Borrower's  Deposit  Account  as  defined in
               Section  6.12 is less than One Million  Dollars  ($1,000,000.00),
               then the Bank shall  calculate the amount of the  shortfall  (the
               "Deposit  Account  Shortfall  Amount") as of the  Automatic  Loan
               Calculation  Time,  and,  by no  later  than  the end of the next
               Business Day, shall make a Revolving Loan (an "Automatic Variable
               Rate Loan") in the Deposit Account Shortfall Amount by depositing
               such  amount  into the  Borrower's  Deposit  Account.  Except  as
               otherwise   provided  in  this   Agreement   (including   without
               limitation  Section 2.6 relating to Default Rate),  the Automatic
               Variable Rate Loan will bear interest at the Variable Rate.

          2.4.2AUTOMATIC  REPAYMENT OF AUTOMATIC  VARIABLE RATE LOANS. If, after
               close  of  business  on any  Business  Day (the  "Automatic  Loan
               Repayment Time"), the amount on deposit in the Borrower's Deposit
               Account  as  defined  in  Section  6.12 is more than One  Million
               Dollars ($1,000,000.00) and there is an amount outstanding on the
               Variable  Rate  Loans  (the  "Variable  Rate  Loans   Outstanding
               Amount"), then the Bank shall calculate, as of the Automatic Loan
               Repayment  Time,  the amount of the excess (the "Deposit  Account
               Excess Amount") and the Variable Rate Loans  Outstanding  Amount,
               and, by no later than the end of the next  Business Day, the Bank
               shall transfer the Deposit Account Excess Amount,  or such lesser
               amount as may be necessary,  from the Borrower's  Deposit Account
               and apply such amount toward repayment of the Variable Rate Loans
               Outstanding Amount.

     2.5  REVOLVING  CREDIT NOTE. The Revolving  Loans shall be evidenced by the
          Revolving  Credit Note,  executed by the  Borrower,  dated the date of
          this Agreement,  payable to the Bank on the Termination  Date (or such
          earlier  date as the  Indebtedness  is due  under  the  terms  of this
          Agreement whether by reason of acceleration or otherwise),  and in the
          principal  amount  of the  original  Commitment  Amount.  The date and
          amount of each  Revolving  Loan made by the Bank and of each repayment
          of  principal  thereon

<PAGE>

          received by the Bank shall be recorded by the Bank in its records. The
          aggregate  unpaid  principal  amount  so  recorded  by the Bank  shall
          constitute the best evidence of the principal  amount owing and unpaid
          on the Revolving Credit Note, provided,  however,  that the failure by
          the Bank so to record any such amount or any error in so recording any
          such amount shall not limit or otherwise affect the obligations of the
          Borrower  under this  Agreement or the Revolving  Credit Note to repay
          the  principal  amount of all the  Revolving  Loans  together with all
          interest accrued or accruing thereon.

     2.6  DEFAULT  INTEREST.  Upon the  occurrence  of an Event of Default,  all
          amounts due and owing by  Borrower to the Bank shall bear  interest at
          the Default Rate.

     2.7  INTEREST PAYMENTS. Interest shall be payable by Borrower to the extent
          then  accrued  on the first  day of each  consecutive  calendar  month
          beginning  on August 1,  2002,  with all  remaining  interest  due and
          payable  on  the  Termination  Date  (or  such  earlier  date  as  the
          Indebtedness  is due  under  the terms of this  Agreement  whether  by
          reason of acceleration  or otherwise).  Any interest not paid when due
          shall become part of the  principal  and bear  interest as provided in
          this Agreement.

     2.8  MAXIMUM  RATE.  At no time shall the rate of  interest  payable on the
          Revolving  Loans or pursuant to the Revolving  Credit Note pursuant to
          the terms of this Agreement be deemed to exceed the Legal Rate. In the
          event any interest is charged or received by the Bank in excess of the
          Legal Rate, the Borrower  acknowledges  that any such excess  interest
          shall be the result of an  accidental  and bona fide  error,  and such
          excess  shall  first be applied to reduce the  principal  then  unpaid
          hereunder (in inverse order of their  maturities if principal  amounts
          are due in installments); second, applied to reduce any obligation for
          other  indebtedness  of the  Borrower  to the  Bank;  and  third,  any
          remaining excess returned to the Borrower.

     2.9  TERM. The  Indebtedness  and the outstanding  balance of all Revolving
          Loans and all other accrued and unpaid interest,  charges and expenses
          hereunder  and  under  the  Note  shall  be  payable  in  full  on the
          Termination Date or such earlier date as the Indebtedness is due under
          the terms of this Agreement whether by reason of acceleration pursuant
          to Section 8.2 or otherwise.

     2.10 FEES.  Borrower  shall pay to Bank the fees  described in this Section
          2.10.  All fees  described  herein  are earned as of the date they are
          accrued.

          2.10.1  MINIMUM  ANNUAL  FEE.  The  Borrower  shall  pay to the Bank a
               minimum  annual fee of Thirty Three Thousand Three Hundred Thirty
               Three  Dollars and no cents  ($33,333.00)  (the  "Minimum  Annual
               Fee").  The Minimum Annual Fee paid by Borrower shall be credited
               towards Borrower's payment of the Non-Utilization Fee as required
               by Section 2.10.2 below.  The Minimum Annual Fee shall be payable
               in advance, in the manner provided in Section 2.14 herein, on the
               Effective  Date  for  the  first  year  hereunder,  and  on  each
               anniversary of the Effective Date for each subsequent year.

               2.10.2 NON-UTILIZATION FEE. From and after the Effective Date and
                    until  (i) the  Indebtedness  is  paid  in full or (ii)  the
                    Termination Date, whichever is later,  Borrower shall pay to
                    the  Bank a fee  (the  "Non-Utilization  Fee")  each  Fiscal
                    Quarter which shall accrue as follows:

                    (i)  If the sum of the  Commitment  Amount minus the average
                         daily  principal  balance  of all  Revolving  Loans  as
                         determined  for each Fiscal  Quarter (the "Average Line
                         Non-Utilization Amount") is greater than Twenty Million
                         Dollars  and  no  cents   ($20,000,000.00),   then  the
                         Non-Utilization Fee for such Fiscal Quarter shall equal
                         the  sum of the  Average  Line  Non-Utilization  Amount
                         multiplied by 0.000375.

                    (ii) If the Average Line Non-Utilization Amount is less than
                         or  equal  to  Twenty  Million  Dollars  and  no  cents
                         ($20,000,000.00), then the Non-Utilization Fee for such
                         Fiscal  Quarter shall equal the sum of the Average Line
                         Non-Utilization Amount multiplied by 0.000625.

               The  Non-Utilization Fee shall be payable, in the manner provided
               in Section 2.14 herein,  in arrears on the first  Business Day in
               each Fiscal  Quarter,  beginning with the end of the first Fiscal
               Quarter  after the  Effective  Date.  Exhibit  H hereto  includes
               examples  of the  calculation  of the  Non-Utilization  Fee under
               Sections  2.10.2 (i) and 2.10.2 (ii), and is provided for example
               purposes only.

               2.10.3  NO   FEE   AFTER   TERMINATION   OF   BANK   OBLIGATIONS.
                    Notwithstanding  Sections  2.10.1 and 2.10.2,  the  Borrower
                    shall not be obligated to pay any Minimum  Annual Fee or any
                    Non-Utilization  Fee earned by the Bank after the date which
                    is ten (10) days  after  Borrower  has:  (i)  given  written
                    notice to the Bank terminating the Bank's Commitment and any
                    further  obligation  by the Bank under this  Agreement;  and
                    (ii) paid the Indebtedness in full.

          2.11 PREPARATION  FEES.  Simultaneously  with  the  execution  of this
               Agreement and as a condition to the Bank's obligations hereunder,
               the  Borrower  shall pay to the Bank the  amount of the  expenses
               (including  without limit attorneys'  fees,  whether of inside or

<PAGE>

               outside  counsel,  and  disbursements)  incurred  by the  Bank in
               connection  with the  preparation  of this Agreement and the Loan
               Documents in the amount of Fifteen Thousand Dollars ($15,000.00).

          2.12 BASIS  OF  COMPUTATION.  The  amount  of all  interest  and  fees
               hereunder shall be computed for the actual number of days elapsed
               in the  period in which  interest  accrues on the basis of a year
               consisting of three hundred sixty (360) days.

          2.13 MANDATORY PAYMENTS AND PREPAYMENTS.

               2.13.1 MANDATORY  PAYMENTS.  In  addition  to all other  payments
                    required to be made under the Loan Documents, Borrower shall
                    pay to the Bank the amount,  if any, by which the  aggregate
                    unpaid  principal amount of all Revolving Loans from time to
                    time  exceeds  the  Commitment  Amount,  together  with  all
                    interest  accrued  and unpaid on the amount of such  excess.
                    Such  payment  shall be  immediately  due and owing  without
                    notice or demand  upon the  occurrence  of any such  excess,
                    provided,  however,  that any  mandatory  payment made under
                    this Section 2.13.1 shall not reduce the Commitment Amount.

               2.13.2 OPTIONAL PREPAYMENTS AND CONVERSIONS. The Borrower, at any
                    time and from time to time, may prepay the unpaid  principal
                    amount  of  the  Variable  Rate  Loans,   including  without
                    limitation the Automatic  Variable Rate Loans.  In addition,
                    the Borrower, at any time and from time to time, may convert
                    all or any portion of the  outstanding  Variable  Rate Loans
                    into LIBOR Loans upon and subject to the terms,  conditions,
                    and  procedures  set  forth  in  Sections  2.3.2  and  2.3.4
                    applicable to LIBOR Loans made  thereunder in which case the
                    Notice  of  Borrowing  shall  be  modified  to  request  the
                    conversion of a specified  amount of the Variable Rate Loans
                    to  be   converted   to  a  LIBOR  Loan   (rather  than  the
                    disbursement of proceeds),  to specify the date on which the
                    conversion is to be made (rather than a Funding  Date),  and
                    to delete the  requirements  in  Schedule 1 relating to wire
                    instructions, proposed use of funds, and deposit account. In
                    addition,  the Borrower,  at any time and from time to time,
                    upon at least one (1) Business  Day's prior  written  notice
                    received by the Bank and subject to the  Prepayment  Penalty
                    in Section 2.3.2.3 herein,  may prepay the unpaid  principal
                    amount  of the  LIBOR  Loans in whole or in part,  provided,
                    however, as follows:  (i) any such optional prepayment under
                    this Section  2.13.2 shall be made in integral  multiples of
                    One  Hundred  Thousand  Dollars  ($100,000.00);  (ii) to the
                    extent that such optional prepayment repays part but not all
                    of any LIBOR Loan, such LIBOR Loan shall immediately convert
                    to a Variable Rate Loan (but Borrower  shall still be liable
                    for the Prepayment  Penalty in Section 2.3.2.3 herein);  and
                    (iii) any optional prepayment made under this Section 2.13.2
                    shall not reduce the Commitment Amount.

          2.14 BASIS OF  PAYMENTS.  All sums payable by the Borrower to the Bank
               under  this  Agreement  or  the  Loan  Documents  shall  be  paid
               immediately  by  Borrower  when due  directly  to the Bank at its
               principal  office set forth in Section 9.12 hereof in immediately
               available  United  States  funds,  without  condition,  set  off,
               deduction or counterclaim.  In its sole discretion,  the Bank may
               charge any and all deposit or other accounts  (including  without
               limit an account  evidenced by a  certificate  of deposit) of the
               Borrower with the Bank for all or a part of any Indebtedness when
               due; provided,  however, that this authorization shall not affect
               the  Borrower's  obligation  to pay,  when due, any  Indebtedness
               whether or not account  balances  are  sufficient  to pay amounts
               due. Whenever any payment to be made by Borrower  hereunder shall
               be  stated  to be  due on a day  which  is  not a  Business  Day,
               payments  shall be made on the next  succeeding  Business Day and
               such  extension of time shall be included in the  computation  of
               the  payment  of  interest  hereunder  and of  any  of  the  fees
               specified  in  Sections  2.3.2.3  and  2.10,  as the case may be.
               Borrower  acknowledges  and  agrees  that the fees  described  in
               Section 2.10 represent  compensation for services rendered and to
               be rendered  separate  and apart from the lending of money or the
               provision of credit and do not  constitute  compensation  for the
               use,  detention or  forbearance  of money,  and the obligation of
               Borrower to pay the fees  described  herein  shall be in addition
               to,  and  not in lieu  of,  the  obligation  of  Borrower  to pay
               interest,  other fees and  expenses  otherwise  described in this
               Agreement.  If  Borrower  fails  to make any  payment  of fees or
               expenses  specified  or  referred to in this  Agreement  owing to
               Bank,  including without  limitation those referred to in Section
               2.10,  or  otherwise  under this  Agreement,  or any separate fee
               agreement  between  Borrower or Bank relating to this  Agreement,
               when due,  the  amount  shall  bear  interest  until  paid at the
               Default Rate.

          2.15 RECEIPT OF PAYMENTS. Any payment of the Indebtedness made by mail
               will be deemed  tendered and received only upon actual receipt by
               the Bank at the address  designated for such payment,  whether or
               not the Bank has authorized  payment by mail or any other manner,
               and shall  not be  deemed  to have  been made in a timely  manner
               unless  received on the date due for such payment,  time being of
               the  essence.  Borrower  expressly  assumes  all risks of loss or
               liability resulting from non-delivery or delay of delivery of any
               item of  payment  transmitted  by mail  or in any  other  manner.
               Acceptance  by the Bank of any payment in an amount less than the
               amount then due shall be deemed an  acceptance  on account  only,
               and the  failure to pay the entire  amount  then due shall be and
               continue  to be a Default  or Event of  Default  as  provided  in
               Section  8.1,  and at any time  thereafter  and until the  entire
               amount  then due has been  paid,  the Bank shall be  entitled  to
               exercise  any and all rights  conferred  upon it herein  upon the
               occurrence  of a  Default  or Event of  Default  as  provided  in
               Section 8.1.  Borrower waives the right to direct the application
               of any and all payments at any time or times  hereafter  received
               by the Bank from or on behalf of the  Borrower.  Borrower  agrees
               that the Bank shall have the continuing  exclusive right to apply
               and to reapply any and all payments received at any time or times
               hereafter against the Indebtedness in such manner as the Bank may
               deem advisable, notwithstanding any entry by the Bank upon any of
               its books and  records.  Borrower  expressly  agrees  that to the
               extent  that the Bank  receives  any  payment of benefit and such
               payment  or  benefit,   or  any  part  thereof,  is

<PAGE>

               subsequently   invalidated,   declared   to  be   fraudulent   or
               preferential, set aside or is required to be repaid to a trustee,
               receiver,  or any other party under any bankruptcy  act, state or
               federal law, common law or equitable cause, then to the extent of
               such  payment  or  benefit,  the  Indebtedness  or  part  thereof
               intended to be satisfied  shall be revived and  continued in full
               force and effect as if such  payment or benefit had not been made
               and,  further any such  repayment by the Bank, to the extent that
               the Bank did not directly  receive a corresponding  cash payment,
               shall be added to and be  additional  Indebtedness  payable  upon
               demand by the Bank.

          2.16 LIBOR  UNLAWFUL  OR  UNAVAILABLE.  Should  the  Bank in its  sole
               discretion binding on Borrower determine that the introduction of
               or any change in any law or the  interpretation  of any law makes
               it  unlawful  for the Bank to make or  maintain  Revolving  Loans
               bearing  interest  based  on  LIBOR  or  that  LIBOR  has  become
               unavailable as an index,  then, at the Bank's option and upon its
               exercise of such option: (i) the interest rate on any outstanding
               Revolving  Loans  shall  thenceforth  bear  interest at the Prime
               Variable Rate; and (ii) all additional  Revolving  Loans shall be
               Variable  Rate Loans except that they shall bear  interest at the
               Prime Variable Rate.

3.   GUARANTY.

     To guaranty full and timely performance of the Borrower's covenants set out
in this  Agreement and to secure the repayment of the Revolving  Credit Note and
all other  Indebtedness,  the  Borrower  shall have  caused to be  executed  and
delivered to the Bank the Guaranty.

4.   CONDITIONS TO OBLIGATIONS OF BANK.

     4.1  CONDITIONS  PRECEDENT TO FIRST  DISBURSEMENT.  The  obligations of the
          Bank under this Agreement to make the first Revolving Loan are subject
          to the occurrence,  prior to or  simultaneously  with the Funding Date
          first occurring, of each of the following conditions:

          4.1.1BORROWER DOCUMENTS EXECUTED AND FILED AND FEES PAID. The Borrower
               shall have  executed (or caused to be executed)  and delivered to
               the Bank the following in form and substance acceptable to Bank:

               (a)  This Agreement;

               (b)  The Revolving Credit Note;

               (c)  The Non-Encumbrance Agreement;

               (d)  Copy of Borrower's Bylaws,  including all amendments thereto
                    and restatements thereof, which shall have been certified by
                    the  Secretary or Assistant  Secretary of the Borrower as of
                    the Funding Date first occurring as being complete, accurate
                    and in effect; and

               (e)  A copy of  resolutions  of the  Board  of  Directors  of the
                    Borrower authorizing the execution, delivery and performance
                    of this Agreement,  the borrowing  hereunder,  the Revolving
                    Credit  Note and any other  documents  contemplated  by this
                    Agreement,  which shall have been certified by the Secretary
                    or  Assistant  Secretary  of the  Borrower as of the Funding
                    Date first  occurring  as being  complete,  accurate  and in
                    effect.

          4.1.2PAYMENT OF FEES.  Borrower shall have paid the Minimum Annual Fee
               and the  Preparation  Fees in accordance with Sections 2.10.1 and
               2.11.

          4.1.3GUARANTOR  DOCUMENTS  EXECUTED AND FILED.  Each  Guarantor  shall
               have  executed and  delivered (or caused to be delivered) to Bank
               each of the following, in form and substance acceptable to Bank:

               (a)  A Guaranty;

               (b)  Partnership  agreements of each Guarantor and all amendments
                    and modifications thereto,  certified as complete,  accurate
                    and in effect by the general partner of each Guarantor;

               (c)  Bank  shall  have   received   preliminary   title   reports
                    disclosing  no  notice of any  liens or  encumbrances  filed
                    against   any   of  the   properties   set   forth   in  the
                    Non-Encumbrance Agreement.

               Upon its execution of this Agreement,  the Bank acknowledges that
               it has received  the  documents  described in Sections  4.1.1(d),
               4.1.3(b), and 4.1.3(c) above.

<PAGE>

          4.1.4OTHER  DOCUMENTS  EXECUTED  AND FILED.  The  Borrower  shall have
               caused   to  be   executed   and   delivered   to  the  Bank  the
               Non-Encumbrance  Agreement dated as of the date of this Agreement
               between and among Bank, Borrower, MWP, and MWP II.

          4.1.5CASUALTY  INSURANCE.  The  Borrower  shall have  furnished to the
               Bank,   in  form,   content  and   amounts  and  with   companies
               satisfactory to the Bank,  casualty  insurance policies with loss
               payable clauses in favor of the Bank,  relating to the assets and
               properties  of Borrower and  relating to the MWP Pool  Properties
               and  the MWP II  Pool  Properties.  Upon  its  execution  of this
               Agreement,  Borrower  represents,  and upon its execution of this
               Agreement,  the Bank  acknowledges  that Borrower has provided to
               Bank the foregoing insurance policies.

          4.1.6ENVIRONMENTAL  AUDIT.  The  Borrower  shall have  provided to the
               Bank  environmental  reports  satisfactory in form and content to
               Bank, covering all of the MWP Pool Properties and the MWP II Pool
               Properties.  Upon  its  execution  of  this  Agreement,  Borrower
               represents,  and upon its execution of this  Agreement,  the Bank
               acknowledges   that   Borrower   has   provided   to  Bank   such
               environmental reports. Borrower agrees that the Bank may disclose
               the  contents of such reports to such  governmental  agencies and
               entities as the Bank deems  necessary  under  applicable law, and
               the  Borrower  shall  deliver to the Bank the written  consent to
               such disclosure from the environmental consultant and MWP and MWP
               II.

          4.1.7APPROVAL OF BANK COUNSEL. All actions,  proceedings,  instruments
               and documents required to carry out the transactions contemplated
               by this  Agreement or  incidental  thereto and all other  related
               legal  matters  shall have been  satisfactory  to and approved by
               legal  counsel  for the Bank,  and said  counsel  shall have been
               furnished with such certified  copies of actions and  proceedings
               and such  other  instruments  and  documents  as they  shall have
               reasonably requested.

     4.2  CONDITIONS PRECEDENT TO ALL DISBURSEMENTS. The obligations of the Bank
          to make any  Revolving  Loan on any Funding Date,  including,  but not
          limited  to, the  Funding  Date first  occurring,  are  subject to the
          occurrence,  prior to or on the Funding Date related to such Revolving
          Loan, of each of the following conditions:

          4.2.1CERTIFICATE. The Bank shall have received a certificate, executed
               by the chief  executive or chief  financial  officer of Borrower,
               certified as of the initial  Funding Date,  and thereafter as the
               Bank may from time to time require on such date, that:

               (a)  No  Default  or  Event  of  Default  has   occurred  and  is
                    continuing;

               (b)  The warranties and representations set forth in Section 5 of
                    this  Agreement are true and correct on and as of such date;
                    and

               (c)  Borrower is Solvent.

          4.2.2BANK SATISFACTION.  The Bank shall not know or have any reason to
               believe that, as of such Funding Date:

               (a)  Any  Default  or  Event  of  Default  has  occurred  and  is
                    continuing;

               (b)  Any  warranty  or  representation  set forth in Section 5 of
                    this Agreement shall not be true and correct; or

               (c)  Any  provision  of  law,  any  order  of  any  court  or any
                    regulation,  rule or  interpretation  thereof shall have had
                    any  Material   Adverse   Effect  on  Borrower's   financial
                    condition or on any Guarantor's  financial condition,  or on
                    the  validity  or  enforceability  of  this  Agreement,  the
                    Revolving  Credit Note,  the Guaranty,  the  Non-Encumbrance
                    Agreement or any other Loan Document.

          4.2.3MAXIMUM  BORROWER  AGGREGATE  LOAN-TO-VALUE.  The Total  Loans of
               Borrower shall not exceed fifty percent (50%) of Value  (Borrower
               Aggregate).

          4.2.4LOAN-TO-VALUE  OF MWP POOL PROPERTIES AND MWP II POOL PROPERTIES.
               The Commitment Amount shall not exceed fifty percent (50%) of the
               total  combined  Value of the MWP Pool  Properties and the MWP II
               Pool Properties.

     4.3  OTHER DOCUMENTS TO BE PROVIDED BY BORROWER.  No later than thirty (30)
          days after the  Effective  Date,  Borrower  shall  provide to Bank the
          following documents:

<PAGE>

          (a)  Copy  of  Borrower's  Articles  of  Incorporation  including  all
               amendments  thereto  and  restatements  thereof,  and  all  other
               charter  documents of the Borrower,  all of which shall have been
               certified by the Maryland  Department of  Corporations or similar
               governmental   authority  in  the  state  in  which  Borrower  is
               organized  and  incorporated,  as of a date within thirty days of
               the Funding Date first occurring;

          (b)  Certified copy of Borrower's Good Standing  certificate  from the
               California  Secretary of State,  dated as of a date within thirty
               days of the Funding Date first occurring;

          (c)  A  copy  of  the  Certificate  of  Limited  Partnership  of  each
               Guarantor  required to be filed to create a limited  partnership,
               including all amendments thereto and restatements thereof, all of
               which shall have been  certified  by the Delaware  Department  of
               Corporations  or other  appropriate  filing  office  as of a date
               within thirty days of the Funding Date first occurring; and

          (d)  Good Standing  Certificate  for each Guarantor from the Secretary
               of State of the state in which such Guarantor is formed, dated as
               of a date within thirty days of the Funding Date first occurring.

5. WARRANTIES AND REPRESENTATIONS.

     On a continuing  basis from the date of this  Agreement  until the later of
(a) the  Termination  Date or (b) the date on which the  Indebtedness is paid in
full and the  Borrower has  performed  all of its other  obligations  hereunder,
Borrower represents and warrants to the Bank that:

     5.1  CORPORATE  EXISTENCE  AND POWER.  (a) Borrower is a  corporation  duly
          organized, validly existing and in good standing under the laws of the
          State of  Maryland  and in good  standing  under  the laws of,  and is
          authorized  to do  business  in,  the  State of  California,  (b) Each
          Guarantor is a limited  partnership  duly organized,  validly existing
          and in good  standing  under the laws of the State of Delaware  and is
          authorized to do business in the State of California, (c) Borrower and
          the Guarantors  each has the power and authority to own its properties
          and assets and to carry out its business as now being conducted and is
          qualified  to do business and in good  standing in every  jurisdiction
          wherein such  qualification  is necessary,  (d) Borrower has the power
          and  authority  to execute,  deliver and perform  this  Agreement,  to
          borrow money in  accordance  with its terms,  to execute,  deliver and
          perform the  Revolving  Credit Note and other  documents  contemplated
          hereby,  and to do any and all other  things  required of it hereunder
          (e) each Guarantor has the power and authority to execute, deliver and
          perform its Guaranty in accordance with its terms,  (f) MWP and MWP II
          each has the power and  authority to execute,  deliver and perform the
          Non-Encumbrance  Agreement in accordance with its terms;  (g) Borrower
          is a qualified real estate  investment trust as defined in Section 856
          of the Internal Revenue Code (or any successor  provision thereto) and
          has no  knowledge  of any  circumstance  that is likely to lead to its
          failure to qualify as such a real  estate  investment  trust;  (h) the
          execution,  delivery and  performance  of the Loan  Documents will not
          result in Borrower being disqualified as such a real estate investment
          trust; and (i) Borrower has made and will timely make all filings with
          and obtained all consents of the  Securities  and Exchange  Commission
          required  under the  Securities  Act of 1933 (as amended  from time to
          time) or the  Security  Exchange  Act of 1934 (as amended from time to
          time) in connection  with the execution,  delivery and  performance by
          Borrower of the Loan Documents.

     5.2  AUTHORIZATION AND APPROVALS.  The execution,  delivery and performance
          of  this  Agreement,  the  borrowings  hereunder  and  the  execution,
          delivery and  performance of the Revolving  Credit Note, the Guaranty,
          the Non-Encumbrance Agreement, and other documents contemplated hereby
          (a) have been duly authorized by all requisite corporate action of the
          Borrower and all partnership  action of each Guarantor and MWP and MWP
          II, (b) do not require registration with or consent or approval of, or
          other action by, any federal, state or other governmental authority or
          regulatory  body,  or, if such  registration,  consent or  approval is
          required,  the same has been  obtained and disclosed in writing to the
          Bank,  (c) will not violate  any  provision  of law,  any order of any
          court or other agency of government, the Articles of Incorporation and
          Bylaws of  Borrower,  the  partnership  certificates  and  partnership
          agreements of each  Guarantor,  any provision of any indenture,  note,
          agreement or other  instrument to which the Borrower is a party, or by
          which it or any of its properties or assets are bound, (d) will not be
          in conflict with, result in a breach of or constitute (with or without
          notice or passage of time) a default under any such  indenture,  note,
          agreement or other instrument, and (e) will not result in the creation
          or  imposition  of any  lien,  charge  or  encumbrance  of any  nature
          whatsoever upon any of the properties or assets of the Borrower (other
          than in favor of the Bank and as contemplated  hereby) or upon the MWP
          Pool  Properties  or the  MWP II  Pool  Properties.  Reference  to the
          "Borrower"  in  this  Section  5.2  shall  instead  be  deemed  to  be
          references to each Guarantor with respect to the Guaranty.

     5.3  VALID AND BINDING  AGREEMENT.  This  Agreement  is, and the  Revolving
          Credit Note, and all other documents contemplated hereby will be, when
          delivered,   valid,  binding,  and  enforceable   obligations  of  the
          Borrower, and the Guaranty and the Non-Encumbrance  Agreement will be,
          when delivered,  valid,  binding,  and enforceable  obligations of the
          Guarantors  and of MWP and MWP II,  respectively,  in accordance  with
          their terms.

     5.4  ACTIONS,  SUITS  OR  PROCEEDINGS.  There  are  no  actions,  suits  or
          proceedings,  at  law or in  equity,  and no  proceedings  before  any
          arbitrator or by or before any governmental commission, board, bureau,
          or other administrative agency,  pending, or, to the

<PAGE>

          best  knowledge of the Borrower,  threatened  against or affecting the
          Borrower,  any of its Subsidiaries or the Guarantors or any properties
          or rights of the Borrower,  any of its Subsidiaries or the Guarantors,
          which, if adversely  determined,  could materially impair the right of
          the  Borrower,  any of its  Subsidiaries  or the Guarantor to carry on
          business  substantially  as now  conducted  or could  have a  Material
          Adverse  Effect upon the financial  condition of the Borrower,  any of
          its Subsidiaries or the Guarantors.

     5.5  ACCOUNTING  PRINCIPLES.  All  consolidated and  consolidating  balance
          sheets,  earnings statements and other financial data furnished to the
          Bank for the purposes of, or in connection  with,  this  Agreement and
          the transactions contemplated by this Agreement, have been prepared in
          accordance  with GAAP,  and do or will fairly  present  the  financial
          condition of the Borrower, its Subsidiaries and the Guarantors,  as of
          the dates,  and the results of their  operations for the periods,  for
          which  the  same are  furnished  to the  Bank.  Without  limiting  the
          generality  of the  foregoing,  the  Financial  Statements  have  been
          prepared in  accordance  with GAAP (except as  disclosed  therein) and
          fairly   present  the  financial   condition  of  the  Borrower,   its
          Subsidiaries and, if relevant,  the Guarantor as of the dates, and the
          results of its operations for the fiscal  periods,  for which the same
          are  furnished to the Bank.  The  Borrower has no material  contingent
          obligations,  liabilities  for  taxes,  long-term  leases  or  unusual
          forward or long-term commitments not disclosed by, or reserved against
          in, the Financial Statements.

     5.6  FINANCIAL CONDITION.  The Borrower and the Guarantors is each solvent,
          able to pay its debts as they mature,  has capital sufficient to carry
          on its  business  and has assets the fair market value of which exceed
          its liabilities, and neither the Borrower nor either of the Guarantors
          will  be  rendered  insolvent,  under-capitalized  or  unable  to  pay
          maturing debts by the execution or performance of this Agreement,  the
          Guaranty,  the  Non-Encumbrance   Agreement  or  the  other  documents
          contemplated  hereby. There has been no material adverse change in the
          business,  properties  or condition  (financial  or  otherwise) of the
          Borrower,  any of its  Subsidiaries or the Guarantor since the date of
          the latest Financial Statements.

     5.7  CONDITIONS  PRECEDENT.  As  of  each  Funding  Date,  all  appropriate
          conditions  precedent  referred  to in  Section  4  hereof  have  been
          satisfied or, alternatively, have been waived in writing by the Bank.

     5.8  TAXES. Borrower, its Subsidiaries and the Guarantors has each filed by
          the due date therefor  (including any extensions)  all federal,  state
          and local tax returns and other reports it is required by law to file,
          has  paid or  caused  to be paid  all  taxes,  assessments  and  other
          governmental  charges that are shown to be due and payable  under such
          returns,  and has made  adequate  provision  for the  payment  of such
          taxes,  assessments or other  governmental  charges which have accrued
          but are not yet payable. The Borrower has no knowledge of any material
          deficiency or assessment in connection with any taxes,  assessments or
          other governmental  charges not adequately  disclosed in the Financial
          Statements.

     5.9  COMPLIANCE WITH LAWS.  Borrower,  its  Subsidiaries and the Guarantors
          has each complied with all applicable laws, to the extent that failure
          to comply would materially  interfere with the conduct of the business
          of the Borrower, any of its Subsidiaries or the Guarantor.

     5.10 INDEBTEDNESS. Except as disclosed in the Financial Statements or other
          public filings,  neither  Borrower nor any of its Subsidiaries has any
          indebtedness for money borrowed or any direct or indirect  obligations
          under any leases  (whether  or not  required to be  capitalized  under
          GAAP)  or any  agreements  of  guarantee  or  surety  except  for  the
          endorsement  of  negotiable   instruments  by  the  Borrower  and  its
          Subsidiaries  in the  ordinary  course  of  business  for  deposit  or
          collection.

     5.11 MATERIAL  AGREEMENTS.  Except as disclosed in the Financial Statements
          or other public filings, neither the Borrower, any of its Subsidiaries
          nor the Guarantor has any material leases, contracts or commitments of
          any  kind  (including,  without  limitation,   employment  agreements,
          collective  bargaining  agreements,  powers of attorney,  distribution
          contracts, patent or trademark licenses, contracts for future purchase
          or delivery of goods or  rendering  of  services,  bonus,  pension and
          retirement  plans,  or accrued  vacation  pay,  insurance  and welfare
          agreements);  to the best  knowledge of Borrower,  all parties to such
          agreements have complied with the provisions of such leases, contracts
          or commitments; and to the best knowledge of the Borrower, no party to
          such agreements is in default  thereunder,  nor has there occurred any
          event  which  with  notice  or the  passage  of time,  or both,  would
          constitute such a default.

     5.12 MARGIN  STOCK.  Neither the  Borrower nor any of its  Subsidiaries  is
          engaged  principally,  or as one of its important  activities,  in the
          business of extending credit for the purpose of purchasing or carrying
          any "margin  stock" within the meaning of Regulation U of the Board of
          Governors of the Federal Reserve  System,  and no part of the proceeds
          of any  loan  hereunder  will be  used,  directly  or  indirectly,  to
          purchase or carry any margin  stock or to extend  credit to others for
          the  purpose of  purchasing  or carrying  any margin  stock or for any
          other purpose which might violate the provisions of Regulation G, T, U
          or X of the said Board of  Governors.  The  Borrower  does not own any
          margin stock.

     5.13 PENSION FUNDING. Neither the Borrower, any of its Subsidiaries nor the
          Guarantor has incurred any accumulated  funding  deficiency within the
          meaning of ERISA or incurred any  liability to the PBGC in  connection
          with any  employee  benefit  plan

<PAGE>

          established or maintained by the Borrower,  any of its Subsidiaries or
          the Guarantors and no reportable event or prohibited  transaction,  as
          defined in ERISA, has occurred with respect to such plans.

     5.14 MISREPRESENTATION.  No  warranty  or  representation  by the  Borrower
          contained herein or in any certificate or other document  furnished by
          the Borrower pursuant hereto contains any untrue statement of material
          fact or omits to state a material fact necessary to make such warranty
          or representation  not misleading in light of the circumstances  under
          which  it was  made.  There  is no fact  which  the  Borrower  has not
          disclosed  to the  Bank in  writing  which  materially  and  adversely
          affects  nor, so far as the  Borrower  can now  foresee,  is likely to
          prove to affect  materially  and adversely  the business,  operations,
          properties,  prospects,  profits or condition (financial or otherwise)
          of the Borrower,  any of its  Subsidiaries or the Guarantor or ability
          of the  Borrower  to  perform  this  Agreement  or the  ability of the
          Guarantor to perform the Guaranty.

     5.15 SHARES AND  SHAREHOLDERS.  As of May 14,  2002 the  Borrower's  entire
          issued and outstanding  capital stock consists of 17,463,329 shares of
          common stock,  $.001 par value. All currently owned  Subsidiaries,  if
          any,  are set forth in  Exhibit 21 in  Borrower's  SEC Form 10-K dated
          March 25, 2002 along with the  percentage  of the  outstanding  voting
          stock owned by the Borrower or by a Subsidiary (and  identifying  that
          Subsidiary).

     5.16 NO  CONFLICTING   AGREEMENTS.   Neither  the  Borrower,   any  of  its
          Subsidiaries  nor the  Guarantors is in default under any  shareholder
          agreement,  preferred  stock agreement or any other agreement to which
          it is a party or by  which it or any of its  property  is  bound,  the
          effect of which might have a Material  Adverse  Effect on the business
          or  operations  of  the  Borrower,  any  of  its  Subsidiaries  or the
          Guarantor. No provision of the Certificate of Incorporation,  Articles
          of Incorporation, By-Laws or preferred stock, if any, of the Borrower,
          and no provision of any existing mortgage,  indenture, note, contract,
          agreement,  statute  (including,  without  limitation,  any applicable
          usury or similar law),  rule,  regulation,  judgment,  decree or order
          binding on the  Borrower or  affecting  the  property of the  Borrower
          conflicts  with,  or requires any consent  under,  or would in any way
          prevent the execution,  delivery or carrying out of the terms of, this
          Agreement and the documents contemplated hereby, and the taking of any
          such  action will not  constitute  a default  under,  or result in the
          creation or  imposition  of, or obligation to create any lien upon the
          property of the Borrower  pursuant to the terms of any such  mortgage,
          indenture, note, contract or agreement.

     5.17 HAZARDOUS MATERIALS.

          (a)  The  Borrower  has  not  used  Hazardous  Materials  (as  defined
               hereinafter)  on or affecting any of the MWP I Pool Properties or
               MWP II Pool Properties  (collectively  and singly the "premises")
               in any  manner  which  violates  federal,  state or  local  laws,
               ordinances,  statutes,  rules, regulations or judgments governing
               the   use,    storage,    treatment,    handling,    manufacture,
               transportation,    or    disposal    of    Hazardous    Materials
               ("Environmental  Laws"),  and that, to the best of the Borrower's
               knowledge, no prior owner of the premises or any current or prior
               occupant  has  used  Hazardous  Materials  on  or  affecting  the
               premises in any manner which  violates  Environmental  Laws.  The
               Borrower covenants and agrees that it shall not use, introduce or
               maintain  and  shall  use its best  efforts  to  ensure  that any
               occupant shall not use, introduce or maintain Hazardous Materials
               on the  premises in any manner  unless done in strict  compliance
               with all Environmental Laws.

          (b)  The  Borrower  shall  conduct and  complete  all  investigations,
               studies, sampling and testing, and al remedial, removal and other
               actions necessary to clean up and remove all Hazardous  Materials
               on or affecting the premises, whether caused by the Borrower or a
               third party,  in accordance  with all  Environmental  Laws and as
               required by orders and  directives  of all  federal,  state,  and
               local governmental authorities.  Additionally, the Borrower shall
               defend,  indemnify  and hold  harmless the Bank,  its  employees,
               agents,  officers  and  directors,  from and  against any and all
               claims,  demands,  penalties,  fines,  liabilities,  settlements,
               damages, costs or expenses of whatever kind or nature arising out
               of  or  related  to  (1)  the  presence,   disposal,  release  or
               threatened  release  of  any  Hazardous  Materials  on,  from  or
               affecting the premises or the soil, water, vegetation, buildings,
               personal property,  persons or animals thereon,  (2) any personal
               injury  (including  wrongful  death) or property  damage (real or
               personal) arising out of or related to such Hazardous  Materials,
               (3) any  lawsuit  brought or  threatened,  settlement  reached or
               governmental order relating to such Hazardous Materials,  (4) the
               cost of removal of all such  Hazardous  Materials from all or any
               portions of the premises,  (5) taking  necessary  precautions  to
               protect  against  the  release  of  Hazardous   Materials  on  or
               affecting the premises, (6) complying with all Environmental Laws
               and/or (7) any violation of  Environmental  Laws, which are based
               upon or in any way related to such Hazardous Materials including,
               without  limitation,   attorney's  and  consultant's  fees  (said
               attorneys   and   consultants   to  be  selected  by  the  Bank),
               investigation and laboratory fees, environmental studies required
               by the Bank (whether prior to  foreclosure  or otherwise),  court
               costs and litigation expenses.

          (c)  To the best of its knowledge, the Borrower has never received any
               notice   ("Environmental   Complaint")   of  any   violations  of
               Environmental  Laws  (and,  within  five days of  receipt  of any
               Environmental  Complaint the Borrower  shall give the Bank a copy
               thereof), and to the best of the Borrower's knowledge, there have
               been  no  actions  commenced  or  threatened  by  any  party  for
               noncompliance with any Environmental Laws.

<PAGE>


          (d)  Upon  ten  (10)  days'  notice  to  the  Borrower  (except  in an
               emergency),  without  limiting the Bank's other rights under this
               Agreement or  elsewhere,  the Bank shall have the right,  but not
               the  obligation,  to enter on the  premises or to take such other
               actions as it deems  appropriate to clean up, remove,  resolve or
               minimize the impact of any  Hazardous  Material or  Environmental
               Complaint  upon  the  Bank's  receipt  of  any  notice  from  any
               governmental  or reliable  source  asserting the existence of any
               Hazardous  Material or an Environmental  Complaint  pertaining to
               the premises  which, if true,  could result in an order,  suit or
               other action against the Borrower and/or any part of the premises
               which,  in the sole  opinion of the Bank,  could  jeopardize  its
               rights  under this  Agreement or any related  document.  The Bank
               agrees that,  if, prior to the  expiration  of the ten (10) days'
               notice given by the Bank under this  subsection,  Borrower  gives
               notice to the Bank of its desire to replace  the  property  as to
               which  notice  was given  with  other  property  pursuant  to and
               subject to the terms of the Non-Encumbrance  Agreement,  the Bank
               agrees (except in an emergency) to wait an additional thirty (30)
               days after expiration of any such ten (10) day period to take the
               actions  authorized by this subsection.  All reasonable costs and
               expenses  incurred by the Bank in the exercise of any such rights
               shall be payable by the Borrower to Bank upon demand.

          (e)  The  provisions  of this section  shall be in addition to any and
               all other  obligations  and  liabilities the Borrower may have to
               the Bank at common law or  pursuant to any other  agreement  and,
               notwithstanding  anything in Section 9.15 hereof to the contrary,
               shall  survive (i) the  repayment  of all sums due under the Note
               and the other loan documents executed in connection  herewith and
               the   repayment   of  all  other   Indebtedness,   and  (ii)  the
               satisfaction  of all of the  other  obligations  of the  Borrower
               hereunder and under the other loan documents.

          (f)  "Hazardous   Materials"   including,   without  limitation,   any
               flammable explosives, radioactive materials, hazardous materials,
               hazardous  wastes,  hazardous  or  toxic  substances  or  related
               materials  defined 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, as amended (49 U.S.C.  Section 1801, et seq.),  the Resource
               Conservation  and  Recovery  Act, as amended (42 U.S.C.  Sections
               6901, et seq.) and in the  regulations  adopted and  publications
               promulgated  pursuant  thereto,  or any other  federal,  state or
               local governmental law, ordinance, rule, or regulation.

6.   AFFIRMATIVE  COVENANTS.  On a  continuing  basis  from  the  date  of  this
     Agreement  until the later of (a) the  Termination  Date or (b) the date on
     which the  Indebtedness  is paid in full and the Borrower has performed all
     of its other obligations hereunder,  the Borrower covenants and agrees that
     it will:

     6.1  FINANCIAL AND OTHER  INFORMATION.  Borrower shall maintain or cause to
          be maintained a system of accounting  established and  administered in
          accordance  with sound  business  practices and  consistent  with past
          practice  to permit  preparation  of  quarterly  and annual  financial
          statements  in  conformity  with GAAP,  and Borrower  shall deliver or
          cause  to be  delivered  to  Bank  the  following  information  and/or
          documents:

          6.1.1ANNUAL FINANCIAL REPORTS. As soon as practicable and in any event
               within  ninety  (90) days after the close of each  fiscal year of
               the Borrower,  furnish to the Bank a copy of Borrower's  SEC Form
               10-K filed or to be filed by  Borrower  with the  Securities  and
               Exchange  Commission  or, if such  statement is not available for
               any  reason,   financial   statements   of  the   Borrower  on  a
               consolidated  basis  containing the balance sheet of the Borrower
               as of the close of such  fiscal  year,  statements  of income and
               retained  earnings  and a  statement  of cash flows for each such
               fiscal year, and such other comments and financial details as are
               usually  included in SEC Form 10-K and  certified  by  Borrower's
               chief financial officer or chief accounting officer. Such reports
               shall  be  prepared  in  accordance   with  GAAP  by  independent
               certified public  accountants of recognized  standing selected by
               the Borrower  and shall  contain  unqualified  opinions as to the
               fairness of the statements therein contained. 1.1.1

          6.1.2QUARTERLY  FINANCIAL  STATEMENTS.  As soon as practicable  and in
               any event  within  forty-five  (45) days  after the close of each
               Fiscal  Quarter of each fiscal year of the  Borrower,  furnish to
               Bank a copy of  Borrower's  SEC Form 10-Q filed or to be filed by
               Borrower with the Securities and Exchange  Commission or, if such
               statement is not available for any reason,  financial  statements
               of the Borrower on a  consolidated  basis  containing the balance
               sheet  of  the  Borrower  as of  the  end of  each  such  period,
               statements of income and retained  earnings of the Borrower and a
               statement  of cash flows of the  Borrower  for the portion of the
               fiscal year up to the end of such period, and such other comments
               and  financial  details as are usually  included in SEC Form 10-Q
               and  certified by  Borrower's  chief  financial  officer or chief
               accounting  officer.   These  statements  shall  be  prepared  in
               accordance  with GAAP and shall be in such detail as the Bank may
               reasonably  require,  and the accuracy of the statements shall be
               certified  by the chief  executive  or  financial  officer of the
               Borrower.

          6.1.3ADVERSE  EVENTS;  LITIGATION.  Promptly  inform  the  Bank of the
               occurrence  of any Default or Event of  Default,  or of any other
               occurrence  which has or could  reasonably  be expected to have a
               Materially Adverse Effect upon the Borrower or any Guarantor,  or
               upon  any of  Borrower's  Subsidiaries,  or upon  the  Borrower's
               ability to comply with its obligations hereunder.  Borrower shall
               promptly  inform Bank in writing upon obtaining  knowledge of (i)
               the   institution   of,  or  threat  of,  any  material   action,
               proceeding,  governmental investigation or arbitration against or
               affecting  Borrower or any Guarantor not previously  disclosed by
               Borrower  in

<PAGE>

               writing to Bank,  including but not limited to any eminent domain
               or other condemnation  proceedings  affecting any of the MWP Pool
               Properties  or any of the MWP II  Pool  Properties,  or (ii)  any
               material   development   in   any   action,   suit,   proceeding,
               governmental  investigation  or  arbitration  already  disclosed,
               which has a Material  Adverse Affect on Borrower or any Guarantor
               or any of the MWP Pool Properties or the MWP II Pool  Properties,
               and shall provide such information as Bank may reasonably request
               to enable Bank and its counsel to evaluate such matters.

          6.1.4SHAREHOLDER  REPORTS.  Promptly furnish to the Bank upon becoming
               available a copy of all financial statements,  reports,  notices,
               proxy statements and other communications sent by the Borrower or
               any of its  Subsidiaries to their  stockholders,  and all regular
               and  periodic  reports  filed  by  the  Borrower  or  any  of its
               Subsidiaries  with any  securities  exchange,  the Securities and
               Exchange  Commission,  the Corporations and Securities  Bureau of
               the Department of Corporations of the State of California or like
               agency for the State of Maryland or any governmental  authorities
               succeeding to any or all of the  functions of such  Commission or
               Bureau.

          6.1.5MANAGEMENT  LETTERS.  Furnish to the Bank,  promptly upon receipt
               thereof,  copies of all  management  letters and other reports of
               substance submitted to the Borrower or any of its Subsidiaries by
               independent  certified public  accountants in connection with any
               annual or interim audit of the financial  records of the Borrower
               or any of its Subsidiaries.

          6.1.6OTHER  INFORMATION  AS  REQUESTED.  Promptly  furnish to the Bank
               such other information regarding the operations, business affairs
               and financial  condition of the Borrower and its  Subsidiaries as
               the Bank may  reasonably  request from time to time including but
               not limited to all such information  necessary to determine Value
               and Value (Borrower Aggregate) as those terms are defined herein,
               and permit the Bank,  its  employees,  attorneys  and agents,  to
               inspect all of the books,  records and properties of the Borrower
               and its Subsidiaries at any reasonable time.

     6.2  INSURANCE.  Keep its insurable properties and the insurable properties
          of its  Subsidiaries  adequately  insured and maintain  (a)  insurance
          against  fire and other risks  customarily  insured  against  under an
          "all-risk"  policy  and  such  additional  risks  customarily  insured
          against by companies engaged in the same or a similar business to that
          of the Borrower or its Subsidiaries, as the case may be, (b) necessary
          worker's  compensation  insurance,  (c) public  liability  and product
          liability  insurance,  and (d) such other insurance as may be required
          by law or as may be reasonably required in writing by the Bank, all of
          which  insurance  shall be in such amounts,  containing such terms, in
          such  form,  for such  purposes,  prepaid  for such time  period,  and
          written  by  such  companies  as may  be  satisfactory  to  the  Bank.
          Notwithstanding  anything  to the  contrary  herein,  Borrower  is not
          required,  unless  otherwise  required by applicable  law, to maintain
          earthquake or flood or terrorist  insurance.  All such policies  shall
          contain a provision whereby they may not be canceled or amended except
          upon thirty (30) days' prior written  notice to the Bank. The Borrower
          will  promptly  deliver to the Bank, at the Bank's  request,  evidence
          satisfactory to the Bank that such insurance has been so procured and,
          with respect to casualty insurance relating to the MWP Pool Properties
          or MWP II Pool  Properties,  made payable to the Bank. If the Borrower
          fails to maintain satisfactory  insurance as herein provided, the Bank
          shall have the option to do so, and the  Borrower  agrees to repay the
          Bank upon demand,  with interest at the Variable  Rate, all amounts so
          expended by the Bank. As to the MWP Pool Properties and/or MWP II Pool
          Properties,  the Borrower  hereby appoints the Bank or any employee or
          agent  of  the  Bank  as  the   Borrower's   attorney-in-fact,   which
          appointment  is  coupled  with  an  interest  and   irrevocable,   and
          authorizes the Bank or any employee or agent of the Bank, on behalf of
          the Borrower,  to adjust and  compromise any loss under said insurance
          and  to  endorse  any  check  or  draft  payable  to the  Borrower  in
          connection with returned or unearned premiums on said insurance or the
          proceeds of said insurance, and any amount so collected may be applied
          toward satisfaction of the Indebtedness,  provided,  however, that the
          Bank shall not be required hereunder so to act.

     6.3  TAXES.  Pay promptly and within the time that they can be paid without
          late charge,  penalty or interest all taxes,  assessments  and similar
          imposts and charges of every kind and nature lawfully levied, assessed
          or imposed upon the Borrower or its Subsidiaries,  and their property,
          except to the extent  being  contested in good faith and, if requested
          by the Bank, bonded in an amount and manner  satisfactory to the Bank.
          If, as to the MWP Pool Properties  and/or MWP II Pool Properties,  the
          Borrower shall fail to pay such taxes and assessments  within the time
          they can be paid  without  penalty,  late charge or interest  the Bank
          shall have the option to do so, and the  Borrower  agrees to repay the
          Bank upon demand,  with interest at the Variable  Rate, all amounts so
          expended by the Bank.

     6.4  MAINTAIN  CORPORATION AND BUSINESS.  Do or cause to be done all things
          necessary to preserve and keep in full force and effect the Borrower's
          and  each  of  its  Subsidiaries'  corporate  existence,   rights  and
          franchises  and comply with all  applicable  laws;  maintain  its good
          standing  in all states  and  jurisdictions  in which it is  currently
          authorized  to conduct  business;  continue to conduct and operate its
          and each of its Subsidiaries'  business substantially as conducted and
          operated during the present and preceding  calendar year; at all times
          maintain,  preserve  and  protect all  franchises  and trade names and
          preserve all the remainder of its and its  Subsidiaries'  property and
          keep the same in good repair,  working order and  condition;  and from
          time to time make, or cause to be made, all needed and proper repairs,
          renewals,  replacements,  betterments and improvements thereto so that
          the business  carried on in  connection  therewith may be properly and
          advantageously conducted at all times.

<PAGE>

     6.5  CONTINUED STATUS AS A REIT;  PROHIBITED  TRANSACTIONS.  Borrower will:
          (i)  continue  to be a real  estate  investment  trust as  defined  in
          Section 856 of the Internal  Revenue Code (or any successor  provision
          thereto),  (ii)  will not  revoke  its  election  to be a real  estate
          investment   trust;   (iii)  will  not   engage  in  any   "prohibited
          transactions"  as defined in Section  857(b) of the  Internal  Revenue
          Code (or any successor  provision  thereto)  that the Bank  reasonably
          believes  could lead to Borrower's  disqualification  as a real estate
          investment  trust as defined in Section  856 of the  Internal  Revenue
          Code (or any successor  provision  thereto);  (iv) will continue to be
          entitled to a dividend  paid  deduction  meeting the  requirements  of
          Section 857 of the Internal  Revenue Code; and will  otherwise  comply
          with all provisions and requirements of Internal Revenue Code Sections
          856 and 857 to maintain its real estate  investment trust status under
          Section 856.

     6.6  FAILURE  OF  BORROWER  TO  QUALIFY AS REAL  ESTATE  INVESTMENT  TRUST.
          Borrower  shall  promptly  inform  Bank in  writing,  and in any event
          within forty eight (48) hours after Borrower has actual knowledge,  of
          the following  circumstances  or occurrences:  (i) Borrower failing to
          continue  to qualify as a real estate  investment  trust as defined in
          Section 856 of the Internal  Revenue Code (or any successor  provision
          thereof);  (ii) any act by  Borrower  causing  or which will cause its
          election  to  be  taxed  as a  real  estate  investment  trust  to  be
          terminated;  (iii) any act causing Borrower to be subject to the taxes
          imposed by Section  857(b)(6)  of the  Internal  Revenue  Code (or any
          successor provision thereto),  or (iv) Borrower failing to be entitled
          to a dividends paid deduction which meets the  requirements of Section
          857 of the Internal Revenue Code.

     6.7  AMEX LISTED  COMPANY.  The common stock of Borrower shall at all times
          be listed for trading and be traded on the American  Stock Exchange or
          any alternative recognized stock exchange.

     6.8  COMPLIANCE WITH SECURITIES LAWS. Borrower shall comply in all material
          respects with all rules and regulations  with the Securities  Exchange
          Commission and file all reports  required by the  Securities  Exchange
          Commission relating to Borrower's publicly held securities.

     6.9  MAINTAIN MINIMUM TANGIBLE NET WORTH. On a consolidated basis, Borrower
          shall  maintain a Minimum  Tangible  Net Worth of not less than Eighty
          Million Dollars ($80,000,000.00), not including minority interests.

     6.10 MAINTAIN  DEBT  SERVICE  COVERAGE  RATIO.  On  a  consolidated  basis,
          maintain a Debt Service Coverage Ratio of at least 2.90 to 1.00.

     6.11 MAINTAIN INTEREST COVERAGE RATIO. On a consolidated basis, maintain an
          Interest Coverage Ratio of at least 3.35 to 1.00.

     6.12 MAINTAIN  OPERATING  ACCOUNTS AND MINIMUM BALANCE IN DEPOSIT ACCOUNTS.
          Borrower  shall  maintain all of its operating  accounts with Bank. At
          all times  hereunder,  there shall be a combined average daily minimum
          balance  of at  least  One  Million  Dollars  ($1,000,000.00)  in  the
          non-interest  bearing deposit account of Borrower  (Cupertino National
          Bank account no. 1141422) (the "Borrower's Deposit Account").

     6.13 ERISA.  (a) At all times  meet and cause each of the  Subsidiaries  to
          meet the minimum  funding  requirements  of ERISA with  respect to the
          Borrower's and Subsidiaries'  employee benefit plans subject to ERISA;
          (b) promptly after the Borrower knows or has reason to know (i) of the
          occurrence  of any event,  which would  constitute a reportable  event
          instituted  or will  institute  proceedings  to  terminate an employee
          pension plan, deliver to the Bank a certificate of the chief financial
          officer  of the  Borrower  setting  forth  details as to such event or
          proceedings  and the action which the  Borrower  proposes to take with
          respect  thereto,  together  with a copy of any  notice of such  event
          which may be  required  to be filed with the PBGC;  and (c) furnish to
          the Bank (or cause the plan  administrator to furnish the Bank) a copy
          of the annual return  (including  all schedules and  attachments)  for
          each plan  covered  by  ERISA,  and filed  with the  Internal  Revenue
          Service by the Borrower not later than ten (10) days after such report
          has been so filed.

     6.14 USE  OF  LOAN  PROCEEDS.  Use  the  proceeds  of the  Revolving  Loans
          hereunder  only for the  purposes  set forth in the  recitals  to this
          Agreement  and, as to each Revolving Loan made pursuant to a Notice of
          Borrowing, as set forth in such Notice of Borrowing.

7.   NEGATIVE COVENANTS.

          On a continuing  basis from the date of this Agreement until the later
     of (a) the  Termination  Date or (b) the date on which the  Indebtedness is
     paid in full and the Borrower has  performed  all of its other  obligations
     hereunder, the Borrower covenants and agrees that it will not, and will not
     permit any Subsidiary to:

     7.1  STOCK ACQUISITION.  Purchase,  redeem, retire or otherwise acquire any
          of the shares of its capital stock, or make any commitment to do so.

<PAGE>

     7.2  INDEBTEDNESS   (MAXIMUM   BORROWER   AGGREGATE    LOAN-TO-VALUE)   AND
          LOAN-TO-VALUE  OF MWP  POOL  PROPERTIES  AND MWP II  POOL  PROPERTIES.
          Permit the Total Loans of Borrower to exceed  fifty  percent  (50%) of
          Value (Borrower  Aggregate) or permit the Commitment  Amount to exceed
          fifty  percent  (50%)  of the  total  combined  Value  of the MWP Pool
          Properties and the MWP II Pool Properties

     7.3  EXTENSION OF CREDIT.  Make loans,  advances or extensions of credit to
          any  Person,  except for sales on open  account and  otherwise  in the
          ordinary course of business.

     7.4  SUBORDINATE INDEBTEDNESS. Subordinate any indebtedness due to Borrower
          from a Person to indebtedness or other creditors of such Person.

     7.5  PROPERTY  TRANSFER,  MERGER  OR  LEASE-BACK.  (a)  Sell,  transfer  or
          otherwise  dispose of properties  and assets having an aggregate  book
          value   of   more   than   Three   Hundred   Fifty   Million   Dollars
          ($350,000,000.00)  (whether  in  one  transaction  or in a  series  of
          transactions)  except  as to the  sale of  inventory  in the  ordinary
          course of  business;  (b) change its name,  consolidate  with or merge
          into any other  corporation or entity,  permit another  corporation or
          entity  to  merge   into  it,   enter  into  any   reorganization   or
          recapitalization  or reclassify its capital  stock,  or (c) enter into
          any sale-leaseback transaction where Borrower is lessee.

     7.6  PENSION PLAN. (a) Allow any fact, condition or event to occur or exist
          with  respect  to  any  employee   pension  or  profit  sharing  plans
          established  or  maintained by it which might  constitute  grounds for
          termination of any such plan or for the court appointment of a trustee
          to  administer  any such  plan,  or (b) permit any such plan to be the
          subject of termination  proceedings (whether voluntary or involuntary)
          from which termination proceedings there may result a liability of the
          Borrower or any of its  Subsidiaries to the PBGC which, in the opinion
          of  the  Bank,  will  have  a  materially   adverse  effect  upon  the
          operations,  business, property, assets, financial condition or credit
          of the Borrower or any of its Subsidiaries.

     7.7  MISREPRESENTATION.  Furnish  the Bank  with any  certificate  or other
          document  that  contains any untrue  statement  of a material  fact or
          omits to state a material fact  necessary to make such  certificate or
          document not misleading in light of the  circumstances  under which it
          was furnished.

     7.8  MARGIN STOCK.  Apply any of the proceeds of the Note or of any loan in
          any  manner  which  might  cause  the   extension  of  credit  or  the
          application  of such proceeds to violate  Regulation G, U or X (or any
          regulations,  interpretations  or  rulings  thereunder)  or any  other
          regulation of the Federal  Reserve Board or to violate the  Securities
          Exchange  Act of 1934 (as  amended to the date hereof and from time to
          time  hereafter) or the Securities Act of 1933 (as amended to the date
          hereof and from time to time hereafter).

     7.9  AMENDMENT OF CONSTITUENT DOCUMENTS.  Amend or re-state its articles of
          incorporation  or by-laws  without the prior written  consent of Bank,
          except  (i) to  increase  authorized  capital,  (ii)  as  required  by
          applicable law or applicable tax requirements,  or (iii) as prudent to
          maintain qualification as a real estate investment trust as defined in
          Section 856 of the Internal  Revenue Code or any  successor  provision
          thereto.

     7.10 ORGANIZATION  OF BORROWER.  Cease to remain a Maryland  corporation or
          cease to  maintain  its  position,  interests  and  status as  General
          Partner of MWP and MWP II.

8.   EVENTS OF DEFAULT, ENFORCEMENT, APPLICATION OF PROCEEDS

     8.1  EVENTS OF DEFAULT.  The occurrence of any of the following  conditions
          or events shall  constitute  an Event of Default  hereunder if either:
          (i) the condition or event is  continuing  for more than ten (10) days
          after the Bank sends written notice thereof,  or (ii) the condition or
          event is reasonably  deemed by the Bank to require immediate action to
          protect its rights hereunder:

          8.1.1FAILURE TO PAY MONIES  DUE.  If the  Borrower  shall fail to pay,
               when due,  any  principal or interest or other sums due under the
               Revolving  Credit Note or this Agreement or any taxes,  insurance
               or other amount  payable by the Borrower  under this Agreement or
               if the Borrower,  any of its  Subsidiaries or the Guarantor shall
               fail to pay, when due, any indebtedness,  obligation or liability
               whatsoever  of  the  Borrower,  any of  its  Subsidiaries  or the
               Guarantor to the Bank.

          8.1.2BREACH OF COVENANTS. If Borrower shall fail to satisfy or perform
               any  of  the  covenants  in  this  Agreement   including  without
               limitation Section 6 and Section 7.

          8.1.3DEFAULTS  UNDER THE  GUARANTY.  If  Guarantors  or either of them
               shall  fail to  perform  or  observe  or  purport  to  revoke  or
               terminate  any  agreement,  covenant,  or  obligation  under  the
               Guaranty;  or any representation or warranty made or deemed to be
               made  by any  such  Guarantor  in  any  Loan  Document  or in any
               statement,  certificate or financial  statement or information of
               any kind

<PAGE>

               at any time given by such Guarantor pursuant to any Loan Document
               to Bank, shall be false,  incorrect or misleading in any material
               respect as of the date made.

          8.1.4DEFAULTS UNDER THE NON-ENCUMBRANCE  AGREEMENT.  If Borrower,  MWP
               or MWP II or either of them shall fail to perform or observe  any
               agreement,  covenant,  or  obligation  under the  Non-Encumbrance
               Agreement; or any representation or warranty made or deemed to be
               made by  Borrower,  MWP or MWP II in any Loan  Document or in any
               statement,  certificate or financial  statement or information of
               any kind at any time given by MWP or MWP II  pursuant to any Loan
               Document to Bank, shall be false,  incorrect or misleading in any
               material respect as of the date made.

          8.1.5MISREPRESENTATION.  If  any  warranty  or  representation  of the
               Borrower in connection with or contained in this Agreement or any
               Loan Document,  or if any financial data or other information now
               or  hereafter  furnished  to  the  Bank  by or on  behalf  of the
               Borrower, shall prove to be false, incorrect or misleading in any
               material respect.

          8.1.6SOLVENCY;  MATERIAL ADVERSE CHANGE.  If Borrower or any Guarantor
               shall  cease to be  Solvent,  or there  shall have  occurred  any
               Material Adverse Effect in the business, operations,  properties,
               assets or condition  (financial  or otherwise) of Borrower or any
               Guarantor.

          8.1.7OTHER DEFAULTS.  If the Borrower,  any of its Subsidiaries or the
               Guarantor  shall  default in the  payment  when due of any of its
               indebtedness  (other  than to the Bank) or in the  observance  or
               performance  of any term,  covenant or condition in any agreement
               or   instrument   evidencing,   securing   or  relating  to  such
               indebtedness,   and  such  default  be  continued  for  a  period
               sufficient   to   permit   acceleration   of  the   indebtedness,
               irrespective of whether there has been acceleration by the holder
               thereof.  Notwithstanding the foregoing, such a default shall not
               constitute  an Event of Default  hereunder if all persons to whom
               the  indebtedness is owed has fully and completely and in writing
               waived  the  default.  In  addition,  if  a  default  occurs  and
               continues to exist on an  indebtedness  of the  Borrower  that is
               secured  by  real  property  and  is  fully  non-recourse  to the
               Borrower,  such  default may not  represent a default  under this
               agreement  if  Bank,  it its  sole  discretion,  determines  that
               Borrower  is in  compliance  and can  maintain  compliance  going
               forward with all the financial covenants of this Agreement.

          8.1.8JUDGMENTS.  If there shall be rendered against the Borrower,  any
               of its  Subsidiaries  or the Guarantor  one or more  judgments or
               decrees involving an aggregate  liability of Five Million Dollars
               ($5,000,000.00) or more, which has or have become  non-appealable
               and shall  remain  undischarged,  unsatisfied  by  insurance  and
               unstayed  for  more  than  thirty  (30)  days,   whether  or  not
               consecutive;  or if a writ of attachment or  garnishment  against
               the  property of the  Borrower,  any of its  Subsidiaries  or the
               Guarantor  shall be issued and levied in an action  claiming Five
               Million  Dollars  ($5,000,000.00)  or more  and not  released  or
               appealed and bonded in an amount and manner  satisfactory  to the
               Bank within twenty-five (25) days after such issuance and levy.

          8.1.9BUSINESS  SUSPENSION,  BANKRUPTCY,  ETC. If the Borrower,  any of
               its  Subsidiaries  or the  Guarantor  shall  voluntarily  suspend
               transaction  of  its  business;  or if the  Borrower,  any of its
               Subsidiaries  or the  Guarantor  shall  not pay its debts as they
               mature or shall  make a general  assignment  for the  benefit  of
               creditors, or proceedings in bankruptcy, or for reorganization or
               liquidation  of the  Borrower,  any of  its  Subsidiaries  or the
               Guarantor  under the Bankruptcy  Code or under any other state or
               federal law for the relief of debtors shall be commenced or shall
               be commenced against the Borrower, any of its Subsidiaries or the
               Guarantor and shall not be  discharged  within  twenty-five  (25)
               days of commencement;  or a receiver,  trustee or custodian shall
               be appointed for the  Borrower,  any of its  Subsidiaries  or the
               Guarantor  or for any  substantial  portion  of their  respective
               properties or assets.

          8.1.10  CHANGE  OF  MANAGEMENT  OR  OWNERSHIP.  If the  Borrower  or a
               controlling  portion of its voting stock or a substantial portion
               of its assets comes under the practical,  beneficial or effective
               control of one or more persons  other than Carl Berg,  whether by
               reason of death, merger, consolidation, sale or purchase of stock
               or assets or otherwise;  and Ray Marino, who is the President and
               COO of the  Borrower,  shall no longer  remain  in such  offices,
               whether by reason of death,  resignation  or  otherwise;  and any
               such change of control or office holder may adversely  affect, in
               the sole  judgment of the Bank,  the  ability of the  Borrower to
               carry on its business as conducted before such change.

          8.1.11 INADEQUATE  FUNDING OR TERMINATION OF EMPLOYEE BENEFIT PLAN(S).
               If the Borrower,  any of its  Subsidiaries or the Guarantor shall
               fail to meet its minimum  funding  requirements  under ERISA with
               respect to any employee benefit plan established or maintained by
               it,  or  if  any  such  plan  shall  be  subject  of  termination
               proceedings  (whether  voluntary or involuntary)  and there shall
               result from such termination proceedings a liability of Borrower,
               any of its Subsidiaries or the guarantor to the PBGC which in the
               opinion of the Bank will have a  materially  adverse  effect upon
               the operations, business, property, assets financial condition or
               credit of the Borrower, any of its Subsidiaries or the Guarantor,
               as the case may be.

          8.1.12 OCCURRENCE OF CERTAIN  REPORTABLE EVENTS. If there shall occur,
               with respect to any pension plan maintained by the Borrower,  any
               of its Subsidiaries or the Guarantor any reportable event (within
               the  meaning  of Section  4043(b) of ERISA)  which the Bank shall
               determine  constitutes a ground for the  termination  of any such
               plan, and if such event  continues for thirty (30)

<PAGE>

               days  after  the  Bank  gives  written  notice  to the  Borrower,
               provided that  termination  of such plan or  appointment  of such
               trustee  would,  in the  opinion of the Bank,  have a  materially
               adverse effect upon the operations,  business,  property, assets,
               financial  condition  or  credit  of  the  Borrower,  any  of its
               Subsidiaries or the Guarantor, as the case may be.

     8.2  ACCELERATION  OF  INDEBTEDNESS;  REMEDIES.  Upon the  occurrence of an
          Event of Default, at the Bank's option, the Bank shall have no further
          obligation  to advance  funds to  Borrower  and the  Commitment  shall
          terminate.   Upon  the   occurrence  of  an  Event  of  Default,   all
          Indebtedness  shall  be due and  payable  in full  immediately  at the
          option of the Bank without presentation,  demand,  protest,  notice of
          dishonor  or  other  notice  of any  kind,  all of  which  are  hereby
          expressly waived. Upon the occurrence of an Event of Default, the Bank
          shall have and may exercise any one or more of the rights and remedies
          for which  provision  is made  hereunder  or under any other  document
          contemplated  hereby or for which  provision  is provided by law or in
          equity,  including,  without limitation,  the right to set off against
          the  Indebtedness  any amount owing by the Bank to the Borrower and/or
          any property of the Borrower in  possession  of the Bank.  Any amounts
          collected by the Bank after an Event of Default may be applied, at the
          Bank's  option  and  in  any  order  against  outstanding   principal,
          interest, fees and/or costs.

     8.3  CUMULATIVE  REMEDIES.  The remedies provided for herein are cumulative
          to the remedies for collection of the Indebtedness as provided by law,
          in equity  or by any  document  contemplated  hereby.  Nothing  herein
          contained is intended, nor shall it be construed, to preclude the Bank
          from  pursuing  any other  remedy for the recovery of any other sum to
          which  the Bank  may be or  become  entitled  for the  breach  of this
          Agreement by the Borrower.

9.   MISCELLANEOUS.

     9.1  EFFECTIVENESS. This Agreement shall become effective when Borrower and
          Bank  have  duly  executed  and  delivered  signature  pages  of  this
          Agreement  to each  other,  and  Borrower  has  delivered  a  Guaranty
          executed by each Guarantor, and the Non-Encumbrance Agreement executed
          by MWP and MWP II.

     9.2  INDEPENDENT  RIGHTS. No single or partial exercise of any right, power
          or privilege  hereunder,  or any delay in the exercise thereof,  shall
          preclude  other or further  exercise  of the rights of the  parties to
          this Agreement.

     9.3  COVENANT INDEPENDENCE. Each covenant in this Agreement shall be deemed
          to  be  independent  of  any  other  covenant,  and  an  exception  or
          illegality of one covenant shall not create an exception or illegality
          in another covenant.

     9.4  WAIVERS AND AMENDMENTS. No forbearance,  delay or omission on the part
          of the Bank in enforcing any of its rights under this Agreement or any
          of the Loan Documents, nor any renewal,  extension or rearrangement of
          any  payment  or  covenant  to be made or  performed  by the  Borrower
          hereunder,  shall constitute or be construed as a waiver of any of the
          terms of, or remedies of Bank under, this Agreement or any of the Loan
          Documents or of any such right.  No Default or Event of Default  shall
          be waived by the Bank except in a writing  signed and  delivered by an
          officer  of the Bank,  and no waiver of any other  Default or Event of
          Default  shall  operate as a waiver of any Default or Event of Default
          or of the same  Default or Event of Default on a future  occasion.  No
          other  amendment,  modification  or waiver of, or consent with respect
          to,  any  provision  of this  Agreement  or the Note or any other Loan
          Documents contemplated hereby shall be effective unless the same shall
          be in writing and signed and delivered by a duly authorized officer of
          the Bank and the President and CEO of the Borrower.

     9.5  GOVERNING LAW. This  Agreement,  and each and every term and provision
          hereof,  shall be governed by and  construed  in  accordance  with the
          internal law of the State of  California.  If any  provisions  of this
          Agreement shall for any reason be held invalid or unenforceable,  such
          invalidity or  unenforceability  shall not affect any other  provision
          hereof,  but this  Agreement  shall be construed as if such invalid or
          unenforceable provisions had never been contained herein.

     9.6  SURVIVAL  OF  WARRANTIES,   ETC.  All  of  the  Borrower's  covenants,
          agreements,  representations  and warranties  made in connection  with
          this Agreement and any document  contemplated hereby shall survive the
          borrowing  and the delivery of the Note  hereunder and shall be deemed
          to  have  been   relied   upon  by  the  Bank,   notwithstanding   any
          investigation heretofore or hereafter made by the Bank. All statements
          contained in any  certificate or other document  delivered to the Bank
          at any time by or on  behalf  of the  Borrower  pursuant  hereto or in
          connection with the transactions  contemplated hereby shall constitute
          representations and warranties by the Borrower in connection with this
          Agreement.

     9.7  COSTS AND  EXPENSES.  The Borrower  agrees that it will  reimburse the
          Bank,  upon demand,  for all reasonable fees and  out-of-pocket  costs
          incurred by the Bank in connection  with (i)  collecting or attempting
          to collect the  Indebtedness or any part thereof,  (ii) maintaining or
          defending  the  Bank's  security  interests  or liens,  if any (or the
          priority  thereof),  (iii) the  enforcement  of the  Bank's  rights or
          remedies  under this  Agreement  or the other  documents  contemplated
          hereby,   (iv)  the   preparation   or  making   of  any   amendments,
          modifications,  waivers or consents with respect to this  Agreement or
          the other documents  contemplated hereby, and/or (v) any other matters
          or  proceedings  arising  out of or in  connection  with  any  lending
          arrangement  between  the  Bank  and the  Borrower,

<PAGE>


          which costs and expenses  include  without limit  payments made by the
          Bank for taxes,  insurance,  assessments,  or other  costs or expenses
          which the  Borrower  is required  to pay under this  Agreement  or the
          other documents  contemplated hereby; audit expenses;  court costs and
          reasonable  attorneys'  fees (whether  in-house or outside  counsel is
          used,  whether legal  assistants  are used, and whether such costs are
          incurred in formal or informal collection actions,  federal bankruptcy
          proceedings,  of Borrower or Guarantor or affecting any  collateral or
          rights of Bank,  whether an involuntary or voluntary  bankruptcy case,
          including,  without limitation, all attorneys' fees and costs incurred
          in  connection  with  motions  for relief from stay,  cash  collateral
          motions,  nondischargeability motions, preferential liability motions,
          fraudulent conveyance liability motions, fraudulent transfer liability
          motions and all other motions brought by Borrower,  Guarantor, Bank or
          third  parties in any way  relating to Bank's  rights with  respect to
          such  Borrower,   Guarantor,  or  third  party  and/or  affecting  any
          collateral   securing  any  obligation   owed  to  Bank  by  Borrower,
          Guarantor,  or any  third  party,  probate  proceedings,  on appeal or
          otherwise);  and all other costs and expenses of the Bank  incurred in
          connection with any of the foregoing.

     9.8  ATTORNEYS'  FEES AND COSTS.  Bank may hire or pay someone else to help
          collect  the Note if Borrower  does not pay.  In such event,  Borrower
          agrees to pay all reasonable fees and out-of-pocket  costs incurred by
          Bank  in  connection  with  collecting  the  Note.  In  addition,  the
          prevailing   party  (the   "Prevailing   Party")  in  any  litigation,
          arbitration,  bankruptcy  proceeding,  or  other  formal  or  informal
          resolution (collectively, a "Proceeding") brought by Bank or any party
          to this  Agreement of any claims  brought to enforce the terms of this
          Agreement or any of the Loan Documents based upon, arising from, or in
          any way related to this  Agreement  or the  transactions  contemplated
          herein,  including without  limitation  contract claims,  tort claims,
          breach of duty claims,  and all other  common law or statutory  claims
          (collectively,  the "Claims"),  shall be entitled to recover from such
          other  party all its fees and costs  incurred in  connection  with the
          Proceeding,  including without  limitation all its attorneys' fees and
          costs,  whether incurred by in-house  counsel or outside counsel,  all
          its  expert  witness  and/or  consultant's  fees  and  costs,  all its
          paralegal  fees and  costs,  and all its  other  costs  and  expenses,
          regardless of whether such costs are otherwise statutorily recoverable
          (collectively, the "Fees and Costs"), and including without limitation
          all the Fees and Costs incurred by the Prevailing  Party in connection
          with proceedings in bankruptcy for relief from and/or  modification of
          automatic stay, for orders of  nondischargeability,  and/or  regarding
          use of cash  collateral,  claims,  and/or plans.  The Prevailing Party
          shall also be entitled to recover  from such other party all its costs
          incurred  in  enforcing  the  judgment  or  award  giving  rise to the
          Prevailing  Party's status as the Prevailing  Party. Each party hereto
          acknowledges  that it is on notice  that,  in the event that the other
          party retain the services of one or more  experts in  connection  with
          the  Proceeding,  such other  party will seek to recover  the fees and
          costs of such  expert or experts  hereunder,  and that,  if such party
          becomes the Prevailing  Party in the  Proceeding,  such party shall be
          entitled to recover such fees and costs  hereunder,  whether such fees
          and costs are sought  before  trial,  during  trial,  or by post-trial
          motion or memorandum of costs. The parties to this Agreement waive the
          provisions  of Civil Code section  1717(b)(2),  and agree that, in the
          event of a unilateral voluntary  dismissal,  the dismissed party shall
          be deemed the Prevailing  Party entitled to the recovery of all of its
          Fees and Costs.

     9.9  PAYMENTS ON SATURDAYS,  ETC. Whenever any payment to be made hereunder
          shall be stated to be due on a Saturday, Sunday or any other day which
          is not a Business Day, such payment may be made on the next succeeding
          Business  Day,  and  such  extension,  if any,  shall be  included  in
          computing interest in connection with such payment.

     9.10 BINDING EFFECT. This Agreement shall inure to the benefit of and shall
          be binding upon the parties hereto and their respective successors and
          assigns;  provided,  however,  that the  Borrower  may not  assign  or
          transfer its rights or obligations hereunder without the prior written
          consent  of the Bank.  Borrower  authorizes  Bank,  without  notice or
          demand  and  without  affecting  Borrower's  liability  hereunder,  to
          assign,  without  notice,  the Loan Documents or the  Indebtedness  in
          whole or in part and Bank's rights thereunder to anyone at any time or
          to transfer one or more participation  interests in the Loan Documents
          or the  Indebtedness in whole or in part to one or more purchasers and
          provide  information to prospective  purchasers  relating to Borrower.
          The Bank  agrees,  upon written  request by  Borrower,  to provide the
          identity of any current participants.

     9.11 MAINTENANCE  OF  RECORDS.  The  Borrower  will keep all of its records
          concerning  its business  operations  and  accounting at its principal
          place of  business.  The  Borrower  will give the Bank prompt  written
          notice of any change in its  principal  place of  business,  or in the
          location of its records.

     9.12 NOTICES. All notices and communications  provided for herein or in any
          document  contemplated  hereby or required by law to be given shall be
          in writing and shall be served (i) personally in which case the notice
          or communication is effective immediately, (ii) by overnight mail by a
          national, reputable carrier, in which case the notice or communication
          is effective upon deposit with such carrier, (ii) by certified mail in
          which case the notice or communication  is effective upon mailing,  or
          (iv) by first class mail,  postage prepaid in which case the notice or
          communication  is  effective  two (2)  days  after  mailing,  with all
          notices  or  communications  to  be  delivered,  mailed,  or  sent  as
          aforesaid  as  follows:   (a)  If  the  Borrower,   to:  Mission  West
          Properties, Inc., 10050 Bandley Drive, Cupertino, CA 95014, and (b) if
          to  the  Bank,  to:  Cupertino  National  Bank,  20230  Stevens  Creek
          Boulevard,  Cupertino,  CA 95014,  Attention Mr. Michael Zukin,  or to
          such other  address as a party shall have  designated  to the other in
          writing in accordance with this section.

<PAGE>

     9.13 COUNTERPARTS.   This   Agreement  may  be  signed  in  any  number  of
          counterparts  with the same effect as if the signatures  were upon the
          same instrument.

     9.14 HEADINGS.  Article and section headings in this Agreement are included
          for the  convenience of reference only and shall not constitute a part
          of this Agreement for any purpose.

     9.15 RELEASE  AND  DISCHARGE.  Upon full  payment of the  Indebtedness  and
          performance  by the Borrower of all its other  obligations  hereunder,
          except as  otherwise  provided  in this  Agreement  including  without
          limitation in Sections 2.15 and 5.17(e),  the parties shall  thereupon
          automatically  each  be  fully,   finally  and  forever  released  and
          discharged from any claim,  liability or obligation in connection with
          this Agreement and the Loan Documents.

     9.16 WAIVER OF JURY TRIAL. BANK AND BORROWER EACH HEREBY  ACKNOWLEDGES THAT
          THE RIGHT TO TRIAL BY JURY MAY BE WAIVED.  AFTER CONSULTING (OR HAVING
          HAD THE  OPPORTUNITY  TO CONSULT) WITH COUNSEL OF THEIR  CHOICE,  EACH
          PARTY HERETO KNOWINGLY AND VOLUNTARILY,  AND FOR THEIR MUTUAL BENEFIT,
          WAIVE ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION  REGARDING
          THE  PERFORMANCE  OR  ENFORCEMENT  OF, OR IN ANY WAY  RELATED TO, THIS
          AGREEMENT OR ANY LOAN DOCUMENT.

          EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO READ
          AND  REVIEW  WITH  ITS  COUNSEL   THIS   AGREEMENT,   AND  EACH  PARTY
          ACKNOWLEDGES HAVING READ AND UNDERSTOOD THE MEANING AND EFFECT OF THIS
          DOCUMENT BEFORE SIGNING IT.

     9.17 FURTHER ASSURANCES.  Immediately  following  reasonable request by the
          Bank, the Borrower  shall provide to the Bank such further  documents,
          instruments,  and  assurances as may be requested from time to time by
          Bank in connection  with this  Agreement or any documents  executed in
          connection herewith.

     9.18 INTEGRATED AGREEMENT.  This is an integrated agreement.  Except as set
          forth specifically otherwise herein and except for the Loan Documents,
          it  supersedes  all  prior  representations  and  agreements,  if any,
          between  the  parties to this  Agreement  and other  respective  legal
          counsel relating to the subject matter hereof.  This Agreement and the
          exhibits hereto and the other Loan Documents when executed contain the
          entire and only  understanding  between  the  parties,  and may not be
          altered, amended or extinguished,  except by a writing which expressly
          refers to this instrument and is signed subsequent to the execution of
          this instrument by the parties to this Agreement.




<PAGE>





     IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to
be  executed  by their  duly  authorized  officers  as of the day and year first
written above.


                          MISSION WEST PROPERTIES, INC.
                          A Maryland corporation


                          By: /s/ Carl E. Berg
                          --------------------------------------------
                          Its: Chairman & CEO


                          By: /s/ Raymond V. Marino
                          --------------------------------------------
                          Its: President & COO


                          CUPERTINO NATIONAL BANK


                          By: /s/ Michael Zukin
                          --------------------------------------------
                          Its: Vice President




<PAGE>


EXHIBIT 10.30


                               CONTINUING GUARANTY


                                                                   July 12, 2002

Cupertino National Bank
20230 Stevens Creek Boulevard
Cupertino, CA 95014


TO:      Cupertino National Bank

     For  good and  valuable  consideration  the  receipt  of  which  is  hereby
acknowledged,  and in order to induce Cupertino  National Bank (the "Bank"),  to
extend  and/or  continue  to extend  financial  accommodations  to Mission  West
Properties, Inc., a Maryland corporation ("Borrower"), pursuant to the terms and
conditions of that certain  Revolving Credit Loan Agreement and Revolving Credit
Note  (individually  and collectively,  the  "Agreement"),  dated July 12, 2002,
evidencing and otherwise  relating to a revolving loan by Bank to Borrower up to
the  total  principal  amount of Forty  Million  Dollars  ($40,000,000.00)  (the
"Loan")  Mission  West  Properties,   L.P.,  a  Delaware   limited   partnership
("Guarantor"),  whose  address is 10050  Bandley  Drive,  Cupertino,  California
95014,  hereby,  jointly  and  severally,   guarantees,   promises,  represents,
warrants,  covenants and  undertakes to Bank and its  successors  and assigns as
follows:

     1. Guarantor  unconditionally,  absolutely and  irrevocably  guarantees and
promises  to pay to Bank,  or order,  on demand,  in lawful  money of the United
States, any and all indebtedness  and/or obligations of Borrower to Bank and the
payment to Bank of all sums which may be presently due and owing and of all sums
which shall in the future become due and owing to Bank from  Borrower  under the
Agreement. The terms "indebtedness" and "obligations"  (hereinafter collectively
referred to as the  "Obligations")  are used herein in their most  comprehensive
sense and include, without limitation,  the Loan and any and all advances to, or
debts, obligations,  and liabilities of Borrower,  heretofore, now, or hereafter
made, incurred,  or created,  whether voluntarily or involuntarily,  and however
arising,  including,  without limitation,  (i) indebtedness owing by Borrower to
third parties who have granted Bank a security interest in the accounts, chattel
paper  and/or  general  intangibles  of  said  third  party;  (ii)  any  and all
attorneys'  fees,  expenses,  costs,  premiums,  charges and/or interest owed by
Borrower to Bank, whether under the Agreement, or otherwise,  whether due or not
due,  absolute  or  contingent,   liquidated  or  unliquidated,   determined  or
undetermined,  whether  Borrower  may be liable  individually  or  jointly  with
others,  whether  recovery upon such  indebtedness  may be or hereafter  becomes
barred by any statute of  limitations  or whether  such  indebtedness  may be or
hereafter becomes otherwise unenforceable,  and includes Borrower's prompt, full
and  faithful  performance,  observance  and  discharge  or each and every term,
condition, agreement,  representation,  warranty undertaking and provision to be
performed by Borrower  under the  Agreement;  (iii) any and all  obligations  or
liabilities  of Borrower to Bank arising out of any other  agreement by Borrower
including  without  limitation any agreement to indemnify Bank for environmental
liability  or to  clean  up  hazardous  waste;  (iv)  any and all  indebtedness,
obligations or liabilities  for which Borrower would otherwise be liable to Bank
were it not for the  invalidity,  irregularity  or  unenforceability  of them by
reason  of any  bankruptcy,  insolvency  or  other  law or  order  of any  kind,
including  from and after the  filing by or  against  Borrower  of a  bankruptcy
petition,   whether  an  involuntary  or  voluntary  bankruptcy  case,  and  all
attorneys' fees related thereto; and (v) any and all amendments,  modifications,
renewals  and/or  extensions  of any  of  the  above,  including  without  limit
amendments, modifications, renewals and/or extensions which are evidenced by new
or additional instruments, documents or agreements.

     2. This Guaranty  ("Guaranty") is a continuing  guaranty which shall remain
effective  until  full  satisfaction  of  all  of the  Obligations  to the  Bank
(including  without  limitation those which arise under successive  transactions
under the Agreement),  full  satisfaction by Guarantor of its obligations  under
this  Guaranty,  and  the  termination  of  the  Bank's  obligations  under  the
Agreement.

     3. Guarantor  agrees that it is directly and primarily liable to Bank, that
the obligations  hereunder are  independent of the obligations of Borrower,  and
that a  separate  action  or  actions  may be  brought  and  prosecuted  against
Guarantor  irrespective  of  whether  Borrower  is joined in any such  action or
actions.  Guarantor  agrees  that  any  releases  which  may be given by Bank to
Borrower  or any other  guarantor  or  endorser  shall not  release it from this
Guaranty.

     4. In the event that any  bankruptcy,  insolvency,  receivership or similar
proceeding is instituted by or against Guarantor and/or Borrower or in the event
that either Guarantor or Borrower become  insolvent,  make an assignment for the
benefit of creditors,  or attempts to effect a composition with creditors, or if
there be any default under the  Agreement  (whether  declared or not),

<PAGE>

then, at Bank's election, without notice or demand, the obligations of Guarantor
created  hereunder shall become due, payable and enforceable  against  Guarantor
whether or not the Obligations are then due and payable.

     5.  Guarantor  agrees to defend,  indemnify and hold Bank harmless from and
against  all  obligations,   demands,  judgments,  claims  and  liabilities,  by
whomsoever asserted and against all losses,  fees, expenses and costs in any way
suffered, incurred, or paid by Bank as a result of or in any way arising out of,
following, or consequential to Bank's or Guarantor's  transactions with Borrower
under the Agreement, and also agrees that this Guaranty shall not be impaired by
any  modification,  supplement,  extension,  or  amendment  of any  contract  or
agreement  to  which  Bank  and  Borrower  may  hereafter   agree,  nor  by  any
modification,  release,  or other  alteration of any of the  Obligations  hereby
guaranteed or of any security  therefor,  nor by any agreements or  arrangements
whatsoever with Borrower or anyone else.

     6. Guarantor hereby  authorizes Bank,  without notice or demand and without
affecting its liability hereunder,  from time to time to: (a) renew, compromise,
extend,  accelerate, or otherwise change the interest rate, time for payment, or
the other terms of the Agreement or of any of the Obligations guaranteed hereby,
and exchange,  enforce,  waive, and release any security therefor; (b) apply any
such  security  and  direct  the order or manner of sale  thereof as Bank in its
discretion may determine;  (c) release or substitute any one or more endorser(s)
or  guarantor(s);   and  (d)  assign,  without  notice,  this  Guaranty  or  the
Indebtedness  in whole or in part and/or Bank's  rights  thereunder to anyone at
any time and/or transfer one or more participation  interests in the Obligations
or any  of  them  and  this  Guaranty  to one or  more  purchasers  and  provide
information to  prospective  purchasers  relating to Borrower or Guarantor.  The
Bank agrees,  upon written request by Guarantor,  to provide the identity of any
current  participants.  Guarantor  agrees  that  Bank  may  do any or all of the
foregoing in such  manner,  upon such terms,  and at such times as Bank,  in its
discretion,  deems  advisable,  without,  in  any  way  or  respect,  impairing,
affecting,  reducing or releasing Guarantor from its undertakings  hereunder and
Guarantor  hereby consents to each and all of the foregoing acts,  events and/or
occurrences.

     7.  Guarantor  hereby waives any right to assert against Bank as a defense,
counterclaim, set-off or cross-claim, any defense (legal or equitable), set-off,
counterclaim, and/or claim which Guarantor may now or at any time hereafter have
against Borrower and/or any other party liable to Bank in any way or manner.

     8. Guarantor hereby waives all defenses,  counterclaims and off-sets of any
kind or nature,  arising  directly or indirectly from the present or future lack
of perfection,  sufficiency, validity and/or enforceability of the Agreement, or
any security interest granted in connection therewith.

     9.  Guarantor  hereby waives any defense  arising by reason of any claim or
defense  based upon an election of remedies by Bank that in any manner  impairs,
affects, reduces, releases, destroys and/or extinguishes Guarantor's subrogation
rights,  rights to proceed against Borrower or any other person for subrogation,
reimbursement,  exoneration,  contribution,  indemnification or participation in
any claim, right or remedy against Borrower or any other person for any security
which Bank now has or hereafter  acquires,  whether or not such claim,  right or
remedy  arises in  equity,  under  contract,  by  statute,  under  common law or
otherwise, and/or any rights of Guarantor to proceed against Borrower or against
any other person or security,  including,  but not limited to, any defense based
upon an election of remedies by Bank.  Guarantor  expressly  waives all benefits
which might  otherwise be available to  Guarantor  under  California  Civil Code
Sections 2809,  2810,  2815, 2819, 2822, 2839, 2845, 2847, 2848, 2849, 2850, and
3433 and California Code of Civil Procedure  Sections 580a,  580b, 580d and 726,
as those statutory provisions are now in effect and hereafter amended, and under
any other similar statutes now and hereafter in effect deemed applicable to this
Guaranty and its enforcement.

Guarantor  acknowledges  that  neither  the  Indebtedness  nor  the  obligations
hereunder are secured by an interest in real property, but to the extent that it
should  ever be  determined  that  either the  Indebtedness  or the  obligations
hereunder are so secured or should the Indebtedness or the obligations hereunder
be so secured in the future, Guarantor agrees to the following:

     The  guarantor  waives all rights and defenses  that the guarantor may have
     because the debtor's debt is secured by real  property.  This means,  among
     other things:

     (1) A creditor may collect from the guarantor  without first foreclosing on
     any real or personal property collateral pledged by the debtor;

     (2) If a creditor forecloses on any real property collateral pledged by the
     debtor:

          (A) The amount of the debt may be reduced  only by the price for which
          that  collateral  is  sold  at  the  foreclosure  sale,  even  if  the
          collateral is worth more than the sale price,
          (B) The creditor may collect from the guarantor  even if the creditor,
          by  foreclosing  on the real  property  collateral,  has destroyed any
          right the guarantor may have to collect from the debtor.

<PAGE>

This is an unconditional  and irrevocable  waiver of any rights and defenses the
Guarantor  may have  because  the  Borrower's  debt is or may be secured by real
property.  These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 6580b,  580d, or 726 of the California Code
of Civil Procedure.

The undersigned  further  understands that, absent this waiver,  California law,
including without  limitation the laws cited above, could afford the undersigned
one or more  affirmative  defenses to any action  maintained by Bank against the
undersigned on this Guaranty. Notwithstanding any foreclosure of the lien of any
security  instrument,  with  respect  to any or all  property  secured  thereby,
whether by the exercise of the power of sale contained therein, by an action for
judicial  foreclosure,  or by an  acceptance  of a deed in lieu of  foreclosure,
Guarantor  shall  remain  bound  under  this  Guaranty.   Without  limiting  the
generality of the foregoing,  Guarantor acknowledges that, but for the waiver of
such rights in this Guaranty, Guarantor has or may have rights of subrogation or
reimbursement  against Borrower  arising from  Guarantor's  status as surety and
guarantor of Borrower's obligations to Bank. Therefore, in addition to the above
waivers,  Guarantor hereby agrees that if now or hereafter  Borrower is or shall
become insolvent and the  Indebtedness or Obligations  shall not at all times be
fully secured by collateral pledged by Borrower, Guarantor hereby forever waives
and gives up in favor of Bank and Borrower, and Bank's and Borrower's respective
successors and assigns,  any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so that
at no time shall  Guarantor  be or become a  "creditor"  of Borrower  within the
meaning of 11 U.S.C.  section 547(b), or any successor  provision of the Federal
bankruptcy laws.

Guarantor  acknowledges  that  Guarantor  has been provided the  opportunity  to
discuss with Guarantor's counsel the effect and meaning of the waivers set forth
in this paragraph. Nothing within this paragraph is to be construed to limit the
generality of any other term or provision within this Guaranty.

     10. Guarantor waives all presentments,  demands for performance, notices of
non-performance,  protests,  notices of protest, notices of dishonor, notices of
default,  notices  of  intent  to  accelerate  or  demand  payment  of any kind,
diligence in collecting any Obligations, notices of acceptance of this Guaranty,
notices  of  the  existence,   creation,  or  incurring  of  new  or  additional
indebtedness,  notices  respecting  the  terms,  time and place of any public or
private  sale of  personal  property  security  held from  Borrower or any other
person, and all other notices or formalities to which Guarantor may be entitled.
Bank may modify the terms of the  Agreement or of any  Obligations,  compromise,
extend, increase,  accelerate, renew or forbear to enforce payment of any or all
Obligations or other sums due under the Agreement,  or permit  Borrower to incur
additional Obligations, all without notice to Guarantor and without affecting in
any  manner the  unconditional  obligation  of  Guarantor  under this  Guaranty.
Guarantor  further  waives any and all other  notices to which  Guarantor  might
otherwise be entitled.  Guarantor  acknowledges  and agrees that the liabilities
created by this Guaranty are direct and are not conditioned upon pursuit by Bank
of any  remedy  Bank  may have  against  Borrower  or any  other  person  or any
security. No invalidity,  irregularity or unenforceability of any part or all of
the Agreement or any other Obligations or any documents  evidencing the same, by
reason of any  bankruptcy,  insolvency  or other law or order of any kind or for
any other  reason,  and no defense or setoff  available at any time to Borrower,
shall impair,  affect or be a defense or setoff to the  obligations of Guarantor
under this Guaranty.

     11. Any and all present  and future  debts and  obligations  of Borrower to
Guarantor are hereby  postponed in favor of and subordinated to the full payment
and  performance of all present and future debts and  obligations of Borrower to
Bank. All monies or other property of Guarantor at any time in Bank's possession
may be held by Bank as security for any and all obligations of Guarantor to Bank
no matter how or when arising, whether absolute or contingent, whether due or to
become due, and whether under this Guaranty or otherwise.  Guarantor also agrees
that Bank's  books and records  showing the account  between  Bank and  Borrower
shall be  admissible  in any  action or  proceeding  and shall be  binding  upon
Guarantor for the purpose of establishing  the terms set forth therein and shall
constitute prima facie proof thereof.

     12.  Based  solely on its own  independent  investigation  and not upon any
information provided by Bank, Guarantor acknowledges and represents and warrants
that it is presently informed of the financial  condition of Borrower and of all
other  circumstances  which a diligent  inquiry would reveal and which bear upon
the risk of nonpayment of the Obligations or  non-performance  of the Agreement.
Guarantor  hereby  covenants  that it will  continue to keep itself  informed of
Borrower's  financial  condition and of all other  circumstances which bear upon
the risk of nonpayment.  Guarantor hereby waives its rights,  if any, to require
the disclosure of, and Bank is relieved of any obligation or duty to disclose to
Guarantor,  any information which Bank may now or hereafter  acquire  concerning
such condition or  circumstances.  Guarantor  agrees that it is not relying upon
nor expecting Bank to disclose to Guarantor any fact now or later known by Bank,
whether  relating to the  operations  or condition of Borrower,  the  existence,
liabilities or financial  condition of any co-guarantor of the Obligations,  the
occurrence  of any default with  respect to the  Obligations  including  but not
limited to under the Agreement,  or otherwise,  notwithstanding any effect these
facts may have upon Guarantor's  risk under this Guaranty or Guarantor's  rights
against Borrower. Guarantor knowingly accepts the full range of risk encompassed
in this  Guaranty,  which  risk  includes  without  limit the  possibility  that
Borrower  may  incur  Obligations  to Bank  after  the  financial  condition  of
Borrower, or its ability to pay its debts as they mature, has deteriorated.

<PAGE>

     13. On a continuing  basis from the date of this  Guaranty and at all times
during its  effectiveness,  Guarantor hereby  represents and warrants to Bank as
follows: (a) Guarantor is a limited partnership duly organized, validly existing
and in good  standing  under  the  laws of the  State  of  Delaware  and in good
standing  under the laws of, and is  authorized  to do business in, the State of
California,  (b) Guarantor has the power and authority to own its properties and
assets and to carry out its business as now being  conducted and is qualified to
do  business  and  in  good   standing  in  every   jurisdiction   wherein  such
qualification  is  necessary,  (c)  Guarantor  has the  power and  authority  to
execute,  deliver and perform this Guaranty in accordance with its terms, and to
do any and  all  other  things  required  of it  hereunder,  (d) the  execution,
delivery and  performance  of this  Guaranty  have been duly  authorized  by all
requisite  partnership  action and will not violate any provision of Guarantor's
partnership or other constituency agreements or partnership  certificates or any
provision of any  indenture,  note,  agreement or other  instrument to which the
Guarantor is a party, or by which it or any of Guarantor's  properties or assets
are bound, (e) there are no actions, suits or proceedings,  at law or in equity,
and no  proceedings  before  any  arbitrator  or by or before  any  governmental
commission,  board, bureau, or other administrative agency,  pending, or, to the
best  knowledge of the  Guarantor,  threatened  against or  affecting  Guarantor
which, if adversely  determined,  could materially impair the right of Guarantor
to carry on business  substantially  as now  conducted  or could have a material
adverse effect upon the financial  condition of Guarantors,  (f) upon the Bank's
request and  Borrower's  failure to timely  provide to the Bank,  Guarantor will
provide to the Bank financial and credit  information in form  acceptable to the
Bank,  and such  information  and all  consolidated  and  consolidating  balance
sheets,  earnings  statements and other financial data furnished to the Bank for
the purposes of, or in  connection  with,  the Agreement and this Guaranty do or
will fairly present the financial condition of Guarantor, as of their dates, and
the results of Guarantor's  operations  for the periods,  for which the same are
furnished to the Bank,  and  Guarantor has no material  contingent  obligations,
liabilities  for  taxes,  long-term  leases  or  unusual  forward  or  long-term
commitments  not  disclosed  by, or  reserved  against  in,  all such  financial
information  provided to Bank,  and (g)  Guarantor  is solvent,  able to pay its
debts as they mature,  has capital  sufficient  to carry on its business and has
assets the fair market value of which exceed its liabilities.

     14.  Guarantor   covenants  and  agrees  that,  at  all  times  during  the
effectiveness of this Guaranty, Guarantor will do or cause to be done all things
necessary to preserve and keep in full force and effect Guarantor's  partnership
existence,  rights and franchises and comply with all applicable laws;  maintain
its good  standing  in all states  and  jurisdictions  in which it is  currently
authorized  to conduct  business;  continue to conduct and operate its  business
substantially  as  conducted  and  operated  during the  present  and  preceding
calendar year; at all times maintain, preserve and protect all franchises, trade
names and preserve  all the  remainder of its property and keep the same in good
repair, working order and condition;  and from time to time make, or cause to be
made, all needed and proper  repairs,  renewals,  replacements,  betterments and
improvements thereto so that the business carried on in connection therewith may
be properly and advantageously conducted at all times.

     15.  Guarantor   covenants  and  agrees  that,  at  all  times  during  the
effectiveness of this Guaranty, it will not transfer all or substantially all of
its assets and that it will not  dissolve or wind-up  its  affairs or  otherwise
cease  doing  business  or  transfer  its  assets  in  such a way  as to  impair
Guarantor's ability to perform its obligations under this Guaranty.

     16.  Notwithstanding  any  prior  revocation,   termination,  surrender  or
discharge of this  Guaranty in whole or part,  this Guaranty  shall  continue in
full force and effect until Borrower's  Obligations including but not limited to
under the Agreement  are fully paid,  performed  and  discharged  and Bank gives
Guarantor  written  notice of that  fact.  Borrower's  Obligations  shall not be
considered fully paid, performed and discharged unless and until all payments by
Borrower  to Bank are no longer  subject  to any right on the part of any person
whomsoever   including   but   not   limited   to   Borrower,   Borrower   as  a
debtor-in-possession, and/or any trustee or receiver in bankruptcy, to set aside
such  payments  or seek to  recoup  the  amount  of such  payments,  or any part
thereof.  In the event that any such  payments by Borrower to Bank or on account
of Borrower to Bank are set aside after the making thereof, in whole or in part,
or settled without litigation, to the extent of such settlement, all of which is
within Bank's discretion,  Guarantor shall be liable for the full amount Bank is
required to repay plus costs, interest, attorneys' fees and any and all expenses
which  Bank paid or  incurred  in  connection  therewith.  The  foregoing  shall
include,  by way of example and not by way of limitation,  all rights to recover
preferences  voidable under the United States  Bankruptcy Code and any liability
imposed,  or sought to be imposed,  against Bank  relating to the  environmental
condition of, or the presence of hazardous or toxic  substances on, in or about,
any of  Borrower's  property.  For  purposes  of this  Guaranty,  "environmental
condition" includes, without limitation, conditions existing with respect to the
surface or ground water,  drinking water supply,  land surface or subsurface and
the air; and "hazardous or toxic substances" shall include all substances now or
subsequently determined by any federal, state or local authority to be hazardous
or toxic, or otherwise regulated by any of these authorities.

     17.  This  Guaranty  shall be binding  upon the  successors  and assigns of
Guarantor  and shall  inure to the  benefit of Bank's  successors  and  assigns.
Guarantor's  rights and  liability  shall not be  affected by any changes in the
name of  Borrower  or in the  event  Borrower  merges  with or  into  any  other
corporation or entity or in the event Borrower  transfers,  assigns or sells its
assets and liabilities to any person.

<PAGE>

     18. All notices,  demands and other  communications which Guarantor or Bank
may  desire,  or may be  required,  to give to the other shall be in writing and
shall be sent via registered or certified mail,  nationally recognized overnight
courier,  or  personally  delivered  and shall be  addressed to the party at the
addresses set forth in the preamble of this Guaranty. Any such notice, demand or
communication  shall be deemed given when  received if  personally  delivered or
sent by  overnight  courier,  or deposited  in the United  States mail,  postage
prepaid,  if sent by  registered  or  certified  mail.  The  address  of  either
Guarantor  or Bank may be  changed  by  notice  given in  accordance  with  this
paragraph.

     19. This is an  integrated  agreement  and is the sole and final  agreement
with respect to the subject matter hereof, and supersedes all prior negotiations
and  agreements.  No  modification  of this Guaranty  shall be effective for any
purpose unless it is in writing and executed by Guarantor and an officer of Bank
authorized to do so.

     20.  Guarantor  agrees  to  pay  all  costs  and  fees,  including  without
limitation all reasonable  attorneys' fees and out-of-pocket costs,  incurred by
Bank in enforcing the Agreement or this  Guaranty.  In addition,  the prevailing
party  (the  "Prevailing  Party")  in any  litigation,  arbitration,  bankruptcy
proceeding,   or  other   formal  or  informal   resolution   (collectively,   a
"Proceeding")  brought  by Bank or any  party  to this  Guaranty  of any  claims
brought to enforce the terms of this  Guaranty  based upon,  arising from, or in
any way  related  to this  Guaranty  or the  transactions  contemplated  herein,
including  without  limitation  contract  claims,  tort  claims,  breach of duty
claims,  and  all  other  common  law or  statutory  claims  (collectively,  the
"Claims"),  shall be entitled to recover  from such other party all its fees and
costs incurred in connection with the Proceeding,  including without  limitation
all its  attorneys'  fees and costs,  whether  incurred by  in-house  counsel or
outside counsel,  all its expert witness and/or consultant's fees and costs, all
its paralegal fees and costs,  and all its other costs and expenses,  regardless
of whether such costs are otherwise statutorily recoverable  (collectively,  the
"Fees and  Costs"),  and  including  without  limitation  all the Fees and Costs
incurred by the Prevailing  Party in connection  with  proceedings in bankruptcy
for  relief  from  and/or   modification   of  automatic  stay,  for  orders  of
nondischargeability,  and/or  regarding use of cash collateral,  claims,  and/or
plans.  The  Prevailing  Party shall also be entitled to recover from such other
party all its costs  incurred in enforcing  the judgment or award giving rise to
the Prevailing  Party's status as the Prevailing Party.  Guarantor  acknowledges
that it is on notice that, in the event that the other party retain the services
of one or more experts in connection with the Proceeding,  such other party will
seek to  recover  the fees and costs of such  expert or experts  hereunder,  and
that, if such party becomes the Prevailing  Party in the Proceeding,  such party
shall be entitled to recover  such fees and costs  hereunder,  whether such fees
and costs are sought before  trial,  during  trial,  or by post-trial  motion or
memorandum of costs.

     21. In all cases where the word  "Guarantor" is used in this  Guaranty,  it
shall  mean and apply  equally  to each of and all of the  entities  which  have
executed  this  Guaranty.  If any  Obligation  is  guaranteed  by  two  or  more
guarantors,  the obligation of Guarantor  shall be several and also joint,  each
with all and also each with any one or more of the  others,  and may be enforced
at the option of Bank against each severally,  any two or more jointly,  or some
severally and some jointly.

     22. The term  "Borrower"  includes any  debtor-in-possession  or trustee in
bankruptcy  or  court-appointed  receiver  which  succeeds to the  interests  of
Borrower.

     23. This  Guaranty and all acts and  transactions  hereunder and the rights
and  obligations  of  the  parties  hereto  shall  be  governed,  construed  and
interpreted  in  accordance  with the laws of the State of  California,  without
regard to choice of law principles.

     24.  GUARANTOR   ACKNOWLEDGES  THAT  THE  RIGHT  TO  TRIAL  BY  JURY  IS  A
CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. AFTER CONSULTING (OR HAVING HAD
THE  OPPORTUNITY  TO CONSULT) WITH COUNSEL OF THEIR  CHOICE,  GUARANTOR AND BANK
KNOWINGLY  AND  VOLUNTARILY,  AND FOR THEIR MUTUAL  BENEFIT,  WAIVE ANY RIGHT TO
TRIAL  BY  JURY  IN  THE  EVENT  OF  LITIGATION  REGARDING  THE  PERFORMANCE  OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE OBLIGATIONS.

     GUARANTOR  ACKNOWLEDGES  THAT GUARANTOR HAS HAD THE OPPORTUNITY TO READ AND
REVIEW WITH GUARANTOR'S COUNSEL THIS GUARANTY, AND GUARANTOR ACKNOWLEDGES HAVING
READ AND UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT BEFORE SIGNING IT.



<PAGE>







     IN WITNESS WHEREOF,  the undersigned  has/have executed this Guaranty as of
the date set forth above.


                                      MISSION WEST PROPERTIES, L.P.
                                      A Delaware limited partnership

                                      By       Mission West Properties, Inc.,
                                               A Maryland corporation,
                                               Its General Partner


                                               By: /s/ Carl E. Berg
                                               -------------------------------
                                               Its: Chairman & CEO



                                               By: /s/ Raymond V. Marino
                                               -------------------------------
                                               Its: President & COO




<PAGE>


EXHIBIT 10.31


                               CONTINUING GUARANTY


                                                                   July 12, 2002

Cupertino National Bank
20230 Stevens Creek Boulevard
Cupertino, CA 95014


TO:      Cupertino National Bank

     For  good and  valuable  consideration  the  receipt  of  which  is  hereby
acknowledged,  and in order to induce Cupertino  National Bank (the "Bank"),  to
extend  and/or  continue  to extend  financial  accommodations  to Mission  West
Properties, Inc., a Maryland corporation ("Borrower"), pursuant to the terms and
conditions of that certain  Revolving Credit Loan Agreement and Revolving Credit
Note  (individually  and collectively,  the  "Agreement"),  dated July 12, 2002,
evidencing and otherwise  relating to a revolving loan by Bank to Borrower up to
the  total  principal  amount of Forty  Million  Dollars  ($40,000,000.00)  (the
"Loan")  Mission  West  Properties,  L.P.  II, a  Delaware  limited  partnership
("Guarantor"),  whose  address is 10050  Bandley  Drive,  Cupertino,  California
95014,  hereby,  jointly  and  severally,   guarantees,   promises,  represents,
warrants,  covenants and  undertakes to Bank and its  successors  and assigns as
follows:

     1. Guarantor  unconditionally,  absolutely and  irrevocably  guarantees and
promises  to pay to Bank,  or order,  on demand,  in lawful  money of the United
States, any and all indebtedness  and/or obligations of Borrower to Bank and the
payment to Bank of all sums which may be presently due and owing and of all sums
which shall in the future become due and owing to Bank from  Borrower  under the
Agreement. The terms "indebtedness" and "obligations"  (hereinafter collectively
referred to as the  "Obligations")  are used herein in their most  comprehensive
sense and include, without limitation,  the Loan and any and all advances to, or
debts, obligations,  and liabilities of Borrower,  heretofore, now, or hereafter
made, incurred,  or created,  whether voluntarily or involuntarily,  and however
arising,  including,  without limitation,  (i) indebtedness owing by Borrower to
third parties who have granted Bank a security interest in the accounts, chattel
paper  and/or  general  intangibles  of  said  third  party;  (ii)  any  and all
attorneys'  fees,  expenses,  costs,  premiums,  charges and/or interest owed by
Borrower to Bank, whether under the Agreement, or otherwise,  whether due or not
due,  absolute  or  contingent,   liquidated  or  unliquidated,   determined  or
undetermined,  whether  Borrower  may be liable  individually  or  jointly  with
others,  whether  recovery upon such  indebtedness  may be or hereafter  becomes
barred by any statute of  limitations  or whether  such  indebtedness  may be or
hereafter becomes otherwise unenforceable,  and includes Borrower's prompt, full
and  faithful  performance,  observance  and  discharge  or each and every term,
condition, agreement,  representation,  warranty undertaking and provision to be
performed by Borrower  under the  Agreement;  (iii) any and all  obligations  or
liabilities  of Borrower to Bank arising out of any other  agreement by Borrower
including  without  limitation any agreement to indemnify Bank for environmental
liability  or to  clean  up  hazardous  waste;  (iv)  any and all  indebtedness,
obligations or liabilities  for which Borrower would otherwise be liable to Bank
were it not for the  invalidity,  irregularity  or  unenforceability  of them by
reason  of any  bankruptcy,  insolvency  or  other  law or  order  of any  kind,
including  from and after the  filing by or  against  Borrower  of a  bankruptcy
petition,   whether  an  involuntary  or  voluntary  bankruptcy  case,  and  all
attorneys' fees related thereto; and (v) any and all amendments,  modifications,
renewals  and/or  extensions  of any  of  the  above,  including  without  limit
amendments, modifications, renewals and/or extensions which are evidenced by new
or additional instruments, documents or agreements.

     2. This Guaranty  ("Guaranty") is a continuing  guaranty which shall remain
effective  until  full  satisfaction  of  all  of the  Obligations  to the  Bank
(including  without  limitation those which arise under successive  transactions
under the Agreement),  full  satisfaction by Guarantor of its obligations  under
this  Guaranty,  and  the  termination  of  the  Bank's  obligations  under  the
Agreement.

     3. Guarantor  agrees that it is directly and primarily liable to Bank, that
the obligations  hereunder are  independent of the obligations of Borrower,  and
that a  separate  action  or  actions  may be  brought  and  prosecuted  against
Guarantor  irrespective  of  whether  Borrower  is joined in any such  action or
actions.  Guarantor  agrees  that  any  releases  which  may be given by Bank to
Borrower  or any other  guarantor  or  endorser  shall not  release it from this
Guaranty.

     4. In the event that any  bankruptcy,  insolvency,  receivership or similar
proceeding is instituted by or against Guarantor and/or Borrower or in the event
that either Guarantor or Borrower become  insolvent,  make an assignment for the
benefit of creditors,  or attempts to effect a composition with creditors, or if
there be any default under the  Agreement  (whether  declared or not),

<PAGE>

then, at Bank's election, without notice or demand, the obligations of Guarantor
created  hereunder shall become due, payable and enforceable  against  Guarantor
whether or not the Obligations are then due and payable.

     5.  Guarantor  agrees to defend,  indemnify and hold Bank harmless from and
against  all  obligations,   demands,  judgments,  claims  and  liabilities,  by
whomsoever asserted and against all losses,  fees, expenses and costs in any way
suffered, incurred, or paid by Bank as a result of or in any way arising out of,
following, or consequential to Bank's or Guarantor's  transactions with Borrower
under the Agreement, and also agrees that this Guaranty shall not be impaired by
any  modification,  supplement,  extension,  or  amendment  of any  contract  or
agreement  to  which  Bank  and  Borrower  may  hereafter   agree,  nor  by  any
modification,  release,  or other  alteration of any of the  Obligations  hereby
guaranteed or of any security  therefor,  nor by any agreements or  arrangements
whatsoever with Borrower or anyone else.

     6. Guarantor hereby  authorizes Bank,  without notice or demand and without
affecting its liability hereunder,  from time to time to: (a) renew, compromise,
extend,  accelerate, or otherwise change the interest rate, time for payment, or
the other terms of the Agreement or of any of the Obligations guaranteed hereby,
and exchange,  enforce,  waive, and release any security therefor; (b) apply any
such  security  and  direct  the order or manner of sale  thereof as Bank in its
discretion may determine;  (c) release or substitute any one or more endorser(s)
or  guarantor(s);   and  (d)  assign,  without  notice,  this  Guaranty  or  the
Indebtedness  in whole or in part and/or Bank's  rights  thereunder to anyone at
any time and/or transfer one or more participation  interests in the Obligations
or any  of  them  and  this  Guaranty  to one or  more  purchasers  and  provide
information to  prospective  purchasers  relating to Borrower or Guarantor.  The
Bank agrees,  upon written request by Guarantor,  to provide the identity of any
current  participants.  Guarantor  agrees  that  Bank  may  do any or all of the
foregoing in such  manner,  upon such terms,  and at such times as Bank,  in its
discretion,  deems  advisable,  without,  in  any  way  or  respect,  impairing,
affecting,  reducing or releasing Guarantor from its undertakings  hereunder and
Guarantor  hereby consents to each and all of the foregoing acts,  events and/or
occurrences.

     7.  Guarantor  hereby waives any right to assert against Bank as a defense,
counterclaim, set-off or cross-claim, any defense (legal or equitable), set-off,
counterclaim, and/or claim which Guarantor may now or at any time hereafter have
against Borrower and/or any other party liable to Bank in any way or manner.

     8. Guarantor hereby waives all defenses,  counterclaims and off-sets of any
kind or nature,  arising  directly or indirectly from the present or future lack
of perfection,  sufficiency, validity and/or enforceability of the Agreement, or
any security interest granted in connection therewith.

     9.  Guarantor  hereby waives any defense  arising by reason of any claim or
defense  based upon an election of remedies by Bank that in any manner  impairs,
affects, reduces, releases, destroys and/or extinguishes Guarantor's subrogation
rights,  rights to proceed against Borrower or any other person for subrogation,
reimbursement,  exoneration,  contribution,  indemnification or participation in
any claim, right or remedy against Borrower or any other person for any security
which Bank now has or hereafter  acquires,  whether or not such claim,  right or
remedy  arises in  equity,  under  contract,  by  statute,  under  common law or
otherwise, and/or any rights of Guarantor to proceed against Borrower or against
any other person or security,  including,  but not limited to, any defense based
upon an election of remedies by Bank.  Guarantor  expressly  waives all benefits
which might  otherwise be available to  Guarantor  under  California  Civil Code
Sections 2809,  2810,  2815, 2819, 2822, 2839, 2845, 2847, 2848, 2849, 2850, and
3433 and California Code of Civil Procedure  Sections 580a,  580b, 580d and 726,
as those statutory provisions are now in effect and hereafter amended, and under
any other similar statutes now and hereafter in effect deemed applicable to this
Guaranty and its enforcement.

Guarantor  acknowledges  that  neither  the  Indebtedness  nor  the  obligations
hereunder are secured by an interest in real property, but to the extent that it
should  ever be  determined  that  either the  Indebtedness  or the  obligations
hereunder are so secured or should the Indebtedness or the obligations hereunder
be so secured in the future, Guarantor agrees to the following:

The guarantor waives all rights and defenses that the guarantor may have because
the debtor's debt is secured by real property. This means, among other things:

     (1)  A creditor may collect from the guarantor without first foreclosing on
          any real or personal property collateral pledged by the debtor;

     (2)  If a creditor  forecloses on any real property  collateral  pledged by
          the debtor:

          (A)  The amount of the debt may be reduced only by the price for which
               that  collateral  is sold at the  foreclosure  sale,  even if the
               collateral is worth more than the sale price,
          (B)  The creditor may collect from the guarantor even if the creditor,
               by foreclosing on the real property collateral, has destroyed any
               right the guarantor may have to collect from the debtor.

<PAGE>

This is an unconditional  and irrevocable  waiver of any rights and defenses the
Guarantor  may have  because  the  Borrower's  debt is or may be secured by real
property.  These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 6580b,  580d, or 726 of the California Code
of Civil Procedure.

The undersigned  further  understands that, absent this waiver,  California law,
including without  limitation the laws cited above, could afford the undersigned
one or more  affirmative  defenses to any action  maintained by Bank against the
undersigned on this Guaranty. Notwithstanding any foreclosure of the lien of any
security  instrument,  with  respect  to any or all  property  secured  thereby,
whether by the exercise of the power of sale contained therein, by an action for
judicial  foreclosure,  or by an  acceptance  of a deed in lieu of  foreclosure,
Guarantor  shall  remain  bound  under  this  Guaranty.   Without  limiting  the
generality of the foregoing,  Guarantor acknowledges that, but for the waiver of
such rights in this Guaranty, Guarantor has or may have rights of subrogation or
reimbursement  against Borrower  arising from  Guarantor's  status as surety and
guarantor of Borrower's obligations to Bank. Therefore, in addition to the above
waivers,  Guarantor hereby agrees that if now or hereafter  Borrower is or shall
become insolvent and the  Indebtedness or Obligations  shall not at all times be
fully secured by collateral pledged by Borrower, Guarantor hereby forever waives
and gives up in favor of Bank and Borrower, and Bank's and Borrower's respective
successors and assigns,  any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so that
at no time shall  Guarantor  be or become a  "creditor"  of Borrower  within the
meaning of 11 U.S.C.  section 547(b), or any successor  provision of the Federal
bankruptcy laws.

Guarantor  acknowledges  that  Guarantor  has been provided the  opportunity  to
discuss with Guarantor's counsel the effect and meaning of the waivers set forth
in this paragraph. Nothing within this paragraph is to be construed to limit the
generality of any other term or provision within this Guaranty.

     10. Guarantor waives all presentments,  demands for performance, notices of
non-performance,  protests,  notices of protest, notices of dishonor, notices of
default,  notices  of  intent  to  accelerate  or  demand  payment  of any kind,
diligence in collecting any Obligations, notices of acceptance of this Guaranty,
notices  of  the  existence,   creation,  or  incurring  of  new  or  additional
indebtedness,  notices  respecting  the  terms,  time and place of any public or
private  sale of  personal  property  security  held from  Borrower or any other
person, and all other notices or formalities to which Guarantor may be entitled.
Bank may modify the terms of the  Agreement or of any  Obligations,  compromise,
extend, increase,  accelerate, renew or forbear to enforce payment of any or all
Obligations or other sums due under the Agreement,  or permit  Borrower to incur
additional Obligations, all without notice to Guarantor and without affecting in
any  manner the  unconditional  obligation  of  Guarantor  under this  Guaranty.
Guarantor  further  waives any and all other  notices to which  Guarantor  might
otherwise be entitled.  Guarantor  acknowledges  and agrees that the liabilities
created by this Guaranty are direct and are not conditioned upon pursuit by Bank
of any  remedy  Bank  may have  against  Borrower  or any  other  person  or any
security. No invalidity,  irregularity or unenforceability of any part or all of
the Agreement or any other Obligations or any documents  evidencing the same, by
reason of any  bankruptcy,  insolvency  or other law or order of any kind or for
any other  reason,  and no defense or setoff  available at any time to Borrower,
shall impair,  affect or be a defense or setoff to the  obligations of Guarantor
under this Guaranty.

     11. Any and all present  and future  debts and  obligations  of Borrower to
Guarantor are hereby  postponed in favor of and subordinated to the full payment
and  performance of all present and future debts and  obligations of Borrower to
Bank. All monies or other property of Guarantor at any time in Bank's possession
may be held by Bank as security for any and all obligations of Guarantor to Bank
no matter how or when arising, whether absolute or contingent, whether due or to
become due, and whether under this Guaranty or otherwise.  Guarantor also agrees
that Bank's  books and records  showing the account  between  Bank and  Borrower
shall be  admissible  in any  action or  proceeding  and shall be  binding  upon
Guarantor for the purpose of establishing  the terms set forth therein and shall
constitute prima facie proof thereof.

     12.  Based  solely on its own  independent  investigation  and not upon any
information provided by Bank, Guarantor acknowledges and represents and warrants
that it is presently informed of the financial  condition of Borrower and of all
other  circumstances  which a diligent  inquiry would reveal and which bear upon
the risk of nonpayment of the Obligations or  non-performance  of the Agreement.
Guarantor  hereby  covenants  that it will  continue to keep itself  informed of
Borrower's  financial  condition and of all other  circumstances which bear upon
the risk of nonpayment.  Guarantor hereby waives its rights,  if any, to require
the disclosure of, and Bank is relieved of any obligation or duty to disclose to
Guarantor,  any information which Bank may now or hereafter  acquire  concerning
such condition or  circumstances.  Guarantor  agrees that it is not relying upon
nor expecting Bank to disclose to Guarantor any fact now or later known by Bank,
whether  relating to the  operations  or condition of Borrower,  the  existence,
liabilities or financial  condition of any co-guarantor of the Obligations,  the
occurrence  of any default with  respect to the  Obligations  including  but not
limited to under the Agreement,  or otherwise,  notwithstanding any effect these
facts may have upon Guarantor's  risk under this Guaranty or Guarantor's  rights
against Borrower. Guarantor knowingly accepts the full range of risk encompassed
in this  Guaranty,  which  risk  includes  without  limit the  possibility  that
Borrower  may  incur  Obligations  to Bank  after  the  financial  condition  of
Borrower, or its ability to pay its debts as they mature, has deteriorated.



<PAGE>


     13. On a continuing  basis from the date of this  Guaranty and at all times
during its  effectiveness,  Guarantor hereby  represents and warrants to Bank as
follows: (a) Guarantor is a limited partnership duly organized, validly existing
and in good  standing  under  the  laws of the  State  of  Delaware  and in good
standing  under the laws of, and is  authorized  to do business in, the State of
California,  (b) Guarantor has the power and authority to own its properties and
assets and to carry out its business as now being  conducted and is qualified to
do  business  and  in  good   standing  in  every   jurisdiction   wherein  such
qualification  is  necessary,  (c)  Guarantor  has the  power and  authority  to
execute,  deliver and perform this Guaranty in accordance with its terms, and to
do any and  all  other  things  required  of it  hereunder,  (d) the  execution,
delivery and  performance  of this  Guaranty  have been duly  authorized  by all
requisite  partnership  action and will not violate any provision of Guarantor's
partnership or other constituency agreements or partnership  certificates or any
provision of any  indenture,  note,  agreement or other  instrument to which the
Guarantor is a party, or by which it or any of Guarantor's  properties or assets
are bound, (e) there are no actions, suits or proceedings,  at law or in equity,
and no  proceedings  before  any  arbitrator  or by or before  any  governmental
commission,  board, bureau, or other administrative agency,  pending, or, to the
best  knowledge of the  Guarantor,  threatened  against or  affecting  Guarantor
which, if adversely  determined,  could materially impair the right of Guarantor
to carry on business  substantially  as now  conducted  or could have a material
adverse effect upon the financial  condition of Guarantors,  (f) upon the Bank's
request and  Borrower's  failure to timely  provide to the Bank,  Guarantor will
provide to the Bank financial and credit  information in form  acceptable to the
Bank,  and such  information  and all  consolidated  and  consolidating  balance
sheets,  earnings  statements and other financial data furnished to the Bank for
the purposes of, or in  connection  with,  the Agreement and this Guaranty do or
will fairly present the financial condition of Guarantor, as of their dates, and
the results of Guarantor's  operations  for the periods,  for which the same are
furnished to the Bank,  and  Guarantor has no material  contingent  obligations,
liabilities  for  taxes,  long-term  leases  or  unusual  forward  or  long-term
commitments  not  disclosed  by, or  reserved  against  in,  all such  financial
information  provided to Bank,  and (g)  Guarantor  is solvent,  able to pay its
debts as they mature,  has capital  sufficient  to carry on its business and has
assets the fair market value of which exceed its liabilities.

     14.  Guarantor   covenants  and  agrees  that,  at  all  times  during  the
effectiveness of this Guaranty, Guarantor will do or cause to be done all things
necessary to preserve and keep in full force and effect Guarantor's  partnership
existence,  rights and franchises and comply with all applicable laws;  maintain
its good  standing  in all states  and  jurisdictions  in which it is  currently
authorized  to conduct  business;  continue to conduct and operate its  business
substantially  as  conducted  and  operated  during the  present  and  preceding
calendar year; at all times maintain, preserve and protect all franchises, trade
names and preserve  all the  remainder of its property and keep the same in good
repair, working order and condition;  and from time to time make, or cause to be
made, all needed and proper  repairs,  renewals,  replacements,  betterments and
improvements thereto so that the business carried on in connection therewith may
be properly and advantageously conducted at all times.

     15.  Guarantor   covenants  and  agrees  that,  at  all  times  during  the
effectiveness of this Guaranty, it will not transfer all or substantially all of
its assets and that it will not  dissolve or wind-up  its  affairs or  otherwise
cease  doing  business  or  transfer  its  assets  in  such a way  as to  impair
Guarantor's ability to perform its obligations under this Guaranty.

     16.  Notwithstanding  any  prior  revocation,   termination,  surrender  or
discharge of this  Guaranty in whole or part,  this Guaranty  shall  continue in
full force and effect until Borrower's  Obligations including but not limited to
under the Agreement  are fully paid,  performed  and  discharged  and Bank gives
Guarantor  written  notice of that  fact.  Borrower's  Obligations  shall not be
considered fully paid, performed and discharged unless and until all payments by
Borrower  to Bank are no longer  subject  to any right on the part of any person
whomsoever   including   but   not   limited   to   Borrower,   Borrower   as  a
debtor-in-possession, and/or any trustee or receiver in bankruptcy, to set aside
such  payments  or seek to  recoup  the  amount  of such  payments,  or any part
thereof.  In the event that any such  payments by Borrower to Bank or on account
of Borrower to Bank are set aside after the making thereof, in whole or in part,
or settled without litigation, to the extent of such settlement, all of which is
within Bank's discretion,  Guarantor shall be liable for the full amount Bank is
required to repay plus costs, interest, attorneys' fees and any and all expenses
which  Bank paid or  incurred  in  connection  therewith.  The  foregoing  shall
include,  by way of example and not by way of limitation,  all rights to recover
preferences  voidable under the United States  Bankruptcy Code and any liability
imposed,  or sought to be imposed,  against Bank  relating to the  environmental
condition of, or the presence of hazardous or toxic  substances on, in or about,
any of  Borrower's  property.  For  purposes  of this  Guaranty,  "environmental
condition" includes, without limitation, conditions existing with respect to the
surface or ground water,  drinking water supply,  land surface or subsurface and
the air; and "hazardous or toxic substances" shall include all substances now or
subsequently determined by any federal, state or local authority to be hazardous
or toxic, or otherwise regulated by any of these authorities.

     17.  This  Guaranty  shall be binding  upon the  successors  and assigns of
Guarantor  and shall  inure to the  benefit of Bank's  successors  and  assigns.
Guarantor's  rights and  liability  shall not be  affected by any changes in the
name of  Borrower  or in the  event  Borrower  merges  with or  into  any  other
corporation or entity or in the event Borrower  transfers,  assigns or sells its
assets and liabilities to any person.

     18. All notices,  demands and other  communications which Guarantor or Bank
may  desire,  or may be  required,  to give to the other shall be in writing and
shall be sent via registered or certified mail,  nationally recognized overnight
courier,  or

<PAGE>

personally  delivered  and shall be addressed to the party at the  addresses set
forth in the preamble of this Guaranty. Any such notice, demand or communication
shall be deemed given when received if personally delivered or sent by overnight
courier,  or deposited in the United States mail,  postage  prepaid,  if sent by
registered  or certified  mail.  The address of either  Guarantor or Bank may be
changed by notice given in accordance with this paragraph.

     19. This is an  integrated  agreement  and is the sole and final  agreement
with respect to the subject matter hereof, and supersedes all prior negotiations
and  agreements.  No  modification  of this Guaranty  shall be effective for any
purpose unless it is in writing and executed by Guarantor and an officer of Bank
authorized to do so.

     20.  Guarantor  agrees  to  pay  all  costs  and  fees,  including  without
limitation all reasonable  attorneys' fees and out-of-pocket costs,  incurred by
Bank in enforcing the Agreement or this  Guaranty.  In addition,  the prevailing
party  (the  "Prevailing  Party")  in any  litigation,  arbitration,  bankruptcy
proceeding,   or  other   formal  or  informal   resolution   (collectively,   a
"Proceeding")  brought  by Bank or any  party  to this  Guaranty  of any  claims
brought to enforce the terms of this  Guaranty  based upon,  arising from, or in
any way  related  to this  Guaranty  or the  transactions  contemplated  herein,
including  without  limitation  contract  claims,  tort  claims,  breach of duty
claims,  and  all  other  common  law or  statutory  claims  (collectively,  the
"Claims"),  shall be entitled to recover  from such other party all its fees and
costs incurred in connection with the Proceeding,  including without  limitation
all its  attorneys'  fees and costs,  whether  incurred by  in-house  counsel or
outside counsel,  all its expert witness and/or consultant's fees and costs, all
its paralegal fees and costs,  and all its other costs and expenses,  regardless
of whether such costs are otherwise statutorily recoverable  (collectively,  the
"Fees and  Costs"),  and  including  without  limitation  all the Fees and Costs
incurred by the Prevailing  Party in connection  with  proceedings in bankruptcy
for  relief  from  and/or   modification   of  automatic  stay,  for  orders  of
nondischargeability,  and/or  regarding use of cash collateral,  claims,  and/or
plans.  The  Prevailing  Party shall also be entitled to recover from such other
party all its costs  incurred in enforcing  the judgment or award giving rise to
the Prevailing  Party's status as the Prevailing Party.  Guarantor  acknowledges
that it is on notice that, in the event that the other party retain the services
of one or more experts in connection with the Proceeding,  such other party will
seek to  recover  the fees and costs of such  expert or experts  hereunder,  and
that, if such party becomes the Prevailing  Party in the Proceeding,  such party
shall be entitled to recover  such fees and costs  hereunder,  whether such fees
and costs are sought before  trial,  during  trial,  or by post-trial  motion or
memorandum of costs.

     21. In all cases where the word  "Guarantor" is used in this  Guaranty,  it
shall  mean and apply  equally  to each of and all of the  entities  which  have
executed  this  Guaranty.  If any  Obligation  is  guaranteed  by  two  or  more
guarantors,  the obligation of Guarantor  shall be several and also joint,  each
with all and also each with any one or more of the  others,  and may be enforced
at the option of Bank against each severally,  any two or more jointly,  or some
severally and some jointly.

     22. The term  "Borrower"  includes any  debtor-in-possession  or trustee in
bankruptcy  or  court-appointed  receiver  which  succeeds to the  interests  of
Borrower.

     23. This  Guaranty and all acts and  transactions  hereunder and the rights
and  obligations  of  the  parties  hereto  shall  be  governed,  construed  and
interpreted  in  accordance  with the laws of the State of  California,  without
regard to choice of law principles.

     24.  GUARANTOR   ACKNOWLEDGES  THAT  THE  RIGHT  TO  TRIAL  BY  JURY  IS  A
CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. AFTER CONSULTING (OR HAVING HAD
THE  OPPORTUNITY  TO CONSULT) WITH COUNSEL OF THEIR  CHOICE,  GUARANTOR AND BANK
KNOWINGLY  AND  VOLUNTARILY,  AND FOR THEIR MUTUAL  BENEFIT,  WAIVE ANY RIGHT TO
TRIAL  BY  JURY  IN  THE  EVENT  OF  LITIGATION  REGARDING  THE  PERFORMANCE  OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE OBLIGATIONS.

     GUARANTOR  ACKNOWLEDGES  THAT GUARANTOR HAS HAD THE OPPORTUNITY TO READ AND
REVIEW WITH GUARANTOR'S COUNSEL THIS GUARANTY, AND GUARANTOR ACKNOWLEDGES HAVING
READ AND UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT BEFORE SIGNING IT.


<PAGE>


     IN WITNESS WHEREOF,  the undersigned  has/have executed this Guaranty as of
the date set forth above.


                              MISSION WEST PROPERTIES, L.P. II
                              A Delaware limited partnership

                              By       Mission West Properties, Inc.,
                                       A Maryland corporation,
                                       Its General Partner


                                       By: /s/ Carl E. Berg
                                       -------------------------------
                                       Its: Chairman & CEO



                                       By: /s/ Raymond V. Marino
                                       -------------------------------
                                       Its: President & COO


<PAGE>


EXHIBIT 10.32

California
Loan No. C-332757
PROMISSORY NOTE
                          Mission West Properties, L.P.

$28,868,655.00                                                   January 3, 2003

     For value received, the undersigned,  herein called "Borrower," promises to
pay to the order of THE NORTHWESTERN  MUTUAL LIFE INSURANCE COMPANY, a Wisconsin
corporation,  who,  together  with  any  subsequent  holder  of  this  note,  is
hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue,  Milwaukee,  WI
53202 or at such other place as Lender shall  designate  in writing,  in coin or
currency which, at the time or times of payment,  is legal tender for public and
private debts in the United States,  the principal sum of  TWENTY-EIGHT  MILLION
EIGHT HUNDRED  SIXTY-EIGHT  THOUSAND SIX HUNDRED  FIFTY-FIVE  DOLLARS or so much
thereof  as shall  have been  advanced  from time to time plus  interest  on the
outstanding principal balance at the rate and payable as follows:

          Interest  shall accrue from the date of advance until  maturity at the
     rate of five and  sixty-four  hundredths  percent  (5.64%)  per annum  (the
     "Interest Rate").
          Accrued  interest  only on the  amount  advanced  shall be paid on the
     first day of the month following the date of advance  ("Amortization Period
     Commencement  Date").  On the first day of the  following  month and on the
     first  day  of  each  month  thereafter  until  maturity,  installments  of
     principal and interest shall be paid in the amount of $200,874.00. Payments
     shall be made directly to Lender by electronic  transfer of funds using the
     Automated Clearing House System. All installments shall be applied first in
     payment of interest,  calculated  monthly on the unpaid principal  balance,
     and the  remainder  of each  installment  shall be  applied  in  payment of
     principal.  The entire  unpaid  principal  balance  plus  accrued  interest
     thereon shall be due and payable on February 1, 2013 (the "Maturity Date").

     DEFINITIONS.  For the purpose of this  Promissory  Note (this "Note"),  the
following  terms shall have the meanings  set forth  below.  Except as otherwise
provided herein,  any capitalized  term not otherwise  defined herein shall have
the meaning ascribed to such term in the Lien Instrument.

     (a) "Lien  Instrument"  means that certain first priority Deed of Trust and
     Security  Agreement of even date herewith executed by Borrower as "Grantor"
     to the benefit of Lender as "Beneficiary" as security for repayment of this
     Note.

     (b) "Other Borrowers" means, collectively, Mission West Properties, L.P. I,
     a Delaware limited  partnership,  and Mission West  Properties,  L.P. II, a
     Delaware limited partnership.

     (c) "Other Notes" means, collectively, the Promissory Notes executed by the
     Other  Borrowers  evidencing the Loan, as more  particularly  identified on
     Schedule 1 of this Note.

     (d)  "Property"  means the  Property  (as defined in the Lien  Instrument),
     together with all real and personal property securing, in whole or in part,
     this Note, the Indebtedness or the Obligations.

     (e) "Transaction"  means the loans in the aggregate principal amount of One
     Hundred   Million  Dollars   ($100,000,000.00),   which  are  made  by  the
     Beneficiary to the Borrower and the Other  Borrowers on the date hereof and
     are  evidenced  by the Note and  Other  Notes  and  secured  by other  lien
     instruments and collateral  documents from Borrower and the Other Borrowers
     granting liens and creating rights for the benefit of Beneficiary.

     (f)  "Transaction  Documents" means all documents  evidencing,  securing or
     related to the  payment  of  amounts  owed  Lender in  connection  with the
     Transaction, with the exception of the Environmental Agreement.

     Borrower  shall have the right,  upon not less than ten (10)  business days
prior  written  notice,  of paying this note in full with a prepayment  fee, but
only if the Other Borrowers concurrently pay the Other Notes in full. Borrower's
failure to prepay  within  twenty (20)  business  days of the date of Borrower's
written notice of prepayment  shall be deemed a withdrawal of Borrower's  notice
of prepayment,  and Borrower shall be required to submit another  written notice
of  prepayment  pursuant to the terms and  conditions  set forth in this note if
Borrower  thereafter  elects to prepay this note. This prepayment fee represents
consideration to Lender for loss of yield and reinvestment costs. The prepayment
fee shall be the greater of Yield Maintenance or 1% of the outstanding principal
balance

<PAGE>

of this note.


     "Yield Maintenance" means the amount, if any, by which

          (i)  the present value of the Then Remaining  Payments (as hereinafter
               defined) calculated using a periodic discount rate (corresponding
               to the payment  frequency under this note) which, when compounded
               for such number of payment periods in a year, equals the linearly
               interpolated  per annum  effective yield of the two Most Recently
               Auctioned  United States  Treasury  Obligations  having  maturity
               dates most nearly  equivalent to the Maturity Date as reported by
               The Wall Street  Journal one (1) business day  preceding the date
               of prepayment; exceeds

          (ii) the outstanding  principal balance of this note (exclusive of all
               accrued interest).

     If such United States Treasury  obligation  yields shall not be reported as
of such time or the yields reported as of such time shall not be  ascertainable,
then the periodic discount rate shall be equal to the linearly  interpolated per
annum effective yield of the two Treasury Constant Maturity Series yields having
maturity  dates most nearly  equivalent to the Maturity Date  reported,  for the
latest day for which such  yields  shall  have been so  reported,  as of one (1)
business day  preceding the  prepayment  date,  in Federal  Reserve  Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
United States Treasury obligations.

     "Then Remaining  Payments" means payments in such amounts and at such times
as  would  have  been  payable  subsequent  to the  date of such  prepayment  in
accordance with the terms of this note.

     "Most Recently Auctioned United States Treasury Obligations" means the U.S.
Treasury bonds,  notes and bills with maturities of 30 years, 10 years, 5 years,
2 years and 1 year which, as of the date the prepayment fee is calculated,  were
most recently auctioned by the United States Treasury.

     Upon  the  occurrence  of an  Event  of  Default  (as  defined  in the Lien
Instrument) followed by the acceleration of the whole indebtedness  evidenced by
this note, the payment of such  indebtedness  will  constitute an evasion of the
prepayment terms hereunder and be deemed to be a voluntary prepayment hereof and
such payment will,  therefore,  to the extent not prohibited by law, include the
prepayment fee required under the prepayment in full privilege recited above.

     Notwithstanding the above and provided Borrower is not in default under any
provision  contained in the Loan Documents,  this note may be prepaid in full at
any time,  without a prepayment fee, during the last 60 days of the term of this
note.

     By signing  immediately below,  Borrower hereby acknowledges the provisions
of this note relating to prepayments of the indebtedness  evidenced by this note
and the  application of these  provisions to prepayments on  acceleration of the
indebtedness hereunder. Specifically, but without limiting the generality of the
foregoing,   Borrower  has  separately  signed  below  in  compliance  with  the
provisions of California Civil Code Section 2954.10, to the extent applicable to
Borrower. Borrower hereby acknowledges that this waiver is supported by evidence
of a course of conduct by Lender of individual weight given to the consideration
in the loan  transaction  evidenced by this note for the waiver and agreement of
Borrower contained herein.

Acknowledgment by Borrower of Prepayment Provisions.

SIGNATURE OF BORROWER:

                                      MISSION WEST PROPERTIES, L.P., a
                                      Delaware limited partnership

                                      By:      Mission West Properties, Inc., a
                                               Maryland corporation, its general
                                               partner

                                               Name: Carl E. Berg

                                               Title: CEO

     Borrower  acknowledges and agrees that the Interest Rate hereunder shall be
increased if certain financial statements and other reports are not furnished to
Lender,  all as described in more detail in the provision of the Lien Instrument
entitled "Financial Statements".

<PAGE>

     This note is secured,  among other security,  by the Lien  Instrument,  and
certain other deeds of trust  executed and  delivered by the Other  Borrowers on
the date hereof, and the other Transaction  Documents,  which contain provisions
for the acceleration of the maturity of this Note upon the occurrence of certain
described events.

     The occurrence of a default under any of the Other Notes shall constitute a
default  under this Note,  and Lender,  at its option may  exercise  any and all
remedies provided for in the Lien Instrument.

     Upon  the  occurrence  of an  Event  of  Default  (as  defined  in the Lien
Instrument),  the whole unpaid  principal  hereof and accrued interest shall, at
the option of Lender,  to be  exercised at any time  thereafter,  become due and
payable at once  without  notice,  notice of the  exercise of, and the intent to
exercise, such option being hereby expressly waived.

     All parties at any time  liable,  whether  primarily  or  secondarily,  for
payment of indebtedness  evidenced hereby,  for themselves,  their heirs,  legal
representatives,   successors  and  assigns,   respectively,   expressly   waive
presentment for payment,  notice of dishonor,  protest,  notice of protest,  and
diligence in collection;  consent to the extension by Lender of the time of said
payments  or any part  thereof;  further  consent  that  the real or  collateral
security  or any part  thereof  may be  released  by Lender,  without in any way
modifying,   altering,  releasing,   affecting,  or  limiting  their  respective
liability  or the  lien of the Lien  Instrument;  and  agree  to pay  reasonable
attorneys'  fees and expenses of  collection  in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.

     All amounts due Lender including  principal and, to the extent permitted by
applicable law,  interest not paid when due (without regard to any notice and/or
cure provisions  contained in any of the Loan  Documents),  other than principal
becoming due by reason of  acceleration  by Lender of the unpaid balance of this
note,  shall bear  interest  from the due date thereof until paid at the Default
Rate.  "Default  Rate" means the lower of a rate equal to the  interest  rate in
effect at the time of the  default as herein  provided  plus 5% per annum or the
maximum rate permitted by law.

     No  provision  of this  note  shall  require  the  payment  or  permit  the
collection  of  interest,  including  any fees paid  which are  construed  under
applicable law to be interest, in excess of the maximum permitted by law. If any
such  excess  interest  is  collected  or  herein  provided  for,  or  shall  be
adjudicated to have been collected or be so provided for herein,  the provisions
of this paragraph  shall govern,  and Borrower shall not be obligated to pay the
amount  of such  interest  to the  extent  that it is in  excess  of the  amount
permitted  by law.  Any such excess  collected  shall,  at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.

     Nothing herein  contained shall limit the rights of Lender under California
Code of Civil Procedure Section 726.5 or under any other statute,  case or other
law which  gives  Lender  the right to waive  its lien  against  environmentally
impaired  property and pursue the rights of an  unsecured  creditor or otherwise
obtain a money judgment against Borrower.

     Notwithstanding any provision contained herein or in the Lien Instrument to
the  contrary,  if Lender  shall take  action to enforce the  collection  of the
indebtedness  evidenced hereby or secured by the Lien Instrument  (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the  Property or the  proceeds  from the sale of the  Property  and the proceeds
realized by Lender in exercising  its rights and remedies (i) under the Absolute
Assignment  (as defined in the Lien  Instrument),  (ii) under the  Guarantee  of
Recourse  Obligations of even date herewith executed by Mission West Properties,
Inc., a Maryland  corporation for the benefit of Lender and under other separate
guarantees,  if any,  (iii) under any of the other Loan Documents (as defined in
the Lien Instrument),  (iv) under any of the Transaction  Documents,  and (v) in
any  other  collateral   securing  the   Indebtedness.   If  such  proceeds  are
insufficient  to pay the  Indebtedness,  Lender will never institute any action,
suit,  claim or demand in law or in equity against Borrower for or on account of
such  deficiency;  provided,  however,  that the  provisions  contained  in this
paragraph


     (i)  shall not in any way affect or impair the  validity or  enforceability
          of the Indebtedness or the Lien Instrument; and

     (ii) shall not prevent Lender from seeking and obtaining a judgment against
          Borrower,  and Borrower shall be personally  liable,  for the Recourse
          Obligations.

     "Recourse Obligations" means

     (a) rents and other income from the Property  received by Borrower or those
     acting on behalf of Borrower  from and after the date of any default  under
     the Loan  Documents  remaining  uncured  prior to the  Conveyance  Date (as
     hereinafter defined), which rents and

<PAGE>

     other income have not been applied to the payment of principal and interest
     on this note or to reasonable operating expenses of the Property;

     (b) amounts  necessary to repair any damage to the  Property  caused by the
     intentional  acts or  omissions  of Borrower  or those  acting on behalf of
     Borrower;

     (c)  insurance  loss and  Condemnation  Proceeds  (as  defined  in the Lien
     Instrument)  released to Borrower  but not applied in  accordance  with any
     agreement between Borrower and Lender as to their application;

     (d) the amount of insurance  loss proceeds  which would have been available
     with respect to a casualty on the  Property,  but were not available due to
     the default by Borrower in carrying all insurance required by Lender;

     (e) damages suffered by Lender as a result of fraud or misrepresentation in
     connection with the  Indebtedness by Borrower or any other person or entity
     acting on behalf of Borrower;

     (f) amounts in excess of any rents or other  revenues  collected  by Lender
     from  operation  of  the  Property  from  and  after  acceleration  of  the
     Indebtedness  until the Conveyance Date, which amounts are necessary to pay
     real estate taxes,  special assessments and insurance premiums with respect
     to the Property,  and amounts required to fulfill Borrower's obligations as
     lessor  under any  leases of the  Property,  in each case,  either  paid by
     Lender and not  reimbursed  prior to, or remaining due or delinquent on the
     Conveyance Date;

     (g) all  security  deposits  under leases of the Property or any portion of
     the  Property  collected  by  Borrower,   any  agent  of  Borrower  or  any
     predecessor  of  Borrower,  and not refunded to the tenants  thereunder  in
     accordance with their  respective  leases,  applied in accordance with such
     leases or law or delivered to Lender,  and all advance  rents  collected by
     Borrower,  any agent of Borrower  or any  predecessor  of Borrower  and not
     applied in  accordance  with the leases of the  Property  or  delivered  to
     Lender;

     (h)  all  outstanding   amounts  due  under  the  Indebtedness,   including
     principal, interest, and other charges if there shall be a violation of any
     of the  provisions in the Lien  Instrument  following the caption  entitled
     "Prohibition on Transfer".

     "Conveyance  Date" means (i) the later of (a) the date on which title vests
in the purchaser at the  foreclosure  sale of the Property  pursuant to the Lien
Instrument  or (b) the date on which  Borrower's  statutory  right of redemption
shall expire or be waived or (ii) the date of the  conveyance of the Property to
Lender in lieu of foreclosure.

     This Note shall be governed by and  construed in all respects in accordance
with the laws of the State of California  without  regard to any conflict of law
principles. Any action, lawsuit or other legal proceeding concerning any dispute
arising  under or  related  to this Note  shall be brought in a state or federal
court  located  in the State of  California,  and  Lender  and  Borrower  hereby
irrevocably  consent to the  jurisdiction  of the courts located in the State of
California  and  irrevocably   waive  any  defense  of  improper  venue,   forum
nonconveniens  or lack of personal  jurisdiction in any such action,  lawsuit or
other legal proceeding brought in any court located in the State of California.

                   MISSION WEST PROPERTIES, L.P., a Delaware limited partnership

                   By:      Mission West Properties, Inc., a
                            Maryland corporation, its general
                            partner

                            Name: Carl E. Berg

                            Title: CEO




<PAGE>


EXHIBIT 10.33

California
Loan No. C-332757
PROMISSORY NOTE
                         Mission West Properties, L.P. I

$29,811,369.00                                                   January 3, 2003


     For value received, the undersigned,  herein called "Borrower," promises to
pay to the order of THE NORTHWESTERN  MUTUAL LIFE INSURANCE COMPANY, a Wisconsin
corporation,  who,  together  with  any  subsequent  holder  of  this  note,  is
hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue,  Milwaukee,  WI
53202 or at such other place as Lender shall  designate  in writing,  in coin or
currency which, at the time or times of payment,  is legal tender for public and
private debts in the United  States,  the principal sum of  TWENTY-NINE  MILLION
EIGHT  HUNDRED  ELEVEN  THOUSAND  THREE  HUNDRED  SIXTY-NINE  DOLLARS or so much
thereof  as shall  have been  advanced  from time to time plus  interest  on the
outstanding principal balance at the rate and payable as follows:

          Interest  shall accrue from the date of advance until  maturity at the
     rate of five and  sixty-four  hundredths  percent  (5.64%)  per annum  (the
     "Interest Rate").
          Accrued  interest  only on the  amount  advanced  shall be paid on the
     first day of the month following the date of advance  ("Amortization Period
     Commencement  Date").  On the first day of the  following  month and on the
     first  day  of  each  month  thereafter  until  maturity,  installments  of
     principal and interest shall be paid in the amount of $207,433.00. Payments
     shall be made directly to Lender by electronic  transfer of funds using the
     Automated Clearing House System. All installments shall be applied first in
     payment of interest,  calculated  monthly on the unpaid principal  balance,
     and the  remainder  of each  installment  shall be  applied  in  payment of
     principal.  The entire  unpaid  principal  balance  plus  accrued  interest
     thereon shall be due and payable on February 1, 2013 (the "Maturity Date").

     DEFINITIONS.  For the purpose of this  Promissory  Note (this "Note"),  the
following  terms shall have the meanings  set forth  below.  Except as otherwise
provided herein,  any capitalized  term not otherwise  defined herein shall have
the meaning ascribed to such term in the Lien Instrument.

     (a) "Lien  Instrument"  means that certain first priority Deed of Trust and
     Security  Agreement of even date herewith executed by Borrower as "Grantor"
     to the benefit of Lender as "Beneficiary" as security for repayment of this
     Note.

     (b) "Other Borrowers" means, collectively, Mission West Properties, L.P., a
     Delaware  limited  partnership,  and Mission  West  Properties,  L.P. II, a
     Delaware limited partnership.

     (c) "Other Notes" means, collectively, the Promissory Notes executed by the
     Other  Borrowers  evidencing the Loan, as more  particularly  identified on
     Schedule 1 of this Note.

     (d)  "Property"  means the  Property  (as defined in the Lien  Instrument),
     together with all real and personal property securing, in whole or in part,
     this Note, the Indebtedness or the Obligations.

     (e) "Transaction"  means the loans in the aggregate principal amount of One
     Hundred   Million  Dollars   ($100,000,000.00),   which  are  made  by  the
     Beneficiary to the Borrower and the Other  Borrowers on the date hereof and
     are  evidenced  by the Note and  Other  Notes  and  secured  by other  lien
     instruments and collateral  documents from Borrower and the Other Borrowers
     granting liens and creating rights for the benefit of Beneficiary.

     (f)  "Transaction  Documents" means all documents  evidencing,  securing or
     related to the  payment  of  amounts  owed  Lender in  connection  with the
     Transaction, with the exception of the Environmental Agreement.

     Borrower  shall have the right,  upon not less than ten (10)  business days
prior  written  notice,  of paying this note in full with a prepayment  fee, but
only if the Other Borrowers concurrently pay the Other Notes in full. Borrower's
failure to prepay  within  twenty (20)  business  days of the date of Borrower's
written notice of prepayment  shall be deemed a withdrawal of Borrower's  notice
of prepayment,  and Borrower shall be required to submit another  written notice
of  prepayment  pursuant to the terms and  conditions  set forth in this note if
Borrower  thereafter  elects to prepay this note. This prepayment fee represents
consideration to Lender for loss of yield and reinvestment costs. The prepayment
fee shall be the greater of Yield Maintenance or 1% of the outstanding principal
balance

<PAGE>

of this note.


     "Yield Maintenance" means the amount, if any, by which

     (i)  the  present  value of the Then  Remaining  Payments  (as  hereinafter
          defined)  calculated using a periodic discount rate  (corresponding to
          the payment frequency under this note) which, when compounded for such
          number of payment periods in a year, equals the linearly  interpolated
          per annum  effective yield of the two Most Recently  Auctioned  United
          States  Treasury   Obligations   having  maturity  dates  most  nearly
          equivalent to the Maturity Date as reported by The Wall Street Journal
          one (1) business day preceding the date of prepayment; exceeds

     (ii) the  outstanding  principal  balance  of this note  (exclusive  of all
          accrued interest).

     If such United States Treasury  obligation  yields shall not be reported as
of such time or the yields reported as of such time shall not be  ascertainable,
then the periodic discount rate shall be equal to the linearly  interpolated per
annum effective yield of the two Treasury Constant Maturity Series yields having
maturity  dates most nearly  equivalent to the Maturity Date  reported,  for the
latest day for which such  yields  shall  have been so  reported,  as of one (1)
business day  preceding the  prepayment  date,  in Federal  Reserve  Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
United States Treasury obligations.

     "Then Remaining  Payments" means payments in such amounts and at such times
as  would  have  been  payable  subsequent  to the  date of such  prepayment  in
accordance with the terms of this note.

     "Most Recently Auctioned United States Treasury Obligations" means the U.S.
Treasury bonds,  notes and bills with maturities of 30 years, 10 years, 5 years,
2 years and 1 year which, as of the date the prepayment fee is calculated,  were
most recently auctioned by the United States Treasury.

     Upon  the  occurrence  of an  Event  of  Default  (as  defined  in the Lien
Instrument) followed by the acceleration of the whole indebtedness  evidenced by
this note, the payment of such  indebtedness  will  constitute an evasion of the
prepayment terms hereunder and be deemed to be a voluntary prepayment hereof and
such payment will,  therefore,  to the extent not prohibited by law, include the
prepayment fee required under the prepayment in full privilege recited above.

     Notwithstanding the above and provided Borrower is not in default under any
provision  contained in the Loan Documents,  this note may be prepaid in full at
any time,  without a prepayment fee, during the last 60 days of the term of this
note.

     By signing  immediately below,  Borrower hereby acknowledges the provisions
of this note relating to prepayments of the indebtedness  evidenced by this note
and the  application of these  provisions to prepayments on  acceleration of the
indebtedness hereunder. Specifically, but without limiting the generality of the
foregoing,   Borrower  has  separately  signed  below  in  compliance  with  the
provisions of California Civil Code Section 2954.10, to the extent applicable to
Borrower. Borrower hereby acknowledges that this waiver is supported by evidence
of a course of conduct by Lender of individual weight given to the consideration
in the loan  transaction  evidenced by this note for the waiver and agreement of
Borrower contained herein.

Acknowledgment by Borrower of Prepayment Provisions.

SIGNATURE OF BORROWER:

                                       MISSION WEST PROPERTIES, L.P. I, a
                                       Delaware limited partnership

                                       By:     Mission West Properties, Inc., a
                                               Maryland corporation, its general
                                               partner

                                               Name: Carl E. Berg

                                               Title: CEO

     Borrower  acknowledges and agrees that the Interest Rate hereunder shall be
increased if certain financial statements and other reports are not furnished to
Lender,  all as described in more detail in the provision of the Lien Instrument
entitled "Financial Statements".

<PAGE>

     This note is secured,  among other security,  by the Lien  Instrument,  and
certain other deeds of trust  executed and  delivered by the Other  Borrowers on
the date hereof, and the other Transaction  Documents,  which contain provisions
for the acceleration of the maturity of this Note upon the occurrence of certain
described events.

     The occurrence of a default under any of the Other Notes shall constitute a
default  under this Note,  and Lender,  at its option may  exercise  any and all
remedies provided for in the Lien Instrument.

     Upon  the  occurrence  of an  Event  of  Default  (as  defined  in the Lien
Instrument),  the whole unpaid  principal  hereof and accrued interest shall, at
the option of Lender,  to be  exercised at any time  thereafter,  become due and
payable at once  without  notice,  notice of the  exercise of, and the intent to
exercise, such option being hereby expressly waived.

     All parties at any time  liable,  whether  primarily  or  secondarily,  for
payment of indebtedness  evidenced hereby,  for themselves,  their heirs,  legal
representatives,   successors  and  assigns,   respectively,   expressly   waive
presentment for payment,  notice of dishonor,  protest,  notice of protest,  and
diligence in collection;  consent to the extension by Lender of the time of said
payments  or any part  thereof;  further  consent  that  the real or  collateral
security  or any part  thereof  may be  released  by Lender,  without in any way
modifying,   altering,  releasing,   affecting,  or  limiting  their  respective
liability  or the  lien of the Lien  Instrument;  and  agree  to pay  reasonable
attorneys'  fees and expenses of  collection  in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.

     All amounts due Lender including  principal and, to the extent permitted by
applicable law,  interest not paid when due (without regard to any notice and/or
cure provisions  contained in any of the Loan  Documents),  other than principal
becoming due by reason of  acceleration  by Lender of the unpaid balance of this
note,  shall bear  interest  from the due date thereof until paid at the Default
Rate.  "Default  Rate" means the lower of a rate equal to the  interest  rate in
effect at the time of the  default as herein  provided  plus 5% per annum or the
maximum rate permitted by law.

     No  provision  of this  note  shall  require  the  payment  or  permit  the
collection  of  interest,  including  any fees paid  which are  construed  under
applicable law to be interest, in excess of the maximum permitted by law. If any
such  excess  interest  is  collected  or  herein  provided  for,  or  shall  be
adjudicated to have been collected or be so provided for herein,  the provisions
of this paragraph  shall govern,  and Borrower shall not be obligated to pay the
amount  of such  interest  to the  extent  that it is in  excess  of the  amount
permitted  by law.  Any such excess  collected  shall,  at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.

     Nothing herein  contained shall limit the rights of Lender under California
Code of Civil Procedure Section 726.5 or under any other statute,  case or other
law which  gives  Lender  the right to waive  its lien  against  environmentally
impaired  property and pursue the rights of an  unsecured  creditor or otherwise
obtain a money judgment against Borrower.

     Notwithstanding any provision contained herein or in the Lien Instrument to
the  contrary,  if Lender  shall take  action to enforce the  collection  of the
indebtedness  evidenced hereby or secured by the Lien Instrument  (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the  Property or the  proceeds  from the sale of the  Property  and the proceeds
realized by Lender in exercising  its rights and remedies (i) under the Absolute
Assignment  (as defined in the Lien  Instrument),  (ii) under the  Guarantee  of
Recourse  Obligations of even date herewith executed by Mission West Properties,
Inc., a Maryland  corporation for the benefit of Lender and under other separate
guarantees,  if any,  (iii) under any of the other Loan Documents (as defined in
the Lien Instrument),  (iv) under any of the Transaction  Documents,  and (v) in
any  other  collateral   securing  the   Indebtedness.   If  such  proceeds  are
insufficient  to pay the  Indebtedness,  Lender will never institute any action,
suit,  claim or demand in law or in equity against Borrower for or on account of
such  deficiency;  provided,  however,  that the  provisions  contained  in this
paragraph


     (i)  shall not in any way affect or impair the  validity or  enforceability
          of the Indebtedness or the Lien Instrument; and

     (ii) shall not prevent Lender from seeking and obtaining a judgment against
          Borrower,  and Borrower shall be personally  liable,  for the Recourse
          Obligations.

     "Recourse Obligations" means

     (a) rents and other income from the Property  received by Borrower or those
     acting on behalf of Borrower  from and after the date of any default  under
     the Loan  Documents  remaining  uncured  prior to the  Conveyance  Date (as
     hereinafter defined), which rents and

<PAGE>

     other income have not been applied to the payment of principal and interest
     on this note or to reasonable operating expenses of the Property;

     (b) amounts  necessary to repair any damage to the  Property  caused by the
     intentional  acts or  omissions  of Borrower  or those  acting on behalf of
     Borrower;

     (c)  insurance  loss and  Condemnation  Proceeds  (as  defined  in the Lien
     Instrument)  released to Borrower  but not applied in  accordance  with any
     agreement between Borrower and Lender as to their application;

     (d) the amount of insurance  loss proceeds  which would have been available
     with respect to a casualty on the  Property,  but were not available due to
     the default by Borrower in carrying all insurance required by Lender;

     (e) damages suffered by Lender as a result of fraud or misrepresentation in
     connection with the  Indebtedness by Borrower or any other person or entity
     acting on behalf of Borrower;

     (f) amounts in excess of any rents or other  revenues  collected  by Lender
     from  operation  of  the  Property  from  and  after  acceleration  of  the
     Indebtedness  until the Conveyance Date, which amounts are necessary to pay
     real estate taxes,  special assessments and insurance premiums with respect
     to the Property,  and amounts required to fulfill Borrower's obligations as
     lessor  under any  leases of the  Property,  in each case,  either  paid by
     Lender and not  reimbursed  prior to, or remaining due or delinquent on the
     Conveyance Date;

     (g) all  security  deposits  under leases of the Property or any portion of
     the  Property  collected  by  Borrower,   any  agent  of  Borrower  or  any
     predecessor  of  Borrower,  and not refunded to the tenants  thereunder  in
     accordance with their  respective  leases,  applied in accordance with such
     leases or law or delivered to Lender,  and all advance  rents  collected by
     Borrower,  any agent of Borrower  or any  predecessor  of Borrower  and not
     applied in  accordance  with the leases of the  Property  or  delivered  to
     Lender;

     (h)  all  outstanding   amounts  due  under  the  Indebtedness,   including
     principal, interest, and other charges if there shall be a violation of any
     of the  provisions in the Lien  Instrument  following the caption  entitled
     "Prohibition on Transfer".

     "Conveyance  Date" means (i) the later of (a) the date on which title vests
in the purchaser at the  foreclosure  sale of the Property  pursuant to the Lien
Instrument  or (b) the date on which  Borrower's  statutory  right of redemption
shall expire or be waived or (ii) the date of the  conveyance of the Property to
Lender in lieu of foreclosure.

         This Note shall be governed by and construed in all respects in
accordance with the laws of the State of California without regard to any
conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this Note shall be brought in
a state or federal court located in the State of California, and Lender and
     Borrower  hereby  irrevocably  consent  to the  jurisdiction  of the courts
located in
the State of California and irrevocably waive any defense of improper venue,
forum nonconveniens or lack of personal jurisdiction in any such action, lawsuit
or other legal proceeding brought in any court located in the State of
California.

                 MISSION WEST PROPERTIES, L.P. I, a Delaware limited partnership

                 By:      Mission West Properties, Inc., a
                          Maryland corporation, its general
                          partner

                          Name: Carl E. Berg

                          Title: CEO


<PAGE>


EXHIBIT 10.34

California
Loan No. C-332757
PROMISSORY NOTE
                        Mission West Properties, L.P. II

$41,319,976.00                                                   January 3, 2003


     For value received, the undersigned,  herein called "Borrower," promises to
pay to the order of THE NORTHWESTERN  MUTUAL LIFE INSURANCE COMPANY, a Wisconsin
corporation,  who,  together  with  any  subsequent  holder  of  this  note,  is
hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue,  Milwaukee,  WI
53202 or at such other place as Lender shall  designate  in writing,  in coin or
currency which, at the time or times of payment,  is legal tender for public and
private debts in the United States, the principal sum of FORTY-ONE MILLION THREE
HUNDRED NINETEEN THOUSAND,  NINE HUNDRED  SEVENTY-SIX DOLLARS or so much thereof
as shall have been advanced  from time to time plus interest on the  outstanding
principal balance at the rate and payable as follows:

          Interest  shall accrue from the date of advance until  maturity at the
     rate of five and  sixty-four  hundredths  percent  (5.64%)  per annum  (the
     "Interest Rate").
          Accrued  interest  only on the  amount  advanced  shall be paid on the
     first day of the month following the date of advance  ("Amortization Period
     Commencement  Date").  On the first day of the  following  month and on the
     first  day  of  each  month  thereafter  until  maturity,  installments  of
     principal and interest shall be paid in the amount of $287,512.00. Payments
     shall be made directly to Lender by electronic  transfer of funds using the
     Automated Clearing House System. All installments shall be applied first in
     payment of interest,  calculated  monthly on the unpaid principal  balance,
     and the  remainder  of each  installment  shall be  applied  in  payment of
     principal.  The entire  unpaid  principal  balance  plus  accrued  interest
     thereon shall be due and payable on February 1, 2013 (the "Maturity Date").

     DEFINITIONS.  For the purpose of this  Promissory  Note (this "Note"),  the
following  terms shall have the meanings  set forth  below.  Except as otherwise
provided herein,  any capitalized  term not otherwise  defined herein shall have
the meaning ascribed to such term in the Lien Instrument.

     (a) "Lien  Instrument"  means that certain first priority Deed of Trust and
     Security  Agreement of even date herewith executed by Borrower as "Grantor"
     to the benefit of Lender as "Beneficiary" as security for repayment of this
     Note.

     (b) "Other Borrowers" means, collectively, Mission West Properties, L.P., a
     Delaware  limited  partnership,  and  Mission  West  Properties,  L.P. I, a
     Delaware limited partnership.

     (c) "Other Notes" means, collectively, the Promissory Notes executed by the
     Other  Borrowers  evidencing the Loan, as more  particularly  identified on
     Schedule 1 of this Note.

     (d)  "Property"  means the  Property  (as defined in the Lien  Instrument),
     together with all real and personal property securing, in whole or in part,
     this Note, the Indebtedness or the Obligations.

     (e) "Transaction"  means the loans in the aggregate principal amount of One
     Hundred   Million  Dollars   ($100,000,000.00),   which  are  made  by  the
     Beneficiary to the Borrower and the Other  Borrowers on the date hereof and
     are  evidenced  by the Note and  Other  Notes  and  secured  by other  lien
     instruments and collateral  documents from Borrower and the Other Borrowers
     granting liens and creating rights for the benefit of Beneficiary.

     (f)  "Transaction  Documents" means all documents  evidencing,  securing or
     related to the  payment  of  amounts  owed  Lender in  connection  with the
     Transaction, with the exception of the Environmental Agreement.

     Borrower  shall have the right,  upon not less than ten (10)  business days
prior  written  notice,  of paying this note in full with a prepayment  fee, but
only if the Other Borrowers concurrently pay the Other Notes in full. Borrower's
failure to prepay  within  twenty (20)  business  days of the date of Borrower's
written notice of prepayment  shall be deemed a withdrawal of Borrower's  notice
of prepayment,  and Borrower shall be required to submit another  written notice
of  prepayment  pursuant to the terms and  conditions  set forth in this note if
Borrower  thereafter  elects to prepay this note. This prepayment fee represents
consideration to Lender for loss of yield and reinvestment costs. The prepayment
fee shall be the greater of Yield Maintenance or 1% of the outstanding principal
balance

<PAGE>

of this note.


     "Yield Maintenance" means the amount, if any, by which

     (i)  the  present  value of the Then  Remaining  Payments  (as  hereinafter
          defined)  calculated using a periodic discount rate  (corresponding to
          the payment frequency under this note) which, when compounded for such
          number of payment periods in a year, equals the linearly  interpolated
          per annum  effective yield of the two Most Recently  Auctioned  United
          States  Treasury   Obligations   having  maturity  dates  most  nearly
          equivalent to the Maturity Date as reported by The Wall Street Journal
          one (1) business day preceding the date of prepayment; exceeds

     (ii) the  outstanding  principal  balance  of this note  (exclusive  of all
          accrued interest).

     If such United States Treasury  obligation  yields shall not be reported as
of such time or the yields reported as of such time shall not be  ascertainable,
then the periodic discount rate shall be equal to the linearly  interpolated per
annum effective yield of the two Treasury Constant Maturity Series yields having
maturity  dates most nearly  equivalent to the Maturity Date  reported,  for the
latest day for which such  yields  shall  have been so  reported,  as of one (1)
business day  preceding the  prepayment  date,  in Federal  Reserve  Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
United States Treasury obligations.

     "Then Remaining  Payments" means payments in such amounts and at such times
as  would  have  been  payable  subsequent  to the  date of such  prepayment  in
accordance with the terms of this note.

     "Most Recently Auctioned United States Treasury Obligations" means the U.S.
Treasury bonds,  notes and bills with maturities of 30 years, 10 years, 5 years,
2 years and 1 year which, as of the date the prepayment fee is calculated,  were
most recently auctioned by the United States Treasury.

     Upon  the  occurrence  of an  Event  of  Default  (as  defined  in the Lien
Instrument) followed by the acceleration of the whole indebtedness  evidenced by
this note, the payment of such  indebtedness  will  constitute an evasion of the
prepayment terms hereunder and be deemed to be a voluntary prepayment hereof and
such payment will,  therefore,  to the extent not prohibited by law, include the
prepayment fee required under the prepayment in full privilege recited above.

     Notwithstanding the above and provided Borrower is not in default under any
provision  contained in the Loan Documents,  this note may be prepaid in full at
any time,  without a prepayment fee, during the last 60 days of the term of this
note.

     By signing  immediately below,  Borrower hereby acknowledges the provisions
of this note relating to prepayments of the indebtedness  evidenced by this note
and the  application of these  provisions to prepayments on  acceleration of the
indebtedness hereunder. Specifically, but without limiting the generality of the
foregoing,   Borrower  has  separately  signed  below  in  compliance  with  the
provisions of California Civil Code Section 2954.10, to the extent applicable to
Borrower. Borrower hereby acknowledges that this waiver is supported by evidence
of a course of conduct by Lender of individual weight given to the consideration
in the loan  transaction  evidenced by this note for the waiver and agreement of
Borrower contained herein.

Acknowledgment by Borrower of Prepayment Provisions.

SIGNATURE OF BORROWER:

                                    MISSION WEST PROPERTIES, L.P. II,
                                    a Delaware limited partnership

                                    By:      Mission West Properties, Inc., a
                                             Maryland corporation, its general
                                             partner

                                             Name: Carl E. Berg

                                            Title: CEO

     Borrower  acknowledges and agrees that the Interest Rate hereunder shall be
increased if certain financial statements and other reports are not furnished to
Lender,  all as described in more detail in the provision of the Lien Instrument
entitled "Financial Statements".

<PAGE>

     This note is secured,  among other security,  by the Lien  Instrument,  and
certain other deeds of trust  executed and  delivered by the Other  Borrowers on
the date hereof, and the other Transaction  Documents,  which contain provisions
for the acceleration of the maturity of this Note upon the occurrence of certain
described events.

     The occurrence of a default under any of the Other Notes shall constitute a
default  under this Note,  and Lender,  at its option may  exercise  any and all
remedies provided for in the Lien Instrument.

     Upon  the  occurrence  of an  Event  of  Default  (as  defined  in the Lien
Instrument),  the whole unpaid  principal  hereof and accrued interest shall, at
the option of Lender,  to be  exercised at any time  thereafter,  become due and
payable at once  without  notice,  notice of the  exercise of, and the intent to
exercise, such option being hereby expressly waived.

     All parties at any time  liable,  whether  primarily  or  secondarily,  for
payment of indebtedness  evidenced hereby,  for themselves,  their heirs,  legal
representatives,   successors  and  assigns,   respectively,   expressly   waive
presentment for payment,  notice of dishonor,  protest,  notice of protest,  and
diligence in collection;  consent to the extension by Lender of the time of said
payments  or any part  thereof;  further  consent  that  the real or  collateral
security  or any part  thereof  may be  released  by Lender,  without in any way
modifying,   altering,  releasing,   affecting,  or  limiting  their  respective
liability  or the  lien of the Lien  Instrument;  and  agree  to pay  reasonable
attorneys'  fees and expenses of  collection  in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.

     All amounts due Lender including  principal and, to the extent permitted by
applicable law,  interest not paid when due (without regard to any notice and/or
cure provisions  contained in any of the Loan  Documents),  other than principal
becoming due by reason of  acceleration  by Lender of the unpaid balance of this
note,  shall bear  interest  from the due date thereof until paid at the Default
Rate.  "Default  Rate" means the lower of a rate equal to the  interest  rate in
effect at the time of the  default as herein  provided  plus 5% per annum or the
maximum rate permitted by law.

     No  provision  of this  note  shall  require  the  payment  or  permit  the
collection  of  interest,  including  any fees paid  which are  construed  under
applicable law to be interest, in excess of the maximum permitted by law. If any
such  excess  interest  is  collected  or  herein  provided  for,  or  shall  be
adjudicated to have been collected or be so provided for herein,  the provisions
of this paragraph  shall govern,  and Borrower shall not be obligated to pay the
amount  of such  interest  to the  extent  that it is in  excess  of the  amount
permitted  by law.  Any such excess  collected  shall,  at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.

     Nothing herein  contained shall limit the rights of Lender under California
Code of Civil Procedure Section 726.5 or under any other statute,  case or other
law which  gives  Lender  the right to waive  its lien  against  environmentally
impaired  property and pursue the rights of an  unsecured  creditor or otherwise
obtain a money judgment against Borrower.

     Notwithstanding any provision contained herein or in the Lien Instrument to
the  contrary,  if Lender  shall take  action to enforce the  collection  of the
indebtedness  evidenced hereby or secured by the Lien Instrument  (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the  Property or the  proceeds  from the sale of the  Property  and the proceeds
realized by Lender in exercising  its rights and remedies (i) under the Absolute
Assignment  (as defined in the Lien  Instrument),  (ii) under the  Guarantee  of
Recourse  Obligations of even date herewith executed by Mission West Properties,
Inc., a Maryland  corporation for the benefit of Lender and under other separate
guarantees,  if any,  (iii) under any of the other Loan Documents (as defined in
the Lien Instrument),  (iv) under any of the Transaction  Documents,  and (v) in
any  other  collateral   securing  the   Indebtedness.   If  such  proceeds  are
insufficient  to pay the  Indebtedness,  Lender will never institute any action,
suit,  claim or demand in law or in equity against Borrower for or on account of
such  deficiency;  provided,  however,  that the  provisions  contained  in this
paragraph


     (i)  shall not in any way affect or impair the  validity or  enforceability
          of the Indebtedness or the Lien Instrument; and

     (ii) shall not prevent Lender from seeking and obtaining a judgment against
          Borrower,  and Borrower shall be personally  liable,  for the Recourse
          Obligations.

     "Recourse Obligations" means

     (a) rents and other income from the Property  received by Borrower or those
     acting on behalf of Borrower  from and after the date of any default  under
     the Loan  Documents  remaining  uncured  prior to the  Conveyance  Date (as
     hereinafter defined), which rents and

<PAGE>

     other income have not been applied to the payment of principal and interest
     on this note or to reasonable operating expenses of the Property;

     (b) amounts  necessary to repair any damage to the  Property  caused by the
     intentional  acts or  omissions  of Borrower  or those  acting on behalf of
     Borrower;

     (c)  insurance  loss and  Condemnation  Proceeds  (as  defined  in the Lien
     Instrument)  released to Borrower  but not applied in  accordance  with any
     agreement between Borrower and Lender as to their application;

     (d) the amount of insurance  loss proceeds  which would have been available
     with respect to a casualty on the  Property,  but were not available due to
     the default by Borrower in carrying all insurance required by Lender;

     (e) damages suffered by Lender as a result of fraud or misrepresentation in
     connection with the  Indebtedness by Borrower or any other person or entity
     acting on behalf of Borrower;

     (f) amounts in excess of any rents or other  revenues  collected  by Lender
     from  operation  of  the  Property  from  and  after  acceleration  of  the
     Indebtedness  until the Conveyance Date, which amounts are necessary to pay
     real estate taxes,  special assessments and insurance premiums with respect
     to the Property,  and amounts required to fulfill Borrower's obligations as
     lessor  under any  leases of the  Property,  in each case,  either  paid by
     Lender and not  reimbursed  prior to, or remaining due or delinquent on the
     Conveyance Date;

     (g) all  security  deposits  under leases of the Property or any portion of
     the  Property  collected  by  Borrower,   any  agent  of  Borrower  or  any
     predecessor  of  Borrower,  and not refunded to the tenants  thereunder  in
     accordance with their  respective  leases,  applied in accordance with such
     leases or law or delivered to Lender,  and all advance  rents  collected by
     Borrower,  any agent of Borrower  or any  predecessor  of Borrower  and not
     applied in  accordance  with the leases of the  Property  or  delivered  to
     Lender;

     (h)  all  outstanding   amounts  due  under  the  Indebtedness,   including
     principal, interest, and other charges if there shall be a violation of any
     of the  provisions in the Lien  Instrument  following the caption  entitled
     "Prohibition on Transfer".

     "Conveyance  Date" means (i) the later of (a) the date on which title vests
in the purchaser at the  foreclosure  sale of the Property  pursuant to the Lien
Instrument  or (b) the date on which  Borrower's  statutory  right of redemption
shall expire or be waived or (ii) the date of the  conveyance of the Property to
Lender in lieu of foreclosure.

     This Note shall be governed by and  construed in all respects in accordance
with the laws of the State of California  without  regard to any conflict of law
principles. Any action, lawsuit or other legal proceeding concerning any dispute
arising  under or  related  to this Note  shall be brought in a state or federal
court  located  in the State of  California,  and  Lender  and  Borrower  hereby
irrevocably  consent to the  jurisdiction  of the courts located in the State of
California  and  irrevocably   waive  any  defense  of  improper  venue,   forum
nonconveniens  or lack of personal  jurisdiction in any such action,  lawsuit or
other legal proceeding brought in any court located in the State of California.

                MISSION WEST PROPERTIES, L.P. II, a Delaware limited partnership

                By:      Mission West Properties, Inc., a
                         Maryland corporation, its general
                         partner

                         Name: Carl E. Berg

                         Title: CEO



<PAGE>


EXHIBIT 10.35

California
Loan No. C-332757
RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn

                    SPACE ABOVE THIS LINE FOR RECORDER'S USE

              DEED OF TRUST and SECURITY AGREEMENT (FIRST PRIORITY)
                         Mission West Properties, L. P.

     THIS  DEED OF TRUST  and  SECURITY  AGREEMENT  is made as of the 3rd day of
January,  2003  between  MISSION  WEST  PROPERTIES,  L.P.,  a  Delaware  limited
partnership,   10050  Bandley   Drive,   Cupertino,   CA  95014,   herein  (said
Grantor/Trustor,  whether  one or  more in  number)  called  "Grantor",  and THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin  Avenue,  Milwaukee,  WI  53202,  herein  called  "Trustee",  and  THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":

     WITNESSETH,  That Grantor,  in  consideration  of the  indebtedness  herein
mentioned,  does hereby irrevocably bargain, sell, grant,  transfer,  assign and
convey  unto  Trustee,  in  trust,  with  power of sale and  right of entry  and
possession, the following property (herein referred to as the "Property"):

     A.   The land in the  City of San  Jose,  Santa  Clara  County,  California
          described in Exhibit "A" attached hereto and incorporated  herein (the
          "Land");

     B.   All easements, appurtenances, tenements and hereditaments belonging to
          or benefiting the Land, including but not limited to all waters, water
          rights,  water  courses,  all  ways,  trees,  rights,   liberties  and
          privileges; and

     C.   All  improvements  to the Land,  including,  but not  limited  to, all
          buildings,  structures  and  improvements  now  existing or  hereafter
          erected on the Land;  all fixtures and equipment of every  description
          belonging to Grantor  which are or may be placed or used upon the Land
          or attached to the buildings,  structures or improvements,  including,
          but not limited to, all engines, boilers, elevators and machinery, all
          heating  apparatus,   electrical   equipment,   air-conditioning   and
          ventilating  equipment,  water and gas fixtures, and all furniture and
          easily removable  equipment;  all of which, to the extent permitted by
          applicable  law,  shall be deemed an  accession  to the freehold and a
          part of the realty as between the parties hereto.

     D.   All Grantor's right,  title and interest in and to that certain C.O.E.
          - 30' Reciprocal  Ingress,  Egress Easement Agreement filed for record
          on December  23, 1997,  in Book 698 of Maps,  Pages 1 & 2, Santa Clara
          County, California.

     E.   All Grantor's right,  title and interest in and to that certain C.O.E.
          - 26' Reciprocal-Ingress,  Egress-Easement  Agreement filed for record
          on December 23, 1997, in Book 698 of Maps,  Pages 1 and 2, Santa Clara
          County, California.

Grantor agrees not to sell, transfer,  assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any  buildings or  structures  or the sale or transfer of waters or water rights
and (ii) such action results in the  substitution  or  replacement  with similar
items of equal value.

<PAGE>

     Without   limiting  the  foregoing   grants,   Grantor  hereby  pledges  to
Beneficiary,  and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter  acquired right, title and interest in and to the Property
and any and all

     F.   cash and other funds now or at any time hereafter  deposited by or for
          Grantor on account of tax,  special  assessment,  replacement or other
          reserves required to be maintained  pursuant to the Loan Documents (as
          hereinafter  defined) with  Beneficiary or a third party, or otherwise
          deposited with, or in the possession of,  Beneficiary  pursuant to the
          Loan Documents; and

     G.   surveys, soils reports, environmental reports, guaranties, warranties,
          architect's   contracts,    construction   contracts,   drawings   and
          specifications,   applications,   permits,   surety  bonds  and  other
          contracts   relating   to  the   acquisition,   design,   development,
          construction and operation of the Property; and

     H.   accounts,  chattel paper,  deposit accounts,  instruments,  equipment,
          inventory,  documents,  general intangibles,  letter-of-credit rights,
          investment  property and all other  personal  property of Grantor,  in
          each  case,  to  the  extent  associated  with  or  arising  from  the
          ownership,  development,  operation, use or disposition of any portion
          of the property; and

     I.   present and future rights to condemnation  awards,  insurance proceeds
          or other  proceeds  at any time  payable to or  received by Grantor on
          account of the Property or any of the foregoing personal property.

All personal property  hereinabove  described is hereinafter  referred to as the
"Personal Property".

     If any of the Property is of a nature that a security  interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing  statement if permitted by applicable law and
Grantor  authorizes  Beneficiary to file a financing  statement  describing such
Property and, at Beneficiary's  request,  agrees to join with Beneficiary in the
execution of any financing  statements and to execute any other instruments that
may  be  necessary  or  desirable,  in  Beneficiary's  determination,   for  the
perfection or renewal of such  security  interest  under the Uniform  Commercial
Code.

     TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF  SECURING,  in
such  order of  priority  as  Beneficiary  may  determine:  (i)  payment  of the
Indebtedness  (as  hereinafter  defined);  and (ii)  payment  (with  interest as
provided)  and  performance  by  Grantor  of  the  Obligations  (as  hereinafter
defined).  Notwithstanding the foregoing,  or any other term contained herein or
in the Loan Documents,  none of Grantor's  obligations (the "Other Obligations")
under or  pursuant to (a) the  Environmental  Indemnity  Agreement  of even date
herewith  executed by Grantor,  Guarantor  and the Other  Borrowers  in favor of
Beneficiary ("Environmental  Agreement"),  (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.


FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture  filing in the real  estate  records of the County of the State in which
the real estate  described in Exhibit A is located,  with respect to any and all
fixtures  included within the term "Property" and "fixtures"  under this Deed of
Trust  and to any goods or other  personal  property  that are now or  hereafter
become a part of the Property as fixtures.

                                   DEFINITIONS

     CERTAIN  DEFINED TERMS:  As used in this Deed of Trust the following  terms
shall have the following meanings:

     ABSOLUTE  ASSIGNMENT:  The Absolute  Assignment  of Leases and Rents (First
Priority) of even date herewith executed by Grantorin favor of Beneficiary.

     COMMITMENT:  The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications  stated in the letter, the Loan application executed by
Grantor and the Other  Borrowers,  dated October 31, 2002,  which acceptance and
modification  was agreed to by Grantor and the Other  Borrowers  on November 23,
2002.

     ENVIRONMENTAL  AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.

     FACILITY:  A real property (including,  without limitation,  all buildings,
fixtures and other  improvements  located  thereon) now or hereafter  serving as
security  for the loans  which  comprise  the  Transaction.  Attached  hereto as
Exhibit B is a list of all Facilities as of the date hereof.

<PAGE>

     GUARANTOR:  Mission West Properties, Inc., a Maryland corporation, and each
other  person  hereafter   guaranteeing  any  portion  of  the  Indebtedness  or
Obligations.

     GUARANTEE:  That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in  favor  of  Beneficiary,  and  any  other  guarantee  of any  portion  of the
Indebtedness or Obligations hereafter executed by any person.

     INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Note (as  hereinafter  defined)  and any  extensions  or  renewals
thereof  (including  extensions  or renewals at a  different  rate of  interest,
whether or not evidenced by a new or additional  promissory note or notes),  and
all other indebtedness of Grantor to Beneficiary and additional  advances under,
evidenced by and/or  secured by the Loan  Documents,  plus  interest on all such
amounts,  other than any obligations  relating to the Other Indebtedness,  Other
Notes or Other Obligations.

     LOAN DOCUMENTS: The Note, this Deed of Trust, the Commitment (as it relates
to the Indebtedness),  the Absolute Assignment,  the Guarantee (as it relates to
the  Indebtedness),  that certain  Certification  of Borrowers  and Carl E. Berg
("Certification")  of even date  herewith  (as it relates to the  Indebtedness),
that certain  Limited  Partnership  Supplement  dated January 3, 2003, any other
supplements  and   authorizations   required  by  Beneficiary,   the  Fraudulent
Conveyance   Indemnity   Agreement   from   Guarantor  (as  it  relates  to  the
Indebtedness), Certificate Regarding Distribution of Loan Proceeds and Indemnity
Agreement among Guarantor, Grantor and the Other Borrowers (as it relates to the
Indebtedness),  and Contribution and  Reimbursement  Agreement among Grantor and
the Other Borrowers (as it relates to the Indebtedness), and all other documents
evidencing,  securing  or relating  to the  payment of the  Indebtedness  or the
performance  of the  Obligations,  with the exception of the Other Notes and the
Environmental Agreement.

     NOTE: The Promissory Note of even date herewith  executed by Grantor in the
original  principal  amount of Twenty Eight  Million  Eight  Hundred Sixty Eight
Thousand Six Hundred Fifty-Five Dollars ($28,868,655.00), payable to Beneficiary
or its  order,  with final  maturity  no later  than  February  1, 2013 and with
interest as therein expressed, and all modifications,  renewals or extensions of
such Promissory Note.

     OBLIGATIONS:  Any and all of the covenants,  promises and other obligations
(including  payment of the  Indebtedness)  made or owing by Grantor to or due to
Beneficiary  under  and/or  as set  forth in the Loan  Documents  and all of the
material  covenants,  promises and other obligations made or owing by Grantor to
each and every other  person  relating to the  Property,  exclusive of the Other
Obligations.

     OTHER BORROWERS:  Collectively, Mission West Properties, L.P. I, a Delaware
limited  partnership,  and Mission West Properties,  L.P. II, a Delaware limited
partnership.

     OTHER  INDEBTEDNESS:  The loans  from  Beneficiary  to the Other  Borrowers
evidenced by the Other Notes.

     OTHER NOTES:  Those other  Promissory  Notes,  each  executed by one of the
Other Borrowers and payable to the order of Beneficiary,  which Promissory Notes
are more particularly described in Schedule 1 of the Note.

     OTHER  OBLIGATIONS:  As defined in the  Granting  Paragraph of this Deed of
Trust.

     PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.

     TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00),  which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof,  and are evidenced by the Note and Other
Notes and secured by lien instruments and collateral  documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.

     TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the  payment of  amounts  owed  Beneficiary  in  connection  with the
Transaction, with the exception of the Environmental Agreement.


  TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:

PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness  hereby secured promptly
and in full compliance with the terms of the Loan Documents.

<PAGE>

OWNERSHIP.  Grantor represents that it owns the Property and has good and lawful
right to convey  the same and that the  Property  is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary.  Grantor does hereby  forever  warrant and shall forever defend the
title and  possession  thereof  against the lawful claims of any and all persons
whomsoever.

MAINTENANCE  OF PROPERTY AND  COMPLIANCE  WITH LAWS.  Grantor agrees to keep the
buildings and other  improvements  now or hereafter  erected on the Land in good
condition  and  repair;  not to commit or suffer any waste;  to comply  with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all  reasonable  times for the purpose of inspection and of conducting,
in a reasonable  and proper manner,  such tests as Beneficiary  determines to be
necessary in order to monitor  Grantor's  compliance  with  applicable  laws and
regulations regarding hazardous materials affecting the Property.

TENANTS  USING  CHLORINATED  SOLVENTS.  Grantor  agrees  not to lease any of the
Property, without the prior written consent of Beneficiary,  to (i) dry cleaning
operations that perform dry cleaning on site with  chlorinated  solvents or (ii)
any other  tenants  that use  chlorinated  solvents  in the  operation  of their
businesses.

Notwithstanding  the  above,  a  tenant's  use and  storage  of a product  which
contains  no more than  twelve (12)  ounces of  chlorinated  solvents  shall not
violate this  prohibition if, and only if, (i) each tenant's use,  storage,  and
the  ultimate  disposal,  of said  solvents is at all times in  compliance  with
applicable  law;  (ii)  said  solvents  are  acquired  and  kept in  prepackaged
containers;  and  (iii)  each  tenant  keeps no more  than  one (1)  prepackaged
container of said solvents on the Property.

BUSINESS  RESTRICTION   REPRESENTATION  AND  WARRANTY.  Grantor  represents  and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the  Indebtedness:  (i) are not, and shall not
become,  a person or entity  with whom  Beneficiary  is  restricted  from  doing
business with under  regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's  Specially  Designated  and Blocked  Persons  list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking  Property and Prohibiting  Transactions  With Persons Who Commit,
Threaten to Commit, or Support  Terrorism),  or other governmental  action; (ii)
are not  knowingly  engaged  in,  and shall  not  engage  in,  any  dealings  or
transaction or be otherwise  associated with such persons or entities  described
in (i) above;  and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the  International  Money  Laundering  Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.

INSURANCE.  Grantor  agrees to keep the Property  insured for the  protection of
Beneficiary and  Beneficiary's  wholly owned  subsidiaries  and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance  in  amounts  and  form  and  with  companies  all   satisfactory   to
Beneficiary:

     (A)  All risk  property  insurance  with a  deductible  of not greater than
          $100,000.00,  including  Demolition and Increased Cost of Construction
          (DICC) coverage equal to a minimum of 5% of the estimated  replacement
          cost, with an Agreed Amount Endorsement for the estimated  replacement
          cost of the improvements.  If such all risk property  insurance policy
          contains a terrorism exclusion, then Grantor shall purchase a separate
          insurance  policy  acceptable to Beneficiary  for terrorism  coverage.
          Notwithstanding the foregoing, however, Grantor shall only be required
          to  carry  such  insurance  coverage  for  acts  of  terrorism  with a
          deductible  acceptable  to  Lender  if such  coverage  is  customarily
          required by other  institutional  lenders on loans secured by property
          similar to the Property;

     (B)  Loss of rents insurance equal to twelve months rent or business income
          insurance for 100% of the annual gross earnings from business  derived
          from the Property;

     (C)  Flood insurance,  if the Property is located in a flood plain (as that
          term is used in the National Flood Insurance Program) in an amount not
          less than 25% of the estimated replacement cost;

     (D)  Grantor's  own  commercial  general  liability  insurance  policy with
          Beneficiary,  and Beneficiary's  wholly owned subsidiaries and agents,
          named as additional insureds for their interests in the Property; and

     (E)  Other insurance as required by Beneficiary.

     Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary,  or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing  all  insurance   coverages   required   hereunder  on  deposit  with
Beneficiary,  which  certificates shall provide at least thirty (30) days notice
of  cancellation  to Beneficiary  and shall list  Beneficiary as the certificate
holder.

<PAGE>

     All insurance loss proceeds from all property insurance  policies,  whether
or  not  required  by  Beneficiary  (less  expenses  of  collection)  shall,  at
Beneficiary's option, be applied on the Indebtedness,  whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan  Documents.
If Beneficiary  elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.

     Notwithstanding  the foregoing  provision,  Beneficiary  agrees that if the
insurance  loss  proceeds  from an insured  loss as a Facility are less than the
Allocated  Loan Amount for the Facility (as shown in Exhibit B attached  hereto)
and if the  casualty  occurs  prior to the last  three  years of the term of the
Note,  then the insurance loss proceeds  (less expenses of collection)  shall be
applied to restoration  of the Facility to its condition  prior to the casualty,
subject to satisfaction of the following conditions:

     (a)  There is no existing Event of Default (as hereinafter  defined) at the
          time of casualty,  and if there shall occur any Event of Default after
          the date of the casualty, Beneficiary shall have no further obligation
          to release insurance loss proceeds hereunder.

     (b)  The casualty insurer has not denied liability for payment of insurance
          loss proceeds as a result of any act, neglect, use or occupancy of the
          Property by Grantor or any tenant of the Property.

     (c)  Beneficiary  shall be satisfied  that all  insurance  loss proceeds so
          held,  together  with  supplemental  funds  to be  made  available  by
          Grantor,  shall be  sufficient  to  complete  the  restoration  of the
          Property.  Any remaining insurance loss proceeds may, at the option of
          Beneficiary, be applied on the Indebtedness, whether or not due, or be
          released to Grantor.

     (d)  If  required  by  Beneficiary,   Beneficiary   shall  be  furnished  a
          satisfactory  report  addressed to Beneficiary  from an  environmental
          engineer or other qualified  professional  satisfactory to Beneficiary
          to the effect  that no adverse  environmental  impact to the  Property
          resulted from the casualty.

     (e)  Beneficiary shall release casualty  insurance  proceeds as restoration
          of the Property  progresses  provided  that  Beneficiary  is furnished
          satisfactory  evidence of the costs of restoration and if, at the time
          of such release, there shall exist no Monetary Default (as hereinafter
          defined) under the  Transaction  Documents and no default with respect
          to which  Beneficiary  shall  have given  Grantor  or Other  Borrowers
          notice  pursuant to the Notice of Default  provision  herein or in the
          documents  related to other loans comprising the  Transaction.  If the
          estimated cost of restoration  exceeds  $250,000.00,  (i) the drawings
          and   specifications   for  the  restoration   shall  be  approved  by
          Beneficiary in writing prior to commencement of the  restoration,  and
          (ii) Beneficiary  shall receive an  administration  fee equal to 1% of
          the cost of restoration.

     (f)  Prior to each release of funds,  Grantor  shall obtain for the benefit
          of Beneficiary an endorsement to Beneficiary's  title insurance policy
          insuring  Beneficiary's lien as a first and valid lien on the Property
          subject  only  to  liens  and  encumbrances  theretofore  approved  by
          Beneficiary.

     (g)  Grantor  shall pay all costs and  expenses  incurred  by  Beneficiary,
          including,  but not limited to,  outside legal fees,  title  insurance
          costs,  third-party disbursement fees, third-party engineering reports
          and inspections deemed necessary by Beneficiary.

     (h)  All  reciprocal  easement  and  operating  agreements  benefiting  the
          Property,  if any,  shall remain in full force and effect  between the
          parties thereto on and after restoration of the Property.

     (i)  Beneficiary  shall be satisfied that  Projected Debt Service  Coverage
          (as  hereinafter  defined) of at least 1.50 will be produced  from the
          leasing  of not more  than  189,023  square  feet of  space to  former
          tenants  or  approved   new  tenants  with  leases   satisfactory   to
          Beneficiary for terms of at least five (5) years to commence not later
          than (30) days  following  completion of such  restoration  ("Approved
          Leases").

     (j)  All leases in effect at the time of the casualty with tenants who have
          entered into  Beneficiary's  form of  Non-Disturbance  and  Attornment
          Agreement  or  similar  agreement  shall  remain  in  full  force  and
          Beneficiary  shall be  satisfied  that  restoration  can be  completed
          within  a time  frame  such  that  each  tenant  thereunder  shall  be
          obligated,  or each such tenant  shall have  elected,  to continue the
          lease term at full rental  (subject only to abatement,  if any, during
          any period in which the  Property  or a portion  thereof  shall not be
          used and occupied by such tenant as a result of the casualty).

<PAGE>

     (k)  Without limiting the Earthquake  provisions  contained  herein, if the
          casualty has resulted in whole or part from an earthquake: (a) Grantor
          shall have supplied  Beneficiary  with a "Seismic  Risk  Estimate" (in
          accordance with the Earthquake  provisions herein) which show that the
          Property  will meet  "Minimum  Seismic  Criteria"  (as  defined in the
          Earthquake  provisions  herein) upon completion of repair and retrofit
          work which can be  completed  within one year of the  earthquake,  (b)
          prior to commencement of the restoration, Grantor shall have committed
          in  writing  to  Beneficiary  that  Grantor  will do such  repair  and
          retrofit  work as shall be  necessary to cause the Property to in fact
          meet Minimum Seismic Criteria following completion of restoration, and
          (c) Beneficiary must at all times during the restoration be reasonably
          satisfied  that  the  Property  will  meet  Minimum  Seismic  Criteria
          following  completion of the  restoration,  Grantor hereby agreeing to
          supply  Beneficiary  with such evidence  thereof as Beneficiary  shall
          request from time to time.

     "Projected  Debt Service  Coverage"  means a number  calculated by dividing
Projected  Operating Income Available for Debt Service (as hereinafter  defined)
for the first  fiscal year  following  restoration  of the  Property by the debt
service  during the same fiscal year under all  indebtedness  secured by a first
mortgage  lien on any portion of the  Property.  For  purposes of the  preceding
sentence,  "debt  service"  means the greater of (x) debt  service due under all
such  indebtedness  during the first  fiscal year  following  completion  of the
restoration  of the  Property or (y) debt  service that would be due and payable
during such fiscal year if all such  indebtedness  were  amortized over 20 years
(whether  or not  amortization  is  actually  required)  and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).

     "Projected  Operating  Income  Available for Debt Service" means  projected
gross  annual  rent from the  Approved  Leases  for the first full  fiscal  year
following completion of the restoration of the Property less:

(A)  The operating  expenses of the Property for the last fiscal year  preceding
     the casualty and

(B)  the following:

     (i)  a  replacement  reserve  for  future  tenant   improvements,   leasing
          commissions  and  structural  items  based on not less than  $1.80 per
          square foot per annum;

     (ii) the amount,  if any, by which actual  gross income  during such fiscal
          period  exceeds  that which  would be earned from the rental of 85% of
          the gross leasable area in the Property;

     (iii)the amount,  if any, by which the actual  management  fee is less than
          2% of gross revenue during such fiscal period;

     (iv) the amount,  if any,  by which the actual  real estate  taxes are less
          than $2.10 per square foot per annum; and

     (v)  the  amount,  if  any,  by  which  total  actual  operating  expenses,
          excluding management fees, real estate taxes and replacement reserves,
          are less than $1.40 per square foot per annum.

     All  projections   referenced   above  shall  be  calculated  in  a  manner
satisfactory to Beneficiary.

CONDEMNATION.  Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds  resulting  from damage to, or the taking of, all or any portion of the
Property,  and (ii) the  proceeds  from any  sale or  transfer  in lieu  thereof
(collectively,   "Condemnation   Proceeds")  in  connection  with   condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter,  a "Taking");  if the Condemnation  Proceeds related to a Facility
are less than the  Allocated  Loan  Amount for the  Facility  and such damage or
Taking  occurs  prior to the last  three  years  of the term of the  Note,  such
Condemnation  Proceeds  (less  expenses  of  collection)  shall  be  applied  to
restoration  of the Facility to its condition,  or the functional  equivalent of
its condition prior to the Taking,  subject to the conditions set forth above in
the section  entitled  "Insurance"  and subject to the  further  condition  that
restoration or replacement of the  improvements on the Land to their  functional
and economic utility prior to the Taking be possible.  Any portion of such award
and proceeds not applied to  restoration  shall,  at  Beneficiary's  option,  be
applied on the Indebtedness,  whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.

TAXES AND SPECIAL  ASSESSMENTS.  Grantor  agrees to pay before  delinquency  all
taxes  and  special  assessments  of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Trustee or  Beneficiary in the Property,  this  instrument,
the Note or the Indebtedness,  and to procure and deliver to Beneficiary  within
30 days after  Beneficiary  shall have given a written  request to Grantor,  the
official  receipt of the proper officer showing timely payment of all such taxes
and assessments;  provided,  however,  that Grantor shall not be required to pay
any such taxes or special  assessments if the amount,  applicability or validity
thereof shall  currently be contested in good faith by  appropriate  proceedings
and funds  sufficient to satisfy the contested  amount have been deposited in an
escrow satisfactory to Beneficiary.

<PAGE>

PERSONAL  PROPERTY.  With  respect  to the  Personal  Property,  Grantor  hereby
represents, warrants and covenants as follows:

     (a) Except for the security interest granted hereby,  Grantor is, and as to
portions of the Personal  Property to be acquired after the date hereof will be,
the sole owner of the Personal Property,  free from any lien, security interest,
encumbrance  or adverse  claim  thereon of any kind  whatsoever.  Grantor  shall
notify  Beneficiary  of,  and shall  indemnify  and defend  Beneficiary  and the
Personal  Property  against,  all claims and  demands of all persons at any time
claiming the Personal Property or any part thereof or any interest therein.

     (b) Except as otherwise  provided  above,  Grantor  shall not lease,  sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.

     (c) Grantor is a limited partnership  organized under the laws of the State
of  Delaware.  Until the  Indebtedness  is paid in full,  Grantor  (i) shall not
change its legal name without providing  Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve  its  existence  and  shall  not,  in one  transaction  or a series  of
transactions, merge into or consolidate with any other entity.

     (d) At the  request  of  Beneficiary,  Grantor  shall join  Beneficiary  in
executing one or more  financing  statements  and  continuations  and amendments
thereof  pursuant  to the  Uniform  Commercial  Code  in  form  satisfactory  to
Beneficiary,  and  Grantor  shall pay the cost of filing  the same in all public
offices  wherever  filing is deemed by Beneficiary to be necessary or desirable.
Grantor  shall  also,  at  Grantor's  expense,  take  any and all  other  action
requested by Beneficiary to perfect  Beneficiary's  security  interest under the
Uniform  Commercial  Code with  respect  to the  Personal  Property,  including,
without  limitation,  exercising  Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security  interest  in  Personal   Property   consisting  of  deposit  accounts,
letter-of-credit rights, investment property, and electronic chattel paper.

OTHER LIENS.  Grantor agrees to keep the Property or any Personal  Property free
from all other liens  either  prior or  subsequent  to the lien  created by this
instrument  other  than  liens  created by the  Transaction  Documents.  The (i)
creation  of any other lien on any portion of the  Property  or on any  Personal
Property,  whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable  license to collect,  use and enjoy rents and
profits from the  Property,  shall  constitute a default under the terms of this
instrument;  except that upon written notice to Beneficiary,  Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate  proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal  Property  described  herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.

COSTS, FEES AND EXPENSES.  Grantor agrees to pay all costs, fees and expenses of
this  trust;  to appear in and  defend any action or  proceeding  purporting  to
affect the  security  hereof or the rights or powers of  Beneficiary  or Trustee
hereunder;  to pay all  costs  and  expenses,  including  the cost of  obtaining
evidence of title and reasonable  attorney's  fees,  incurred in connection with
any  such  action  or  proceeding;  and to pay any and all  attorney's  fees and
expenses of collection  and  enforcement  in the event the Note is placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.

FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein  provided,  Beneficiary  or Trustee  may,  without  obligation  so to do,
without notice to or demand upon Grantor and without  releasing Grantor from any
obligation  hereof: (i) make or do the same in such manner and to such extent as
Beneficiary  may deem necessary to protect the security  hereof,  Beneficiary or
Trustee  being  authorized  to enter upon the  Property for such  purpose;  (ii)
appear in and defend any action or proceeding  purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee;  (iii) pay, purchase,
contest or compromise any  encumbrance,  charge or lien which in the judgment of
Beneficiary  appears to be prior or superior hereto;  and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so  expended  shall be payable  by Grantor  immediately  upon  demand  with
interest from date of  expenditure at the Default Rate (as defined in the Note).
All sums so expended by Beneficiary  and the interest  thereon shall be included
in the Indebtedness and secured by the lien of this instrument.

EVENT OF DEFAULT.  Any default by Grantor or the Other  Borrowers  in making any
required payment of the Indebtedness or the Other Indebtedness or any default in
any provision,  covenant,  agreement, warranty or certification contained in any
of the Transaction  Documents  shall,  except as provided in the two immediately
succeeding paragraphs, constitute an "Event of Default".

NOTICE OF DEFAULT.  A default in any payment required in the Note or Other Notes
or any other  Transaction  Document,  whether or not payable to Beneficiary,  (a
"Monetary  Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written  notice of such  Monetary  Default to Grantor and the
Other  Borrowers and Grantor and the Other  Borrowers  shall not have cured such
Monetary  Default  by payment of all  amounts in default  (including  payment of
interest at the Default  Rate,  as defined in the Note or Other Notes,  from the
date of default to the date of cure on amounts owed to Beneficiary)  within five
(5)  business  days  after the date on which  Beneficiary  shall have given such
notice to Grantor and Other Borrowers.

<PAGE>

     Any  other  default  under  the Note or Other  Notes  or  under  any  other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default  unless   Beneficiary   shall  have  given  a  written  notice  of  such
Non-Monetary  Default to Grantor  and the Other  Borrowers  and  Grantor and the
Other  Borrowers  shall not have cured such  Non-Monetary  Default within thirty
(30) days after the date on which  Beneficiary  shall have given such  notice of
default to Grantor and the Other Borrowers (or, if the  Non-Monetary  Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have  diligently   undertaken  and  continued  to  pursue  the  curing  of  such
Non-Monetary   Default  and   deposited  an  amount   sufficient  to  cure  such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).

     In no event  shall the  notice and cure  period  provisions  recited  above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).

SUBSTITUTION OF TRUSTEE.  Beneficiary and its successors and assigns may for any
reason  and  at  any  time  appoint  a new  or  substitute  Trustee  by  written
appointment  delivered  to such new or  substitute  Trustee  without  notice  to
Grantor,  without  notice to, or the  resignation or withdrawal by, the existing
Trustee and without  recordation  of such written  appointment  unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment,  the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.

APPOINTMENT  OF RECEIVER.  Upon  commencement  of any  proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or  restriction  by any present or future law,  without regard to the
solvency or  insolvency  at that time of any party liable for the payment of the
Indebtedness,  without regard to the then value of the Property,  whether or not
there  exists a threat  of  imminent  harm,  waste or loss to the  Property  and
whether  or not the same shall  then be  occupied  by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the  revenues,  rents,  profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such  appointment may confer) full power to collect all such income
and, after paying all necessary  expenses of such receivership and of operation,
maintenance and repair of said Property,  to apply the balance to the payment of
any of the Indebtedness then due.

FORECLOSURE.  Upon the  occurrence  of an Event of  Default,  the entire  unpaid
Indebtedness  shall,  at the option of Beneficiary,  become  immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE  EXERCISE OF SUCH OPTION,  OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising  any rights it may have with respect to the Personal  Property  under
the  Uniform  Commercial  Code of the  jurisdiction  in which  the  Property  is
located,  institute  proceedings  in any  court  of  competent  jurisdiction  to
foreclose  this  instrument  as a mortgage,  or to enforce any of the  covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage,  rent or
lease the  Property or any portion  thereof upon such terms as  Beneficiary  may
deem  expedient,  and  collect,  receive  and  receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter  provided in case
of sale.  Trustee is hereby further  authorized  and empowered,  either after or
without such entry,  to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think  best),  and all the right,  title and interest of
Grantor  therein,  by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located,  (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue,  execute and deliver a
deed of conveyance,  all as then may be provided by law; and Trustee shall,  out
of the  proceeds or avails of such sale,  after first paying and  retaining  all
fees,  charges,  costs of advertising  the Property and of making said sale, and
attorneys'  fees as herein  provided,  pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof,  including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness,  with interest from date of
advance or expenditure  at the Default Rate (as defined in the Note),  rendering
the excess,  if any,  as  provided  by law;  such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the  Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.

PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material  consideration  to  Beneficiary in making the loan secured by this
instrument,  and  Grantor  shall not (i) convey  title to all or any part of the
Property,  (ii) enter into any  contract  to convey  (land  contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a  purchaser  possession  of,  or income  from,  the  Property  prior to a
transfer of title to all or any part of the Property  ("Contract  to Convey") or
(iii) cause or permit a Change in the  Proportionate  Ownership (as  hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the  Proportionate  Ownership  of Grantor  shall  constitute a default
hereunder.

     B.  For  purposes  of  this  instrument,  a  "Change  in the  Proportionate
Ownership"  means any transfer  which  results in Carl E. Berg and/or  Permitted
Transferee's  (as defined below)  collectively,  owning less than 49% of Carl E.
Berg's direct and indirect  ownership  interest in Grantor (existing on the date
of initial  advance  of funds,  as  represented  in the  Certification)  without
Beneficiary's approval.

<PAGE>

     C.  Notwithstanding  the above,  a transfer of Carl E. Berg's  ownership in
Grantor  (i) to and among the Berg  Family  (as  hereinafter  defined)  shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E.  Berg,  and (ii) to any entity  owned and  controlled  (ownership  and voting
interest  in excess of 50% by the Berg  Family)  shall be  permitted  for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect  ownership  interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."

     D. For purposes  hereof,  the "Berg  Family"  shall mean Carl E. Berg,  his
spouse, his descendants and their spouses,  Clyde J. Berg, any trusts or estates
for the  benefit  of  said  parties,  and  any  entities  owned  and  controlled
(ownership and voting interests in excess of 50%) by said parties.

     E. A conversion  of all or part of the  ownership  interest of Carl E. Berg
from limited  partnership  units ("L.P.  Units") of Grantor to common  shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.

FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:

(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the  "Property  Financial  Statements  Due
Date"):

     (i)  an unaudited balance sheet as of the last day of such fiscal year;

     (ii) an  unaudited  statement  of  operations  for such  fiscal year with a
          detailed  line item  break-down of all sources of income and expenses,
          including capital expenses broken down between,  leasing  commissions,
          tenant improvements,  capital maintenance, common area renovation, and
          expansion;

     (iii)a current rent roll  identifying  location,  leased area,  lease begin
          and end dates,  current  contract  rent,  rent  increases and increase
          dates, percentage rent, expense reimbursements, and any other recovery
          items;

     (iv) an operating budget for the current fiscal year; and

(B) the following financial  statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor,  respectively (the
"Grantor/Guarantor Financial Statements Due Date")

     (i)  an audited balance sheet as of the last day of such fiscal year; and

     (ii) an audited statement of cash flows for such fiscal year; and

(C) to the extent the following tenants are not publicly traded, Grantor will
use its best efforts to obtain the following financial statements for Fujitsu
(formerly known as Amdahl), Apple, JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective tenant (the "Tenant
Financial Statements Due Date"):

     (i)  an audited, or unaudited if audited is not available, balance sheet as
          of the last day of such fiscal year; and

     (ii) an audited,  or  unaudited if audited is not  available,  statement of
          cash flows for such fiscal period.

     The  Property  Financial   Statements  Due  Date,  the   Grantor/Guarantors
Financial  Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".

     If  audited,  the  financial  statements  identified  in  sections  (A)(i),
(A)(ii),  (B)(i),  (B)(ii),  (C)(i) and (C)(ii) above, shall each be prepared in
accordance  with  generally  accepted  accounting  principles  by a  "Big  Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary.  All unaudited  financial  statements  for Grantor,  Property,  and
Guarantor  shall  contain a  certification  by the managing  general  partner of
Grantor  stating  that they have been  prepared  in  accordance  with  generally
accepted accounting  principles and that they are true and correct.  The expense
of  preparing  all of the  financial  statements  required in (A) and (B) above,
shall be borne by Grantor.

     Grantor  acknowledges that Beneficiary requires the financial statements to
record  accurately  the  value of the  Property  for  financial  and  regulatory
reporting.

<PAGE>

     In addition to all other remedies  available to Beneficiary  hereunder,  at
law and in equity,  if any  financial  statement or proof of payment of property
taxes and  assessments  is not  furnished  to  Beneficiary  as  required in this
section entitled  "Financial  Statements" and in the section entitled "Taxes and
Special Assessments",  within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,

     (x) interest on the unpaid  principal  balance of the  Indebtedness and the
     Other Notes shall as of the applicable Financial Statements Due Date or the
     date such proof of  payment  of  property  taxes and  assessments  was due,
     accrue and become  payable at a rate equal to the sum of the Interest  Rate
     (as  defined in the Note) plus one percent  (1%) per annum (the  "Increased
     Rate"); and

     (y) Beneficiary  may elect to obtain an independent  appraisal and audit of
     the Property at Grantor's  expense,  and Grantor agrees that it will,  upon
     request,  promptly make Grantor's books and records  regarding the Property
     available to  Beneficiary  and the person(s)  performing  the appraisal and
     audit (which  obligation  Grantor  agrees can be  specifically  enforced by
     Beneficiary).

     The amount of the  payments  due under the Note and Other Notes  during the
time in which the  Increased  Rate  shall be in effect  shall be  changed  to an
amount which is sufficient to amortize the then unpaid principal  balance at the
Increased  Rate  during  the then  remaining  portion  of a  period  of 20 years
commencing with the  Amortization  Period  Commencement  Date (as defined in the
Note and Other Notes).  Interest shall continue to accrue and be due and payable
monthly  at the  Increased  Rate  until the  financial  statements  and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished  to  Beneficiary  as  required.  Commencing  on the date on which  the
financial  statements and proof of payment of property taxes and assessments are
received by Beneficiary,  interest on the unpaid  principal  balance shall again
accrue at the Interest  Rate and the  payments  due during the  remainder of the
term of the  Note and  Other  Notes  shall  be  changed  to an  amount  which is
sufficient  to amortize the then unpaid  principal  balance at the Interest Rate
during the then remaining  portion of a period of 20 years  commencing  with the
Amortization   Period   Commencement   Date.   Notwithstanding   the  foregoing,
Beneficiary  shall  have the right to conduct  an  independent  audit at its own
expense at any time.

PROPERTY   MANAGEMENT.   The  management  company  for  the  Property  shall  be
satisfactory  to Beneficiary.  Any change in the management  company without the
prior  written  consent of  Beneficiary  shall  constitute a default  under this
instrument.  Beneficiary  shall  be  reasonable  in  giving  its  approval,  and
Beneficiary  may require that the new management  company,  by itself or through
its manager,  have good character and reputation,  and demonstrated  ability and
experience in the  operation and leasing of at least one million  square feet of
property similar to the Property.

EARTHQUAKE.  If the Property is damaged by an earthquake  during the term of the
Indebtedness:

     (A)  Beneficiary  may require a new "Seismic Risk Estimate" (as hereinafter
     defined) to be performed at Grantor's expense, and

     (B)  Grantor  shall  perform  repair and  retrofit  work,  satisfactory  to
     Beneficiary,  which results in (i) the complete  repair of the Property and
     (ii) the performance of a subsequent  Seismic Risk Estimate  verifying that
     the Property meets "Minimum  Seismic  Criteria" (as  hereinafter  defined).
     Such work shall be commenced  and  completed as soon as possible and in any
     event within one year of the earthquake.

     Without limiting the Grantor's  obligation to cause the Property to satisfy
Minimum Seismic  Criteria,  during any period of time in which the Property does
not satisfy Minimum Seismic  Criteria,  Grantor shall provide  Beneficiary  with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).

     As used  herein,  "Earthquake  Insurance"  means a policy  satisfactory  to
Beneficiary  with a deductible of no greater than 5% of the  "Replacement  Cost"
(as hereinafter  defined) and in an amount calculated as follows:  (i) the "Loan
Amount" (as  hereinafter  defined) plus (ii) the "Specified  Loss Dollar Amount"
(as defined below) plus (iii) 5% of the  Replacement  Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).

     As used  herein,  "Loan  Amount"  shall  mean the  total  principal  amount
advanced at closing, under the Note.

     As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).

     As used herein, "Market Value" means the estimated fair market value of the
Property,  determined  by  Beneficiary  in its  sole  discretion,  at the time a
Seismic Risk Estimate is performed.

     As used herein,  "Minimum  Seismic  Criteria" means that both the Specified
Loss Percentage (as hereinafter  defined) for the Property is less than or equal
to 30% and the  Loan  Plus  Specified  Loss is less  than or equal to 90% of the
Market Value.

<PAGE>

     As used herein,  "Model" means a computer  based seismic model  selected by
Beneficiary,  currently the  Insurance and  Investment  Risk  Assessment  System
("IRAS") program by Risk Management Solutions ("RMS").

     As  used  herein,  "Replacement  Cost"  means  the  estimated  total  cost,
determined  by  Beneficiary  in its sole  discretion,  to  construct  all of the
Improvements  as if the Property were  completely  unimproved (not including the
cost of site work, utilities and foundation).

     As used herein,  "Seismic Risk Estimate" refers to the results of a seismic
risk  estimate for the Property  produced by the Model.  Grantor  agrees that it
will not rely for its own  evaluation  purposes  on the  Seismic  Risk  Estimate
produced by or for Beneficiary.

         As used herein, "Specified Loss Dollar Amount" means the "Specified
Loss Percentage" (as hereinafter defined) multiplied by the Replacement Cost.

     As used herein,  "Specified Loss Percentage"  means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement  Cost.  Beneficiary's  parameters  for the  Model are based on a 90%
probability  that the  level of  damage  predicted  will not be  exceeded  in an
earthquake with an expected 475 year return period.

DEPOSITS  BY  GRANTOR.  To assure the timely  payment of real  estate  taxes and
special assessments  (including  personal property taxes, if appropriate),  upon
the occurrence of an Event of Default,  Beneficiary  shall thence forth have the
option to require  Grantor to deposit  funds with  Beneficiary  or in an account
satisfactory  to  Beneficiary,  in monthly  or other  periodic  installments  in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and  special  assessments  as they become due. If at any time the funds so
held by Beneficiary,  or in such other account, shall be insufficient to pay any
of said expenses,  Grantor shall,  upon receipt of notice  thereof,  immediately
deposit such additional funds as may be necessary to remove the deficiency.  All
funds so  deposited  shall be  irrevocably  appropriated  to  Beneficiary  to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.

NOTICES.  Any notices,  demands,  requests  and  consents  permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally  or sent by  certified  mail with  postage  prepaid  or by  reputable
courier  service with charges  prepaid.  Any notice or demand sent to Grantor by
certified  mail or reputable  courier  service  shall be addressed to Grantor at
10050  Bandley  Drive,  Cupertino,  CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable  courier  service shall be addressed to The  Northwestern  Mutual Life
Insurance Company to the attention of the Real Estate  Investment  Department at
720 East Wisconsin  Avenue,  Milwaukee,  WI 53202, or at such other addresses as
Beneficiary  shall designate in a notice given in the manner  described  herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand  hereunder  shall be deemed given when received.  Any notice or
demand  which is  rejected,  the  acceptance  of delivery of which is refused or
which is  incapable  of being  delivered  during  normal  business  hours at the
address specified herein or such other address designated  pursuant hereto shall
be deemed received as of the date of attempted delivery.

MODIFICATION OF TERMS.  Without  affecting the liability of Grantor or any other
person  (except any person  expressly  released  in writing)  for payment of the
Indebtedness or for performance of any obligation  contained  herein and without
affecting the rights of  Beneficiary  with respect to any security not expressly
released in writing,  Beneficiary may, at any time and from time to time, either
before or after the maturity of the Note, without notice or consent: (i) release
any person  liable for  payment  of all or any part of the  Indebtedness  or for
performance  of any  obligation;  (ii) make any agreement  extending the time or
otherwise  altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing  with  the  lien or  charge  hereof;  (iii)  exercise  or  refrain  from
exercising  or waive any right  Beneficiary  may have;  (iv)  accept  additional
security of any kind; (v) release or otherwise  deal with any property,  real or
personal, securing the Indebtedness, including all or any part of the Property.

EXERCISE OF OPTIONS.  Whenever, by the terms of this instrument,  of the Note or
any of the other Loan  Documents,  Beneficiary is given any option,  such option
may be  exercised  when the right  accrues,  or at any time  thereafter,  and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.

NATURE AND  SUCCESSION  OF  AGREEMENTS.  Each of the  provisions,  covenants and
agreements  contained  herein  shall inure to the benefit of, and be binding on,
the heirs, executors,  administrators,  successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Note.

LEGAL  ENFORCEABILITY.  No provision of this  instrument,  the Note or any other
Loan  Documents  shall  require the payment of interest or other  obligation  in
excess of the maximum  permitted by law. If any such excess  payment is provided
for in any Loan  Documents  or  shall  be

<PAGE>

adjudicated to be so provided, the provisions of this paragraph shall govern and
Grantor  shall not be  obligated  to pay the  amount of such  interest  or other
obligation to the extent that it is in excess of the amount permitted by law.

LIMITATION OF LIABILITY.  Notwithstanding  any provision contained herein to the
contrary,  the personal liability of Grantor shall be limited as provided in the
Note.

MISCELLANEOUS.  Time  is of the  essence  in  each of the  Loan  Documents.  The
remedies of Beneficiary  as provided  herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent,  and may be pursued singly,
successively,  or together at the sole  discretion  of  Beneficiary,  and may be
exercised as often as occasion  therefor shall occur; and neither the failure to
exercise any such right or remedy nor any  acceptance by  Beneficiary of payment
of  Indebtedness  in  default  shall in any  event be  construed  as a waiver or
release  of any right or  remedy.  Neither  this  instrument  nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and  Beneficiary.  If any of the  provisions of
any Loan  Document or the  application  thereof to any persons or  circumstances
shall to any extent be  invalid or  unenforceable,  the  remainder  of such Loan
Document  and each of the other  Loan  Documents,  and the  application  of such
provision or provisions to persons or circumstances  other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every  provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.

WAIVER OF JURY  TRIAL.  Grantor  hereby  waives  any right to trial by jury with
respect to any action or proceeding  (a) brought by Grantor,  Beneficiary or any
other  person  relating  to  (i)  the  obligations  secured  hereby  and/or  any
understandings  or prior  dealings  between the parties  hereto or (ii) the Loan
Documents or the Environmental  Indemnity Agreement, or (b) to which Beneficiary
is a party.

CAPTIONS.  The captions  contained herein are for convenience and reference only
and in no way define,  limit or  describe  the scope or intent of, or in any way
affect this instrument.

GOVERNING  LAW.  This  instrument  shall be  governed  by and  construed  in all
respects in accordance  with the laws of the State of California  without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning  any dispute  arising  under or related to this  instrument  shall be
brought in a state or federal  court  located  in the State of  California,  and
Beneficiary and Grantor hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California.

REQUEST FOR NOTICE.  Pursuant to California  Government Code Section 27321.5(b),
Grantor  hereby  requests that a copy of any notice of default and a copy of any
notice of sale given  pursuant  to this  instrument  be mailed to Grantor at the
address set forth herein.


<PAGE>



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

                   MISSION WEST PROPERTIES, L.P., a Delaware limited partnership

                   By:      Mission West Properties, Inc., a
                            Maryland corporation, its general
                            partner

                            By: Carl E. Berg
                            Name: Carl E. Berg
                            Title: CEO of G.P.

STATE OF California                         )
                                            )ss.
COUNTY OF         Santa Clara               )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature   /s/      GW Shott
         -----------------------------------
          G.W. Shott
         -----------------------------------
         Name (typed or printed)



This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.




<PAGE>


                                   EXHIBIT "A"

                                (Mission West LP)

Parcel One:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on December 23, 1997,
in Book 698 of Maps, Page(s) 1 and 2.

Reserving  therefrom  an  easement  for  ingress  and over that  portion of land
designated and delineated as "C.O.E.- 30'" Reciprocal-Ingress, Egress- Easement"
on that Parcel Map filed for record in the Office of the  Recorder of the County
of Santa Clara,  State of California,  on December 23, 1997 in Book 698 of Maps,
Pages 1 and 2.

Parcel Two:

An easement for ingress and egress over those portion of Parcel 2 designated and
delineated as "C.O.E.- 30'  Reciprocal-Ingress,  Egress-Easement" on that Parcel
Map filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.

Parcel Three:

An easement for ingress and egress over those portion of Parcel 3 designated and
delineated as "C.O.E-26'Reciprocal-Ingress,  Egress-Easement" on that Parcel Map
filed for record in the  Office of the  Recorder  of the County of Santa  Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.

Assessors Parcel No:  244-13-015




<PAGE>


EXHIBIT 10.36

California
Loan No. C-332757
RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn

                    SPACE ABOVE THIS LINE FOR RECORDER'S USE

 DEED OF TRUST and SECURITY AGREEMENT and ASSIGNMENT OF LEASES AND RENTS (SECOND
                                    PRIORITY)
                         Mission West Properties, L. P.

     THIS  DEED OF TRUST  and  SECURITY  AGREEMENT  is made as of the 3rd day of
January,  2003  between  MISSION  WEST  PROPERTIES,  L.P.,  a  Delaware  limited
partnership,   10050  Bandley   Drive,   Cupertino,   CA  95014,   herein  (said
Grantor/Trustor,  whether  one or  more in  number)  called  "Grantor",  and THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin  Avenue,  Milwaukee,  WI  53202,  herein  called  "Trustee",  and  THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":

     WITNESSETH,  That Grantor,  in  consideration  of the  indebtedness  herein
mentioned,  does hereby irrevocably bargain, sell, grant,  transfer,  assign and
convey  unto  Trustee,  in  trust,  with  power of sale and  right of entry  and
possession, the following property (herein referred to as the "Property"):

     (A)  The land in the  City of San  Jose,  Santa  Clara  County,  California
          described in Exhibit "A" attached hereto and incorporated  herein (the
          "Land");

     (B)  All easements, appurtenances, tenements and hereditaments belonging to
          or benefiting the Land, including but not limited to all waters, water
          rights,  water  courses,  all  ways,  trees,  rights,   liberties  and
          privileges; and

     (C)  All  improvements  to the Land,  including,  but not  limited  to, all
          buildings,  structures  and  improvements  now  existing or  hereafter
          erected on the Land;  all fixtures and equipment of every  description
          belonging to Grantor  which are or may be placed or used upon the Land
          or attached to the buildings,  structures or improvements,  including,
          but not limited to, all engines, boilers, elevators and machinery, all
          heating  apparatus,   electrical   equipment,   air-conditioning   and
          ventilating  equipment,  water and gas fixtures, and all furniture and
          easily removable  equipment;  all of which, to the extent permitted by
          applicable  law,  shall be deemed an  accession  to the freehold and a
          part of the realty as between the parties  hereto;  the rents,  issues
          and profits arising from the Land and improvements  subject,  however,
          to any right,  power and  authority  given to  Grantor to collect  and
          apply such rents, issues and profits.

     (D)  All Grantor's right,  title and interest in and to that certain C.O.E.
          - 30' Reciprocal-Ingress,  Egress-Easement  Agreement filed for record
          on December  23, 1997,  in Book 698 of Maps,  Pages 1 & 2, Santa Clara
          County, California.

     (E)  All Grantor's right,  title and interest in and to that certain C.O.E.
          - 26' Reciprocal-Ingress,  Egress-Easement  Agreement filed for record
          on December  23, 1997,  in Book 698 of Maps,  Pages 1 & 2, Santa Clara
          County, California.

Grantor agrees not to sell, transfer,  assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any  buildings or  structures  or the sale or transfer of waters or water rights
and (ii) such action results in the  substitution  or  replacement  with similar
items of equal value.

<PAGE>

     Without   limiting  the  foregoing   grants,   Grantor  hereby  pledges  to
Beneficiary,  and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter  acquired right, title and interest in and to the Property
and any and all

     (F)  cash and other funds now or at any time hereafter  deposited by or for
          Grantor on account of tax,  special  assessment,  replacement or other
          reserves required to be maintained  pursuant to the Loan Documents (as
          hereinafter  defined) with  Beneficiary or a third party, or otherwise
          deposited with, or in the possession of,  Beneficiary  pursuant to the
          Loan Documents; and

     (G)  surveys, soils reports, environmental reports, guaranties, warranties,
          architect's   contracts,    construction   contracts,   drawings   and
          specifications,   applications,   permits,   surety  bonds  and  other
          contracts   relating   to  the   acquisition,   design,   development,
          construction and operation of the Property; and

     (H)  accounts,  chattel paper,  deposit accounts,  instruments,  equipment,
          inventory,  documents,  general intangibles,  letter-of-credit rights,
          investment  property and all other  personal  property of Grantor,  in
          each  case,  to  the  extent  associated  with  or  arising  from  the
          ownership,  development,  operation, use or disposition of any portion
          of the property; and

     (I)  present and future rights to condemnation  awards,  insurance proceeds
          or other  proceeds  at any time  payable to or  received by Grantor on
          account of the Property or any of the foregoing personal property.

All personal property  hereinabove  described is hereinafter  referred to as the
"Personal Property".

     If any of the Property is of a nature that a security  interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing  statement if permitted by applicable law and
Grantor  authorizes  Beneficiary to file a financing  statement  describing such
Property and, at Beneficiary's  request,  agrees to join with Beneficiary in the
execution of any financing  statements and to execute any other instruments that
may  be  necessary  or  desirable,  in  Beneficiary's  determination,   for  the
perfection or renewal of such  security  interest  under the Uniform  Commercial
Code.

     TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF  SECURING,  in
such  order of  priority  as  Beneficiary  may  determine:  (i)  payment  of the
Indebtedness  (as  hereinafter  defined);  and (ii)  payment  (with  interest as
provided)  and  performance  by  Grantor  of  the  Obligations  (as  hereinafter
defined).  Notwithstanding the foregoing,  or any other term contained herein or
in the Loan Documents,  none of Grantor's  obligations (the "Other Obligations")
under or  pursuant to (a) the  Environmental  Indemnity  Agreement  of even date
herewith  executed by Grantor,  Guarantor  and the other  Borrowers  in favor of
Beneficiary ("Environmental  Agreement"),  (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.


FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture  filing in the real  estate  records of the County of the State in which
the real estate  described in Exhibit A is located,  with respect to any and all
fixtures  included within the term "Property" and "fixtures"  under this Deed of
Trust  and to any goods or other  personal  property  that are now or  hereafter
become a part of the Property as fixtures.


                                   DEFINITIONS

     CERTAIN  DEFINED TERMS:  As used in this Deed of Trust the following  terms
shall have the following meanings:

     COMMITMENT:  The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications  stated in the letter, the Loan application executed by
Grantor and the Other  Borrowers,  dated October 31, 2002,  which acceptance and
modification  was agreed to by Grantor and the Other  Borrowers  on November 28,
2002.

     ENVIRONMENTAL  AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.

     FACILITY:  A real property (including,  without limitation,  all buildings,
fixtures and other  improvements  located  thereon) now or hereafter  serving as
security  for the loans  which  comprise  the  Transaction.  Attached  hereto as
Exhibit B is a list of all Facilities as of the date hereof.

     GUARANTOR:  Mission West Properties, Inc., a Maryland corporation, and each
other  person   hereafter   guaranteeing   any  portionof  the  Indebtedness  or
Obligations.

<PAGE>

     GUARANTEE:  That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission WestProperties,  Inc., a Maryland corporation,
in  favor  of  Beneficiary,  and  any  other  guarantee  of any  portion  of the
Indebtedness or Obligations hereafter executed by any person.

     INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Notes (as  hereinafter  defined)  and any  extensions  or renewals
thereof  (including  extensions  or renewals at a  different  rate of  interest,
whether or not evidenced by a new or additional  promissory note or notes),  and
all other indebtedness of Grantor to Beneficiary and additional  advances under,
evidenced by and/or  secured by the Loan  Documents,  plus  interest on all such
amounts,  other than any obligations  relating to the Other Indebtedness,  Other
Note or Other Obligations.

     LOAN  DOCUMENTS:  The  Notes,  this Deed of Trust,  the  Commitment  (as it
relates to the Indebtedness), the Guarantee (as it relates to the Indebtedness),
that certain  Certification of Borrowers and Carl E. Berg  ("Certification")  of
even date  herewith (as it relates to the  Indebtedness),  that certain  Limited
Partnership  Supplement  dated  January  3,  2003,  any  other  supplements  and
authorizations  required by  Beneficiary,  the Fraudulent  Conveyance  Indemnity
Agreement  from  Guarantor  (as it  relates  to the  Indebtedness),  Certificate
Regarding Distribution of Loan Proceeds and Indemnity Agreement among Guarantor,
Grantor  and the  Other  Borrowers  (as it  relates  to the  Indebtedness),  and
Contribution and  Reimbursement  Agreement among Grantor and the Other Borrowers
(as it  relates  to the  Indebtedness),  and  all  other  documents  evidencing,
securing or relating to the payment of the  Indebtedness  or the  performance of
the  Obligations,  with the  exception  of the Other Note and the  Environmental
Agreement.

     NOTES:  The Promissory Note of even date herewith  executed by Mission West
Properties,  L.P. I, a Delaware  limited  partnership in the original  principal
amount of Twenty Nine  Million  Eight  Hundred  Eleven  Thousand  Three  Hundred
Sixty-Nine  Dollars  ($29,811,369.00),  payable to Beneficiary or its order, and
the Promissory Note of even date herewith  executed by Mission West  Properties,
L.P. II, a Delaware  limited  partnership  in the original  principal  amount of
Forty One Million  Three  Hundred  Nineteen  Thousand  Nine Hundred  Seventy-Six
Dollars  ($41,319,976.00),  payable to  Beneficiary  or its order,  in each with
final  maturity  no later than  February  1, 2013 and with  interest  as therein
expressed,  and all  modifications,  renewals or extensions  of such  Promissory
Notes.

     OBLIGATIONS:  Any and all of the covenants,  promises and other obligations
(including  payment of the  Indebtedness)  made or owing by Grantor to or due to
Beneficiary  under  and/or  as set  forth in the Loan  Documents  and all of the
material  covenants,  promises and other obligations made or owing by Grantor to
each and every other  person  relating to the  Property,  exclusive of the Other
Obligations.

     OTHER BORROWERS:  Collectively, Mission West Properties, L.P. I, a Delaware
limited  partnership,  and Mission West Properties,  L.P. II, a Delaware limited
partnership.

     OTHER INDEBTEDNESS: The loan from Beneficiary evidenced by the Other Note.

     OTHER NOTE: The Promissory  Note of even date herewith  executed by Grantor
in  the  original  principal  amount  of  Twenty  Eight  Million  Eight  Hundred
Sixty-Eight Thousand Six Hundred Fifty-Five Dollars ($28,868,655.00), payable to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with  interest  as  therein  expressed,  and  all  modifications,   renewals  or
extensions of such Promissory Note.

     OTHER  OBLIGATIONS:  As defined in the  Granting  Paragraph of this Deed of
Trust.

     PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.

     TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00),  which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof, and are evidenced by the Notes and Other
Note and secured by lien  instruments and collateral  documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.

     TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the  payment of  amounts  owed  Beneficiary  in  connection  with the
Transaction, with the exception of the Environmental Agreement.


  TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:

PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness  hereby secured promptly
and in full compliance with the terms of the Loan Documents.

<PAGE>

OWNERSHIP.  Grantor represents that it owns the Property and has good and lawful
right to convey  the same and that the  Property  is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary.  Grantor does hereby  forever  warrant and shall forever defend the
title and  possession  thereof  against the lawful claims of any and all persons
whomsoever.

MAINTENANCE  OF PROPERTY AND  COMPLIANCE  WITH LAWS.  Grantor agrees to keep the
buildings and other  improvements  now or hereafter  erected on the Land in good
condition  and  repair;  not to commit or suffer any waste;  to comply  with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all  reasonable  times for the purpose of inspection and of conducting,
in a reasonable  and proper manner,  such tests as Beneficiary  determines to be
necessary in order to monitor  Grantor's  compliance  with  applicable  laws and
regulations regarding hazardous materials affecting the Property.

TENANTS  USING  CHLORINATED  SOLVENTS.  Grantor  agrees  not to lease any of the
Property, without the prior written consent of Beneficiary,  to (i) dry cleaning
operations that perform dry cleaning on site with  chlorinated  solvents or (ii)
any other  tenants  that use  chlorinated  solvents  in the  operation  of their
businesses.

Notwithstanding  the  above,  a  tenant's  use and  storage  of a product  which
contains  no more than  twelve (12)  ounces of  chlorinated  solvents  shall not
violate this  prohibition if, and only if, (i) each tenant's use,  storage,  and
the  ultimate  disposal,  of said  solvents is at all times in  compliance  with
applicable  law;  (ii)  said  solvents  are  acquired  and  kept in  prepackaged
containers;  and  (iii)  each  tenant  keeps no more  than  one (1)  prepackaged
container of said solvents on the Property.

     BUSINESS  RESTRICTION  REPRESENTATION AND WARRANTY.  Grantor represents and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the  Indebtedness:  (i) are not, and shall not
become,  a person or entity  with whom  Beneficiary  is  restricted  from  doing
business with under  regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's  Specially  Designated  and Blocked  Persons  list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking  Property and Prohibiting  Transactions  With Persons Who Commit,
Threaten to Commit, or Support  Terrorism),  or other governmental  action; (ii)
are not  knowingly  engaged  in,  and shall  not  engage  in,  any  dealings  or
transaction or be otherwise  associated with such persons or entities  described
in (i) above;  and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the  International  Money  Laundering  Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.

INSURANCE.  Grantor  agrees to keep the Property  insured for the  protection of
Beneficiary and  Beneficiary's  wholly owned  subsidiaries  and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance  in  amounts  and  form  and  with  companies  all   satisfactory   to
Beneficiary:

     (A)  All risk  property  insurance  with a  deductible  of not greater than
          $100,000.00,  including  Demolition and Increased Cost of Construction
          (DICC) coverage equal to a minimum of 5% of the estimated  replacement
          cost, with an Agreed Amount Endorsement for the estimated  replacement
          cost of the improvements.  If such all risk property  insurance policy
          contains a terrorism exclusion, then Grantor shall purchase a separate
          insurance  policy  acceptable to Beneficiary  for terrorism  coverage.
          Notwithstanding the foregoing, however, Grantor shall only be required
          to  carry  such  insurance  coverage  for  acts  of  terrorism  with a
          deductible  acceptable  to  Lender  if such  coverage  is  customarily
          required by other  institutional  lenders on loans secured by property
          similar to the property;

     (B)  Loss of rents insurance equal to twelve months rent or business income
          insurance for 100% of the annual gross earnings from business  derived
          from the Property;

     (C)  Flood insurance,  if the Property is located in a flood plain (as that
          term is used in the National Flood Insurance Program) in an amount not
          less than 25% of the estimated replacement cost;

     (D)  Grantor's  own  commercial  general  liability  insurance  policy with
          Beneficiary,  and Beneficiary's  wholly owned subsidiaries and agents,
          named as additional insureds for their interests in the Property; and

     (E)  Other insurance as required by Beneficiary.

<PAGE>

     Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary,  or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing  all  insurance   coverages   required   hereunder  on  deposit  with
Beneficiary,  which  certificates shall provide at least thirty (30) days notice
of  cancellation  to Beneficiary  and shall list  Beneficiary as the certificate
holder.

     All insurance loss proceeds from all property insurance  policies,  whether
or  not  required  by  Beneficiary  (less  expenses  of  collection)  shall,  at
Beneficiary's option, be applied on the Indebtedness,  whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan  Documents.
If Beneficiary  elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.

     Notwithstanding  the foregoing  provision,  Beneficiary  agrees that if the
insurance  loss  proceeds  from an insured  loss as a Facility are less than the
Allocated  Loan Amount for the Facility (as shown in Exhibit B attached  hereto)
and if the  casualty  occurs  prior to the last  three  years of the term of the
Notes,  then the insurance loss proceeds (less expenses of collection)  shall be
applied to restoration  of the Facility to its condition  prior to the casualty,
subject to satisfaction of the following conditions:

     (a)  There is no existing Event of Default (as hereinafter  defined) at the
          time of casualty,  and if there shall occur any Event of Default after
          the date of the casualty, Beneficiary shall have no further obligation
          to release insurance loss proceeds hereunder.

     (b)  The casualty insurer has not denied liability for payment of insurance
          loss proceeds as a result of any act, neglect, use or occupancy of the
          Property by Grantor or any tenant of the Property.

     (c)  Beneficiary  shall be satisfied  that all  insurance  loss proceeds so
          held,  together  with  supplemental  funds  to be  made  available  by
          Grantor,  shall be  sufficient  to  complete  the  restoration  of the
          Property.  Any remaining insurance loss proceeds may, at the option of
          Beneficiary, be applied on the Indebtedness, whether or not due, or be
          released to Grantor.

     (d)  If  required  by  Beneficiary,   Beneficiary   shall  be  furnished  a
          satisfactory  report  addressed to Beneficiary  from an  environmental
          engineer or other qualified  professional  satisfactory to Beneficiary
          to the effect  that no adverse  environmental  impact to the  Property
          resulted from the casualty.

     (e)  Beneficiary shall release casualty  insurance  proceeds as restoration
          of the Property  progresses  provided  that  Beneficiary  is furnished
          satisfactory  evidence of the costs of restoration and if, at the time
          of such release, there shall exist no Monetary Default (as hereinafter
          defined) under the  Transaction  Documents and no default with respect
          to which  Beneficiary  shall  have given  Grantor  or Other  Borrowers
          notice  pursuant to the Notice of Default  provision  herein or in the
          documents  related to other loans comprising the  Transaction.  If the
          estimated cost of restoration  exceeds  $250,000.00,  (i) the drawings
          and   specifications   for  the  restoration   shall  be  approved  by
          Beneficiary in writing prior to commencement of the  restoration,  and
          (ii) Beneficiary  shall receive an  administration  fee equal to 1% of
          the cost of restoration.

     (f)  Prior to each release of funds,  Grantor  shall obtain for the benefit
          of Beneficiary an endorsement to Beneficiary's  title insurance policy
          insuring  Beneficiary's lien as a first and valid lien on the Property
          subject  only  to  liens  and  encumbrances  theretofore  approved  by
          Beneficiary.

     (g)  Grantor  shall pay all costs and  expenses  incurred  by  Beneficiary,
          including,  but not limited to,  outside legal fees,  title  insurance
          costs,  third-party disbursement fees, third-party engineering reports
          and inspections deemed necessary by Beneficiary.

     (h)  All  reciprocal  easement  and  operating  agreements  benefiting  the
          Property,  if any,  shall remain in full force and effect  between the
          parties thereto on and after restoration of the Property.

     (i)  Beneficiary  shall be satisfied that  Projected Debt Service  Coverage
          (as  hereinafter  defined) of at least 1.50 will be produced  from the
          leasing  of not more  than  189,023  square  feet of  space to  former
          tenants  or  approved   new  tenants  with  leases   satisfactory   to
          Beneficiary for terms of at least five (5) years to commence not later
          than (30) days  following  completion of such  restoration  ("Approved
          Leases").

     (j)  All leases in effect at the time of the casualty with tenants who have
          entered into  Beneficiary's  form of  Non-Disturbance  and  Attornment
          Agreement  or  similar  agreement  shall  remain  in  full  force  and
          Beneficiary  shall be  satisfied  that  restoration  can be  completed
          within  a time  frame  such  that  each  tenant  thereunder  shall  be
          obligated,  or each such tenant  shall have  elected,  to continue the
          lease term at full rental  (subject only to abatement,  if any, during
          any period in which the  Property  or a portion  thereof  shall not be
          used and occupied by such tenant as a result of the casualty).

<PAGE>

     (k)  Without limiting the Earthquake  provisions  contained  herein, if the
          casualty has resulted in whole or part from an earthquake: (a) Grantor
          shall have supplied  Beneficiary  with a "Seismic  Risk  Estimate" (in
          accordance with the Earthquake  provisions herein) which show that the
          Property  will meet  "Minimum  Seismic  Criteria"  (as  defined in the
          Earthquake  provisions  herein) upon completion of repair and retrofit
          work which can be  completed  within one year of the  earthquake,  (b)
          prior to commencement of the restoration, Grantor shall have committed
          in  writing  to  Beneficiary  that  Grantor  will do such  repair  and
          retrofit  work as shall be  necessary to cause the Property to in fact
          meet Minimum Seismic Criteria following completion of restoration, and
          (c) Beneficiary must at all times during the restoration be reasonably
          satisfied  that  the  Property  will  meet  Minimum  Seismic  Criteria
          following  completion of the  restoration,  Grantor hereby agreeing to
          supply  Beneficiary  with such evidence  thereof as Beneficiary  shall
          request from time to time.

     "Projected  Debt Service  Coverage"  means a number  calculated by dividing
Projected  Operating Income Available for Debt Service (as hereinafter  defined)
for the first  fiscal year  following  restoration  of the  Property by the debt
service  during the same fiscal year under all  indebtedness  secured by a first
mortgage  lien on any portion of the  Property.  For  purposes of the  preceding
sentence,  "debt  service"  means the greater of (x) debt  service due under all
such  indebtedness  during the first  fiscal year  following  completion  of the
restoration  of the  Property or (y) debt  service that would be due and payable
during such fiscal year if all such  indebtedness  were  amortized over 20 years
(whether  or not  amortization  is  actually  required)  and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).

     "Projected  Operating  Income  Available for Debt Service" means  projected
gross  annual  rent from the  Approved  Leases  for the first full  fiscal  year
following completion of the restoration of the Property less:

     (A)  The  operating  expenses  of the  Property  for the last  fiscal  year
          preceding the casualty and

     (B)  the following:

          (i)  a  replacement  reserve for future tenant  improvements,  leasing
               commissions and structural items based on not less than $1.80 per
               square foot per annum;

          (ii) the amount,  if any, by which  actual  gross  income  during such
               fiscal period  exceeds that which would be earned from the rental
               of 85% of the gross leasable area in the Property;

          (iii)the amount,  if any, by which the actual  management  fee is less
               than 2% of gross revenue during such fiscal period;

          (iv) the amount,  if any,  by which the actual  real estate  taxes are
               less than $2.10 per square foot per annum; and

          (v)  the amount,  if any, by which total  actual  operating  expenses,
               excluding  management  fees,  real estate  taxes and  replacement
               reserves, are less than $1.40 per square foot per annum.

     All  projections   referenced   above  shall  be  calculated  in  a  manner
satisfactory to Beneficiary.

CONDEMNATION.  Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds  resulting  from damage to, or the taking of, all or any portion of the
Property,  and (ii) the  proceeds  from any  sale or  transfer  in lieu  thereof
(collectively,   "Condemnation   Proceeds")  in  connection  with   condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter,  a "Taking");  if the Condemnation  Proceeds related to a Facility
are less than the  Allocated  Loan  Amount for the  Facility  and such damage or
Taking  occurs  prior to the last  three  years of the term of the  Notes,  such
Condemnation  Proceeds  (less  expenses  of  collection)  shall  be  applied  to
restoration  of the Facility to its condition,  or the functional  equivalent of
its condition prior to the Taking,  subject to the conditions set forth above in
the section  entitled  "Insurance"  and subject to the  further  condition  that
restoration or replacement of the  improvements on the Land to their  functional
and economic utility prior to the Taking be possible.  Any portion of such award
and proceeds not applied to  restoration  shall,  at  Beneficiary's  option,  be
applied on the Indebtedness,  whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.

TAXES AND SPECIAL  ASSESSMENTS.  Grantor  agrees to pay before  delinquency  all
taxes  and  special  assessments  of any kind that have been or may be levied or
assessed against the Property,  this instrument,  the Notes or the Indebtedness,
or upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Notes or the Indebtedness,  and to procure and deliver to Beneficiary within
30 days after  Beneficiary  shall have given a written  request to Grantor,  the
official  receipt of the proper officer showing timely payment of all such taxes
and assessments;  provided,  however,  that Grantor shall not be required to pay
any such taxes or special  assessments if the amount,  applicability or validity
thereof shall  currently be contested in good faith by  appropriate  proceedings
and funds  sufficient to satisfy the contested  amount have been deposited in an
escrow satisfactory to Beneficiary.

<PAGE>

PERSONAL  PROPERTY.  With  respect  to the  Personal  Property,  Grantor  hereby
represents, warrants and covenants as follows:

     (a)  Except for the security interest granted hereby, Grantor is, and as to
          portions of the Personal Property to be acquired after the date hereof
          will be, the sole owner of the Personal Property,  free from any lien,
          security  interest,  encumbrance  or adverse claim thereon of any kind
          whatsoever.  Grantor shall notify  Beneficiary of, and shall indemnify
          and defend  Beneficiary and the Personal Property against,  all claims
          and demands of all persons at any time claiming the Personal  Property
          or any part thereof or any interest therein.

     (b)  Except as otherwise  provided  above,  Grantor shall not lease,  sell,
          convey or in any manner  transfer  the Personal  Property  without the
          prior consent of Beneficiary.

     (c)  Grantor is a limited partnership organized under the laws of the State
          of Delaware. Until the Indebtedness is paid in full, Grantor (i) shall
          not change its legal name without  providing  Beneficiary  with thirty
          (30) days  prior  written  notice;  (ii) shall not change its state of
          organization; and (iii) shall preserve its existence and shall not, in
          one transaction or a series of transactions, merge into or consolidate
          with any other entity.

     (d)  At the  request of  Beneficiary,  Grantor  shall join  Beneficiary  in
          executing  one or more  financing  statements  and  continuations  and
          amendments  thereof  pursuant to the Uniform  Commercial  Code in form
          satisfactory to Beneficiary,  and Grantor shall pay the cost of filing
          the  same  in  all  public  offices   wherever  filing  is  deemed  by
          Beneficiary  to be  necessary or  desirable.  Grantor  shall also,  at
          Grantor's  expense,  take  any  and  all  other  action  requested  by
          Beneficiary  to  perfect  Beneficiary's  security  interest  under the
          Uniform  Commercial  Code  with  respect  to  the  Personal  Property,
          including,  without limitation,  exercising  Grantor's best efforts to
          obtain any consents,  agreements or acknowledgments  required of third
          parties  to  perfect  Beneficiary's   security  interest  in  Personal
          Property  consisting  of deposit  accounts,  letter-of-credit  rights,
          investment property, and electronic chattel paper.

OTHER LIENS.  Grantor agrees to keep the Property or any Personal  Property free
from all other liens  either  prior or  subsequent  to the lien  created by this
instrument  other  than  liens  created by the  Transaction  Documents.  The (i)
creation  of any other lien on any portion of the  Property  or on any  Personal
Property,  whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable  license to collect,  use and enjoy rents and
profits from the  Property,  shall  constitute a default under the terms of this
instrument;  except that upon written notice to Beneficiary,  Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate  proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal  Property  described  herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.

LEASES.  Grantor  covenants with  Beneficiary (a) to observe and perform all the
obligations  imposed upon the lessor under all leases and not to do or permit to
be done anything to impair the same without Beneficiary's prior written consent,
(b) not to collect any of the rent or other amounts due under any lease or other
issues or profits  from the  Property  in any manner in advance of the time when
the same shall become due (save and except only for  collecting one month's rent
in advance plus tenant contributions toward operating expenses plus the security
deposit,  if any, at the time of execution  of a lease),  (c) not to execute any
other  assignment of rents,  issues,  or profits arising or accruing from any of
the leases or from the Property,  except the Transaction  Documents,  (d) not to
enter into any lease  agreement  affecting  the  Property,  except  those leases
entered into in the ordinary course of business and utilizing Grantor's standard
form lease previously approved by Beneficiary, with no substantial modifications
thereto,  without the prior written consent of  Beneficiary,  (e) to execute and
deliver,  at the  request  of  Beneficiary,  all  such  further  assurances  and
acknowledgments  of the  assignment  contained  herein and the other  provisions
hereof, with respect to specific leases or otherwise,  as Beneficiary shall from
time to time require,  (f) to obtain from any tenant at the Property,  from time
to time  as  requested  by  Beneficiary,  estoppel  certificates,  in  form  and
substance  satisfactory  to  Beneficiary,  confirming the terms of such tenant's
lease and the absence of default thereunder, and (g) not to cancel, surrender or
terminate any lease, exercise any option which might lead to such termination or
consent to any change,  modification,  or alteration  thereof, to the release of
any party  liable  thereunder  or to the  assignment  of the  lessee's  interest
therein, without the prior written consent of Beneficiary, and any of said acts,
if done  without the prior  written  consent of  Beneficiary,  shall be null and
void.  Notwithstanding clause (g) of the preceding sentence, with respect to all
leases  (other  than  leases as to which  Beneficiary,  Grantor  and tenant have
executed a separate non-disturbance and attornment agreement),  Grantor may take
actions described in clause (g) without Beneficiary's prior written consent (but
with  written  notice  thereof to  Beneficiary),  if and only if such  action is
consistent with the usual and customary operation of the Property.

COSTS, FEES AND EXPENSES.  Grantor agrees to pay all costs, fees and expenses of
this  trust;  to appear in and  defend any action or  proceeding  purporting  to
affect the  security  hereof or the rights or powers of  Beneficiary  or Trustee
hereunder;  to pay all  costs  and  expenses,  including  the cost of  obtaining
evidence of title and reasonable  attorney's  fees,  incurred in connection with
any  such  action  or  proceeding;  and to pay any and all  attorney's  fees and
expenses of collection and  enforcement in the event the Notes are placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.

FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein  provided,  Beneficiary  or Trustee  may,  without  obligation  so to do,
without notice to or demand upon Grantor and without  releasing Grantor from any
obligation  hereof: (i) make or do the

<PAGE>

same in such  manner and to such extent as  Beneficiary  may deem  necessary  to
protect the security  hereof,  Beneficiary or Trustee being  authorized to enter
upon the  Property  for such  purpose;  (ii)  appear in and defend any action or
proceeding  purporting to affect the security hereof, or the rights or powers of
Beneficiary  or  Trustee;  (iii)  pay,  purchase,   contest  or  compromise  any
encumbrance,  charge or lien which in the judgment of Beneficiary  appears to be
prior or superior hereto;  and (iv) in exercising any such powers, pay necessary
expenses,  employ counsel and pay its reasonable fees. Sums so expended shall be
payable  by  Grantor   immediately  upon  demand  with  interest  from  date  of
expenditure at the Default Rate (as defined in the Notes).  All sums so expended
by Beneficiary  and the interest  thereon shall be included in the  Indebtedness
and secured by the lien of this instrument.

EVENT OF  DEFAULT  AND  CROSS  DEFAULT.  Any  default  by  Grantor  or the Other
Borrowers  in making  any  required  payment  of the  Indebtedness  or the Other
Indebtedness or any default in any provision,  covenant,  agreement, warranty or
certification  contained in any of the Transaction  Documents  shall,  except as
provided in the two immediately succeeding  paragraphs,  constitute an "Event of
Default".

NOTICE OF DEFAULT.  A default in any payment required in the Notes or Other Note
or any other  Transaction  Document,  whether or not payable to Beneficiary,  (a
"Monetary  Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written  notice of such  Monetary  Default to Grantor and the
Other  Borrowers and Grantor and the Other  Borrowers  shall not have cured such
Monetary  Default  by payment of all  amounts in default  (including  payment of
interest at the Default  Rate,  as defined in the Notes or Other Note,  from the
date of default to the date of cure on amounts owed to Beneficiary)  within five
(5)  business  days  after the date on which  Beneficiary  shall have given such
notice to Grantor and Other Borrowers.

     Any  other  default  under  the  Notes or Other  Note or  under  any  other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default  unless   Beneficiary   shall  have  given  a  written  notice  of  such
Non-Monetary  Default to Grantor  and the Other  Borrowers  and  Grantor and the
Other  Borrowers  shall not have cured such  Non-Monetary  Default within thirty
(30) days after the date on which  Beneficiary  shall have given such  notice of
default to Grantor and the Other Borrowers (or, if the  Non-Monetary  Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have  diligently   undertaken  and  continued  to  pursue  the  curing  of  such
Non-Monetary   Default  and   deposited  an  amount   sufficient  to  cure  such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).

     In no event  shall the  notice and cure  period  provisions  recited  above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).

SUBSTITUTION OF TRUSTEE.  Beneficiary and its successors and assigns may for any
reason  and  at  any  time  appoint  a new  or  substitute  Trustee  by  written
appointment  delivered  to such new or  substitute  Trustee  without  notice  to
Grantor,  without  notice to, or the  resignation or withdrawal by, the existing
Trustee and without  recordation  of such written  appointment  unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment,  the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.

APPOINTMENT  OF RECEIVER.  Upon  commencement  of any  proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or  restriction  by any present or future law,  without regard to the
solvency or  insolvency  at that time of any party liable for the payment of the
Indebtedness,  without regard to the then value of the Property,  whether or not
there  exists a threat  of  imminent  harm,  waste or loss to the  Property  and
whether  or not the same shall  then be  occupied  by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the  revenues,  rents,  profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such  appointment may confer) full power to collect all such income
and, after paying all necessary  expenses of such receivership and of operation,
maintenance and repair of said Property,  to apply the balance to the payment of
any of the Indebtedness then due.

FORECLOSURE.  Upon the  occurrence  of an Event of  Default,  the entire  unpaid
Indebtedness  shall,  at the option of Beneficiary,  become  immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE  EXERCISE OF SUCH OPTION,  OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising  any rights it may have with respect to the Personal  Property  under
the  Uniform  Commercial  Code of the  jurisdiction  in which  the  Property  is
located,  institute  proceedings  in any  court  of  competent  jurisdiction  to
foreclose  this  instrument  as a mortgage,  or to enforce any of the  covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage,  rent or
lease the  Property or any portion  thereof upon such terms as  Beneficiary  may
deem  expedient,  and  collect,  receive  and  receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter  provided in case
of sale.  Trustee is hereby further  authorized  and empowered,  either after or
without such entry,  to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think  best),  and all the right,  title and interest of
Grantor  therein,  by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located,  (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue,  execute and deliver a
deed of conveyance,  all as then may be provided by law; and Trustee shall,  out
of the  proceeds or avails of such sale,  after first paying and  retaining  all
fees,  charges,  costs of advertising  the Property and of making said sale, and
attorneys'  fees as herein  provided,  pay to Beneficiary or the

<PAGE>

legal holder of the Indebtedness the amount thereof, including all sums advanced
or  expended  by  Beneficiary  or the  legal  holder of the  Indebtedness,  with
interest from date of advance or  expenditure at the Default Rate (as defined in
the Notes), rendering the excess, if any, as provided by law; such sale or sales
and said deed or deeds so made shall be a perpetual bar, both in law and equity,
against  Grantor,  the heirs,  successors and assigns of Grantor,  and all other
persons claiming the Property aforesaid,  or any part thereof, by, from, through
or under Grantor. The legal holder of the Indebtedness may purchase the Property
or any part thereof,  and it shall not be  obligatory  upon any purchaser at any
such sale to see to the application of the purchase money.

PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material  consideration  to  Beneficiary in making the loan secured by this
instrument,  and  Grantor  shall not (i) convey  title to all or any part of the
Property,  (ii) enter into any  contract  to convey  (land  contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a  purchaser  possession  of,  or income  from,  the  Property  prior to a
transfer of title to all or any part of the Property  ("Contract  to Convey") or
(iii) cause or permit a Change in the  Proportionate  Ownership (as  hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the  Proportionate  Ownership  of Grantor  shall  constitute a default
hereunder.

     B.  For  purposes  of  this  instrument,  a  "Change  in the  Proportionate
Ownership"  means any transfer  which  results in Carl E. Berg and/or  Permitted
Transferee's  (as defined below)  collectively,  owning less than 49% of Carl E.
Berg's direct and indirect  ownership  interest in Grantor (existing on the date
of initial  advance  of funds,  as  represented  in the  Certification)  without
Beneficiary's approval.

     C.  Notwithstanding  the above,  a transfer of Carl E. Berg's  ownership in
Grantor  (i) to and among the Berg  Family  (as  hereinafter  defined)  shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E.  Berg,  and (ii) to any entity  owned and  controlled  (ownership  and voting
interest  in excess of 50% by the Berg  Family)  shall be  permitted  for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect  ownership  interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."

     D. For purposes  hereof,  the "Berg  Family"  shall mean Carl E. Berg,  his
spouse, his descendants and their spouses,  Clyde J. Berg, any trusts or estates
for the  benefit  of  said  parties,  and  any  entities  owned  and  controlled
(ownership and voting interests in excess of 50%) by said parties.

     E. A conversion  of all or part of the  ownership  interest of Carl E. Berg
from limited  partnership  units ("L.P.  Units") of Grantor to common  shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.

FINANCIAL STATEMENTS.  Grantor agrees to furnish to Beneficiary:

(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the  "Property  Financial  Statements  Due
Date"):

     (i)  an unaudited balance sheet as of the last day of such fiscal year;

     (ii) an  unaudited  statement  of  operations  for such  fiscal year with a
          detailed  line item  break-down of all sources of income and expenses,
          including capital expenses broken down between,  leasing  commissions,
          tenant improvements,  capital maintenance, common area renovation, and
          expansion;

     (iii)a current rent roll  identifying  location,  leased area,  lease begin
          and end dates,  current  contract  rent,  rent  increases and increase
          dates, percentage rent, expense reimbursements, and any other recovery
          items;

     (iv) an operating budget for the current fiscal year; and

(B) the following financial  statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor,  respectively (the
"Grantor/Guarantor Financial Statements Due Date")

     (i)  an audited balance sheet as of the last day of such fiscal year; and

     (ii) an audited statement of cash flows for such fiscal year; and

<PAGE>

(C) to the extent the following  tenants are not publicly  traded,  Grantor will
use its best efforts to obtain the following  financial  statements  for Fujitsu
(formerly  known as Amdahl),  Apple,  JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective  tenant (the "Tenant
Financial Statements Due Date"):

     (i)  an audited, or unaudited if audited is not available, balance sheet as
          of the last day of such fiscal year; and

     (ii) an audited,  or  unaudited if audited is not  available,  statement of
          cash flows for such fiscal period.

     The  Property  Financial   Statements  Due  Date,  the   Grantor/Guarantors
Financial  Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".

     If  audited,  the  financial  statements  identified  in  sections  (A)(i),
(A)(ii),  (B)(i),  (B)(ii),  (C)(i) and (C)(ii) above, shall each be prepared in
accordance  with  generally  accepted  accounting  principles  by a  "Big  Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary.  All unaudited  financial  statements  for Grantor,  Property,  and
Guarantor  shall  contain a  certification  by the managing  general  partner of
Grantor  stating  that they have been  prepared  in  accordance  with  generally
accepted accounting  principles and that they are true and correct.  The expense
of  preparing  all of the  financial  statements  required in (A) and (B) above,
shall be borne by Grantor.

     Grantor  acknowledges that Beneficiary requires the financial statements to
record  accurately  the  value of the  Property  for  financial  and  regulatory
reporting.

     In addition to all other remedies  available to Beneficiary  hereunder,  at
law and in equity,  if any  financial  statement or proof of payment of property
taxes and  assessments  is not  furnished  to  Beneficiary  as  required in this
section entitled  "Financial  Statements" and in the section entitled "Taxes and
Special Assessments",  within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,

     (x) interest on the unpaid  principal  balance of the  Indebtedness and the
     Other Notes shall as of the applicable Financial Statements Due Date or the
     date such proof of  payment  of  property  taxes and  assessments  was due,
     accrue and become  payable at a rate equal to the sum of the Interest  Rate
     (as defined in the Notes) plus one percent  (1%) per annum (the  "Increased
     Rate"); and

     (y) Beneficiary  may elect to obtain an independent  appraisal and audit of
     the Property at Grantor's  expense,  and Grantor agrees that it will,  upon
     request,  promptly make Grantor's books and records  regarding the Property
     available to  Beneficiary  and the person(s)  performing  the appraisal and
     audit (which  obligation  Grantor  agrees can be  specifically  enforced by
     Beneficiary).

     The amount of the  payments  due under the Notes and Other Note  during the
time in which the  Increased  Rate  shall be in effect  shall be  changed  to an
amount which is sufficient to amortize the then unpaid principal  balance at the
Increased  Rate  during  the then  remaining  portion  of a  period  of 20 years
commencing with the  Amortization  Period  Commencement  Date (as defined in the
Notes and Other Note).  Interest shall continue to accrue and be due and payable
monthly  at the  Increased  Rate  until the  financial  statements  and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished  to  Beneficiary  as  required.  Commencing  on the date on which  the
financial  statements and proof of payment of property taxes and assessments are
received by Beneficiary,  interest on the unpaid  principal  balance shall again
accrue at the Interest  Rate and the  payments  due during the  remainder of the
term of the  Notes  and  Other  Note  shall be  changed  to an  amount  which is
sufficient  to amortize the then unpaid  principal  balance at the Interest Rate
during the then remaining  portion of a period of 20 years  commencing  with the
Amortization   Period   Commencement   Date.   Notwithstanding   the  foregoing,
Beneficiary  shall  have the right to conduct  an  independent  audit at its own
expense at any time.

PROPERTY   MANAGEMENT.   The  management  company  for  the  Property  shall  be
satisfactory  to Beneficiary.  Any change in the management  company without the
prior  written  consent of  Beneficiary  shall  constitute a default  under this
instrument.  Beneficiary  shall  be  reasonable  in  giving  its  approval,  and
Beneficiary  may require that the new management  company,  by itself or through
its manager,  have good character and reputation,  and demonstrated  ability and
experience in the  operation and leasing of at least one million  square feet of
property similar to the Property.

EARTHQUAKE.  If the Property is damaged by an earthquake  during the term of the
Indebtedness:

     (A)  Beneficiary  may require a new "Seismic Risk Estimate" (as hereinafter
     defined) to be performed at Grantor's expense, and

     (B)  Grantor  shall  perform  repair and  retrofit  work,  satisfactory  to
     Beneficiary,  which results in (i) the complete  repair of the Property and
     (ii) the performance of a subsequent  Seismic Risk Estimate  verifying that
     the Property meets "Minimum  Seismic

<PAGE>

     Criteria"  (as  hereinafter  defined).  Such work  shall be  commenced  and
     completed  as soon as  possible  and in any  event  within  one year of the
     earthquake.

     Without limiting the Grantor's  obligation to cause the Property to satisfy
Minimum Seismic  Criteria,  during any period of time in which the Property does
not satisfy Minimum Seismic  Criteria,  Grantor shall provide  Beneficiary  with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).

     As used  herein,  "Earthquake  Insurance"  means a policy  satisfactory  to
Beneficiary  with a deductible of no greater than 5% of the  "Replacement  Cost"
(as hereinafter  defined) and in an amount calculated as follows:  (i) the "Loan
Amount" (as  hereinafter  defined) plus (ii) the "Specified  Loss Dollar Amount"
(as defined below) plus (iii) 5% of the  Replacement  Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).

     As used  herein,  "Loan  Amount"  shall  mean the  total  principal  amount
advanced at closing under the Other Note.

     As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).

     As used herein, "Market Value" means the estimated fair market value of the
Property,  determined  by  Beneficiary  in its  sole  discretion,  at the time a
Seismic Risk Estimate is performed.

     As used herein,  "Minimum  Seismic  Criteria" means that both the Specified
Loss Percentage (as hereinafter  defined) for the Property is less than or equal
to 30% and the  Loan  Plus  Specified  Loss is less  than or equal to 90% of the
Market Value.

     As used herein,  "Model" means a computer  based seismic model  selected by
Beneficiary,  currently the  Insurance and  Investment  Risk  Assessment  System
("IRAS") program by Risk Management Solutions ("RMS").

     As  used  herein,  "Replacement  Cost"  means  the  estimated  total  cost,
determined  by  Beneficiary  in its sole  discretion,  to  construct  all of the
Improvements  as if the Property were  completely  unimproved (not including the
cost of site work, utilities and foundation).

     As used herein,  "Seismic Risk Estimate" refers to the results of a seismic
risk  estimate for the Property  produced by the Model.  Grantor  agrees that it
will not rely for its own  evaluation  purposes  on the  Seismic  Risk  Estimate
produced by or for Beneficiary.

     As used herein,  "Specified  Loss Dollar Amount" means the "Specified  Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.

     As used herein,  "Specified Loss Percentage"  means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement  Cost.  Beneficiary's  parameters  for the  Model are based on a 90%
probability  that the  level of  damage  predicted  will not be  exceeded  in an
earthquake with an expected 475 year return period.

DEPOSITS  BY  GRANTOR.  To assure the timely  payment of real  estate  taxes and
special assessments  (including  personal property taxes, if appropriate),  upon
the occurrence of an Event of Default,  Beneficiary  shall thence forth have the
option to require  Grantor to deposit  funds with  Beneficiary  or in an account
satisfactory  to  Beneficiary,  in monthly  or other  periodic  installments  in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and  special  assessments  as they become due. If at any time the funds so
held by Beneficiary,  or in such other account, shall be insufficient to pay any
of said expenses,  Grantor shall,  upon receipt of notice  thereof,  immediately
deposit such additional funds as may be necessary to remove the deficiency.  All
funds so  deposited  shall be  irrevocably  appropriated  to  Beneficiary  to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.

NOTICES.  Any notices,  demands,  requests  and  consents  permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally  or sent by  certified  mail with  postage  prepaid  or by  reputable
courier  service with charges  prepaid.  Any notice or demand sent to Grantor by
certified  mail or reputable  courier  service  shall be addressed to Grantor at
10050  Bandley  Drive,  Cupertino,  CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable  courier  service shall be addressed to The  Northwestern  Mutual Life
Insurance Company to the attention of the Real Estate  Investment  Department at
720 East Wisconsin  Avenue,  Milwaukee,  WI 53202, or at such other addresses as
Beneficiary  shall designate in a notice given in the manner  described  herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand  hereunder  shall be deemed given when received.  Any notice or
demand  which is  rejected,  the  acceptance  of delivery of which is refused or
which is  incapable  of

<PAGE>

being delivered during normal business hours at the address  specified herein or
such other address designated pursuant hereto shall be deemed received as of the
date of attempted delivery.

MODIFICATION OF TERMS.  Without  affecting the liability of Grantor or any other
person  (except any person  expressly  released  in writing)  for payment of the
Indebtedness or for performance of any obligation  contained  herein and without
affecting the rights of  Beneficiary  with respect to any security not expressly
released in writing,  Beneficiary may, at any time and from time to time, either
before or after the  maturity  of the  Notes,  without  notice or  consent:  (i)
release any person liable for payment of all or any part of the  Indebtedness or
for performance of any obligation; (ii) make any agreement extending the time or
otherwise  altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing  with  the  lien or  charge  hereof;  (iii)  exercise  or  refrain  from
exercising  or waive any right  Beneficiary  may have;  (iv)  accept  additional
security of any kind; (v) release or otherwise  deal with any property,  real or
personal, securing the Indebtedness, including all or any part of the Property.

EXERCISE OF OPTIONS.  Whenever, by the terms of this instrument, of the Notes or
any of the other Loan  Documents,  Beneficiary is given any option,  such option
may be  exercised  when the right  accrues,  or at any time  thereafter,  and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.

NATURE AND  SUCCESSION  OF  AGREEMENTS.  Each of the  provisions,  covenants and
agreements  contained  herein  shall inure to the benefit of, and be binding on,
the heirs, executors,  administrators,  successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Notes.

LEGAL  ENFORCEABILITY.  No provision of this instrument,  the Notes or any other
Loan  Documents  shall  require the payment of interest or other  obligation  in
excess of the maximum  permitted by law. If any such excess  payment is provided
for in any Loan  Documents  or  shall  be  adjudicated  to be so  provided,  the
provisions of this paragraph  shall govern and Grantor shall not be obligated to
pay the amount of such interest or other  obligation to the extent that it is in
excess of the amount permitted by law.

LIMITATION OF LIABILITY.  Notwithstanding  any provision contained herein to the
contrary,  the personal liability of Grantor shall be limited as provided in the
Notes.

MISCELLANEOUS.  Time  is of the  essence  in  each of the  Loan  Documents.  The
remedies of Beneficiary  as provided  herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent,  and may be pursued singly,
successively,  or together at the sole  discretion  of  Beneficiary,  and may be
exercised as often as occasion  therefor shall occur; and neither the failure to
exercise any such right or remedy nor any  acceptance by  Beneficiary of payment
of  Indebtedness  in  default  shall in any  event be  construed  as a waiver or
release  of any right or  remedy.  Neither  this  instrument  nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and  Beneficiary.  If any of the  provisions of
any Loan  Document or the  application  thereof to any persons or  circumstances
shall to any extent be  invalid or  unenforceable,  the  remainder  of such Loan
Document  and each of the other  Loan  Documents,  and the  application  of such
provision or provisions to persons or circumstances  other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every  provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.

SURETYSHIP  WAIVERS.  This  instrument  is  intended to  constitute  the primary
obligation  of Grantor  with  respect  to the  Obligations,  and  Grantor is not
intended to be a guarantor or surety or otherwise only  secondarily  liable with
respect to matters covered hereby. However, if said Obligations, or any of them,
should  be  determined  to not  be  direct  obligations  but  rather  suretyship
obligations, Grantor agrees as follows:

Without  limiting or  lessening  the  primary  liability  of Grantor  hereunder,
Beneficiary may, without notice to Grantor,

     (a)  grant extensions of time or any other indulgences on the Indebtedness;

     (b)  take,  give  up,  modify,  vary,  exchange,   renew  or  abstain  from
          perfecting or taking  advantage of any security for the  Indebtedness;
          and

     (c)  accept or make compositions or other arrangements with Other Borrowers
          under  the  Transaction  Documents,   realize  on  any  security,  and
          otherwise deal with Other Borrowers, other parties and any security as
          Beneficiary may deem expedient; and

All  additional  demands,  presentments,  notices of protest and  dishonor,  and
notices of every kind and nature,  including those of any action or no action on
the part of Other  Borrowers,  Beneficiary or Grantor,  are expressly  waived by
Grantor.  Grantor  hereby  waives  the right to require  Beneficiary  to proceed
against the Other  Borrowers  or any other party or to proceed  against or apply
any security it may hold, waives the right to require  Beneficiary to pursue any
other remedy for the benefit of Grantor and agrees that  Beneficiary may

<PAGE>

proceed  against  Grantor  without taking any action against any other party and
without  proceeding  against or applying any  security it may hold.  Beneficiary
may, at its  election,  foreclose  upon any  security  held by it in one or more
judicial  or  non-judicial  sales,  whether or not every  aspect of such sale is
commercially  reasonable,  without  affecting  or  impairing  the  liability  of
Grantor,  except to the extent the  Indebtedness  shall have been paid.  Grantor
waives any defense  arising out of such an election,  notwithstanding  that such
election  may  operate  to impair or  extinguish  any right or remedy of Grantor
against the Other Borrowers or any other security.

Grantor waives all rights and defenses arising out of an election of remedies by
Beneficiary,  even  though  that  election of  remedies,  such as a  nonjudicial
foreclosure of the Lien Instrument, has destroyed Grantor's right of subrogation
and  reimbursement  against the Other Borrowers by the operation of Section 580d
of the  California  Code of Civil  Procedure or  otherwise.  Grantor  waives all
rights and defenses that Grantor may have because the Other  Borrowers'  debt is
secured by real property.  This means, among other things,  that (i) Beneficiary
may foreclose on the real and personal property pledged by Grantor without first
foreclosing on any real or personal  collateral  pledged by the Other Borrowers,
and (ii) if Beneficiary  forecloses on any real property  collateral  pledged by
the Other Borrowers: (A) the amount of the debt may be reduced only by the price
for  which  that  collateral  is  sold  at the  foreclosure  sale,  even  if the
collateral  is worth more than the sale price and (B)  Beneficiary  may  collect
from  Grantor  even  if  Beneficiary,   by  foreclosing  on  the  real  property
collateral,  has  destroyed  any right  Grantor  may have to collect  from Other
Borrowers.  This is an  unconditional  and irrevocable  waiver of any rights and
defenses  Grantor may have because the Other  Borrowers' debt is secured by real
property.  These  rights and  defenses  waived by Grantor  include,  but are not
limited to, any rights or defenses based upon Sections 580a,  580b,  580d or 726
of the  California  Code of Civil  Procedure.  Without  limiting the  foregoing,
Grantor hereby waives any and all benefits that might  otherwise be available to
Grantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849,
2850, 2899 and 3433.

SUBORDINATION.  Notwithstanding  anything to the contrary contained in this Deed
of Trust  (Second  Priority),  the  terms and  provisions  of this Deed of Trust
(Second  Priority) and the lien created hereby shall be subject and  subordinate
to the terms and provisions of the first and prior lien instrument  ("First Lien
Instrument")  of even  date  herewith  executed  and  delivered  by  Grantor  to
Beneficiary  to  secure  the  Other  Note,  the  lien  created  thereby  and all
modifications  and  supplements  thereto.  The  First  Lien  Instrument  and the
indebtedness   secured  thereby,  and  any  increases  therein  or  renewals  or
extensions thereof,  shall  unconditionally be and remain at all times a lien or
charge  on the Land  prior  and  superior  to the lien or charge of this Deed of
Trust (Second Priority).

WAIVER OF JURY  TRIAL.  Grantor  hereby  waives  any right to trial by jury with
respect to any action or proceeding  (a) brought by Grantor,  Beneficiary or any
other  person  relating  to  (i)  the  obligations  secured  hereby  and/or  any
understandings  or prior  dealings  between the parties  hereto or (ii) the Loan
Documents or the Environmental  Indemnity Agreement, or (b) to which Beneficiary
is a party.

CAPTIONS.  The captions  contained herein are for convenience and reference only
and in no way define,  limit or  describe  the scope or intent of, or in any way
affect this instrument.

GOVERNING  LAW.  This  instrument  shall be  governed  by and  construed  in all
respects in accordance  with the laws of the State of California  without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning  any dispute  arising  under or related to this  instrument  shall be
brought in a state or federal  court  located  in the State of  California,  and
Beneficiary and Grantor hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California

REQUEST FOR NOTICE.  Pursuant to California  Government Code Section 27321.5(b),
Grantor  hereby  requests that a copy of any notice of default and a copy of any
notice of sale given  pursuant  to this  instrument  be mailed to Grantor at the
address set forth herein.


<PAGE>



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


                   MISSION WEST PROPERTIES, L.P., a Delaware limited partnership

                   By:      Mission West Properties, Inc., a
                            Maryland corporation, its general
                            partner

                            By: Carl E. Berg

                            Name: Carl E. Berg

                            Title: CEO of G.P.

STATE OF California                         )
                                            )ss.
COUNTY OF         Santa Clara               )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature         GW Shott
         -----------------------------------
         G.W. Shott
         -----------------------------------
         Name (typed or printed)


This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.


<PAGE>


                                   EXHIBIT "A"

                                (Mission West LP)

Parcel One:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on December 23, 1997,
in Book 698 of Maps, Page(s) 1 and 2.

Reserving  therefrom  an  easement  for  ingress  and over that  portion of land
designated and delineated as "C.O.E.- 30'" Reciprocal-Ingress, Egress- Easement"
on that Parcel Map filed for record in the Office of the  Recorder of the County
of Santa Clara,  State of California,  on December 23, 1997 in Book 698 of Maps,
Pages 1 and 2.

Parcel Two:

An easement for ingress and egress over those portion of Parcel 2 designated and
delineated as "C.O.E.- 30'  Reciprocal-Ingress,  Egress-Easement" on that Parcel
Map filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.

Parcel Three:

An easement for ingress and egress over those portion of Parcel 3 designated and
delineated as "C.O.E-26'Reciprocal-Ingress,  Egress-Easement" on that Parcel Map
filed for record in the  Office of the  Recorder  of the County of Santa  Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.

Assessors Parcel No:  244-13-015


<PAGE>




EXHIBIT 10.37

California
Loan No. C-332757
RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn

                    SPACE ABOVE THIS LINE FOR RECORDER'S USE

              DEED OF TRUST and SECURITY AGREEMENT (FIRST PRIORITY)
                        Mission West Properties, L. P. I

     THIS  DEED OF TRUST  and  SECURITY  AGREEMENT  is made as of the 3rd day of
January,  2003  between  MISSION  WEST  PROPERTIES,  L.P. I, a Delaware  limited
partnership,   10050  Bandley   Drive,   Cupertino,   CA  95014,   herein  (said
Grantor/Trustor,  whether  one or  more in  number)  called  "Grantor",  and THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin  Avenue,  Milwaukee,  WI  53202,  herein  called  "Trustee",  and  THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":

     WITNESSETH,  That Grantor,  in  consideration  of the  indebtedness  herein
mentioned,  does hereby irrevocably bargain, sell, grant,  transfer,  assign and
convey  unto  Trustee,  in  trust,  with  power of sale and  right of entry  and
possession, the following property (herein referred to as the "Property"):

     A.   The land in the City of Santa Clara and City of Cupertino, Santa Clara
          County,  California  described  in  Exhibit  "A"  attached  hereto and
          incorporated herein (the "Land");

     B.   All easements, appurtenances, tenements and hereditaments belonging to
          or benefiting the Land, including but not limited to all waters, water
          rights,  water  courses,  all  ways,  trees,  rights,   liberties  and
          privileges; and

     C.   All  improvements  to the Land,  including,  but not  limited  to, all
          buildings,  structures  and  improvements  now  existing or  hereafter
          erected on the Land;  all fixtures and equipment of every  description
          belonging to Grantor  which are or may be placed or used upon the Land
          or attached to the buildings,  structures or improvements,  including,
          but not limited to, all engines, boilers, elevators and machinery, all
          heating  apparatus,   electrical   equipment,   air-conditioning   and
          ventilating  equipment,  water and gas fixtures, and all furniture and
          easily removable  equipment;  all of which, to the extent permitted by
          applicable  law,  shall be deemed an  accession  to the freehold and a
          part of the realty as between the parties hereto.

     D.   All Grantor's  right,  title and interest in and to that certain 17.5'
          Ingress and Egress Easement  Agreement No. 1 filed for record on April
          13,  1979,  in Book 439 of Maps,  Pages 17 & 18,  Santa Clara  County,
          California.

Grantor agrees not to sell, transfer,  assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any  buildings or  structures  or the sale or transfer of waters or water rights
and (ii) such action results in the  substitution  or  replacement  with similar
items of equal value.

     Without   limiting  the  foregoing   grants,   Grantor  hereby  pledges  to
Beneficiary,  and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter  acquired right, title and interest in and to the Property
and any and all

<PAGE>

     E.   cash and other funds now or at any time hereafter  deposited by or for
          Grantor on account of tax,  special  assessment,  replacement or other
          reserves required to be maintained  pursuant to the Loan Documents (as
          hereinafter  defined) with  Beneficiary or a third party, or otherwise
          deposited with, or in the possession of,  Beneficiary  pursuant to the
          Loan Documents; and

     F.   surveys, soils reports, environmental reports, guaranties, warranties,
          architect's   contracts,    construction   contracts,   drawings   and
          specifications,   applications,   permits,   surety  bonds  and  other
          contracts   relating   to  the   acquisition,   design,   development,
          construction and operation of the Property; and

     G.   accounts,  chattel paper,  deposit accounts,  instruments,  equipment,
          inventory,  documents,  general intangibles,  letter-of-credit rights,
          investment  property and all other  personal  property of Grantor,  in
          each  case,  to  the  extent  associated  with  or  arising  from  the
          ownership,  development,  operation, use or disposition of any portion
          of the property; and

     H.   present and future rights to condemnation  awards,  insurance proceeds
          or other  proceeds  at any time  payable to or  received by Grantor on
          account of the Property or any of the foregoing personal property.

All personal property  hereinabove  described is hereinafter  referred to as the
"Personal Property".

     If any of the Property is of a nature that a security  interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing  statement if permitted by applicable law and
Grantor  authorizes  Beneficiary to file a financing  statement  describing such
Property and, at Beneficiary's  request,  agrees to join with Beneficiary in the
execution of any financing  statements and to execute any other instruments that
may  be  necessary  or  desirable,  in  Beneficiary's  determination,   for  the
perfection or renewal of such  security  interest  under the Uniform  Commercial
Code.

     TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF  SECURING,  in
such  order of  priority  as  Beneficiary  may  determine:  (i)  payment  of the
Indebtedness  (as  hereinafter  defined);  and (ii)  payment  (with  interest as
provided)  and  performance  by  Grantor  of  the  Obligations  (as  hereinafter
defined).  Notwithstanding the foregoing,  or any other term contained herein or
in the Loan Documents,  none of Grantor's  obligations (the "Other Obligations")
under or  pursuant to (a) the  Environmental  Indemnity  Agreement  of even date
herewith  executed by Grantor,  Guarantor  and the Other  Borrowers  in favor of
Beneficiary ("Environmental  Agreement"),  (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.

FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture  filing in the real  estate  records of the County of the State in which
the real estate  described in Exhibit A is located,  with respect to any and all
fixtures  included within the term "Property" and "fixtures"  under this Deed of
Trust  and to any goods or other  personal  property  that are now or  hereafter
become a part of the Property as fixtures.


                                   DEFINITIONS

     CERTAIN  DEFINED TERMS:  As used in this Deed of Trust the following  terms
shall have the following meanings:

     ABSOLUTE  ASSIGNMENT:  The Absolute  Assignment  of Leases and Rents (First
Priority) of even date herewith executed by Grantor in favor of Beneficiary.

     COMMITMENT:  The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications  stated in the letter, the Loan application executed by
Grantor and the Other  Borrowers,  dated October 31, 2002,  which acceptance and
modification  was agreed to by Grantor and the Other  Borrowers  on November 23,
2002.

     ENVIRONMENTAL  AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.

     FACILITY:  A real property (including,  without limitation,  all buildings,
fixtures and other  improvements  located  thereon) now or hereafter  serving as
security  for the loans  which  comprise  the  Transaction.  Attached  hereto as
Exhibit B is a list of all Facilities as of the date hereof.

     GUARANTOR:  Mission West Properties, Inc., a Maryland corporation, and each
other  person  hereafter   guaranteeing  any  portion  of  the  Indebtedness  or
Obligations.

<PAGE>

     GUARANTEE:  That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in  favor  of  Beneficiary,  and  any  other  guarantee  of any  portion  of the
Indebtedness or Obligations hereafter executed by any person.

     INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Note (as  hereinafter  defined)  and any  extensions  or  renewals
thereof  (including  extensions  or renewals at a  different  rate of  interest,
whether or not evidenced by a new or additional  promissory note or notes),  and
all other indebtedness of Grantor to Beneficiary and additional  advances under,
evidenced by and/or  secured by the Loan  Documents,  plus  interest on all such
amounts,  other than any obligations  relating to the Other Indebtedness,  Other
Notes or Other Obligations.

     LOAN DOCUMENTS: The Note, this Deed of Trust, the Commitment (as it relates
to the Indebtedness),  the Absolute Assignment,  the Guarantee (as it relates to
the  Indebtedness),  that certain  Certification  of Borrowers  and Carl E. Berg
("Certification")  of even date  herewith  (as it relates to the  Indebtedness),
that certain  Limited  Partnership  Supplement  dated January 3, 2003, any other
supplements  and   authorizations   required  by  Beneficiary,   the  Fraudulent
Conveyance   Indemnity   Agreement   from   Guarantor  (as  it  relates  to  the
Indebtedness), Certificate Regarding Distribution of Loan Proceeds and Indemnity
Agreement among Guarantor, Grantor and the Other Borrowers (as it relates to the
Indebtedness),  and Contribution and  Reimbursement  Agreement among Grantor and
the Other Borrowers (as it relates to the Indebtedness), and all other documents
evidencing,  securing  or relating  to the  payment of the  Indebtedness  or the
performance  of the  Obligations,  with the exception of the Other Notes and the
Environmental Agreement.

         NOTE: The Promissory Note of even date herewith executed by Grantor in
the original principal amount of Twenty Nine Million Eight Hundred Eleven
Thousand Three Hundred Sixty-Nine Dollars ($29,811,369.00), payable to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with interest as therein expressed, and all modifications, renewals or
extensions of such Promissory Note.

         OBLIGATIONS: Any and all of the covenants, promises and other
obligations (including payment of the Indebtedness) made or owing by Grantor to
or due to Beneficiary under and/or as set forth in the Loan Documents and all of
the material covenants, promises and other obligations made or owing by Grantor
to each and every other person relating to the Property, exclusive of the Other
Obligations.

     OTHER BORROWERS:  Collectively,  Mission West Properties,  L.P., a Delaware
limited  partnership,  and Mission West Properties,  L.P. II, a Delaware limited
partnership.

     OTHER  INDEBTEDNESS:  The loans  from  Beneficiary  to the Other  Borrowers
evidenced by the Other Notes.

     OTHER NOTES:  Those other  Promissory  Notes,  each  executed by one of the
Other Borrowers and payable to the order of Beneficiary,  which Promissory Notes
are more particularly described in Schedule 1 of the Note.

     OTHER  OBLIGATIONS:  As defined in the  Granting  Paragraph of this Deed of
Trust.

     PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.

     TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00),  which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof,  and are evidenced by the Note and Other
Notes and secured by lien instruments and collateral  documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.

     TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the  payment of  amounts  owed  Beneficiary  in  connection  with the
Transaction, with the exception of the Environmental Agreement.


  TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:

PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness  hereby secured promptly
and in full compliance with the terms of the Loan Documents.

OWNERSHIP.  Grantor represents that it owns the Property and has good and lawful
right to convey  the same and that the  Property  is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary.  Grantor does hereby  forever  warrant and shall forever defend the
title and  possession  thereof  against the lawful claims of any and all persons
whomsoever.

<PAGE>

MAINTENANCE  OF PROPERTY AND  COMPLIANCE  WITH LAWS.  Grantor agrees to keep the
buildings and other  improvements  now or hereafter  erected on the Land in good
condition  and  repair;  not to commit or suffer any waste;  to comply  with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all  reasonable  times for the purpose of inspection and of conducting,
in a reasonable  and proper manner,  such tests as Beneficiary  determines to be
necessary in order to monitor  Grantor's  compliance  with  applicable  laws and
regulations regarding hazardous materials affecting the Property.

TENANTS  USING  CHLORINATED  SOLVENTS.  Grantor  agrees  not to lease any of the
Property, without the prior written consent of Beneficiary,  to (i) dry cleaning
operations that perform dry cleaning on site with  chlorinated  solvents or (ii)
any other  tenants  that use  chlorinated  solvents  in the  operation  of their
businesses.

Notwithstanding  the  above,  a  tenant's  use and  storage  of a product  which
contains  no more than  twelve (12)  ounces of  chlorinated  solvents  shall not
violate this  prohibition if, and only if, (i) each tenant's use,  storage,  and
the  ultimate  disposal,  of said  solvents is at all times in  compliance  with
applicable  law;  (ii)  said  solvents  are  acquired  and  kept in  prepackaged
containers;  and  (iii)  each  tenant  keeps no more  than  one (1)  prepackaged
container of said solvents on the Property.

BUSINESS  RESTRICTION   REPRESENTATION  AND  WARRANTY.  Grantor  represents  and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the  Indebtedness:  (i) are not, and shall not
become,  a person or entity  with whom  Beneficiary  is  restricted  from  doing
business with under  regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's  Specially  Designated  and Blocked  Persons  list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking  Property and Prohibiting  Transactions  With Persons Who Commit,
Threaten to Commit, or Support  Terrorism),  or other governmental  action; (ii)
are not  knowingly  engaged  in,  and shall  not  engage  in,  any  dealings  or
transaction or be otherwise  associated with such persons or entities  described
in (i) above;  and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the  International  Money  Laundering  Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.

INSURANCE.  Grantor  agrees to keep the Property  insured for the  protection of
Beneficiary and  Beneficiary's  wholly owned  subsidiaries  and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance  in  amounts  and  form  and  with  companies  all   satisfactory   to
Beneficiary:

     (A)  All risk  property  insurance  with a  deductible  of not greater than
          $100,000.00,  including  Demolition and Increased Cost of Construction
          (DICC) coverage equal to a minimum of 5% of the estimated  replacement
          cost, with an Agreed Amount Endorsement for the estimated  replacement
          cost of the improvements.  If such all risk property  insurance policy
          contains a terrorism exclusion, then Grantor shall purchase a separate
          insurance  policy  acceptable to Beneficiary  for terrorism  coverage.
          Notwithstanding the foregoing, however, Grantor shall only be required
          to  carry  such  insurance  coverage  for  acts  of  terrorism  with a
          deductible  acceptable  to  Lender  if such  coverage  is  customarily
          required by other  institutional  lenders on loans secured by property
          similar to the Property;

     (B)  Loss of rents insurance equal to twelve months rent or business income
          insurance for 100% of the annual gross earnings from business  derived
          from the Property;

     (C)  Flood insurance,  if the Property is located in a flood plain (as that
          term is used in the National Flood Insurance Program) in an amount not
          less than 25% of the estimated replacement cost;

     (D)  Grantor's  own  commercial  general  liability  insurance  policy with
          Beneficiary,  and Beneficiary's  wholly owned subsidiaries and agents,
          named as additional insureds for their interests in the Property; and

     (E)  Other insurance as required by Beneficiary.

     Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary,  or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing  all  insurance   coverages   required   hereunder  on  deposit  with
Beneficiary,  which  certificates shall provide at least thirty (30) days notice
of  cancellation  to Beneficiary  and shall list  Beneficiary as the certificate
holder.

     All insurance loss proceeds from all property insurance  policies,  whether
or  not  required  by  Beneficiary  (less  expenses  of  collection)  shall,  at
Beneficiary's option, be applied on the Indebtedness,  whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan  Documents.
If Beneficiary  elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.

<PAGE>

     Notwithstanding  the foregoing  provision,  Beneficiary  agrees that if the
insurance  loss  proceeds  from an insured  loss as a Facility are less than the
Allocated  Loan Amount for the Facility (as shown in Exhibit B attached  hereto)
and if the  casualty  occurs  prior to the last  three  years of the term of the
Note,  then the insurance loss proceeds  (less expenses of collection)  shall be
applied to restoration  of the Facility to its condition  prior to the casualty,
subject to satisfaction of the following conditions:

     (a)  There is no existing Event of Default (as hereinafter  defined) at the
          time of casualty,  and if there shall occur any Event of Default after
          the date of the casualty, Beneficiary shall have no further obligation
          to release insurance loss proceeds hereunder.

     (b)  The casualty insurer has not denied liability for payment of insurance
          loss proceeds as a result of any act, neglect, use or occupancy of the
          Property by Grantor or any tenant of the Property.

     (c)  Beneficiary  shall be satisfied  that all  insurance  loss proceeds so
          held,  together  with  supplemental  funds  to be  made  available  by
          Grantor,  shall be  sufficient  to  complete  the  restoration  of the
          Property.  Any remaining insurance loss proceeds may, at the option of
          Beneficiary, be applied on the Indebtedness, whether or not due, or be
          released to Grantor.

     (d)  If  required  by  Beneficiary,   Beneficiary   shall  be  furnished  a
          satisfactory  report  addressed to Beneficiary  from an  environmental
          engineer or other qualified  professional  satisfactory to Beneficiary
          to the effect  that no adverse  environmental  impact to the  Property
          resulted from the casualty.

     (e)  Beneficiary shall release casualty  insurance  proceeds as restoration
          of the Property  progresses  provided  that  Beneficiary  is furnished
          satisfactory  evidence of the costs of restoration and if, at the time
          of such release, there shall exist no Monetary Default (as hereinafter
          defined) under the  Transaction  Documents and no default with respect
          to which  Beneficiary  shall  have given  Grantor  or Other  Borrowers
          notice  pursuant to the Notice of Default  provision  herein or in the
          documents  related to other loans comprising the  Transaction.  If the
          estimated cost of restoration  exceeds  $250,000.00,  (i) the drawings
          and   specifications   for  the  restoration   shall  be  approved  by
          Beneficiary in writing prior to commencement of the  restoration,  and
          (ii) Beneficiary  shall receive an  administration  fee equal to 1% of
          the cost of restoration.

     (f)  Prior to each release of funds,  Grantor  shall obtain for the benefit
          of Beneficiary an endorsement to Beneficiary's  title insurance policy
          insuring  Beneficiary's lien as a first and valid lien on the Property
          subject  only  to  liens  and  encumbrances  theretofore  approved  by
          Beneficiary.

     (g)  Grantor  shall pay all costs and  expenses  incurred  by  Beneficiary,
          including,  but not limited to,  outside legal fees,  title  insurance
          costs,  third-party disbursement fees, third-party engineering reports
          and inspections deemed necessary by Beneficiary.

     (h)  All  reciprocal  easement  and  operating  agreements  benefiting  the
          Property,  if any,  shall remain in full force and effect  between the
          parties thereto on and after restoration of the Property.

     (i)  Beneficiary  shall be satisfied that  Projected Debt Service  Coverage
          (as  hereinafter  defined) of at least 1.50 will be produced  from the
          leasing  of not more  than  226,950  square  feet of  space to  former
          tenants  or  approved   new  tenants  with  leases   satisfactory   to
          Beneficiary for terms of at least five (5) years to commence not later
          than (30) days  following  completion of such  restoration  ("Approved
          Leases").

     (j)  All leases in effect at the time of the casualty with tenants who have
          entered into  Beneficiary's  form of  Non-Disturbance  and  Attornment
          Agreement  or  similar  agreement  shall  remain  in  full  force  and
          Beneficiary  shall be  satisfied  that  restoration  can be  completed
          within  a time  frame  such  that  each  tenant  thereunder  shall  be
          obligated,  or each such tenant  shall have  elected,  to continue the
          lease term at full rental  (subject only to abatement,  if any, during
          any period in which the  Property  or a portion  thereof  shall not be
          used and occupied by such tenant as a result of the casualty).

     (k)  Without limiting the Earthquake  provisions  contained  herein, if the
          casualty has resulted in whole or part from an earthquake: (a) Grantor
          shall have supplied  Beneficiary  with a "Seismic  Risk  Estimate" (in
          accordance with the Earthquake  provisions herein) which show that the
          Property  will meet  "Minimum  Seismic  Criteria"  (as  defined in the
          Earthquake  provisions  herein) upon completion of repair and retrofit
          work which can be  completed  within one year of the  earthquake,  (b)
          prior to commencement of the restoration, Grantor shall have committed
          in  writing  to

<PAGE>

          Beneficiary  that  Grantor  will do such repair and  retrofit  work as
          shall be  necessary  to cause the  Property  to in fact  meet  Minimum
          Seismic  Criteria  following   completion  of  restoration,   and  (c)
          Beneficiary  must at all times during the  restoration  be  reasonably
          satisfied  that  the  Property  will  meet  Minimum  Seismic  Criteria
          following  completion of the  restoration,  Grantor hereby agreeing to
          supply  Beneficiary  with such evidence  thereof as Beneficiary  shall
          request from time to time.

     "Projected  Debt Service  Coverage"  means a number  calculated by dividing
Projected  Operating Income Available for Debt Service (as hereinafter  defined)
for the first  fiscal year  following  restoration  of the  Property by the debt
service  during the same fiscal year under all  indebtedness  secured by a first
mortgage  lien on any portion of the  Property.  For  purposes of the  preceding
sentence,  "debt  service"  means the greater of (x) debt  service due under all
such  indebtedness  during the first  fiscal year  following  completion  of the
restoration  of the  Property or (y) debt  service that would be due and payable
during such fiscal year if all such  indebtedness  were  amortized over 20 years
(whether  or not  amortization  is  actually  required)  and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).

     "Projected  Operating  Income  Available for Debt Service" means  projected
gross  annual  rent from the  Approved  Leases  for the first full  fiscal  year
following completion of the restoration of the Property less:

(A)  The operating  expenses of the Property for the last fiscal year  preceding
     the casualty and

(B)  the following:

     (i)  a  replacement  reserve  for  future  tenant   improvements,   leasing
          commissions  and  structural  items  based on not less than  $1.80 per
          square foot per annum;

     (ii) the amount,  if any, by which actual  gross income  during such fiscal
          period  exceeds  that which  would be earned from the rental of 85% of
          the gross leasable area in the Property;

     (iii)the amount,  if any, by which the actual  management  fee is less than
          2% of gross revenue during such fiscal period;

     (iv) the amount,  if any,  by which the actual  real estate  taxes are less
          than $2.10 per square foot per annum; and

     (v)  the  amount,  if  any,  by  which  total  actual  operating  expenses,
          excluding management fees, real estate taxes and replacement reserves,
          are less than $1.40 per square foot per annum.

     All  projections   referenced   above  shall  be  calculated  in  a  manner
satisfactory to Beneficiary.

CONDEMNATION.  Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds  resulting  from damage to, or the taking of, all or any portion of the
Property,  and (ii) the  proceeds  from any  sale or  transfer  in lieu  thereof
(collectively,   "Condemnation   Proceeds")  in  connection  with   condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter,  a "Taking");  if the Condemnation  Proceeds related to a Facility
are less than the  Allocated  Loan  Amount for the  Facility  and such damage or
Taking  occurs  prior to the last  three  years  of the term of the  Note,  such
Condemnation  Proceeds  (less  expenses  of  collection)  shall  be  applied  to
restoration  of the Facility to its condition,  or the functional  equivalent of
its condition prior to the Taking,  subject to the conditions set forth above in
the section  entitled  "Insurance"  and subject to the  further  condition  that
restoration or replacement of the  improvements on the Land to their  functional
and economic utility prior to the Taking be possible.  Any portion of such award
and proceeds not applied to  restoration  shall,  at  Beneficiary's  option,  be
applied on the Indebtedness,  whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.

TAXES AND SPECIAL  ASSESSMENTS.  Grantor  agrees to pay before  delinquency  all
taxes  and  special  assessments  of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Trustee or  Beneficiary in the Property,  this  instrument,
the Note or the Indebtedness,  and to procure and deliver to Beneficiary  within
30 days after  Beneficiary  shall have given a written  request to Grantor,  the
official  receipt of the proper officer showing timely payment of all such taxes
and assessments;  provided,  however,  that Grantor shall not be required to pay
any such taxes or special  assessments if the amount,  applicability or validity
thereof shall  currently be contested in good faith by  appropriate  proceedings
and funds  sufficient to satisfy the contested  amount have been deposited in an
escrow satisfactory to Beneficiary.

PERSONAL  PROPERTY.  With  respect  to the  Personal  Property,  Grantor  hereby
represents, warrants and covenants as follows:

     (a) Except for the security interest granted hereby,  Grantor is, and as to
portions of the Personal  Property to be acquired after the date hereof will be,
the sole owner of the Personal Property,  free from any lien, security interest,
encumbrance  or adverse  claim  thereon

<PAGE>

of any kind whatsoever. Grantor shall notify Beneficiary of, and shall indemnify
and defend Beneficiary and the Personal Property against, all claims and demands
of all persons at any time claiming the Personal Property or any part thereof or
any interest therein.

     (b) Except as otherwise  provided  above,  Grantor  shall not lease,  sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.

     (c) Grantor is a limited partnership  organized under the laws of the State
of  Delaware.  Until the  Indebtedness  is paid in full,  Grantor  (i) shall not
change its legal name without providing  Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve  its  existence  and  shall  not,  in one  transaction  or a series  of
transactions, merge into or consolidate with any other entity.

     (d) At the  request  of  Beneficiary,  Grantor  shall join  Beneficiary  in
executing one or more  financing  statements  and  continuations  and amendments
thereof  pursuant  to the  Uniform  Commercial  Code  in  form  satisfactory  to
Beneficiary,  and  Grantor  shall pay the cost of filing  the same in all public
offices  wherever  filing is deemed by Beneficiary to be necessary or desirable.
Grantor  shall  also,  at  Grantor's  expense,  take  any and all  other  action
requested by Beneficiary to perfect  Beneficiary's  security  interest under the
Uniform  Commercial  Code with  respect  to the  Personal  Property,  including,
without  limitation,  exercising  Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security  interest  in  Personal   Property   consisting  of  deposit  accounts,
letter-of-credit rights, investment property, and electronic chattel paper.

OTHER LIENS.  Grantor agrees to keep the Property or any Personal  Property free
from all other liens  either  prior or  subsequent  to the lien  created by this
instrument  other  than  liens  created by the  Transaction  Documents.  The (i)
creation  of any other lien on any portion of the  Property  or on any  Personal
Property,  whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable  license to collect,  use and enjoy rents and
profits from the  Property,  shall  constitute a default under the terms of this
instrument;  except that upon written notice to Beneficiary,  Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate  proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal  Property  described  herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.

COSTS, FEES AND EXPENSES.  Grantor agrees to pay all costs, fees and expenses of
this  trust;  to appear in and  defend any action or  proceeding  purporting  to
affect the  security  hereof or the rights or powers of  Beneficiary  or Trustee
hereunder;  to pay all  costs  and  expenses,  including  the cost of  obtaining
evidence of title and reasonable  attorney's  fees,  incurred in connection with
any  such  action  or  proceeding;  and to pay any and all  attorney's  fees and
expenses of collection  and  enforcement  in the event the Note is placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.

FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein  provided,  Beneficiary  or Trustee  may,  without  obligation  so to do,
without notice to or demand upon Grantor and without  releasing Grantor from any
obligation  hereof: (i) make or do the same in such manner and to such extent as
Beneficiary  may deem necessary to protect the security  hereof,  Beneficiary or
Trustee  being  authorized  to enter upon the  Property for such  purpose;  (ii)
appear in and defend any action or proceeding  purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee;  (iii) pay, purchase,
contest or compromise any  encumbrance,  charge or lien which in the judgment of
Beneficiary  appears to be prior or superior hereto;  and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so  expended  shall be payable  by Grantor  immediately  upon  demand  with
interest from date of  expenditure at the Default Rate (as defined in the Note).
All sums so expended by Beneficiary  and the interest  thereon shall be included
in the Indebtedness and secured by the lien of this instrument.

EVENT OF DEFAULT.  Any default by Grantor or the Other  Borrowers  in making any
required payment of the Indebtedness or the Other Indebtedness or any default in
any provision,  covenant,  agreement, warranty or certification contained in any
of the Transaction  Documents  shall,  except as provided in the two immediately
succeeding paragraphs, constitute an "Event of Default".

NOTICE OF DEFAULT.  A default in any payment required in the Note or Other Notes
or any other  Transaction  Document,  whether or not payable to Beneficiary,  (a
"Monetary  Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written  notice of such  Monetary  Default to Grantor and the
Other  Borrowers and Grantor and the Other  Borrowers  shall not have cured such
Monetary  Default  by payment of all  amounts in default  (including  payment of
interest at the Default  Rate,  as defined in the Note or Other Notes,  from the
date of default to the date of cure on amounts owed to Beneficiary)  within five
(5)  business  days  after the date on which  Beneficiary  shall have given such
notice to Grantor and Other Borrowers.

     Any  other  default  under  the Note or Other  Notes  or  under  any  other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default  unless   Beneficiary   shall  have  given  a  written  notice  of  such
Non-Monetary  Default to Grantor  and the Other  Borrowers  and  Grantor and the
Other  Borrowers  shall not have cured such  Non-Monetary  Default within thirty
(30) days after the date on which  Beneficiary  shall have given such  notice of
default to Grantor and the Other Borrowers (or, if the

<PAGE>

Non-Monetary  Default is not curable within such 30-day period,  Grantor and the
Other Borrowers shall not have diligently undertaken and continued to pursue the
curing of such  Non-Monetary  Default and deposited an amount sufficient to cure
such Non-Monetary Default in an escrow account satisfactory to Beneficiary).

     In no event  shall the  notice and cure  period  provisions  recited  above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).

SUBSTITUTION OF TRUSTEE.  Beneficiary and its successors and assigns may for any
reason  and  at  any  time  appoint  a new  or  substitute  Trustee  by  written
appointment  delivered  to such new or  substitute  Trustee  without  notice  to
Grantor,  without  notice to, or the  resignation or withdrawal by, the existing
Trustee and without  recordation  of such written  appointment  unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment,  the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.

APPOINTMENT  OF RECEIVER.  Upon  commencement  of any  proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or  restriction  by any present or future law,  without regard to the
solvency or  insolvency  at that time of any party liable for the payment of the
Indebtedness,  without regard to the then value of the Property,  whether or not
there  exists a threat  of  imminent  harm,  waste or loss to the  Property  and
whether  or not the same shall  then be  occupied  by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the  revenues,  rents,  profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such  appointment may confer) full power to collect all such income
and, after paying all necessary  expenses of such receivership and of operation,
maintenance and repair of said Property,  to apply the balance to the payment of
any of the Indebtedness then due.

FORECLOSURE.  Upon the  occurrence  of an Event of  Default,  the entire  unpaid
Indebtedness  shall,  at the option of Beneficiary,  become  immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE  EXERCISE OF SUCH OPTION,  OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising  any rights it may have with respect to the Personal  Property  under
the  Uniform  Commercial  Code of the  jurisdiction  in which  the  Property  is
located,  institute  proceedings  in any  court  of  competent  jurisdiction  to
foreclose  this  instrument  as a mortgage,  or to enforce any of the  covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage,  rent or
lease the  Property or any portion  thereof upon such terms as  Beneficiary  may
deem  expedient,  and  collect,  receive  and  receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter  provided in case
of sale.  Trustee is hereby further  authorized  and empowered,  either after or
without such entry,  to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think  best),  and all the right,  title and interest of
Grantor  therein,  by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located,  (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue,  execute and deliver a
deed of conveyance,  all as then may be provided by law; and Trustee shall,  out
of the  proceeds or avails of such sale,  after first paying and  retaining  all
fees,  charges,  costs of advertising  the Property and of making said sale, and
attorneys'  fees as herein  provided,  pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof,  including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness,  with interest from date of
advance or expenditure  at the Default Rate (as defined in the Note),  rendering
the excess,  if any,  as  provided  by law;  such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the  Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.

PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material  consideration  to  Beneficiary in making the loan secured by this
instrument,  and  Grantor  shall not (i) convey  title to all or any part of the
Property,  (ii) enter into any  contract  to convey  (land  contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a  purchaser  possession  of,  or income  from,  the  Property  prior to a
transfer of title to all or any part of the Property  ("Contract  to Convey") or
(iii) cause or permit a Change in the  Proportionate  Ownership (as  hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the  Proportionate  Ownership  of Grantor  shall  constitute a default
hereunder.

     B.  For  purposes  of  this  instrument,  a  "Change  in the  Proportionate
Ownership"  means any transfer  which  results in Carl E. Berg and/or  Permitted
Transferee's  (as defined below)  collectively,  owning less than 49% of Carl E.
Berg's direct and indirect  ownership  interest in Grantor (existing on the date
of initial  advance  of funds,  as  represented  in the  Certification)  without
Beneficiary's approval.

     C.  Notwithstanding  the above,  a transfer of Carl E. Berg's  ownership in
Grantor  (i) to and among the Berg  Family  (as  hereinafter  defined)  shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E.  Berg,  and (ii) to any entity  owned and  controlled  (ownership  and voting
interest  in excess of 50% by the Berg  Family)  shall be  permitted  for estate
planning

<PAGE>

purposes or upon the death or  incompetency  of Carl E. Berg. A person or entity
holding  a direct  or  indirect  ownership  interest  by  virtue  of a  transfer
described in this subpart C. is a "Permitted Transferee."

     D. For purposes  hereof,  the "Berg  Family"  shall mean Carl E. Berg,  his
spouse, his descendants and their spouses,  Clyde J. Berg, any trusts or estates
for the  benefit  of  said  parties,  and  any  entities  owned  and  controlled
(ownership and voting interests in excess of 50%) by said parties.

     E. A conversion  of all or part of the  ownership  interest of Carl E. Berg
from limited  partnership  units ("L.P.  Units") of Grantor to common  shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.

FINANCIAL STATEMENTS.  Grantor agrees to furnish to Beneficiary:

(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the  "Property  Financial  Statements  Due
Date"):

     (i)  an unaudited balance sheet as of the last day of such fiscal year;

     (ii) an  unaudited  statement  of  operations  for such  fiscal year with a
          detailed  line item  break-down of all sources of income and expenses,
          including capital expenses broken down between,  leasing  commissions,
          tenant improvements,  capital maintenance, common area renovation, and
          expansion;

     (iii)a current rent roll  identifying  location,  leased area,  lease begin
          and end dates,  current  contract  rent,  rent  increases and increase
          dates, percentage rent, expense reimbursements, and any other recovery
          items;

     (iv) an operating budget for the current fiscal year; and

(B) the following financial  statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor,  respectively (the
"Grantor/Guarantor Financial Statements Due Date")

     (i)  an audited balance sheet as of the last day of such fiscal year; and

     (ii) an audited statement of cash flows for such fiscal year; and

(C) to the extent the following  tenants are not publicly  traded,  Grantor will
use its best efforts to obtain the following  financial  statements  for Fujitsu
(formerly  known as Amdahl),  Apple,  JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective  tenant (the "Tenant
Financial Statements Due Date"):

     (i)  an audited, or unaudited if audited is not available, balance sheet as
          of the last day of such fiscal year; and

     (ii) an audited,  or  unaudited if audited is not  available,  statement of
          cash flows for such fiscal period.

     The  Property  Financial   Statements  Due  Date,  the   Grantor/Guarantors
Financial  Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".

     If  audited,  the  financial  statements  identified  in  sections  (A)(i),
(A)(ii),  (B)(i),  (B)(ii),  (C)(i) and (C)(ii) above, shall each be prepared in
accordance  with  generally  accepted  accounting  principles  by a  "Big  Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary.  All unaudited  financial  statements  for Grantor,  Property,  and
Guarantor  shall  contain a  certification  by the managing  general  partner of
Grantor  stating  that they have been  prepared  in  accordance  with  generally
accepted accounting  principles and that they are true and correct.  The expense
of  preparing  all of the  financial  statements  required in (A) and (B) above,
shall be borne by Grantor.

     Grantor  acknowledges that Beneficiary requires the financial statements to
record  accurately  the  value of the  Property  for  financial  and  regulatory
reporting.

     In addition to all other remedies  available to Beneficiary  hereunder,  at
law and in equity,  if any  financial  statement or proof of payment of property
taxes and  assessments  is not  furnished  to  Beneficiary  as  required in this
section entitled  "Financial  Statements" and in

<PAGE>

the  section  entitled  "Taxes and  Special  Assessments",  within 30 days after
Beneficiary  shall have  given  written  notice to Grantor  that it has not been
received as required,

     (x) interest on the unpaid  principal  balance of the  Indebtedness and the
     Other Notes shall as of the applicable Financial Statements Due Date or the
     date such proof of  payment  of  property  taxes and  assessments  was due,
     accrue and become  payable at a rate equal to the sum of the Interest  Rate
     (as  defined in the Note) plus one percent  (1%) per annum (the  "Increased
     Rate"); and

     (y) Beneficiary  may elect to obtain an independent  appraisal and audit of
     the Property at Grantor's  expense,  and Grantor agrees that it will,  upon
     request,  promptly make Grantor's books and records  regarding the Property
     available to  Beneficiary  and the person(s)  performing  the appraisal and
     audit (which  obligation  Grantor  agrees can be  specifically  enforced by
     Beneficiary).

     The amount of the  payments  due under the Note and Other Notes  during the
time in which the  Increased  Rate  shall be in effect  shall be  changed  to an
amount which is sufficient to amortize the then unpaid principal  balance at the
Increased  Rate  during  the then  remaining  portion  of a  period  of 20 years
commencing with the  Amortization  Period  Commencement  Date (as defined in the
Note and Other Notes).  Interest shall continue to accrue and be due and payable
monthly  at the  Increased  Rate  until the  financial  statements  and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished  to  Beneficiary  as  required.  Commencing  on the date on which  the
financial  statements and proof of payment of property taxes and assessments are
received by Beneficiary,  interest on the unpaid  principal  balance shall again
accrue at the Interest  Rate and the  payments  due during the  remainder of the
term of the  Note and  Other  Notes  shall  be  changed  to an  amount  which is
sufficient  to amortize the then unpaid  principal  balance at the Interest Rate
during the then remaining  portion of a period of 20 years  commencing  with the
Amortization   Period   Commencement   Date.   Notwithstanding   the  foregoing,
Beneficiary  shall  have the right to conduct  an  independent  audit at its own
expense at any time.

PROPERTY   MANAGEMENT.   The  management  company  for  the  Property  shall  be
satisfactory  to Beneficiary.  Any change in the management  company without the
prior  written  consent of  Beneficiary  shall  constitute a default  under this
instrument.  Beneficiary  shall  be  reasonable  in  giving  its  approval,  and
Beneficiary  may require that the new management  company,  by itself or through
its manager,  have good character and reputation,  and demonstrated  ability and
experience in the  operation and leasing of at least one million  square feet of
property similar to the Property.

EARTHQUAKE.  If the Property is damaged by an earthquake  during the term of the
Indebtedness:

     (A)  Beneficiary  may require a new "Seismic Risk Estimate" (as hereinafter
     defined) to be performed at Grantor's expense, and

     (B)  Grantor  shall  perform  repair and  retrofit  work,  satisfactory  to
     Beneficiary,  which results in (i) the complete  repair of the Property and
     (ii) the performance of a subsequent  Seismic Risk Estimate  verifying that
     the Property meets "Minimum  Seismic  Criteria" (as  hereinafter  defined).
     Such work shall be commenced  and  completed as soon as possible and in any
     event within one year of the earthquake.

     Without limiting the Grantor's  obligation to cause the Property to satisfy
Minimum Seismic  Criteria,  during any period of time in which the Property does
not satisfy Minimum Seismic  Criteria,  Grantor shall provide  Beneficiary  with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).

     As used  herein,  "Earthquake  Insurance"  means a policy  satisfactory  to
Beneficiary  with a deductible of no greater than 5% of the  "Replacement  Cost"
(as hereinafter  defined) and in an amount calculated as follows:  (i) the "Loan
Amount" (as  hereinafter  defined) plus (ii) the "Specified  Loss Dollar Amount"
(as defined below) plus (iii) 5% of the  Replacement  Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).

     As used  herein,  "Loan  Amount"  shall  mean the  total  principal  amount
advanced at closing, under the Note.

     As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).

     As used herein, "Market Value" means the estimated fair market value of the
Property,  determined  by  Beneficiary  in its  sole  discretion,  at the time a
Seismic Risk Estimate is performed.

     As used herein,  "Minimum  Seismic  Criteria" means that both the Specified
Loss Percentage (as hereinafter  defined) for the Property is less than or equal
to 30% and the  Loan  Plus  Specified  Loss is less  than or equal to 90% of the
Market Value.

     As used herein,  "Model" means a computer  based seismic model  selected by
Beneficiary,  currently the  Insurance and  Investment  Risk  Assessment  System
("IRAS") program by Risk Management Solutions ("RMS").

<PAGE>

     As  used  herein,  "Replacement  Cost"  means  the  estimated  total  cost,
determined  by  Beneficiary  in its sole  discretion,  to  construct  all of the
Improvements  as if the Property were  completely  unimproved (not including the
cost of site work, utilities and foundation).

     As used herein,  "Seismic Risk Estimate" refers to the results of a seismic
risk  estimate for the Property  produced by the Model.  Grantor  agrees that it
will not rely for its own  evaluation  purposes  on the  Seismic  Risk  Estimate
produced by or for Beneficiary.

     As used herein,  "Specified  Loss Dollar Amount" means the "Specified  Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.

     As used herein,  "Specified Loss Percentage"  means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement  Cost.  Beneficiary's  parameters  for the  Model are based on a 90%
probability  that the  level of  damage  predicted  will not be  exceeded  in an
earthquake with an expected 475 year return period.

DEPOSITS  BY  GRANTOR.  To assure the timely  payment of real  estate  taxes and
special assessments  (including  personal property taxes, if appropriate),  upon
the occurrence of an Event of Default,  Beneficiary  shall thence forth have the
option to require  Grantor to deposit  funds with  Beneficiary  or in an account
satisfactory  to  Beneficiary,  in monthly  or other  periodic  installments  in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and  special  assessments  as they become due. If at any time the funds so
held by Beneficiary,  or in such other account, shall be insufficient to pay any
of said expenses,  Grantor shall,  upon receipt of notice  thereof,  immediately
deposit such additional funds as may be necessary to remove the deficiency.  All
funds so  deposited  shall be  irrevocably  appropriated  to  Beneficiary  to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.

NOTICES.  Any notices,  demands,  requests  and  consents  permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally  or sent by  certified  mail with  postage  prepaid  or by  reputable
courier  service with charges  prepaid.  Any notice or demand sent to Grantor by
certified  mail or reputable  courier  service  shall be addressed to Grantor at
10050  Bandley  Drive,  Cupertino,  CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable  courier  service shall be addressed to The  Northwestern  Mutual Life
Insurance Company to the attention of the Real Estate  Investment  Department at
720 East Wisconsin  Avenue,  Milwaukee,  WI 53202, or at such other addresses as
Beneficiary  shall designate in a notice given in the manner  described  herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand  hereunder  shall be deemed given when received.  Any notice or
demand  which is  rejected,  the  acceptance  of delivery of which is refused or
which is  incapable  of being  delivered  during  normal  business  hours at the
address specified herein or such other address designated  pursuant hereto shall
be deemed received as of the date of attempted delivery.

MODIFICATION OF TERMS.  Without  affecting the liability of Grantor or any other
person  (except any person  expressly  released  in writing)  for payment of the
Indebtedness or for performance of any obligation  contained  herein and without
affecting the rights of  Beneficiary  with respect to any security not expressly
released in writing,  Beneficiary may, at any time and from time to time, either
before or after the maturity of the Note, without notice or consent: (i) release
any person  liable for  payment  of all or any part of the  Indebtedness  or for
performance  of any  obligation;  (ii) make any agreement  extending the time or
otherwise  altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing  with  the  lien or  charge  hereof;  (iii)  exercise  or  refrain  from
exercising  or waive any right  Beneficiary  may have;  (iv)  accept  additional
security of any kind; (v) release or otherwise  deal with any property,  real or
personal, securing the Indebtedness, including all or any part of the Property.

EXERCISE OF OPTIONS.  Whenever, by the terms of this instrument,  of the Note or
any of the other Loan  Documents,  Beneficiary is given any option,  such option
may be  exercised  when the right  accrues,  or at any time  thereafter,  and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.

NATURE AND  SUCCESSION  OF  AGREEMENTS.  Each of the  provisions,  covenants and
agreements  contained  herein  shall inure to the benefit of, and be binding on,
the heirs, executors,  administrators,  successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Note.

LEGAL  ENFORCEABILITY.  No provision of this  instrument,  the Note or any other
Loan  Documents  shall  require the payment of interest or other  obligation  in
excess of the maximum  permitted by law. If any such excess  payment is provided
for in any Loan  Documents  or  shall  be  adjudicated  to be so  provided,  the
provisions of this paragraph  shall govern and Grantor shall not be obligated to
pay the amount of such interest or other  obligation to the extent that it is in
excess of the amount permitted by law.

<PAGE>

LIMITATION OF LIABILITY.  Notwithstanding  any provision contained herein to the
contrary,  the personal liability of Grantor shall be limited as provided in the
Note.

MISCELLANEOUS.  Time  is of the  essence  in  each of the  Loan  Documents.  The
remedies of Beneficiary  as provided  herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent,  and may be pursued singly,
successively,  or together at the sole  discretion  of  Beneficiary,  and may be
exercised as often as occasion  therefor shall occur; and neither the failure to
exercise any such right or remedy nor any  acceptance by  Beneficiary of payment
of  Indebtedness  in  default  shall in any  event be  construed  as a waiver or
release  of any right or  remedy.  Neither  this  instrument  nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and  Beneficiary.  If any of the  provisions of
any Loan  Document or the  application  thereof to any persons or  circumstances
shall to any extent be  invalid or  unenforceable,  the  remainder  of such Loan
Document  and each of the other  Loan  Documents,  and the  application  of such
provision or provisions to persons or circumstances  other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every  provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.

WAIVER OF JURY  TRIAL.  Grantor  hereby  waives  any right to trial by jury with
respect to any action or proceeding  (a) brought by Grantor,  Beneficiary or any
other  person  relating  to  (i)  the  obligations  secured  hereby  and/or  any
understandings  or prior  dealings  between the parties  hereto or (ii) the Loan
Documents or the Environmental  Indemnity Agreement, or (b) to which Beneficiary
is a party.

CAPTIONS.  The captions  contained herein are for convenience and reference only
and in no way define,  limit or  describe  the scope or intent of, or in any way
affect this instrument.

GOVERNING  LAW.  This  instrument  shall be  governed  by and  construed  in all
respects in accordance  with the laws of the State of California  without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning  any dispute  arising  under or related to this  instrument  shall be
brought in a state or federal  court  located  in the State of  California,  and
Beneficiary and Grantor hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California.

REQUEST FOR NOTICE.  Pursuant to California  Government Code Section 27321.5(b),
Grantor  hereby  requests that a copy of any notice of default and a copy of any
notice of sale given  pursuant  to this  instrument  be mailed to Grantor at the
address set forth herein.


<PAGE>



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

                 MISSION WEST PROPERTIES, L.P. I, a Delaware limited partnership

                 By:      Mission West Properties, Inc., a
                          Maryland corporation, its general
                          partner

                          By: Carl E. Berg

                          Name: Carl E. Berg

                          Title: CEO of G.P.

STATE OF California                         )
                                            )ss.
COUNTY OF         Santa Clara               )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature  /s/   GW Shott
         -----------------------------------
            G.W.  Shott
         -----------------------------------
         Name (typed or printed)




This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.




<PAGE>


                                   EXHIBIT "A"
                                (Mission West I)


PROPERTY ONE:

Parcel One:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on April 13, 1979, in
Book 439 of Maps, page(s) 17 and 18.

Parcel Two:

A 17.5' ingress and egress  Easement No. 1 (appurtenant to Parcel 1) situated at
the Northwesterly  corner of Parcel 2 and being shown on that certain Parcel Map
recorded April 13, 1979 in Book 439 of Maps, pages 17 and 18, Santa Clara County
Records.

Assessors Parcel No:  224-44-019



PROPERTY TWO:

PARCEL ONE:

Parcel 3 as shown on that certain  Parcel Map recorded  August 9, 1974,  in Book
344, Page 10, Santa Clara County.

Excepting  therefrom the underground water rights, but without surface rights of
entry,  as granted to the City of Cupertino by  instrument  recorded  January 3,
1975 in Book B233 of Official Records at Page 276.

PARCEL TWO:

An easement for ingress and egress and for the installation and maintenance of a
public  utilities  over the Westerly 15 feet of Parcels 1 and 2 and the Easterly
15 feet of  Parcel  4, as said  Parcels  are shown on that  certain  Parcel  Map
recorded  August 9, 1974 in Book 344 at Page 10 of Maps,  Records of Santa Clara
County, California.

Assessors Parcel No:  326-10-046







<PAGE>


EXHIBIT 10.38

California
Loan No. C-332757
RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn

                    SPACE ABOVE THIS LINE FOR RECORDER'S USE

 DEED OF TRUST and SECURITY AGREEMENT and ASSIGNMENT OF LEASES AND RENTS (SECOND
                                   PRIORITY)
                        Mission West Properties, L. P. I

     THIS  DEED OF TRUST  and  SECURITY  AGREEMENT  is made as of the 3rd day of
January  2003  between  MISSION  WEST  PROPERTIES,  L.P.  I, a Delaware  limited
partnership,   10050  Bandley   Drive,   Cupertino,   CA  95014,   herein  (said
Grantor/Trustor,  whether  one or  more in  number)  called  "Grantor",  and THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin  Avenue,  Milwaukee,  WI  53202,  herein  called  "Trustee",  and  THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":

     WITNESSETH,  That Grantor,  in  consideration  of the  indebtedness  herein
mentioned,  does hereby irrevocably bargain, sell, grant,  transfer,  assign and
convey  unto  Trustee,  in  trust,  with  power of sale and  right of entry  and
possession, the following property (herein referred to as the "Property"):

     A.   The land in the City of Santa Clara and City of Cupertino, Santa Clara
          County,  California  described  in  Exhibit  "A"  attached  hereto and
          incorporated herein (the "Land");

     B.   All easements, appurtenances, tenements and hereditaments belonging to
          or benefiting the Land, including but not limited to all waters, water
          rights,  water  courses,  all  ways,  trees,  rights,   liberties  and
          privileges; and

     C.   All  improvements  to the Land,  including,  but not  limited  to, all
          buildings,  structures  and  improvements  now  existing or  hereafter
          erected on the Land;  all fixtures and equipment of every  description
          belonging to Grantor  which are or may be placed or used upon the Land
          or attached to the buildings,  structures or improvements,  including,
          but not limited to, all engines, boilers, elevators and machinery, all
          heating  apparatus,   electrical   equipment,   air-conditioning   and
          ventilating  equipment,  water and gas fixtures, and all furniture and
          easily removable  equipment;  all of which, to the extent permitted by
          applicable  law,  shall be deemed an  accession  to the freehold and a
          part of the realty as between the parties  hereto;  the rents,  issues
          and profits arising from the Land and improvements  subject,  however,
          to any right,  power and  authority  given to  Grantor to collect  and
          apply such rents, issues and profits.

     D.   All Grantor's  right,  title and interest in and to that certain 17.5'
          Ingress and Egress Easement  Agreement No. 1 filed for record on April
          13,  1979,  in Book 439 of Maps,  Pages 17 & 18,  Santa Clara  County,
          California.

Grantor agrees not to sell, transfer,  assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any  buildings or  structures  or the sale or transfer of waters or water rights
and (ii) such action results in the  substitution  or  replacement  with similar
items of equal value.

     Without   limiting  the  foregoing   grants,   Grantor  hereby  pledges  to
Beneficiary,  and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter  acquired right, title and interest in and to the Property
and any and all

<PAGE>

     E.   cash and other funds now or at any time hereafter  deposited by or for
          Grantor on account of tax,  special  assessment,  replacement or other
          reserves required to be maintained  pursuant to the Loan Documents (as
          hereinafter  defined) with  Beneficiary or a third party, or otherwise
          deposited with, or in the possession of,  Beneficiary  pursuant to the
          Loan Documents; and

     F.   surveys, soils reports, environmental reports, guaranties, warranties,
          architect's   contracts,    construction   contracts,   drawings   and
          specifications,   applications,   permits,   surety  bonds  and  other
          contracts   relating   to  the   acquisition,   design,   development,
          construction and operation of the Property; and

     G.   accounts,  chattel paper,  deposit accounts,  instruments,  equipment,
          inventory,  documents,  general intangibles,  letter-of-credit rights,
          investment  property and all other  personal  property of Grantor,  in
          each  case,  to  the  extent  associated  with  or  arising  from  the
          ownership,  development,  operation, use or disposition of any portion
          of the property; and

     H.   present and future rights to condemnation  awards,  insurance proceeds
          or other  proceeds  at any time  payable to or  received by Grantor on
          account of the Property or any of the foregoing personal property.

All personal property  hereinabove  described is hereinafter  referred to as the
"Personal Property".

     If any of the Property is of a nature that a security  interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing  statement if permitted by applicable law and
Grantor  authorizes  Beneficiary to file a financing  statement  describing such
Property and, at Beneficiary's  request,  agrees to join with Beneficiary in the
execution of any financing  statements and to execute any other instruments that
may  be  necessary  or  desirable,  in  Beneficiary's  determination,   for  the
perfection or renewal of such  security  interest  under the Uniform  Commercial
Code.

     TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF  SECURING,  in
such  order of  priority  as  Beneficiary  may  determine:  (i)  payment  of the
Indebtedness  (as  hereinafter  defined);  and (ii)  payment  (with  interest as
provided)  and  performance  by  Grantor  of  the  Obligations  (as  hereinafter
defined).  Notwithstanding the foregoing,  or any other term contained herein or
in the Loan Documents,  none of Grantor's  obligations (the "Other Obligations")
under or  pursuant to (a) the  Environmental  Indemnity  Agreement  of even date
herewith  executed by Grantor,  Guarantor  and the other  Borrowers  in favor of
Beneficiary ("Environmental  Agreement"),  (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.


FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture  filing in the real  estate  records of the County of the State in which
the real estate  described in Exhibit A is located,  with respect to any and all
fixtures  included within the term "Property" and "fixtures"  under this Deed of
Trust  and to any goods or other  personal  property  that are now or  hereafter
become a part of the Property as fixtures.

                                   DEFINITIONS

     CERTAIN  DEFINED TERMS:  As used in this Deed of Trust the following  terms
shall have the following meanings:

     COMMITMENT:  The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications  stated in the letter, the Loan application executed by
Grantor and the Other  Borrowers,  dated October 31, 2002,  which acceptance and
modification  was agreed to by Grantor and the Other  Borrowers  on November 28,
2002.

     ENVIRONMENTAL  AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.

     FACILITY:  A real property (including,  without limitation,  all buildings,
fixtures and other  improvements  located  thereon) now or hereafter  serving as
security  for the loans  which  comprise  the  Transaction.  Attached  hereto as
Exhibit B is a list of all Facilities as of the date hereof.

     GUARANTOR:  Mission West Properties, Inc., a Maryland corporation, and each
other  person  hereafter   guaranteeing  any  portion  of  the  Indebtedness  or
Obligations.

     GUARANTEE:  That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in  favor  of  Beneficiary,  and  any  other  guarantee  of any  portion  of the
Indebtedness or

<PAGE>

Obligations hereafter executed by any person.

     INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Notes (as  hereinafter  defined)  and any  extensions  or renewals
thereof  (including  extensions  or renewals at a  different  rate of  interest,
whether or not evidenced by a new or additional  promissory note or notes),  and
all other indebtedness of Grantor to Beneficiary and additional  advances under,
evidenced by and/or  secured by the Loan  Documents,  plus  interest on all such
amounts,  other than any obligations  relating to the Other Indebtedness,  Other
Note or Other Obligations.

     LOAN  DOCUMENTS:  The  Notes,  this Deed of Trust,  the  Commitment  (as it
relates to the Indebtedness), the Guarantee (as it relates to the Indebtedness),
that certain  Certification of Borrowers and Carl E. Berg  ("Certification")  of
even date  herewith (as it relates to the  Indebtedness),  that certain  Limited
Partnership  Supplement  dated  January  3,  2003,  any  other  supplements  and
authorizations  required by  Beneficiary,  the Fraudulent  Conveyance  Indemnity
Agreement  from  Guarantor  (as it  relates  to the  Indebtedness),  Certificate
Regarding Distribution of Loan Proceeds and Indemnity Agreement among Guarantor,
Grantor  and the  Other  Borrowers  (as it  relates  to the  Indebtedness),  and
Contribution and  Reimbursement  Agreement among Grantor and the Other Borrowers
(as it  relates  to the  Indebtedness),  and  all  other  documents  evidencing,
securing or relating to the payment of the  Indebtedness  or the  performance of
the  Obligations,  with the  exception  of the Other Note and the  Environmental
Agreement.

     NOTES:  The Promissory Note of even date herewith  executed by Mission West
Properties,  L.P., a Delaware  limited  partnership  in the  original  principal
amount of Twenty Eight Million Eight  Hundred  Sixty-Eight  Thousand Six Hundred
Fifty-Five  Dollars  ($28,868,655.00),  payable to Beneficiary or its order, and
the Promissory Note of even date herewith  executed by Mission West  Properties,
L.P. II, a Delaware  limited  partnership  in the original  principal  amount of
Forty One Million  Three  Hundred  Nineteen  Thousand  Nine Hundred  Seventy-Six
Dollars  ($41,319,976.00),  payable to  Beneficiary  or its order,  in each with
final  maturity  no later than  February  1, 2013 and with  interest  as therein
expressed,  and all  modifications,  renewals or extensions  of such  Promissory
Notes.

     OBLIGATIONS:  Any and all of the covenants,  promises and other obligations
(including  payment of the  Indebtedness)  made or owing by Grantor to or due to
Beneficiary  under  and/or  as set  forth in the Loan  Documents  and all of the
material  covenants,  promises and other obligations made or owing by Grantor to
each and every other  person  relating to the  Property,  exclusive of the Other
Obligations.

     OTHER BORROWERS:  Collectively,  Mission West Properties,  L.P., a Delaware
limited  partnership,  and Mission West Properties,  L.P. II, a Delaware limited
partnership.

     OTHER INDEBTEDNESS: The loan from Beneficiary evidenced by the Other Note.

     OTHER NOTE: The Promissory  Note of even date herewith  executed by Grantor
in the original  principal  amount of Twenty Nine Million Eight  Hundred  Eleven
Thousand  Three  Hundred   Sixty-Nine  Dollars   ($29,811,369.00),   payable  to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with  interest  as  therein  expressed,  and  all  modifications,   renewals  or
extensions of such Promissory Note.

     OTHER  OBLIGATIONS:  As defined in the  Granting  Paragraph of this Deed of
Trust.

     PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.

     TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00),  which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof, and are evidenced by the Notes and Other
Note and secured by lien  instruments and collateral  documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.

     TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the  payment of  amounts  owed  Beneficiary  in  connection  with the
Transaction, with the exception of the Environmental Agreement.


  TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:

PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness  hereby secured promptly
and in full compliance with the terms of the Loan Documents.

<PAGE>

OWNERSHIP.  Grantor represents that it owns the Property and has good and lawful
right to convey  the same and that the  Property  is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary.  Grantor does hereby  forever  warrant and shall forever defend the
title and  possession  thereof  against the lawful claims of any and all persons
whomsoever.

MAINTENANCE  OF PROPERTY AND  COMPLIANCE  WITH LAWS.  Grantor agrees to keep the
buildings and other  improvements  now or hereafter  erected on the Land in good
condition  and  repair;  not to commit or suffer any waste;  to comply  with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all  reasonable  times for the purpose of inspection and of conducting,
in a reasonable  and proper manner,  such tests as Beneficiary  determines to be
necessary in order to monitor  Grantor's  compliance  with  applicable  laws and
regulations regarding hazardous materials affecting the Property.

TENANTS  USING  CHLORINATED  SOLVENTS.  Grantor  agrees  not to lease any of the
Property, without the prior written consent of Beneficiary,  to (i) dry cleaning
operations that perform dry cleaning on site with  chlorinated  solvents or (ii)
any other  tenants  that use  chlorinated  solvents  in the  operation  of their
businesses.

Notwithstanding  the  above,  a  tenant's  use and  storage  of a product  which
contains  no more than  twelve (12)  ounces of  chlorinated  solvents  shall not
violate this  prohibition if, and only if, (i) each tenant's use,  storage,  and
the  ultimate  disposal,  of said  solvents is at all times in  compliance  with
applicable  law;  (ii)  said  solvents  are  acquired  and  kept in  prepackaged
containers;  and  (iii)  each  tenant  keeps no more  than  one (1)  prepackaged
container of said solvents on the Property.

BUSINESS  RESTRICTION   REPRESENTATION  AND  WARRANTY.  Grantor  represents  and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the  Indebtedness:  (i) are not, and shall not
become,  a person or entity  with whom  Beneficiary  is  restricted  from  doing
business with under  regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's  Specially  Designated  and Blocked  Persons  list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking  Property and Prohibiting  Transactions  With Persons Who Commit,
Threaten to Commit, or Support  Terrorism),  or other governmental  action; (ii)
are not  knowingly  engaged  in,  and shall  not  engage  in,  any  dealings  or
transaction or be otherwise  associated with such persons or entities  described
in (i) above;  and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the  International  Money  Laundering  Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.

INSURANCE.  Grantor  agrees to keep the Property  insured for the  protection of
Beneficiary and  Beneficiary's  wholly owned  subsidiaries  and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance  in  amounts  and  form  and  with  companies  all   satisfactory   to
Beneficiary:

     (A)  All risk  property  insurance  with a  deductible  of not greater than
          $100,000.00,  including  Demolition and Increased Cost of Construction
          (DICC) coverage equal to a minimum of 5% of the estimated  replacement
          cost, with an Agreed Amount Endorsement for the estimated  replacement
          cost of the improvements.  If such all risk property  insurance policy
          contains a terrorism exclusion, then Grantor shall purchase a separate
          insurance  policy  acceptable to Beneficiary  for terrorism  coverage.
          Notwithstanding the foregoing, however, Grantor shall only be required
          to  carry  such  insurance  coverage  for  acts  of  terrorism  with a
          deductible  acceptable  to  Lender  if such  coverage  is  customarily
          required by other  institutional  lenders on loans secured by property
          similar to the property;

     (B)  Loss of rents insurance equal to twelve months rent or business income
          insurance for 100% of the annual gross earnings from business  derived
          from the Property;

     (C)  Flood insurance,  if the Property is located in a flood plain (as that
          term is used in the National Flood Insurance Program) in an amount not
          less than 25% of the estimated replacement cost;

     (D)  Grantor's  own  commercial  general  liability  insurance  policy with
          Beneficiary,  and Beneficiary's  wholly owned subsidiaries and agents,
          named as additional insureds for their interests in the Property; and

     (E)  Other insurance as required by Beneficiary.

     Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary,  or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing  all  insurance   coverages   required   hereunder  on  deposit  with
Beneficiary,  which  certificates shall provide at least thirty (30) days notice
of  cancellation  to Beneficiary  and shall list  Beneficiary as the certificate
holder.

<PAGE>

     All insurance loss proceeds from all property insurance  policies,  whether
or  not  required  by  Beneficiary  (less  expenses  of  collection)  shall,  at
Beneficiary's option, be applied on the Indebtedness,  whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan  Documents.
If Beneficiary  elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.

     Notwithstanding  the foregoing  provision,  Beneficiary  agrees that if the
insurance  loss  proceeds  from an insured  loss as a Facility are less than the
Allocated  Loan Amount for the Facility (as shown in Exhibit B attached  hereto)
and if the  casualty  occurs  prior to the last  three  years of the term of the
Notes,  then the insurance loss proceeds (less expenses of collection)  shall be
applied to restoration  of the Facility to its condition  prior to the casualty,
subject to satisfaction of the following conditions:

     (a)  There is no existing Event of Default (as hereinafter  defined) at the
          time of casualty,  and if there shall occur any Event of Default after
          the date of the casualty, Beneficiary shall have no further obligation
          to release insurance loss proceeds hereunder.

     (b)  The casualty insurer has not denied liability for payment of insurance
          loss proceeds as a result of any act, neglect, use or occupancy of the
          Property by Grantor or any tenant of the Property.

     (c)  Beneficiary  shall be satisfied  that all  insurance  loss proceeds so
          held,  together  with  supplemental  funds  to be  made  available  by
          Grantor,  shall be  sufficient  to  complete  the  restoration  of the
          Property.  Any remaining insurance loss proceeds may, at the option of
          Beneficiary, be applied on the Indebtedness, whether or not due, or be
          released to Grantor.

     (d)  If  required  by  Beneficiary,   Beneficiary   shall  be  furnished  a
          satisfactory  report  addressed to Beneficiary  from an  environmental
          engineer or other qualified  professional  satisfactory to Beneficiary
          to the effect  that no adverse  environmental  impact to the  Property
          resulted from the casualty.

     (e)  Beneficiary shall release casualty  insurance  proceeds as restoration
          of the Property  progresses  provided  that  Beneficiary  is furnished
          satisfactory  evidence of the costs of restoration and if, at the time
          of such release, there shall exist no Monetary Default (as hereinafter
          defined) under the  Transaction  Documents and no default with respect
          to which  Beneficiary  shall  have given  Grantor  or Other  Borrowers
          notice  pursuant to the Notice of Default  provision  herein or in the
          documents  related to other loans comprising the  Transaction.  If the
          estimated cost of restoration  exceeds  $250,000.00,  (i) the drawings
          and   specifications   for  the  restoration   shall  be  approved  by
          Beneficiary in writing prior to commencement of the  restoration,  and
          (ii) Beneficiary  shall receive an  administration  fee equal to 1% of
          the cost of restoration.

     (f)  Prior to each release of funds,  Grantor  shall obtain for the benefit
          of Beneficiary an endorsement to Beneficiary's  title insurance policy
          insuring  Beneficiary's lien as a first and valid lien on the Property
          subject  only  to  liens  and  encumbrances  theretofore  approved  by
          Beneficiary.

     (g)  Grantor  shall pay all costs and  expenses  incurred  by  Beneficiary,
          including,  but not limited to,  outside legal fees,  title  insurance
          costs,  third-party disbursement fees, third-party engineering reports
          and inspections deemed necessary by Beneficiary.

     (h)  All  reciprocal  easement  and  operating  agreements  benefiting  the
          Property,  if any,  shall remain in full force and effect  between the
          parties thereto on and after restoration of the Property.

     (i)  Beneficiary  shall be satisfied that  Projected Debt Service  Coverage
          (as  hereinafter  defined) of at least 1.50 will be produced  from the
          leasing  of not more  than  226,950  square  feet of  space to  former
          tenants  or  approved   new  tenants  with  leases   satisfactory   to
          Beneficiary for terms of at least five (5) years to commence not later
          than (30) days  following  completion of such  restoration  ("Approved
          Leases").

     (j)  All leases in effect at the time of the casualty with tenants who have
          entered into  Beneficiary's  form of  Non-Disturbance  and  Attornment
          Agreement  or  similar  agreement  shall  remain  in  full  force  and
          Beneficiary  shall be  satisfied  that  restoration  can be  completed
          within  a time  frame  such  that  each  tenant  thereunder  shall  be
          obligated,  or each such tenant  shall have  elected,  to continue the
          lease term at full rental  (subject only to abatement,  if any, during
          any period in which the  Property  or a portion  thereof  shall not be
          used and occupied by such tenant as a result of the casualty).

<PAGE>

     (k)  Without limiting the Earthquake  provisions  contained  herein, if the
          casualty has resulted in whole or part from an earthquake: (a) Grantor
          shall have supplied  Beneficiary  with a "Seismic  Risk  Estimate" (in
          accordance with the Earthquake  provisions herein) which show that the
          Property  will meet  "Minimum  Seismic  Criteria"  (as  defined in the
          Earthquake  provisions  herein) upon completion of repair and retrofit
          work which can be  completed  within one year of the  earthquake,  (b)
          prior to commencement of the restoration, Grantor shall have committed
          in  writing  to  Beneficiary  that  Grantor  will do such  repair  and
          retrofit  work as shall be  necessary to cause the Property to in fact
          meet Minimum Seismic Criteria following completion of restoration, and
          (c) Beneficiary must at all times during the restoration be reasonably
          satisfied  that  the  Property  will  meet  Minimum  Seismic  Criteria
          following  completion of the  restoration,  Grantor hereby agreeing to
          supply  Beneficiary  with such evidence  thereof as Beneficiary  shall
          request from time to time.

     "Projected  Debt Service  Coverage"  means a number  calculated by dividing
Projected  Operating Income Available for Debt Service (as hereinafter  defined)
for the first  fiscal year  following  restoration  of the  Property by the debt
service  during the same fiscal year under all  indebtedness  secured by a first
mortgage  lien on any portion of the  Property.  For  purposes of the  preceding
sentence,  "debt  service"  means the greater of (x) debt  service due under all
such  indebtedness  during the first  fiscal year  following  completion  of the
restoration  of the  Property or (y) debt  service that would be due and payable
during such fiscal year if all such  indebtedness  were  amortized over 20 years
(whether  or not  amortization  is  actually  required)  and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).

     "Projected  Operating  Income  Available for Debt Service" means  projected
gross  annual  rent from the  Approved  Leases  for the first full  fiscal  year
following completion of the restoration of the Property less:

(A)  The operating  expenses of the Property for the last fiscal year  preceding
     the casualty and

(B)  the following:

     (i)  a  replacement  reserve  for  future  tenant   improvements,   leasing
          commissions  and  structural  items  based on not less than  $1.80 per
          square foot per annum;

     (ii) the amount,  if any, by which actual  gross income  during such fiscal
          period  exceeds  that which  would be earned from the rental of 85% of
          the gross leasable area in the Property;

     (iii)the amount,  if any, by which the actual  management  fee is less than
          2% of gross revenue during such fiscal period;

     (iv) the amount,  if any,  by which the actual  real estate  taxes are less
          than $2.10 per square foot per annum; and

     (v)  the  amount,  if  any,  by  which  total  actual  operating  expenses,
          excluding management fees, real estate taxes and replacement reserves,
          are less than $1.40 per square foot per annum.

     All  projections   referenced   above  shall  be  calculated  in  a  manner
satisfactory to Beneficiary.

CONDEMNATION.  Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds  resulting  from damage to, or the taking of, all or any portion of the
Property,  and (ii) the  proceeds  from any  sale or  transfer  in lieu  thereof
(collectively,   "Condemnation   Proceeds")  in  connection  with   condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter,  a "Taking");  if the Condemnation  Proceeds related to a Facility
are less than the  Allocated  Loan  Amount for the  Facility  and such damage or
Taking  occurs  prior to the last  three  years of the term of the  Notes,  such
Condemnation  Proceeds  (less  expenses  of  collection)  shall  be  applied  to
restoration  of the Facility to its condition,  or the functional  equivalent of
its condition prior to the Taking,  subject to the conditions set forth above in
the section  entitled  "Insurance"  and subject to the  further  condition  that
restoration or replacement of the  improvements on the Land to their  functional
and economic utility prior to the Taking be possible.  Any portion of such award
and proceeds not applied to  restoration  shall,  at  Beneficiary's  option,  be
applied on the Indebtedness,  whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.

TAXES AND SPECIAL  ASSESSMENTS.  Grantor  agrees to pay before  delinquency  all
taxes  and  special  assessments  of any kind that have been or may be levied or
assessed against the Property,  this instrument,  the Notes or the Indebtedness,
or upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Notes or the Indebtedness,  and to procure and deliver to Beneficiary within
30 days after  Beneficiary  shall have given a written  request to Grantor,  the
official  receipt of the proper officer showing timely payment of all such taxes
and assessments;  provided,  however,  that Grantor shall not be required to pay
any such taxes or special  assessments if the amount,  applicability or validity
thereof shall  currently be contested in good faith by  appropriate  proceedings
and funds  sufficient to satisfy the contested  amount have been deposited in an
escrow satisfactory to Beneficiary.

<PAGE>


PERSONAL  PROPERTY.  With  respect  to the  Personal  Property,  Grantor  hereby
represents, warrants and covenants as follows:

     (a) Except for the security interest granted hereby,  Grantor is, and as to
portions of the Personal  Property to be acquired after the date hereof will be,
the sole owner of the Personal Property,  free from any lien, security interest,
encumbrance  or adverse  claim  thereon of any kind  whatsoever.  Grantor  shall
notify  Beneficiary  of,  and shall  indemnify  and defend  Beneficiary  and the
Personal  Property  against,  all claims and  demands of all persons at any time
claiming the Personal Property or any part thereof or any interest therein.

     (b) Except as otherwise  provided  above,  Grantor  shall not lease,  sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.

     (c) Grantor is a limited partnership  organized under the laws of the State
of  Delaware.  Until the  Indebtedness  is paid in full,  Grantor  (i) shall not
change its legal name without providing  Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve  its  existence  and  shall  not,  in one  transaction  or a series  of
transactions, merge into or consolidate with any other entity.

     (d) At the  request  of  Beneficiary,  Grantor  shall join  Beneficiary  in
executing one or more  financing  statements  and  continuations  and amendments
thereof  pursuant  to the  Uniform  Commercial  Code  in  form  satisfactory  to
Beneficiary,  and  Grantor  shall pay the cost of filing  the same in all public
offices  wherever  filing is deemed by Beneficiary to be necessary or desirable.
Grantor  shall  also,  at  Grantor's  expense,  take  any and all  other  action
requested by Beneficiary to perfect  Beneficiary's  security  interest under the
Uniform  Commercial  Code with  respect  to the  Personal  Property,  including,
without  limitation,  exercising  Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security  interest  in  Personal   Property   consisting  of  deposit  accounts,
letter-of-credit rights, investment property, and electronic chattel paper.

OTHER LIENS.  Grantor agrees to keep the Property or any Personal  Property free
from all other liens  either  prior or  subsequent  to the lien  created by this
instrument  other  than  liens  created by the  Transaction  Documents.  The (i)
creation  of any other lien on any portion of the  Property  or on any  Personal
Property,  whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable  license to collect,  use and enjoy rents and
profits from the  Property,  shall  constitute a default under the terms of this
instrument;  except that upon written notice to Beneficiary,  Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate  proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal  Property  described  herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.

LEASES.  Grantor  covenants with  Beneficiary (a) to observe and perform all the
obligations  imposed upon the lessor under all leases and not to do or permit to
be done anything to impair the same without Beneficiary's prior written consent,
(b) not to collect any of the rent or other amounts due under any lease or other
issues or profits  from the  Property  in any manner in advance of the time when
the same shall become due (save and except only for  collecting one month's rent
in advance plus tenant contributions toward operating expenses plus the security
deposit,  if any, at the time of execution  of a lease),  (c) not to execute any
other  assignment of rents,  issues,  or profits arising or accruing from any of
the leases or from the Property,  except the Transaction  Documents,  (d) not to
enter into any lease  agreement  affecting  the  Property,  except  those leases
entered into in the ordinary course of business and utilizing Grantor's standard
form lease previously approved by Beneficiary, with no substantial modifications
thereto,  without the prior written consent of  Beneficiary,  (e) to execute and
deliver,  at the  request  of  Beneficiary,  all  such  further  assurances  and
acknowledgments  of the  assignment  contained  herein and the other  provisions
hereof, with respect to specific leases or otherwise,  as Beneficiary shall from
time to time require,  (f) to obtain from any tenant at the Property,  from time
to time  as  requested  by  Beneficiary,  estoppel  certificates,  in  form  and
substance  satisfactory  to  Beneficiary,  confirming the terms of such tenant's
lease and the absence of default thereunder, and (g) not to cancel, surrender or
terminate any lease, exercise any option which might lead to such termination or
consent to any change,  modification,  or alteration  thereof, to the release of
any party  liable  thereunder  or to the  assignment  of the  lessee's  interest
therein, without the prior written consent of Beneficiary, and any of said acts,
if done  without the prior  written  consent of  Beneficiary,  shall be null and
void.  Notwithstanding clause (g) of the preceding sentence, with respect to all
leases  (other  than  leases as to which  Beneficiary,  Grantor  and tenant have
executed a separate non-disturbance and attornment agreement),  Grantor may take
actions described in clause (g) without Beneficiary's prior written consent (but
with  written  notice  thereof to  Beneficiary),  if and only if such  action is
consistent with the usual and customary operation of the Property.

COSTS, FEES AND EXPENSES.  Grantor agrees to pay all costs, fees and expenses of
this  trust;  to appear in and  defend any action or  proceeding  purporting  to
affect the  security  hereof or the rights or powers of  Beneficiary  or Trustee
hereunder;  to pay all  costs  and  expenses,  including  the cost of  obtaining
evidence of title and reasonable  attorney's  fees,  incurred in connection with
any  such  action  or  proceeding;  and to pay any and all  attorney's  fees and
expenses of collection and  enforcement in the event the Notes are placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.

<PAGE>

FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein  provided,  Beneficiary  or Trustee  may,  without  obligation  so to do,
without notice to or demand upon Grantor and without  releasing Grantor from any
obligation  hereof: (i) make or do the same in such manner and to such extent as
Beneficiary  may deem necessary to protect the security  hereof,  Beneficiary or
Trustee  being  authorized  to enter upon the  Property for such  purpose;  (ii)
appear in and defend any action or proceeding  purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee;  (iii) pay, purchase,
contest or compromise any  encumbrance,  charge or lien which in the judgment of
Beneficiary  appears to be prior or superior hereto;  and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so  expended  shall be payable  by Grantor  immediately  upon  demand  with
interest from date of expenditure at the Default Rate (as defined in the Notes).
All sums so expended by Beneficiary  and the interest  thereon shall be included
in the Indebtedness and secured by the lien of this instrument.

EVENT OF  DEFAULT  AND  CROSS  DEFAULT.  Any  default  by  Grantor  or the Other
Borrowers  in making  any  required  payment  of the  Indebtedness  or the Other
Indebtedness or any default in any provision,  covenant,  agreement, warranty or
certification  contained in any of the Transaction  Documents  shall,  except as
provided in the two immediately succeeding  paragraphs,  constitute an "Event of
Default".

NOTICE OF DEFAULT.  A default in any payment required in the Notes or Other Note
or any other  Transaction  Document,  whether or not payable to Beneficiary,  (a
"Monetary  Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written  notice of such  Monetary  Default to Grantor and the
Other  Borrowers and Grantor and the Other  Borrowers  shall not have cured such
Monetary  Default  by payment of all  amounts in default  (including  payment of
interest at the Default  Rate,  as defined in the Notes or Other Note,  from the
date of default to the date of cure on amounts owed to Beneficiary)  within five
(5)  business  days  after the date on which  Beneficiary  shall have given such
notice to Grantor and Other Borrowers.

     Any  other  default  under  the  Notes or Other  Note or  under  any  other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default  unless   Beneficiary   shall  have  given  a  written  notice  of  such
Non-Monetary  Default to Grantor  and the Other  Borrowers  and  Grantor and the
Other  Borrowers  shall not have cured such  Non-Monetary  Default within thirty
(30) days after the date on which  Beneficiary  shall have given such  notice of
default to Grantor and the Other Borrowers (or, if the  Non-Monetary  Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have  diligently   undertaken  and  continued  to  pursue  the  curing  of  such
Non-Monetary   Default  and   deposited  an  amount   sufficient  to  cure  such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).

     In no event  shall the  notice and cure  period  provisions  recited  above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).

SUBSTITUTION OF TRUSTEE.  Beneficiary and its successors and assigns may for any
reason  and  at  any  time  appoint  a new  or  substitute  Trustee  by  written
appointment  delivered  to such new or  substitute  Trustee  without  notice  to
Grantor,  without  notice to, or the  resignation or withdrawal by, the existing
Trustee and without  recordation  of such written  appointment  unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment,  the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.

APPOINTMENT  OF RECEIVER.  Upon  commencement  of any  proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or  restriction  by any present or future law,  without regard to the
solvency or  insolvency  at that time of any party liable for the payment of the
Indebtedness,  without regard to the then value of the Property,  whether or not
there  exists a threat  of  imminent  harm,  waste or loss to the  Property  and
whether  or not the same shall  then be  occupied  by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the  revenues,  rents,  profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such  appointment may confer) full power to collect all such income
and, after paying all necessary  expenses of such receivership and of operation,
maintenance and repair of said Property,  to apply the balance to the payment of
any of the Indebtedness then due.

FORECLOSURE.  Upon the  occurrence  of an Event of  Default,  the entire  unpaid
Indebtedness  shall,  at the option of Beneficiary,  become  immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE  EXERCISE OF SUCH OPTION,  OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising  any rights it may have with respect to the Personal  Property  under
the  Uniform  Commercial  Code of the  jurisdiction  in which  the  Property  is
located,  institute  proceedings  in any  court  of  competent  jurisdiction  to
foreclose  this  instrument  as a mortgage,  or to enforce any of the  covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage,  rent or
lease the  Property or any portion  thereof upon such terms as  Beneficiary  may
deem  expedient,  and  collect,  receive  and  receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter  provided in case
of sale.  Trustee is hereby further  authorized  and empowered,  either after or
without such entry,  to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think  best),  and all the right,  title and interest of
Grantor  therein,  by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located,  (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue,  execute and deliver a
deed of

<PAGE>


conveyance,  all as then may be provided by law; and Trustee  shall,  out of the
proceeds or avails of such sale,  after  first  paying and  retaining  all fees,
charges,  costs of  advertising  the  Property  and of  making  said  sale,  and
attorneys'  fees as herein  provided,  pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof,  including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness,  with interest from date of
advance or expenditure at the Default Rate (as defined in the Notes),  rendering
the excess,  if any,  as  provided  by law;  such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the  Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.

PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material  consideration  to  Beneficiary in making the loan secured by this
instrument,  and  Grantor  shall not (i) convey  title to all or any part of the
Property,  (ii) enter into any  contract  to convey  (land  contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a  purchaser  possession  of,  or income  from,  the  Property  prior to a
transfer of title to all or any part of the Property  ("Contract  to Convey") or
(iii) cause or permit a Change in the  Proportionate  Ownership (as  hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the  Proportionate  Ownership  of Grantor  shall  constitute a default
hereunder.

     B.  For  purposes  of  this  instrument,  a  "Change  in the  Proportionate
Ownership"  means any transfer  which  results in Carl E. Berg and/or  Permitted
Transferee's  (as defined below)  collectively,  owning less than 49% of Carl E.
Berg's direct and indirect  ownership  interest in Grantor (existing on the date
of initial  advance  of funds,  as  represented  in the  Certification)  without
Beneficiary's approval.

     C.  Notwithstanding  the above,  a transfer of Carl E. Berg's  ownership in
Grantor  (i) to and among the Berg  Family  (as  hereinafter  defined)  shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E.  Berg,  and (ii) to any entity  owned and  controlled  (ownership  and voting
interest  in excess of 50% by the Berg  Family)  shall be  permitted  for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect  ownership  interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."

     D. For purposes  hereof,  the "Berg  Family"  shall mean Carl E. Berg,  his
spouse, his descendants and their spouses,  Clyde J. Berg, any trusts or estates
for the  benefit  of  said  parties,  and  any  entities  owned  and  controlled
(ownership and voting interests in excess of 50%) by said parties.

     E. A conversion  of all or part of the  ownership  interest of Carl E. Berg
from limited  partnership  units ("L.P.  Units") of Grantor to common  shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.

FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:

(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the  "Property  Financial  Statements  Due
Date"):

     (i)  an unaudited balance sheet as of the last day of such fiscal year;

     (ii) an  unaudited  statement  of  operations  for such  fiscal year with a
          detailed  line item  break-down of all sources of income and expenses,
          including capital expenses broken down between,  leasing  commissions,
          tenant improvements,  capital maintenance, common area renovation, and
          expansion;

     (iii)a current rent roll  identifying  location,  leased area,  lease begin
          and end dates,  current  contract  rent,  rent  increases and increase
          dates, percentage rent, expense reimbursements, and any other recovery
          items;

     (iv) an operating budget for the current fiscal year; and

(B) the following financial  statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor,  respectively (the
"Grantor/Guarantor Financial Statements Due Date")

     (i)  an audited balance sheet as of the last day of such fiscal year; and

     (ii) an audited statement of cash flows for such fiscal year; and

<PAGE>

(C) to the extent the following  tenants are not publicly  traded,  Grantor will
use its best efforts to obtain the following  financial  statements  for Fujitsu
(formerly  known as Amdahl),  Apple,  JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective  tenant (the "Tenant
Financial Statements Due Date"):

     (i)  an audited, or unaudited if audited is not available, balance sheet as
          of the last day of such fiscal year; and

     (ii) an audited,  or  unaudited if audited is not  available,  statement of
          cash flows for such fiscal period.

     The  Property  Financial   Statements  Due  Date,  the   Grantor/Guarantors
Financial  Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".

     If  audited,  the  financial  statements  identified  in  sections  (A)(i),
(A)(ii),  (B)(i),  (B)(ii),  (C)(i) and (C)(ii) above, shall each be prepared in
accordance  with  generally  accepted  accounting  principles  by a  "Big  Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary.  All unaudited  financial  statements  for Grantor,  Property,  and
Guarantor  shall  contain a  certification  by the managing  general  partner of
Grantor  stating  that they have been  prepared  in  accordance  with  generally
accepted accounting  principles and that they are true and correct.  The expense
of  preparing  all of the  financial  statements  required in (A) and (B) above,
shall be borne by Grantor.

     Grantor  acknowledges that Beneficiary requires the financial statements to
record  accurately  the  value of the  Property  for  financial  and  regulatory
reporting.

         In addition to all other remedies available to Beneficiary hereunder,
at law and in equity, if any financial statement or proof of payment of property
taxes and assessments is not furnished to Beneficiary as required in this
section entitled "Financial Statements" and in the section entitled "Taxes and
Special Assessments", within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,

     (x) interest on the unpaid  principal  balance of the  Indebtedness and the
     Other Notes shall as of the applicable Financial Statements Due Date or the
     date such proof of  payment  of  property  taxes and  assessments  was due,
     accrue and become  payable at a rate equal to the sum of the Interest  Rate
     (as defined in the Notes) plus one percent  (1%) per annum (the  "Increased
     Rate"); and

     (y) Beneficiary  may elect to obtain an independent  appraisal and audit of
     the Property at Grantor's  expense,  and Grantor agrees that it will,  upon
     request,  promptly make Grantor's books and records  regarding the Property
     available to  Beneficiary  and the person(s)  performing  the appraisal and
     audit (which  obligation  Grantor  agrees can be  specifically  enforced by
     Beneficiary).

     The amount of the  payments  due under the Notes and Other Note  during the
time in which the  Increased  Rate  shall be in effect  shall be  changed  to an
amount which is sufficient to amortize the then unpaid principal  balance at the
Increased  Rate  during  the then  remaining  portion  of a  period  of 20 years
commencing with the  Amortization  Period  Commencement  Date (as defined in the
Notes and Other Note).  Interest shall continue to accrue and be due and payable
monthly  at the  Increased  Rate  until the  financial  statements  and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished  to  Beneficiary  as  required.  Commencing  on the date on which  the
financial  statements and proof of payment of property taxes and assessments are
received by Beneficiary,  interest on the unpaid  principal  balance shall again
accrue at the Interest  Rate and the  payments  due during the  remainder of the
term of the  Notes  and  Other  Note  shall be  changed  to an  amount  which is
sufficient  to amortize the then unpaid  principal  balance at the Interest Rate
during the then remaining  portion of a period of 20 years  commencing  with the
Amortization   Period   Commencement   Date.   Notwithstanding   the  foregoing,
Beneficiary  shall  have the right to conduct  an  independent  audit at its own
expense at any time.

PROPERTY   MANAGEMENT.   The  management  company  for  the  Property  shall  be
satisfactory  to Beneficiary.  Any change in the management  company without the
prior  written  consent of  Beneficiary  shall  constitute a default  under this
instrument.  Beneficiary  shall  be  reasonable  in  giving  its  approval,  and
Beneficiary  may require that the new management  company,  by itself or through
its manager,  have good character and reputation,  and demonstrated  ability and
experience in the  operation and leasing of at least one million  square feet of
property similar to the Property.

EARTHQUAKE.  If the Property is damaged by an earthquake  during the term of the
Indebtedness:

     (A)  Beneficiary  may require a new "Seismic Risk Estimate" (as hereinafter
     defined) to be performed at Grantor's expense, and

     (B)  Grantor  shall  perform  repair and  retrofit  work,  satisfactory  to
     Beneficiary,  which results in (i) the complete  repair of the Property and
     (ii) the performance of a subsequent  Seismic Risk Estimate  verifying that
     the Property meets "Minimum  Seismic

<PAGE>

     Criteria"  (as  hereinafter  defined).  Such work  shall be  commenced  and
     completed  as soon as  possible  and in any  event  within  one year of the
     earthquake.

     Without limiting the Grantor's  obligation to cause the Property to satisfy
Minimum Seismic  Criteria,  during any period of time in which the Property does
not satisfy Minimum Seismic  Criteria,  Grantor shall provide  Beneficiary  with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).

     As used  herein,  "Earthquake  Insurance"  means a policy  satisfactory  to
Beneficiary  with a deductible of no greater than 5% of the  "Replacement  Cost"
(as hereinafter  defined) and in an amount calculated as follows:  (i) the "Loan
Amount" (as  hereinafter  defined) plus (ii) the "Specified  Loss Dollar Amount"
(as defined below) plus (iii) 5% of the  Replacement  Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).

     As used  herein,  "Loan  Amount"  shall  mean the  total  principal  amount
advanced at closing under the Other Note.

     As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).

     As used herein, "Market Value" means the estimated fair market value of the
Property,  determined  by  Beneficiary  in its  sole  discretion,  at the time a
Seismic Risk Estimate is performed.

     As used herein,  "Minimum  Seismic  Criteria" means that both the Specified
Loss Percentage (as hereinafter  defined) for the Property is less than or equal
to 30% and the  Loan  Plus  Specified  Loss is less  than or equal to 90% of the
Market Value.

     As used herein,  "Model" means a computer  based seismic model  selected by
Beneficiary,  currently the  Insurance and  Investment  Risk  Assessment  System
("IRAS") program by Risk Management Solutions ("RMS").

     As  used  herein,  "Replacement  Cost"  means  the  estimated  total  cost,
determined  by  Beneficiary  in its sole  discretion,  to  construct  all of the
Improvements  as if the Property were  completely  unimproved (not including the
cost of site work, utilities and foundation).

     As used herein,  "Seismic Risk Estimate" refers to the results of a seismic
risk  estimate for the Property  produced by the Model.  Grantor  agrees that it
will not rely for its own  evaluation  purposes  on the  Seismic  Risk  Estimate
produced by or for Beneficiary.

     As used herein,  "Specified  Loss Dollar Amount" means the "Specified  Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.

     As used herein,  "Specified Loss Percentage"  means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement  Cost.  Beneficiary's  parameters  for the  Model are based on a 90%
probability  that the  level of  damage  predicted  will not be  exceeded  in an
earthquake with an expected 475 year return period.

DEPOSITS  BY  GRANTOR.  To assure the timely  payment of real  estate  taxes and
special assessments  (including  personal property taxes, if appropriate),  upon
the occurrence of an Event of Default,  Beneficiary  shall thence forth have the
option to require  Grantor to deposit  funds with  Beneficiary  or in an account
satisfactory  to  Beneficiary,  in monthly  or other  periodic  installments  in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and  special  assessments  as they become due. If at any time the funds so
held by Beneficiary,  or in such other account, shall be insufficient to pay any
of said expenses,  Grantor shall,  upon receipt of notice  thereof,  immediately
deposit such additional funds as may be necessary to remove the deficiency.  All
funds so  deposited  shall be  irrevocably  appropriated  to  Beneficiary  to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.

NOTICES.  Any notices,  demands,  requests  and  consents  permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally  or sent by  certified  mail with  postage  prepaid  or by  reputable
courier  service with charges  prepaid.  Any notice or demand sent to Grantor by
certified  mail or reputable  courier  service  shall be addressed to Grantor at
10050  Bandley  Drive,  Cupertino,  CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable  courier  service shall be addressed to The  Northwestern  Mutual Life
Insurance Company to the attention of the Real Estate  Investment  Department at
720 East Wisconsin  Avenue,  Milwaukee,  WI 53202, or at such other addresses as
Beneficiary  shall designate in a notice given in the manner  described  herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand  hereunder  shall be deemed given when received.  Any notice or
demand  which is  rejected,  the  acceptance  of delivery of which is refused or
which is  incapable  of

<PAGE>

being delivered during normal business hours at the address  specified herein or
such other address designated pursuant hereto shall be deemed received as of the
date of attempted delivery.

MODIFICATION OF TERMS.  Without  affecting the liability of Grantor or any other
person  (except any person  expressly  released  in writing)  for payment of the
Indebtedness or for performance of any obligation  contained  herein and without
affecting the rights of  Beneficiary  with respect to any security not expressly
released in writing,  Beneficiary may, at any time and from time to time, either
before or after the  maturity  of the  Notes,  without  notice or  consent:  (i)
release any person liable for payment of all or any part of the  Indebtedness or
for performance of any obligation; (ii) make any agreement extending the time or
otherwise  altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing  with  the  lien or  charge  hereof;  (iii)  exercise  or  refrain  from
exercising  or waive any right  Beneficiary  may have;  (iv)  accept  additional
security of any kind; (v) release or otherwise  deal with any property,  real or
personal, securing the Indebtedness, including all or any part of the Property.

EXERCISE OF OPTIONS.  Whenever, by the terms of this instrument, of the Notes or
any of the other Loan  Documents,  Beneficiary is given any option,  such option
may be  exercised  when the right  accrues,  or at any time  thereafter,  and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.

NATURE AND  SUCCESSION  OF  AGREEMENTS.  Each of the  provisions,  covenants and
agreements  contained  herein  shall inure to the benefit of, and be binding on,
the heirs, executors,  administrators,  successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Notes.

LEGAL  ENFORCEABILITY.  No provision of this instrument,  the Notes or any other
Loan  Documents  shall  require the payment of interest or other  obligation  in
excess of the maximum  permitted by law. If any such excess  payment is provided
for in any Loan  Documents  or  shall  be  adjudicated  to be so  provided,  the
provisions of this paragraph  shall govern and Grantor shall not be obligated to
pay the amount of such interest or other  obligation to the extent that it is in
excess of the amount permitted by law.

LIMITATION OF LIABILITY.  Notwithstanding  any provision contained herein to the
contrary,  the personal liability of Grantor shall be limited as provided in the
Notes.

MISCELLANEOUS.  Time  is of the  essence  in  each of the  Loan  Documents.  The
remedies of Beneficiary  as provided  herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent,  and may be pursued singly,
successively,  or together at the sole  discretion  of  Beneficiary,  and may be
exercised as often as occasion  therefor shall occur; and neither the failure to
exercise any such right or remedy nor any  acceptance by  Beneficiary of payment
of  Indebtedness  in  default  shall in any  event be  construed  as a waiver or
release  of any right or  remedy.  Neither  this  instrument  nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and  Beneficiary.  If any of the  provisions of
any Loan  Document or the  application  thereof to any persons or  circumstances
shall to any extent be  invalid or  unenforceable,  the  remainder  of such Loan
Document  and each of the other  Loan  Documents,  and the  application  of such
provision or provisions to persons or circumstances  other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every  provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.

SURETYSHIP  WAIVERS.  This  instrument  is  intended to  constitute  the primary
obligation  of Grantor  with  respect  to the  Obligations,  and  Grantor is not
intended to be a guarantor or surety or otherwise only  secondarily  liable with
respect to matters covered hereby. However, if said Obligations, or any of them,
should  be  determined  to not  be  direct  obligations  but  rather  suretyship
obligations, Grantor agrees as follows:

Without  limiting or  lessening  the  primary  liability  of Grantor  hereunder,
Beneficiary may, without notice to Grantor,

     (a)  grant extensions of time or any other indulgences on the Indebtedness;

     (b)  take,  give  up,  modify,  vary,  exchange,   renew  or  abstain  from
          perfecting or taking  advantage of any security for the  Indebtedness;
          and

     (c)  accept or make compositions or other arrangements with Other Borrowers
          under  the  Transaction  Documents,   realize  on  any  security,  and
          otherwise deal with Other Borrowers, other parties and any security as
          Beneficiary may deem expedient; and

All  additional  demands,  presentments,  notices of protest and  dishonor,  and
notices of every kind and nature,  including those of any action or no action on
the part of Other  Borrowers,  Beneficiary or Grantor,  are expressly  waived by
Grantor.  Grantor  hereby  waives  the right to require  Beneficiary  to proceed
against the Other  Borrowers  or any other party or to proceed  against or apply
any security it may hold, waives the right to require  Beneficiary to pursue any
other remedy for the benefit of Grantor and agrees that  Beneficiary may

<PAGE>

proceed  against  Grantor  without taking any action against any other party and
without  proceeding  against or applying any  security it may hold.  Beneficiary
may, at its  election,  foreclose  upon any  security  held by it in one or more
judicial  or  non-judicial  sales,  whether or not every  aspect of such sale is
commercially  reasonable,  without  affecting  or  impairing  the  liability  of
Grantor,  except to the extent the  Indebtedness  shall have been paid.  Grantor
waives any defense  arising out of such an election,  notwithstanding  that such
election  may  operate  to impair or  extinguish  any right or remedy of Grantor
against the Other Borrowers or any other security.

Grantor waives all rights and defenses arising out of an election of remedies by
Beneficiary,  even  though  that  election of  remedies,  such as a  nonjudicial
foreclosure of the Lien Instrument, has destroyed Grantor's right of subrogation
and  reimbursement  against the Other Borrowers by the operation of Section 580d
of the  California  Code of Civil  Procedure or  otherwise.  Grantor  waives all
rights and defenses that Grantor may have because the Other  Borrowers'  debt is
secured by real property.  This means, among other things,  that (i) Beneficiary
may foreclose on the real and personal property pledged by Grantor without first
foreclosing on any real or personal  collateral  pledged by the Other Borrowers,
and (ii) if Beneficiary  forecloses on any real property  collateral  pledged by
the Other Borrowers: (A) the amount of the debt may be reduced only by the price
for  which  that  collateral  is  sold  at the  foreclosure  sale,  even  if the
collateral  is worth more than the sale price and (B)  Beneficiary  may  collect
from  Grantor  even  if  Beneficiary,   by  foreclosing  on  the  real  property
collateral,  has  destroyed  any right  Grantor  may have to collect  from Other
Borrowers.  This is an  unconditional  and irrevocable  waiver of any rights and
defenses  Grantor may have because the Other  Borrowers' debt is secured by real
property.  These  rights and  defenses  waived by Grantor  include,  but are not
limited to, any rights or defenses based upon Sections 580a,  580b,  580d or 726
of the  California  Code of Civil  Procedure.  Without  limiting the  foregoing,
Grantor hereby waives any and all benefits that might  otherwise be available to
Grantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849,
2850, 2899 and 3433.

SUBORDINATION.  Notwithstanding  anything to the contrary contained in this Deed
of Trust  (Second  Priority),  the  terms and  provisions  of this Deed of Trust
(Second  Priority) and the lien created hereby shall be subject and  subordinate
to the terms and provisions of the first and prior lien instrument  ("First Lien
Instrument")  of even  date  herewith  executed  and  delivered  by  Grantor  to
Beneficiary  to  secure  the  Other  Note,  the  lien  created  thereby  and all
modifications  and  supplements  thereto.  The  First  Lien  Instrument  and the
indebtedness   secured  thereby,  and  any  increases  therein  or  renewals  or
extensions thereof,  shall  unconditionally be and remain at all times a lien or
charge  on the Land  prior  and  superior  to the lien or charge of this Deed of
Trust (Second Priority).

WAIVER OF JURY  TRIAL.  Grantor  hereby  waives  any right to trial by jury with
respect to any action or proceeding  (a) brought by Grantor,  Beneficiary or any
other  person  relating  to  (i)  the  obligations  secured  hereby  and/or  any
understandings  or prior  dealings  between the parties  hereto or (ii) the Loan
Documents or the Environmental  Indemnity Agreement, or (b) to which Beneficiary
is a party.

CAPTIONS.  The captions  contained herein are for convenience and reference only
and in no way define,  limit or  describe  the scope or intent of, or in any way
affect this instrument.

GOVERNING  LAW.  This  instrument  shall be  governed  by and  construed  in all
respects in accordance  with the laws of the State of California  without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning  any dispute  arising  under or related to this  instrument  shall be
brought in a state or federal  court  located  in the State of  California,  and
Beneficiary and Grantor hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California

REQUEST FOR NOTICE.  Pursuant to California  Government Code Section 27321.5(b),
Grantor  hereby  requests that a copy of any notice of default and a copy of any
notice of sale given  pursuant  to this  instrument  be mailed to Grantor at the
address set forth herein.


<PAGE>



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


                 MISSION WEST PROPERTIES, L.P. I, a Delaware limited partnership

                 By:      Mission West Properties, Inc., a
                          Maryland corporation, its general
                          partner

                          By: Carl E. Berg

                          Name: Carl E. Berg

                          Title: CEO of G.P.

STATE OF California                         )
                                            )ss.
COUNTY OF         Santa Clara               )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature /s/        GW Shott
         -----------------------------------
         G.W.     Shott
         -----------------------------------
         Name (typed or printed)




This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.


<PAGE>

                                   EXHIBIT "A"
                                (Mission West I)


PROPERTY ONE:

Parcel One:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on April 13, 1979, in
Book 439 of Maps, page(s) 17 and 18.

Parcel Two:

A 17.5' ingress and egress  Easement No. 1 (appurtenant to Parcel 1) situated at
the Northwesterly  corner of Parcel 2 and being shown on that certain Parcel Map
recorded April 13, 1979 in Book 439 of Maps, pages 17 and 18, Santa Clara County
Records.

Assessors Parcel No:  224-44-019



PROPERTY TWO:

PARCEL ONE:

Parcel 3 as shown on that certain  Parcel Map recorded  August 9, 1974,  in Book
344, Page 10, Santa Clara County.

Excepting  therefrom the underground water rights, but without surface rights of
entry,  as granted to the City of Cupertino by  instrument  recorded  January 3,
1975 in Book B233 of Official Records at Page 276.

PARCEL TWO:

An easement for ingress and egress and for the installation and maintenance of a
public  utilities  over the Westerly 15 feet of Parcels 1 and 2 and the Easterly
15 feet of  Parcel  4, as said  Parcels  are shown on that  certain  Parcel  Map
recorded  August 9, 1974 in Book 344 at Page 10 of Maps,  Records of Santa Clara
County, California.

Assessors Parcel No:  326-10-046




<PAGE>


EXHIBIT 10.39

California
Loan No. C-332757
RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn

                    SPACE ABOVE THIS LINE FOR RECORDER'S USE

              DEED OF TRUST and SECURITY AGREEMENT (FIRST PRIORITY)
                        Mission West Properties, L. P. II

     THIS  DEED OF TRUST  and  SECURITY  AGREEMENT  is made as of the 3rd day of
January,  2003 between  MISSION  WEST  PROPERTIES,  L.P. II, a Delaware  limited
partnership,   10050  Bandley   Drive,   Cupertino,   CA  95014,   herein  (said
Grantor/Trustor,  whether  one or  more in  number)  called  "Grantor",  and THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin  Avenue,  Milwaukee,  WI  53202,  herein  called  "Trustee",  and  THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":

     WITNESSETH,  That Grantor,  in  consideration  of the  indebtedness  herein
mentioned,  does hereby irrevocably bargain, sell, grant,  transfer,  assign and
convey  unto  Trustee,  in  trust,  with  power of sale and  right of entry  and
possession, the following property (herein referred to as the "Property"):

     A.   The land in the City of San Jose  and City of  Milpitas,  Santa  Clara
          County,  California  described  in  Exhibit  "A"  attached  hereto and
          incorporated herein (the "Land");

     B.   All easements, appurtenances, tenements and hereditaments belonging to
          or benefiting the Land, including but not limited to all waters, water
          rights,  water  courses,  all  ways,  trees,  rights,   liberties  and
          privileges; and

     C.   All  improvements  to the Land,  including,  but not  limited  to, all
          buildings,  structures  and  improvements  now  existing or  hereafter
          erected on the Land;  all fixtures and equipment of every  description
          belonging to Grantor  which are or may be placed or used upon the Land
          or attached to the buildings,  structures or improvements,  including,
          but not limited to, all engines, boilers, elevators and machinery, all
          heating  apparatus,   electrical   equipment,   air-conditioning   and
          ventilating  equipment,  water and gas fixtures, and all furniture and
          easily removable  equipment;  all of which, to the extent permitted by
          applicable  law,  shall be deemed an  accession  to the freehold and a
          part of the realty as between the parties hereto.

Grantor agrees not to sell, transfer,  assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any  buildings or  structures  or the sale or transfer of waters or water rights
and (ii) such action results in the  substitution  or  replacement  with similar
items of equal value.

     Without   limiting  the  foregoing   grants,   Grantor  hereby  pledges  to
Beneficiary,  and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter  acquired right, title and interest in and to the Property
and any and all

     D.   cash and other funds now or at any time hereafter  deposited by or for
          Grantor on account of tax,  special  assessment,  replacement or other
          reserves required to be maintained  pursuant to the Loan Documents (as
          hereinafter  defined) with  Beneficiary or a third party, or otherwise
          deposited with, or in the possession of,  Beneficiary  pursuant to the
          Loan Documents; and

<PAGE>

     E.   surveys, soils reports, environmental reports, guaranties, warranties,
          architect's   contracts,    construction   contracts,   drawings   and
          specifications,   applications,   permits,   surety  bonds  and  other
          contracts   relating   to  the   acquisition,   design,   development,
          construction and operation of the Property; and

     F.   accounts,  chattel paper,  deposit accounts,  instruments,  equipment,
          inventory,  documents,  general intangibles,  letter-of-credit rights,
          investment  property and all other  personal  property of Grantor,  in
          each  case,  to  the  extent  associated  with  or  arising  from  the
          ownership,  development,  operation, use or disposition of any portion
          of the property; and

     G.   present and future rights to condemnation  awards,  insurance proceeds
          or other  proceeds  at any time  payable to or  received by Grantor on
          account of the Property or any of the foregoing personal property.

All personal property  hereinabove  described is hereinafter  referred to as the
"Personal Property".

     If any of the Property is of a nature that a security  interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing  statement if permitted by applicable law and
Grantor  authorizes  Beneficiary to file a financing  statement  describing such
Property and, at Beneficiary's  request,  agrees to join with Beneficiary in the
execution of any financing  statements and to execute any other instruments that
may  be  necessary  or  desirable,  in  Beneficiary's  determination,   for  the
perfection or renewal of such  security  interest  under the Uniform  Commercial
Code.

TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF  SECURING,  in such
order of priority as Beneficiary may determine:  (i) payment of the Indebtedness
(as  hereinafter  defined);  and (ii) payment  (with  interest as provided)  and
performance   by  Grantor  of  the   Obligations   (as   hereinafter   defined).
Notwithstanding the foregoing, or any other term contained herein or in the Loan
Documents,  none of Grantor's  obligations  (the "Other  Obligations")  under or
pursuant to (a) the  Environmental  Indemnity  Agreement  of even date  herewith
executed by Grantor,  Guarantor and the Other  Borrowers in favor of Beneficiary
("Environmental  Agreement"),  (b) the Other  Indebtedness or (c) any Other Note
shall be secured by the lien of this Deed of Trust.

FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture  filing in the real  estate  records of the County of the State in which
the real estate  described in Exhibit A is located,  with respect to any and all
fixtures  included within the term "Property" and "fixtures"  under this Deed of
Trust  and to any goods or other  personal  property  that are now or  hereafter
become a part of the Property as fixtures.


                                   DEFINITIONS

     CERTAIN  DEFINED TERMS:  As used in this Deed of Trust the following  terms
shall have the following meanings:

     ABSOLUTE  ASSIGNMENT:  The Absolute  Assignment  of Leases and Rents (First
Priority) of even date herewith executed by Grantorin favor of Beneficiary.

     COMMITMENT:  The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications  stated in the letter, the Loan application executed by
Grantor and the Other  Borrowers,  dated October 31, 2002,  which acceptance and
modification  was agreed to by Grantor and the Other  Borrowers  on November 23,
2002.

     ENVIRONMENTAL  AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.

     FACILITY:  A real property (including,  without limitation,  all buildings,
fixtures and other  improvements  located  thereon) now or hereafter  serving as
security  for the loans  which  comprise  the  Transaction.  Attached  hereto as
Exhibit B is a list of all Facilities as of the date hereof.

     GUARANTOR:  Mission West Properties, Inc., a Maryland corporation, and each
other  person   hereafter   guaranteeing   any  portionof  the  Indebtedness  or
Obligations.

     GUARANTEE:  That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in  favor  of  Beneficiary,  and  any  other  guarantee  of any  portion  of the
Indebtedness or Obligations hereafter executed by any person.

<PAGE>

     INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Note (as  hereinafter  defined)  and any  extensions  or  renewals
thereof  (including  extensions  or renewals at a  different  rate of  interest,
whether or not evidenced by a new or additional  promissory note or notes),  and
all other indebtedness of Grantor to Beneficiary and additional  advances under,
evidenced by and/or  secured by the Loan  Documents,  plus  interest on all such
amounts,  other than any obligations  relating to the Other Indebtedness,  Other
Notes or Other Obligations.

     LOAN DOCUMENTS: The Note, this Deed of Trust, the Commitment (as it relates
to the Indebtedness),  the Absolute Assignment,  the Guarantee (as it relates to
the  Indebtedness),  that certain  Certification  of Borrowers  and Carl E. Berg
("Certification")  of even date  herewith  (as it relates to the  Indebtedness),
that certain  Limited  Partnership  Supplement  dated January 6, 2003, any other
supplements  and   authorizations   required  by  Beneficiary,   the  Fraudulent
Conveyance   Indemnity   Agreement   from   Guarantor  (as  it  relates  to  the
Indebtedness), Certificate Regarding Distribution of Loan Proceeds and Indemnity
Agreement among Guarantor, Grantor and the Other Borrowers (as it relates to the
Indebtedness),  and Contribution and  Reimbursement  Agreement among Grantor and
the Other Borrowers (as it relates to the Indebtedness), and all other documents
evidencing,  securing  or relating  to the  payment of the  Indebtedness  or the
performance  of the  Obligations,  with the exception of the Other Notes and the
Environmental Agreement.

     NOTE: The Promissory Note of even date herewith  executed by Grantor in the
original  principal amount of Forty-One  Million Three Hundred Nineteen Thousand
Nine Hundred Seventy-Six Dollars ($41,319,976.00), payable to Beneficiary or its
order,  with final  maturity no later than February 1, 2013 and with interest as
therein  expressed,  and  all  modifications,  renewals  or  extensions  of such
Promissory Note.

     OBLIGATIONS:  Any and all of the covenants,  promises and other obligations
(including  payment of the  Indebtedness)  made or owing by Grantor to or due to
Beneficiary  under  and/or  as set  forth in the Loan  Documents  and all of the
material  covenants,  promises and other obligations made or owing by Grantor to
each and every other  person  relating to the  Property,  exclusive of the Other
Obligations.

     OTHER BORROWERS:  Collectively, Mission West Properties, L.P. I, a Delaware
limited  partnership,  and Mission West  Properties,  L.P.,  a Delaware  limited
partnership.

     OTHER  INDEBTEDNESS:  The loans  from  Beneficiary  to the Other  Borrowers
evidenced by the Other Notes.

     OTHER NOTES:  Those other  Promissory  Notes,  each  executed by one of the
Other Borrowers and payable to the order of Beneficiary,  which Promissory Notes
are more particularly described in Schedule 1 of the Note.

     OTHER  OBLIGATIONS:  As defined in the  Granting  Paragraph of this Deed of
Trust.

     PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.

     TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00),  which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof,  and are evidenced by the Note and Other
Notes and secured by lien instruments and collateral  documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.

     TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the  payment of  amounts  owed  Beneficiary  in  connection  with the
Transaction, with the exception of the Environmental Agreement.


  TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:

PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness  hereby secured promptly
and in full compliance with the terms of the Loan Documents.

OWNERSHIP.  Grantor represents that it owns the Property and has good and lawful
right to convey  the same and that the  Property  is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary.  Grantor does hereby  forever  warrant and shall forever defend the
title and  possession  thereof  against the lawful claims of any and all persons
whomsoever.

<PAGE>

MAINTENANCE  OF PROPERTY AND  COMPLIANCE  WITH LAWS.  Grantor agrees to keep the
buildings and other  improvements  now or hereafter  erected on the Land in good
condition  and  repair;  not to commit or suffer any waste;  to comply  with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all  reasonable  times for the purpose of inspection and of conducting,
in a reasonable  and proper manner,  such tests as Beneficiary  determines to be
necessary in order to monitor  Grantor's  compliance  with  applicable  laws and
regulations regarding hazardous materials affecting the Property.

TENANTS  USING  CHLORINATED  SOLVENTS.  Grantor  agrees  not to lease any of the
Property, without the prior written consent of Beneficiary,  to (i) dry cleaning
operations that perform dry cleaning on site with  chlorinated  solvents or (ii)
any other  tenants  that use  chlorinated  solvents  in the  operation  of their
businesses.

Notwithstanding  the  above,  a  tenant's  use and  storage  of a product  which
contains  no more than  twelve (12)  ounces of  chlorinated  solvents  shall not
violate this  prohibition if, and only if, (i) each tenant's use,  storage,  and
the  ultimate  disposal,  of said  solvents is at all times in  compliance  with
applicable  law;  (ii)  said  solvents  are  acquired  and  kept in  prepackaged
containers;  and  (iii)  each  tenant  keeps no more  than  one (1)  prepackaged
container of said solvents on the Property.

BUSINESS  RESTRICTION   REPRESENTATION  AND  WARRANTY.  Grantor  represents  and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the  Indebtedness:  (i) are not, and shall not
become,  a person or entity  with whom  Beneficiary  is  restricted  from  doing
business with under  regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's  Specially  Designated  and Blocked  Persons  list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking  Property and Prohibiting  Transactions  With Persons Who Commit,
Threaten to Commit, or Support  Terrorism),  or other governmental  action; (ii)
are not  knowingly  engaged  in,  and shall  not  engage  in,  any  dealings  or
transaction or be otherwise  associated with such persons or entities  described
in (i) above;  and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the  International  Money  Laundering  Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.

INSURANCE.  Grantor  agrees to keep the Property  insured for the  protection of
Beneficiary and  Beneficiary's  wholly owned  subsidiaries  and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance  in  amounts  and  form  and  with  companies  all   satisfactory   to
Beneficiary:

     (A)  All risk  property  insurance  with a  deductible  of not greater than
          $100,000.00,  including  Demolition and Increased Cost of Construction
          (DICC) coverage equal to a minimum of 5% of the estimated  replacement
          cost, with an Agreed Amount Endorsement for the estimated  replacement
          cost of the improvements.  If such all risk property  insurance policy
          contains a terrorism exclusion, then Grantor shall purchase a separate
          insurance  policy  acceptable to Beneficiary  for terrorism  coverage.
          Notwithstanding the foregoing, however, Grantor shall only be required
          to  carry  such  insurance  coverage  for  acts  of  terrorism  with a
          deductible  acceptable  to  Lender  if such  coverage  is  customarily
          required by other  institutional  lenders on loans secured by property
          similar to the Property;

     (B)  Loss of rents insurance equal to twelve months rent or business income
          insurance for 100% of the annual gross earnings from business  derived
          from the Property;

     (C)  Flood insurance,  if the Property is located in a flood plain (as that
          term is used in the National Flood Insurance Program) in an amount not
          less than 25% of the estimated replacement cost; however,  Beneficiary
          has agreed that Grantor can self insure for flood coverage for the two
          facilities on McCandless Drive in Milpitas, California;

     (D)  Grantor's  own  commercial  general  liability  insurance  policy with
          Beneficiary,  and Beneficiary's  wholly owned subsidiaries and agents,
          named as additional insureds for their interests in the Property; and

     (E)  Other insurance as required by Beneficiary.

     Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary,  or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing  all  insurance   coverages   required   hereunder  on  deposit  with
Beneficiary,  which  certificates shall provide at least thirty (30) days notice
of  cancellation  to Beneficiary  and shall list  Beneficiary as the certificate
holder.

     All insurance loss proceeds from all property insurance  policies,  whether
or  not  required  by  Beneficiary  (less  expenses  of  collection)  shall,  at
Beneficiary's option, be applied on the Indebtedness,  whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan  Documents.
If Beneficiary  elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.

<PAGE>

     Notwithstanding  the foregoing  provision,  Beneficiary  agrees that if the
insurance  loss  proceeds  from an insured  loss as a Facility are less than the
Allocated  Loan Amount for the Facility (as shown in Exhibit B attached  hereto)
and if the  casualty  occurs  prior to the last  three  years of the term of the
Note,  then the insurance loss proceeds  (less expenses of collection)  shall be
applied to restoration  of the Facility to its condition  prior to the casualty,
subject to satisfaction of the following conditions:

     (a)  There is no existing Event of Default (as hereinafter  defined) at the
          time of casualty,  and if there shall occur any Event of Default after
          the date of the casualty, Beneficiary shall have no further obligation
          to release insurance loss proceeds hereunder.

     (b)  The casualty insurer has not denied liability for payment of insurance
          loss proceeds as a result of any act, neglect, use or occupancy of the
          Property by Grantor or any tenant of the Property.

     (c)  Beneficiary  shall be satisfied  that all  insurance  loss proceeds so
          held,  together  with  supplemental  funds  to be  made  available  by
          Grantor,  shall be  sufficient  to  complete  the  restoration  of the
          Property.  Any remaining insurance loss proceeds may, at the option of
          Beneficiary, be applied on the Indebtedness, whether or not due, or be
          released to Grantor.

     (d)  If  required  by  Beneficiary,   Beneficiary   shall  be  furnished  a
          satisfactory  report  addressed to Beneficiary  from an  environmental
          engineer or other qualified  professional  satisfactory to Beneficiary
          to the effect  that no adverse  environmental  impact to the  Property
          resulted from the casualty.

     (e)  Beneficiary shall release casualty  insurance  proceeds as restoration
          of the Property  progresses  provided  that  Beneficiary  is furnished
          satisfactory  evidence of the costs of restoration and if, at the time
          of such release, there shall exist no Monetary Default (as hereinafter
          defined) under the  Transaction  Documents and no default with respect
          to which  Beneficiary  shall  have given  Grantor  or Other  Borrowers
          notice pursuant to the Notice of Default  -----------------  provision
          herein or in the  documents  related  to other  loans  comprising  the
          Transaction. If the estimated cost of restoration exceeds $250,000.00,
          (i) the  drawings  and  specifications  for the  restoration  shall be
          approved  by  Beneficiary  in  writing  prior to  commencement  of the
          restoration,  and (ii) Beneficiary shall receive an administration fee
          equal to 1% of the cost of restoration.

     (f)  Prior to each release of funds,  Grantor  shall obtain for the benefit
          of Beneficiary an endorsement to Beneficiary's  title insurance policy
          insuring  Beneficiary's lien as a first and valid lien on the Property
          subject  only  to  liens  and  encumbrances  theretofore  approved  by
          Beneficiary.

     (g)  Grantor  shall pay all costs and  expenses  incurred  by  Beneficiary,
          including,  but not limited to,  outside legal fees,  title  insurance
          costs,  third-party disbursement fees, third-party engineering reports
          and inspections deemed necessary by Beneficiary.

     (h)  All  reciprocal  easement  and  operating  agreements  benefiting  the
          Property,  if any,  shall remain in full force and effect  between the
          parties thereto on and after restoration of the Property.

     (i)  Beneficiary  shall be satisfied that  Projected Debt Service  Coverage
          (as  hereinafter  defined) of at least 1.50 will be produced  from the
          leasing  of not more  than  319,495  square  feet of  space to  former
          tenants  or  approved   new  tenants  with  leases   satisfactory   to
          Beneficiary for terms of at least five (5) years to commence not later
          than (30) days  following  completion of such  restoration  ("Approved
          Leases").

     (j)  All leases in effect at the time of the casualty with tenants who have
          entered into  Beneficiary's  form of  Non-Disturbance  and  Attornment
          Agreement  or  similar  agreement  shall  remain  in  full  force  and
          Beneficiary  shall be  satisfied  that  restoration  can be  completed
          within  a time  frame  such  that  each  tenant  thereunder  shall  be
          obligated,  or each such tenant  shall have  elected,  to continue the
          lease term at full rental  (subject only to abatement,  if any, during
          any period in which the  Property  or a portion  thereof  shall not be
          used and occupied by such tenant as a result of the casualty).

     (k)  Without limiting the Earthquake  provisions  contained  herein, if the
          casualty has resulted in whole or part from an earthquake: (a) Grantor
          shall have supplied  Beneficiary  with a "Seismic  Risk  Estimate" (in
          accordance with the Earthquake  provisions herein) which show that the
          Property  will meet  "Minimum  Seismic  Criteria"  (as  defined in the
          Earthquake  provisions  herein) upon completion of repair and retrofit
          work which can be  completed  within one year of the  earthquake,  (b)
          prior to commencement of the restoration, Grantor shall have committed
          in  writing  to

<PAGE>

Beneficiary  that  Grantor  will do such  repair and  retrofit  work as shall be
necessary  to cause  the  Property  to in fact  meet  Minimum  Seismic  Criteria
following  completion  of  restoration,  and (c)  Beneficiary  must at all times
during the  restoration  be  reasonably  satisfied  that the Property  will meet
Minimum Seismic Criteria following completion of the restoration, Grantor hereby
agreeing to supply  Beneficiary with such evidence thereof as Beneficiary  shall
request from time to time.

     "Projected  Debt Service  Coverage"  means a number  calculated by dividing
Projected  Operating Income Available for Debt Service (as hereinafter  defined)
for the first  fiscal year  following  restoration  of the  Property by the debt
service  during the same fiscal year under all  indebtedness  secured by a first
mortgage  lien on any portion of the  Property.  For  purposes of the  preceding
sentence,  "debt  service"  means the greater of (x) debt  service due under all
such  indebtedness  during the first  fiscal year  following  completion  of the
restoration  of the  Property or (y) debt  service that would be due and payable
during such fiscal year if all such  indebtedness  were  amortized over 20 years
(whether  or not  amortization  is  actually  required)  and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).

     "Projected  Operating  Income  Available for Debt Service" means  projected
gross  annual  rent from the  Approved  Leases  for the first full  fiscal  year
following completion of the restoration of the Property less:

     (A)  The  operating  expenses  of the  Property  for the last  fiscal  year
          preceding the casualty and

     (B)  the following:

          (i)  a  replacement  reserve for future tenant  improvements,  leasing
               commissions and structural items based on not less than $1.80 per
               square foot per annum;

          (ii) the amount,  if any, by which  actual  gross  income  during such
               fiscal period  exceeds that which would be earned from the rental
               of 85% of the gross leasable area in the Property;

          (iii)the amount,  if any, by which the actual  management  fee is less
               than 2% of gross revenue during such fiscal period;

          (iv) the amount,  if any,  by which the actual  real estate  taxes are
               less than $2.10 per square foot per annum; and

          (v)  the amount,  if any, by which total  actual  operating  expenses,
               excluding  management  fees,  real estate  taxes and  replacement
               reserves, are less than $1.40 per square foot per annum.

     All  projections   referenced   above  shall  be  calculated  in  a  manner
satisfactory to Beneficiary.

CONDEMNATION.  Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds  resulting  from damage to, or the taking of, all or any portion of the
Property,  and (ii) the  proceeds  from any  sale or  transfer  in lieu  thereof
(collectively,   "Condemnation   Proceeds")  in  connection  with   condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter,  a "Taking");  if the Condemnation  Proceeds related to a Facility
are less than the  Allocated  Loan  Amount for the  Facility  and such damage or
Taking  occurs  prior to the last  three  years  of the term of the  Note,  such
Condemnation  Proceeds  (less  expenses  of  collection)  shall  be  applied  to
restoration  of the Facility to its condition,  or the functional  equivalent of
its condition prior to the Taking,  subject to the conditions set forth above in
the section  entitled  "Insurance"  and subject to the  further  condition  that
restoration or replacement of the  improvements on the Land to their  functional
and economic utility prior to the Taking be possible.  Any portion of such award
and proceeds not applied to  restoration  shall,  at  Beneficiary's  option,  be
applied on the Indebtedness,  whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.

TAXES AND SPECIAL  ASSESSMENTS.  Grantor  agrees to pay before  delinquency  all
taxes  and  special  assessments  of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Trustee or  Beneficiary in the Property,  this  instrument,
the Note or the Indebtedness,  and to procure and deliver to Beneficiary  within
30 days after  Beneficiary  shall have given a written  request to Grantor,  the
official  receipt of the proper officer showing timely payment of all such taxes
and assessments;  provided,  however,  that Grantor shall not be required to pay
any such taxes or special  assessments if the amount,  applicability or validity
thereof shall  currently be contested in good faith by  appropriate  proceedings
and funds  sufficient to satisfy the contested  amount have been deposited in an
escrow satisfactory to Beneficiary.

PERSONAL  PROPERTY.  With  respect  to the  Personal  Property,  Grantor  hereby
represents, warrants and covenants as follows:

     (a) Except for the security interest granted hereby,  Grantor is, and as to
portions of the Personal  Property to be acquired after the date hereof will be,
the sole owner of the Personal Property,  free from any lien, security interest,
encumbrance  or adverse  claim  thereon

<PAGE>

of any kind whatsoever. Grantor shall notify Beneficiary of, and shall indemnify
and defend Beneficiary and the Personal Property against, all claims and demands
of all persons at any time claiming the Personal Property or any part thereof or
any interest therein.

     (b) Except as otherwise  provided  above,  Grantor  shall not lease,  sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.

     (c) Grantor is a limited partnership  organized under the laws of the State
of  Delaware.  Until the  Indebtedness  is paid in full,  Grantor  (i) shall not
change its legal name without providing  Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve  its  existence  and  shall  not,  in one  transaction  or a series  of
transactions, merge into or consolidate with any other entity.

     (d) At the  request  of  Beneficiary,  Grantor  shall join  Beneficiary  in
executing one or more  financing  statements  and  continuations  and amendments
thereof  pursuant  to the  Uniform  Commercial  Code  in  form  satisfactory  to
Beneficiary,  and  Grantor  shall pay the cost of filing  the same in all public
offices  wherever  filing is deemed by Beneficiary to be necessary or desirable.
Grantor  shall  also,  at  Grantor's  expense,  take  any and all  other  action
requested by Beneficiary to perfect  Beneficiary's  security  interest under the
Uniform  Commercial  Code with  respect  to the  Personal  Property,  including,
without  limitation,  exercising  Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security  interest  in  Personal   Property   consisting  of  deposit  accounts,
letter-of-credit rights, investment property, and electronic chattel paper.

OTHER LIENS.  Grantor agrees to keep the Property or any Personal  Property free
from all other liens  either  prior or  subsequent  to the lien  created by this
instrument  other  than  liens  created by the  Transaction  Documents.  The (i)
creation  of any other lien on any portion of the  Property  or on any  Personal
Property,  whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable  license to collect,  use and enjoy rents and
profits from the  Property,  shall  constitute a default under the terms of this
instrument;  except that upon written notice to Beneficiary,  Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate  proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal  Property  described  herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.

COSTS, FEES AND EXPENSES.  Grantor agrees to pay all costs, fees and expenses of
this  trust;  to appear in and  defend any action or  proceeding  purporting  to
affect the  security  hereof or the rights or powers of  Beneficiary  or Trustee
hereunder;  to pay all  costs  and  expenses,  including  the cost of  obtaining
evidence of title and reasonable  attorney's  fees,  incurred in connection with
any  such  action  or  proceeding;  and to pay any and all  attorney's  fees and
expenses of collection  and  enforcement  in the event the Note is placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.

FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein  provided,  Beneficiary  or Trustee  may,  without  obligation  so to do,
without notice to or demand upon Grantor and without  releasing Grantor from any
obligation  hereof: (i) make or do the same in such manner and to such extent as
Beneficiary  may deem necessary to protect the security  hereof,  Beneficiary or
Trustee  being  authorized  to enter upon the  Property for such  purpose;  (ii)
appear in and defend any action or proceeding  purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee;  (iii) pay, purchase,
contest or compromise any  encumbrance,  charge or lien which in the judgment of
Beneficiary  appears to be prior or superior hereto;  and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so  expended  shall be payable  by Grantor  immediately  upon  demand  with
interest from date of  expenditure at the Default Rate (as defined in the Note).
All sums so expended by Beneficiary  and the interest  thereon shall be included
in the Indebtedness and secured by the lien of this instrument.

EVENT OF DEFAULT.  Any default by Grantor or the Other  Borrowers  in making any
required payment of the Indebtedness or the Other Indebtedness or any default in
any provision,  covenant,  agreement, warranty or certification contained in any
of the Transaction  Documents  shall,  except as provided in the two immediately
succeeding paragraphs, constitute an "Event of Default".

NOTICE OF DEFAULT.  A default in any payment required in the Note or Other Notes
or any other  Transaction  Document,  whether or not payable to Beneficiary,  (a
"Monetary  Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written  notice of such  Monetary  Default to Grantor and the
Other  Borrowers and Grantor and the Other  Borrowers  shall not have cured such
Monetary  Default  by payment of all  amounts in default  (including  payment of
interest at the Default  Rate,  as defined in the Note or Other Notes,  from the
date of default to the date of cure on amounts owed to Beneficiary)  within five
(5)  business  days  after the date on which  Beneficiary  shall have given such
notice to Grantor and Other Borrowers.

     Any  other  default  under  the Note or Other  Notes  or  under  any  other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default  unless   Beneficiary   shall  have  given  a  written  notice  of  such
Non-Monetary  Default to Grantor  and the Other  Borrowers  and  Grantor and the
Other  Borrowers  shall not have cured such  Non-Monetary  Default within thirty
(30) days after the date on which  Beneficiary  shall have given such  notice of
default to Grantor and the Other Borrowers (or, if the

<PAGE>

Non-Monetary  Default is not curable within such 30-day period,  Grantor and the
Other Borrowers shall not have diligently undertaken and continued to pursue the
curing of such  Non-Monetary  Default and deposited an amount sufficient to cure
such Non-Monetary Default in an escrow account satisfactory to Beneficiary).

     In no event  shall the  notice and cure  period  provisions  recited  above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).

SUBSTITUTION OF TRUSTEE.  Beneficiary and its successors and assigns may for any
reason  and  at  any  time  appoint  a new  or  substitute  Trustee  by  written
appointment  delivered  to such new or  substitute  Trustee  without  notice  to
Grantor,  without  notice to, or the  resignation or withdrawal by, the existing
Trustee and without  recordation  of such written  appointment  unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment,  the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.

APPOINTMENT  OF RECEIVER.  Upon  commencement  of any  proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or  restriction  by any present or future law,  without regard to the
solvency or  insolvency  at that time of any party liable for the payment of the
Indebtedness,  without regard to the then value of the Property,  whether or not
there  exists a threat  of  imminent  harm,  waste or loss to the  Property  and
whether  or not the same shall  then be  occupied  by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the  revenues,  rents,  profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such  appointment may confer) full power to collect all such income
and, after paying all necessary  expenses of such receivership and of operation,
maintenance and repair of said Property,  to apply the balance to the payment of
any of the Indebtedness then due.

FORECLOSURE.  Upon the  occurrence  of an Event of  Default,  the entire  unpaid
Indebtedness  shall,  at the option of Beneficiary,  become  immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE  EXERCISE OF SUCH OPTION,  OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising  any rights it may have with respect to the Personal  Property  under
the  Uniform  Commercial  Code of the  jurisdiction  in which  the  Property  is
located,  institute  proceedings  in any  court  of  competent  jurisdiction  to
foreclose  this  instrument  as a mortgage,  or to enforce any of the  covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage,  rent or
lease the  Property or any portion  thereof upon such terms as  Beneficiary  may
deem  expedient,  and  collect,  receive  and  receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter  provided in case
of sale.  Trustee is hereby further  authorized  and empowered,  either after or
without such entry,  to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think  best),  and all the right,  title and interest of
Grantor  therein,  by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located,  (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue,  execute and deliver a
deed of conveyance,  all as then may be provided by law; and Trustee shall,  out
of the  proceeds or avails of such sale,  after first paying and  retaining  all
fees,  charges,  costs of advertising  the Property and of making said sale, and
attorneys'  fees as herein  provided,  pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof,  including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness,  with interest from date of
advance or expenditure  at the Default Rate (as defined in the Note),  rendering
the excess,  if any,  as  provided  by law;  such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the  Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.

PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material  consideration  to  Beneficiary in making the loan secured by this
instrument,  and  Grantor  shall not (i) convey  title to all or any part of the
Property,  (ii) enter into any  contract  to convey  (land  contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a  purchaser  possession  of,  or income  from,  the  Property  prior to a
transfer of title to all or any part of the Property  ("Contract  to Convey") or
(iii) cause or permit a Change in the  Proportionate  Ownership (as  hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the  Proportionate  Ownership  of Grantor  shall  constitute a default
hereunder.

     B.  For  purposes  of  this  instrument,  a  "Change  in the  Proportionate
Ownership"  means any transfer  which  results in Carl E. Berg and/or  Permitted
Transferee's  (as defined below)  collectively,  owning less than 49% of Carl E.
Berg's direct and indirect  ownership  interest in Grantor (existing on the date
of initial  advance  of funds,  as  represented  in the  Certification)  without
Beneficiary's approval.

     C.  Notwithstanding  the above,  a transfer of Carl E. Berg's  ownership in
Grantor  (i) to and among the Berg  Family  (as  hereinafter  defined)  shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E.  Berg,  and (ii) to any entity  owned and  controlled  (ownership  and voting
interest  in excess of 50% by the Berg  Family)  shall be  permitted  for estate
planning

<PAGE>

purposes or upon the death or  incompetency  of Carl E. Berg. A person or entity
holding  a direct  or  indirect  ownership  interest  by  virtue  of a  transfer
described in this subpart C. is a "Permitted Transferee."

     D. For purposes  hereof,  the "Berg  Family"  shall mean Carl E. Berg,  his
spouse, his descendants and their spouses,  Clyde J. Berg, any trusts or estates
for the  benefit  of  said  parties,  and  any  entities  owned  and  controlled
(ownership and voting interests in excess of 50%) by said parties.

     E. A conversion  of all or part of the  ownership  interest of Carl E. Berg
from limited  partnership  units ("L.P.  Units") of Grantor to common  shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.

FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:

(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the  "Property  Financial  Statements  Due
Date"):

     (i)  an unaudited balance sheet as of the last day of such fiscal year;

     (ii) an  unaudited  statement  of  operations  for such  fiscal year with a
          detailed  line item  break-down of all sources of income and expenses,
          including capital expenses broken down between,  leasing  commissions,
          tenant improvements,  capital maintenance, common area renovation, and
          expansion;

     (iii)a current rent roll  identifying  location,  leased area,  lease begin
          and end dates,  current  contract  rent,  rent  increases and increase
          dates, percentage rent, expense reimbursements, and any other recovery
          items;

     (iv) an operating budget for the current fiscal year; and

(B) the following financial  statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor,  respectively (the
"Grantor/Guarantor Financial Statements Due Date")

     (i)  an audited balance sheet as of the last day of such fiscal year; and

     (ii) an audited statement of cash flows for such fiscal year; and

(C) to the extent the following  tenants are not publicly  traded,  Grantor will
use its best efforts to obtain the following  financial  statements  for Fujitsu
(formerly  known as Amdahl),  Apple,  JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective  tenant (the "Tenant
Financial Statements Due Date"):

     (i)  an audited, or unaudited if audited is not available, balance sheet as
          of the last day of such fiscal year; and

     (ii) an audited,  or  unaudited if audited is not  available,  statement of
          cash flows for such fiscal period.

     The  Property  Financial   Statements  Due  Date,  the   Grantor/Guarantors
Financial  Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".

     If  audited,  the  financial  statements  identified  in  sections  (A)(i),
(A)(ii),  (B)(i),  (B)(ii),  (C)(i) and (C)(ii) above, shall each be prepared in
accordance  with  generally  accepted  accounting  principles  by a  "Big  Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary.  All unaudited  financial  statements  for Grantor,  Property,  and
Guarantor  shall  contain a  certification  by the managing  general  partner of
Grantor  stating  that they have been  prepared  in  accordance  with  generally
accepted accounting  principles and that they are true and correct.  The expense
of  preparing  all of the  financial  statements  required in (A) and (B) above,
shall be borne by Grantor.

     Grantor  acknowledges that Beneficiary requires the financial statements to
record  accurately  the  value of the  Property  for  financial  and  regulatory
reporting.

     In addition to all other remedies  available to Beneficiary  hereunder,  at
law and in equity,  if any  financial  statement or proof of payment of property
taxes and  assessments  is not  furnished  to  Beneficiary  as  required in this
section entitled  "Financial  Statements" and in

<PAGE>

the  section  entitled  "Taxes and  Special  Assessments",  within 30 days after
Beneficiary  shall have  given  written  notice to Grantor  that it has not been
received as required,

     (x) interest on the unpaid  principal  balance of the  Indebtedness and the
     Other Notes shall as of the applicable Financial Statements Due Date or the
     date such proof of  payment  of  property  taxes and  assessments  was due,
     accrue and become  payable at a rate equal to the sum of the Interest  Rate
     (as  defined in the Note) plus one percent  (1%) per annum (the  "Increased
     Rate"); and

     (y) Beneficiary  may elect to obtain an independent  appraisal and audit of
     the Property at Grantor's  expense,  and Grantor agrees that it will,  upon
     request,  promptly make Grantor's books and records  regarding the Property
     available to  Beneficiary  and the person(s)  performing  the appraisal and
     audit (which  obligation  Grantor  agrees can be  specifically  enforced by
     Beneficiary).

     The amount of the  payments  due under the Note and Other Notes  during the
time in which the  Increased  Rate  shall be in effect  shall be  changed  to an
amount which is sufficient to amortize the then unpaid principal  balance at the
Increased  Rate  during  the then  remaining  portion  of a  period  of 20 years
commencing with the  Amortization  Period  Commencement  Date (as defined in the
Note and Other Notes).  Interest shall continue to accrue and be due and payable
monthly  at the  Increased  Rate  until the  financial  statements  and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished  to  Beneficiary  as  required.  Commencing  on the date on which  the
financial  statements and proof of payment of property taxes and assessments are
received by Beneficiary,  interest on the unpaid  principal  balance shall again
accrue at the Interest  Rate and the  payments  due during the  remainder of the
term of the  Note and  Other  Notes  shall  be  changed  to an  amount  which is
sufficient  to amortize the then unpaid  principal  balance at the Interest Rate
during the then remaining  portion of a period of 20 years  commencing  with the
Amortization   Period   Commencement   Date.   Notwithstanding   the  foregoing,
Beneficiary  shall  have the right to conduct  an  independent  audit at its own
expense at any time.

PROPERTY   MANAGEMENT.   The  management  company  for  the  Property  shall  be
satisfactory  to Beneficiary.  Any change in the management  company without the
prior  written  consent of  Beneficiary  shall  constitute a default  under this
instrument.  Beneficiary  shall  be  reasonable  in  giving  its  approval,  and
Beneficiary  may require that the new management  company,  by itself or through
its manager,  have good character and reputation,  and demonstrated  ability and
experience in the  operation and leasing of at least one million  square feet of
property similar to the Property.

EARTHQUAKE.  If the Property is damaged by an earthquake  during the term of the
Indebtedness:

     (A)  Beneficiary  may require a new "Seismic Risk Estimate" (as hereinafter
     defined) to be performed at Grantor's expense, and

     (B)  Grantor  shall  perform  repair and  retrofit  work,  satisfactory  to
     Beneficiary,  which results in (i) the complete  repair of the Property and
     (ii) the performance of a subsequent  Seismic Risk Estimate  verifying that
     the Property meets "Minimum  Seismic  Criteria" (as  hereinafter  defined).
     Such work shall be commenced  and  completed as soon as possible and in any
     event within one year of the earthquake.

     Without limiting the Grantor's  obligation to cause the Property to satisfy
Minimum Seismic  Criteria,  during any period of time in which the Property does
not satisfy Minimum Seismic  Criteria,  Grantor shall provide  Beneficiary  with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).

     As used  herein,  "Earthquake  Insurance"  means a policy  satisfactory  to
Beneficiary  with a deductible of no greater than 5% of the  "Replacement  Cost"
(as hereinafter  defined) and in an amount calculated as follows:  (i) the "Loan
Amount" (as  hereinafter  defined) plus (ii) the "Specified  Loss Dollar Amount"
(as defined below) plus (iii) 5% of the  Replacement  Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).

     As used  herein,  "Loan  Amount"  shall  mean the  total  principal  amount
advanced at closing, under the Note.

     As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).

     As used herein, "Market Value" means the estimated fair market value of the
Property,  determined  by  Beneficiary  in its  sole  discretion,  at the time a
Seismic Risk Estimate is performed.

     As used herein,  "Minimum  Seismic  Criteria" means that both the Specified
Loss Percentage (as hereinafter  defined) for the Property is less than or equal
to 30% and the  Loan  Plus  Specified  Loss is less  than or equal to 90% of the
Market Value.

     As used herein,  "Model" means a computer  based seismic model  selected by
Beneficiary,  currently the  Insurance and  Investment  Risk  Assessment  System
("IRAS") program by Risk Management Solutions ("RMS").

<PAGE>

     As  used  herein,  "Replacement  Cost"  means  the  estimated  total  cost,
determined  by  Beneficiary  in its sole  discretion,  to  construct  all of the
Improvements  as if the Property were  completely  unimproved (not including the
cost of site work, utilities and foundation).

     As used herein,  "Seismic Risk Estimate" refers to the results of a seismic
risk  estimate for the Property  produced by the Model.  Grantor  agrees that it
will not rely for its own  evaluation  purposes  on the  Seismic  Risk  Estimate
produced by or for Beneficiary.

     As used herein,  "Specified  Loss Dollar Amount" means the "Specified  Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.

     As used herein,  "Specified Loss Percentage"  means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement  Cost.  Beneficiary's  parameters  for the  Model are based on a 90%
probability  that the  level of  damage  predicted  will not be  exceeded  in an
earthquake with an expected 475 year return period.

DEPOSITS  BY  GRANTOR.  To assure the timely  payment of real  estate  taxes and
special assessments  (including  personal property taxes, if appropriate),  upon
the occurrence of an Event of Default,  Beneficiary  shall thence forth have the
option to require  Grantor to deposit  funds with  Beneficiary  or in an account
satisfactory  to  Beneficiary,  in monthly  or other  periodic  installments  in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and  special  assessments  as they become due. If at any time the funds so
held by Beneficiary,  or in such other account, shall be insufficient to pay any
of said expenses,  Grantor shall,  upon receipt of notice  thereof,  immediately
deposit such additional funds as may be necessary to remove the deficiency.  All
funds so  deposited  shall be  irrevocably  appropriated  to  Beneficiary  to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.

NOTICES.  Any notices,  demands,  requests  and  consents  permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally  or sent by  certified  mail with  postage  prepaid  or by  reputable
courier  service with charges  prepaid.  Any notice or demand sent to Grantor by
certified  mail or reputable  courier  service  shall be addressed to Grantor at
10050  Bandley  Drive,  Cupertino,  CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable  courier  service shall be addressed to The  Northwestern  Mutual Life
Insurance Company to the attention of the Real Estate  Investment  Department at
720 East Wisconsin  Avenue,  Milwaukee,  WI 53202, or at such other addresses as
Beneficiary  shall designate in a notice given in the manner  described  herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand  hereunder  shall be deemed given when received.  Any notice or
demand  which is  rejected,  the  acceptance  of delivery of which is refused or
which is  incapable  of being  delivered  during  normal  business  hours at the
address specified herein or such other address designated  pursuant hereto shall
be deemed received as of the date of attempted delivery.

MODIFICATION OF TERMS.  Without  affecting the liability of Grantor or any other
person  (except any person  expressly  released  in writing)  for payment of the
Indebtedness or for performance of any obligation  contained  herein and without
affecting the rights of  Beneficiary  with respect to any security not expressly
released in writing,  Beneficiary may, at any time and from time to time, either
before or after the maturity of the Note, without notice or consent: (i) release
any person  liable for  payment  of all or any part of the  Indebtedness  or for
performance  of any  obligation;  (ii) make any agreement  extending the time or
otherwise  altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing  with  the  lien or  charge  hereof;  (iii)  exercise  or  refrain  from
exercising  or waive any right  Beneficiary  may have;  (iv)  accept  additional
security of any kind; (v) release or otherwise  deal with any property,  real or
personal, securing the Indebtedness, including all or any part of the Property.

EXERCISE OF OPTIONS.  Whenever, by the terms of this instrument,  of the Note or
any of the other Loan  Documents,  Beneficiary is given any option,  such option
may be  exercised  when the right  accrues,  or at any time  thereafter,  and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.

NATURE AND  SUCCESSION  OF  AGREEMENTS.  Each of the  provisions,  covenants and
agreements  contained  herein  shall inure to the benefit of, and be binding on,
the heirs, executors,  administrators,  successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Note.

LEGAL  ENFORCEABILITY.  No provision of this  instrument,  the Note or any other
Loan  Documents  shall  require the payment of interest or other  obligation  in
excess of the maximum  permitted by law. If any such excess  payment is provided
for in any Loan  Documents  or  shall  be  adjudicated  to be so  provided,  the
provisions of this paragraph  shall govern and Grantor shall not be obligated to
pay the amount of such interest or other  obligation to the extent that it is in
excess of the amount permitted by law.

<PAGE>

LIMITATION OF LIABILITY.  Notwithstanding  any provision contained herein to the
contrary,  the personal liability of Grantor shall be limited as provided in the
Note.

MISCELLANEOUS.  Time  is of the  essence  in  each of the  Loan  Documents.  The
remedies of Beneficiary  as provided  herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent,  and may be pursued singly,
successively,  or together at the sole  discretion  of  Beneficiary,  and may be
exercised as often as occasion  therefor shall occur; and neither the failure to
exercise any such right or remedy nor any  acceptance by  Beneficiary of payment
of  Indebtedness  in  default  shall in any  event be  construed  as a waiver or
release  of any right or  remedy.  Neither  this  instrument  nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and  Beneficiary.  If any of the  provisions of
any Loan  Document or the  application  thereof to any persons or  circumstances
shall to any extent be  invalid or  unenforceable,  the  remainder  of such Loan
Document  and each of the other  Loan  Documents,  and the  application  of such
provision or provisions to persons or circumstances  other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every  provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.

WAIVER OF JURY  TRIAL.  Grantor  hereby  waives  any right to trial by jury with
respect to any action or proceeding  (a) brought by Grantor,  Beneficiary or any
other  person  relating  to  (i)  the  obligations  secured  hereby  and/or  any
understandings  or prior  dealings  between the parties  hereto or (ii) the Loan
Documents or the Environmental  Indemnity Agreement, or (b) to which Beneficiary
is a party.

CAPTIONS.  The captions  contained herein are for convenience and reference only
and in no way define,  limit or  describe  the scope or intent of, or in any way
affect this instrument.

GOVERNING  LAW.  This  instrument  shall be  governed  by and  construed  in all
respects in accordance  with the laws of the State of California  without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning  any dispute  arising  under or related to this  instrument  shall be
brought in a state or federal  court  located  in the State of  California,  and
Beneficiary and Grantor hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California.

REQUEST FOR NOTICE.  Pursuant to California  Government Code Section 27321.5(b),
Grantor  hereby  requests that a copy of any notice of default and a copy of any
notice of sale given  pursuant  to this  instrument  be mailed to Grantor at the
address set forth herein.


<PAGE>



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

                MISSION WEST PROPERTIES, L.P. II, a Delaware limited partnership

                By:      Mission West Properties, Inc., a
                         Maryland corporation, its general
                         partner

                         By: Carl E. Berg

                         Name: Carl E. Berg

                         Title: CEO of G.P.

STATE OF California                         )
                                            )ss.
COUNTY OF         Santa Clara               )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature  GW Shott
         -----------------------------------
         G.W. Shott
         -----------------------------------
         Name (typed or printed)




This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.




<PAGE>


                                   EXHIBIT "A"
                                (Mission West II)



PROPERTY ONE:

All that certain real property situated in the City of San Jose, County of Santa
Clara, State of California, described as follows:

Parcel  2, as shown on the  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on November 26, 1979,
in Book 455 of Maps, Page(s) 1 and 2.

Assessors Parcel No:  706-09-023

PROPERTY TWO:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara,  State of  California on May 22, 1980, in
Book 463 of Maps, Page(s) 43 and 44.

Assessors Parcel No:  706-02-034


PROPERTY THREE:

Parcel 7, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara,  State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.

Assessors Parcel No:  086-33-092

PROPERTY FOUR:

Parcel 3 as shown on that  Parcel  Map filed for  recorded  in the Office of the
Recorder of the County of Santa Clara,  State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.

Assessors Parcel No:  086-41-017 & 086-41-018




<PAGE>


EXHIBIT 10.40

California
Loan No. C-332757
RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn

                    SPACE ABOVE THIS LINE FOR RECORDER'S USE

 DEED OF TRUST and SECURITY AGREEMENT and ASSIGNMENT OF LEASES AND RENTS (SECOND
                                   PRIORITY)
                        Mission West Properties, L. P. II

     THIS  DEED OF TRUST  and  SECURITY  AGREEMENT  is made as of the 3rd day of
January,  2003 between  MISSION  WEST  PROPERTIES,  L.P. II, a Delaware  limited
partnership,   10050  Bandley   Drive,   Cupertino,   CA  95014,   herein  (said
Grantor/Trustor,  whether  one or  more in  number)  called  "Grantor",  and THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin  Avenue,  Milwaukee,  WI  53202,  herein  called  "Trustee",  and  THE
NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY,  a Wisconsin  corporation,  720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":

     WITNESSETH,  That Grantor,  in  consideration  of the  indebtedness  herein
mentioned,  does hereby irrevocably bargain, sell, grant,  transfer,  assign and
convey  unto  Trustee,  in  trust,  with  power of sale and  right of entry  and
possession, the following property (herein referred to as the "Property"):

     A.   The land in the City of San Jose  and City of  Milpitas,  Santa  Clara
          County,  California  described  in  Exhibit  "A"  attached  hereto and
          incorporated herein (the "Land");

     B.   All easements, appurtenances, tenements and hereditaments belonging to
          or benefiting the Land, including but not limited to all waters, water
          rights,  water  courses,  all  ways,  trees,  rights,   liberties  and
          privileges; and

     C.   All  improvements  to the Land,  including,  but not  limited  to, all
          buildings,  structures  and  improvements  now  existing or  hereafter
          erected on the Land;  all fixtures and equipment of every  description
          belonging to Grantor  which are or may be placed or used upon the Land
          or attached to the buildings,  structures or improvements,  including,
          but not limited to, all engines, boilers, elevators and machinery, all
          heating  apparatus,   electrical   equipment,   air-conditioning   and
          ventilating  equipment,  water and gas fixtures, and all furniture and
          easily removable  equipment;  all of which, to the extent permitted by
          applicable  law,  shall be deemed an  accession  to the freehold and a
          part of the realty as between the parties  hereto;  the rents,  issues
          and profits arising from the Land and improvements  subject,  however,
          to any right,  power and  authority  given to  Grantor to collect  and
          apply such rents, issues and profits.

Grantor agrees not to sell, transfer,  assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any  buildings or  structures  or the sale or transfer of waters or water rights
and (ii) such action results in the  substitution  or  replacement  with similar
items of equal value.

     Without   limiting  the  foregoing   grants,   Grantor  hereby  pledges  to
Beneficiary,  and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter  acquired right, title and interest in and to the Property
and any and all

<PAGE>

     D.   cash and other funds now or at any time hereafter  deposited by or for
          Grantor on account of tax,  special  assessment,  replacement or other
          reserves required to be maintained  pursuant to the Loan Documents (as
          hereinafter  defined) with  Beneficiary or a third party, or otherwise
          deposited with, or in the possession of,  Beneficiary  pursuant to the
          Loan Documents; and

     E.   surveys, soils reports, environmental reports, guaranties, warranties,
          architect's   contracts,    construction   contracts,   drawings   and
          specifications,   applications,   permits,   surety  bonds  and  other
          contracts   relating   to  the   acquisition,   design,   development,
          construction and operation of the Property; and

     F.   accounts,  chattel paper,  deposit accounts,  instruments,  equipment,
          inventory,  documents,  general intangibles,  letter-of-credit rights,
          investment  property and all other  personal  property of Grantor,  in
          each  case,  to  the  extent  associated  with  or  arising  from  the
          ownership,  development,  operation, use or disposition of any portion
          of the property; and

     G.   present and future rights to condemnation  awards,  insurance proceeds
          or other  proceeds  at any time  payable to or  received by Grantor on
          account of the Property or any of the foregoing personal property.

All personal property  hereinabove  described is hereinafter  referred to as the
"Personal Property".

     If any of the Property is of a nature that a security  interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing  statement if permitted by applicable law and
Grantor  authorizes  Beneficiary to file a financing  statement  describing such
Property and, at Beneficiary's  request,  agrees to join with Beneficiary in the
execution of any financing  statements and to execute any other instruments that
may  be  necessary  or  desirable,  in  Beneficiary's  determination,   for  the
perfection or renewal of such  security  interest  under the Uniform  Commercial
Code.

     TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF  SECURING,  in
such  order of  priority  as  Beneficiary  may  determine:  (i)  payment  of the
Indebtedness  (as  hereinafter  defined);  and (ii)  payment  (with  interest as
provided)  and  performance  by  Grantor  of  the  Obligations  (as  hereinafter
defined).  Notwithstanding the foregoing,  or any other term contained herein or
in the Loan Documents,  none of Grantor's  obligations (the "Other Obligations")
under or  pursuant to (a) the  Environmental  Indemnity  Agreement  of even date
herewith  executed by Grantor,  Guarantor  and the other  Borrowers  in favor of
Beneficiary ("Environmental  Agreement"),  (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.


FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture  filing in the real  estate  records of the County of the State in which
the real estate  described in Exhibit A is located,  with respect to any and all
fixtures  included within the term "Property" and "fixtures"  under this Deed of
Trust  and to any goods or other  personal  property  that are now or  hereafter
become a part of the Property as fixtures.


                                   DEFINITIONS

     CERTAIN  DEFINED TERMS:  As used in this Deed of Trust the following  terms
shall have the following meanings:

     COMMITMENT:  The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications  stated in the letter, the Loan application executed by
Grantor and the Other  Borrowers,  dated October 31, 2002,  which acceptance and
modification  was agreed to by Grantor and the Other  Borrowers  on November 28,
2002.

     ENVIRONMENTAL  AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.

     FACILITY:  A real property (including,  without limitation,  all buildings,
fixtures and other  improvements  located  thereon) now or hereafter  serving as
security  for the loans  which  comprise  the  Transaction.  Attached  hereto as
Exhibit B is a list of all Facilities as of the date hereof.

     GUARANTOR:  Mission West Properties, Inc., a Maryland corporation, and each
other  person  hereafter   guaranteeing  any  portion  of  the  Indebtedness  or
Obligations.

     GUARANTEE:  That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in  favor  of  Beneficiary,  and  any  other  guarantee  of any  portion  of the
Indebtedness or

<PAGE>

Obligations hereafter executed by any person.

     INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Notes (as  hereinafter  defined)  and any  extensions  or renewals
thereof  (including  extensions  or renewals at a  different  rate of  interest,
whether or not evidenced by a new or additional  promissory note or notes),  and
all other indebtedness of Grantor to Beneficiary and additional  advances under,
evidenced by and/or  secured by the Loan  Documents,  plus  interest on all such
amounts,  other than any obligations  relating to the Other Indebtedness,  Other
Note or Other Obligations.

     LOAN  DOCUMENTS:  The  Notes,  this Deed of Trust,  the  Commitment  (as it
relates to the Indebtedness), the Guarantee (as it relates to the Indebtedness),
that certain  Certification of Borrowers and Carl E. Berg  ("Certification")  of
even date  herewith (as it relates to the  Indebtedness),  that certain  Limited
Partnership  Supplement  dated  January  6,  2003,  any  other  supplements  and
authorizations  required by  Beneficiary,  the Fraudulent  Conveyance  Indemnity
Agreement  from  Guarantor  (as it  relates  to the  Indebtedness),  Certificate
Regarding Distribution of Loan Proceeds and Indemnity Agreement among Guarantor,
Grantor  and the  Other  Borrowers  (as it  relates  to the  Indebtedness),  and
Contribution and  Reimbursement  Agreement among Grantor and the Other Borrowers
(as it  relates  to the  Indebtedness),  and  all  other  documents  evidencing,
securing or relating to the payment of the  Indebtedness  or the  performance of
the  Obligations,  with the  exception  of the Other Note and the  Environmental
Agreement.

     NOTES:  The Promissory Note of even date herewith  executed by Mission West
Properties,  L.P. I, a Delaware  limited  partnership in the original  principal
amount of Twenty Nine  Million  Eight  Hundred  Eleven  Thousand  Three  Hundred
Sixty-Nine  Dollars  ($29,811,369.00),  payable to Beneficiary or its order, and
the Promissory Note of even date herewith  executed by Mission West  Properties,
L.P., a Delaware limited  partnership in the original principal amount of Twenty
Eight Million Eight Hundred Sixty-Eight  Thousand Six Hundred Fifty-Five Dollars
($28,868,655.00),  payable  to  Beneficiary  or its  order,  in each with  final
maturity no later than February 1, 2013 and with interest as therein  expressed,
and all modifications, renewals or extensions of such Promissory Notes.

     OBLIGATIONS:  Any and all of the covenants,  promises and other obligations
(including  payment of the  Indebtedness)  made or owing by Grantor to or due to
Beneficiary  under  and/or  as set  forth in the Loan  Documents  and all of the
material  covenants,  promises and other obligations made or owing by Grantor to
each and every other  person  relating to the  Property,  exclusive of the Other
Obligations.

     OTHER BORROWERS:  Collectively, Mission West Properties, L.P. I, a Delaware
limited  partnership,  and Mission West  Properties,  L.P.,  a Delaware  limited
partnership.

     OTHER INDEBTEDNESS: The loan from Beneficiary evidenced by the Other Note.

     OTHER NOTE: The Promissory  Note of even date herewith  executed by Grantor
in the original  principal  amount of Forty One Million Three  Hundred  Nineteen
Thousand  Nine  Hundred   Seventy-Six  Dollars   ($41,319,976.00),   payable  to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with  interest  as  therein  expressed,  and  all  modifications,   renewals  or
extensions of such Promissory Note.

     OTHER  OBLIGATIONS:  As defined in the  Granting  Paragraph of this Deed of
Trust.

     PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.

         Transaction: Loans in the aggregate principal amount of One Hundred
Million Dollars ($100,000,000.00), which are made by the Beneficiary to the
Grantor and the Other Borrowers on the date hereof, and are evidenced by the
Notes and Other Note and secured by lien instruments and collateral documents
from Grantor and the Other Borrowers creating liens and rights for the benefit
of Beneficiary.

     TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the  payment of  amounts  owed  Beneficiary  in  connection  with the
Transaction, with the exception of the Environmental Agreement.


  TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:

PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness  hereby secured promptly
and in full compliance with the terms of the Loan Documents.

<PAGE>

OWNERSHIP.  Grantor represents that it owns the Property and has good and lawful
right to convey  the same and that the  Property  is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary.  Grantor does hereby  forever  warrant and shall forever defend the
title and  possession  thereof  against the lawful claims of any and all persons
whomsoever.

MAINTENANCE  OF PROPERTY AND  COMPLIANCE  WITH LAWS.  Grantor agrees to keep the
buildings and other  improvements  now or hereafter  erected on the Land in good
condition  and  repair;  not to commit or suffer any waste;  to comply  with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all  reasonable  times for the purpose of inspection and of conducting,
in a reasonable  and proper manner,  such tests as Beneficiary  determines to be
necessary in order to monitor  Grantor's  compliance  with  applicable  laws and
regulations regarding hazardous materials affecting the Property.

TENANTS  USING  CHLORINATED  SOLVENTS.  Grantor  agrees  not to lease any of the
Property, without the prior written consent of Beneficiary,  to (i) dry cleaning
operations that perform dry cleaning on site with  chlorinated  solvents or (ii)
any other  tenants  that use  chlorinated  solvents  in the  operation  of their
businesses.

Notwithstanding  the  above,  a  tenant's  use and  storage  of a product  which
contains  no more than  twelve (12)  ounces of  chlorinated  solvents  shall not
violate this  prohibition if, and only if, (i) each tenant's use,  storage,  and
the  ultimate  disposal,  of said  solvents is at all times in  compliance  with
applicable  law;  (ii)  said  solvents  are  acquired  and  kept in  prepackaged
containers;  and  (iii)  each  tenant  keeps no more  than  one (1)  prepackaged
container of said solvents on the Property.

BUSINESS  RESTRICTION   REPRESENTATION  AND  WARRANTY.  Grantor  represents  and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the  Indebtedness:  (i) are not, and shall not
become,  a person or entity  with whom  Beneficiary  is  restricted  from  doing
business with under  regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's  Specially  Designated  and Blocked  Persons  list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking  Property and Prohibiting  Transactions  With Persons Who Commit,
Threaten to Commit, or Support  Terrorism),  or other governmental  action; (ii)
are not  knowingly  engaged  in,  and shall  not  engage  in,  any  dealings  or
transaction or be otherwise  associated with such persons or entities  described
in (i) above;  and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the  International  Money  Laundering  Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.

INSURANCE.  Grantor  agrees to keep the Property  insured for the  protection of
Beneficiary and  Beneficiary's  wholly owned  subsidiaries  and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance  in  amounts  and  form  and  with  companies  all   satisfactory   to
Beneficiary:

     (A)  All risk  property  insurance  with a  deductible  of not greater than
          $100,000.00,  including  Demolition and Increased Cost of Construction
          (DICC) coverage equal to a minimum of 5% of the estimated  replacement
          cost, with an Agreed Amount Endorsement for the estimated  replacement
          cost of the improvements.  If such all risk property  insurance policy
          contains a terrorism exclusion, then Grantor shall purchase a separate
          insurance  policy  acceptable to Beneficiary  for terrorism  coverage.
          Notwithstanding the foregoing, however, Grantor shall only be required
          to  carry  such  insurance  coverage  for  acts  of  terrorism  with a
          deductible  acceptable  to  Lender  if such  coverage  is  customarily
          required by other  institutional  lenders on loans secured by property
          similar to the property;

     (B)  Loss of rents insurance equal to twelve months rent or business income
          insurance for 100% of the annual gross earnings from business  derived
          from the Property;

     (C)  Flood insurance,  if the Property is located in a flood plain (as that
          term is used in the National Flood Insurance Program) in an amount not
          less than 25% of the estimated replacement cost; however,  Beneficiary
          has agreed that Grantor can self insure for flood coverage for the two
          Facilities on McCandless Drive in Milpitas, California;

     (D)  Grantor's  own  commercial  general  liability  insurance  policy with
          Beneficiary,  and Beneficiary's  wholly owned subsidiaries and agents,
          named as additional insureds for their interests in the Property; and

     (E)  Other insurance as required by Beneficiary.

     Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary,  or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing  all  insurance   coverages   required   hereunder  on  deposit  with
Beneficiary,  which  certificates shall provide at least thirty (30) days notice
of  cancellation  to Beneficiary  and shall list  Beneficiary as the certificate
holder.

<PAGE>

     All insurance loss proceeds from all property insurance  policies,  whether
or  not  required  by  Beneficiary  (less  expenses  of  collection)  shall,  at
Beneficiary's option, be applied on the Indebtedness,  whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan  Documents.
If Beneficiary  elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.

     Notwithstanding  the foregoing  provision,  Beneficiary  agrees that if the
insurance  loss  proceeds  from an insured  loss as a Facility are less than the
Allocated  Loan Amount for the Facility (as shown in Exhibit B attached  hereto)
and if the  casualty  occurs  prior to the last  three  years of the term of the
Notes,  then the insurance loss proceeds (less expenses of collection)  shall be
applied to restoration  of the Facility to its condition  prior to the casualty,
subject to satisfaction of the following conditions:

     (a)  There is no existing Event of Default (as hereinafter  defined) at the
          time of casualty,  and if there shall occur any Event of Default after
          the date of the casualty, Beneficiary shall have no further obligation
          to release insurance loss proceeds hereunder.

     (b)  The casualty insurer has not denied liability for payment of insurance
          loss proceeds as a result of any act, neglect, use or occupancy of the
          Property by Grantor or any tenant of the Property.

     (c)  Beneficiary  shall be satisfied  that all  insurance  loss proceeds so
          held,  together  with  supplemental  funds  to be  made  available  by
          Grantor,  shall be  sufficient  to  complete  the  restoration  of the
          Property.  Any remaining insurance loss proceeds may, at the option of
          Beneficiary, be applied on the Indebtedness, whether or not due, or be
          released to Grantor.

     (d)  If  required  by  Beneficiary,   Beneficiary   shall  be  furnished  a
          satisfactory  report  addressed to Beneficiary  from an  environmental
          engineer or other qualified  professional  satisfactory to Beneficiary
          to the effect  that no adverse  environmental  impact to the  Property
          resulted from the casualty.

     (e)  Beneficiary shall release casualty  insurance  proceeds as restoration
          of the Property  progresses  provided  that  Beneficiary  is furnished
          satisfactory  evidence of the costs of restoration and if, at the time
          of such release, there shall exist no Monetary Default (as hereinafter
          defined) under the  Transaction  Documents and no default with respect
          to which  Beneficiary  shall  have given  Grantor  or Other  Borrowers
          notice  pursuant to the Notice of Default  provision  herein or in the
          documents  related to other loans comprising the  Transaction.  If the
          estimated cost of restoration  exceeds  $250,000.00,  (i) the drawings
          and   specifications   for  the  restoration   shall  be  approved  by
          Beneficiary in writing prior to commencement of the  restoration,  and
          (ii) Beneficiary  shall receive an  administration  fee equal to 1% of
          the cost of restoration.

     (f)  Prior to each release of funds,  Grantor  shall obtain for the benefit
          of Beneficiary an endorsement to Beneficiary's  title insurance policy
          insuring  Beneficiary's lien as a first and valid lien on the Property
          subject  only  to  liens  and  encumbrances  theretofore  approved  by
          Beneficiary.

     (g)  Grantor  shall pay all costs and  expenses  incurred  by  Beneficiary,
          including,  but not limited to,  outside legal fees,  title  insurance
          costs,  third-party disbursement fees, third-party engineering reports
          and inspections deemed necessary by Beneficiary.

     (h)  All  reciprocal  easement  and  operating  agreements  benefiting  the
          Property,  if any,  shall remain in full force and effect  between the
          parties thereto on and after restoration of the Property.

     (i)  Beneficiary  shall be satisfied that  Projected Debt Service  Coverage
          (as  hereinafter  defined) of at least 1.50 will be produced  from the
          leasing  of not more  than  319,495  square  feet of  space to  former
          tenants  or  approved   new  tenants  with  leases   satisfactory   to
          Beneficiary for terms of at least five (5) years to commence not later
          than (30) days  following  completion of such  restoration  ("Approved
          Leases").

     (j)  All leases in effect at the time of the casualty with tenants who have
          entered into  Beneficiary's  form of  Non-Disturbance  and  Attornment
          Agreement  or  similar  agreement  shall  remain  in  full  force  and
          Beneficiary  shall be  satisfied  that  restoration  can be  completed
          within  a time  frame  such  that  each  tenant  thereunder  shall  be
          obligated,  or each such tenant  shall have  elected,  to continue the
          lease term at full rental  (subject only to abatement,  if any, during
          any period in which the  Property  or a portion  thereof  shall not be
          used and occupied by such tenant as a result of the casualty).

<PAGE>

     (k)  Without limiting the Earthquake  provisions  contained  herein, if the
          casualty has resulted in whole or part from an earthquake: (a) Grantor
          shall have supplied  Beneficiary  with a "Seismic  Risk  Estimate" (in
          accordance with the Earthquake  provisions herein) which show that the
          Property  will meet  "Minimum  Seismic  Criteria"  (as  defined in the
          Earthquake  provisions  herein) upon completion of repair and retrofit
          work which can be  completed  within one year of the  earthquake,  (b)
          prior to commencement of the restoration, Grantor shall have committed
          in  writing  to  Beneficiary  that  Grantor  will do such  repair  and
          retrofit  work as shall be  necessary to cause the Property to in fact
          meet Minimum Seismic Criteria following completion of restoration, and
          (c) Beneficiary must at all times during the restoration be reasonably
          satisfied  that  the  Property  will  meet  Minimum  Seismic  Criteria
          following  completion of the  restoration,  Grantor hereby agreeing to
          supply  Beneficiary  with such evidence  thereof as Beneficiary  shall
          request from time to time.

     "Projected  Debt Service  Coverage"  means a number  calculated by dividing
Projected  Operating Income Available for Debt Service (as hereinafter  defined)
for the first  fiscal year  following  restoration  of the  Property by the debt
service  during the same fiscal year under all  indebtedness  secured by a first
mortgage  lien on any portion of the  Property.  For  purposes of the  preceding
sentence,  "debt  service"  means the greater of (x) debt  service due under all
such  indebtedness  during the first  fiscal year  following  completion  of the
restoration  of the  Property or (y) debt  service that would be due and payable
during such fiscal year if all such  indebtedness  were  amortized over 20 years
(whether  or not  amortization  is  actually  required)  and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).

     "Projected  Operating  Income  Available for Debt Service" means  projected
gross  annual  rent from the  Approved  Leases  for the first full  fiscal  year
following completion of the restoration of the Property less:

     (A)  The  operating  expenses  of the  Property  for the last  fiscal  year
          preceding the casualty and

     (B)  the following:

          (i)  a  replacement  reserve for future tenant  improvements,  leasing
               commissions and structural items based on not less than $1.80 per
               square foot per annum;

          (ii) the amount,  if any, by which  actual  gross  income  during such
               fiscal period  exceeds that which would be earned from the rental
               of 85% of the gross leasable area in the Property;

          (iii)the amount,  if any, by which the actual  management  fee is less
               than 2% of gross revenue during such fiscal period;

          (iv) the amount,  if any,  by which the actual  real estate  taxes are
               less than $2.10 per square foot per annum; and

          (v)  the amount,  if any, by which total  actual  operating  expenses,
               excluding  management  fees,  real estate  taxes and  replacement
               reserves, are less than $1.40 per square foot per annum.

     All  projections   referenced   above  shall  be  calculated  in  a  manner
satisfactory to Beneficiary.

CONDEMNATION.  Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds  resulting  from damage to, or the taking of, all or any portion of the
Property,  and (ii) the  proceeds  from any  sale or  transfer  in lieu  thereof
(collectively,   "Condemnation   Proceeds")  in  connection  with   condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter,  a "Taking");  if the Condemnation  Proceeds related to a Facility
are less than the  Allocated  Loan  Amount for the  Facility  and such damage or
Taking  occurs  prior to the last  three  years of the term of the  Notes,  such
Condemnation  Proceeds  (less  expenses  of  collection)  shall  be  applied  to
restoration  of the Facility to its condition,  or the functional  equivalent of
its condition prior to the Taking,  subject to the conditions set forth above in
the section  entitled  "Insurance"  and subject to the  further  condition  that
restoration or replacement of the  improvements on the Land to their  functional
and economic utility prior to the Taking be possible.  Any portion of such award
and proceeds not applied to  restoration  shall,  at  Beneficiary's  option,  be
applied on the Indebtedness,  whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.

TAXES AND SPECIAL  ASSESSMENTS.  Grantor  agrees to pay before  delinquency  all
taxes  and  special  assessments  of any kind that have been or may be levied or
assessed against the Property,  this instrument,  the Notes or the Indebtedness,
or upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Notes or the Indebtedness,  and to procure and deliver to Beneficiary within
30 days after  Beneficiary  shall have given a written  request to Grantor,  the
official  receipt of the proper officer showing timely payment of all such taxes
and assessments;  provided,  however,  that Grantor shall not be required to pay
any such taxes or special  assessments if the amount,  applicability or validity
thereof shall  currently be contested in good faith by  appropriate  proceedings
and funds  sufficient to satisfy the contested  amount have been deposited in an
escrow satisfactory to Beneficiary.

<PAGE>

PERSONAL  PROPERTY.  With  respect  to the  Personal  Property,  Grantor  hereby
represents, warrants and covenants as follows:

     (a) Except for the security interest granted hereby,  Grantor is, and as to
portions of the Personal  Property to be acquired after the date hereof will be,
the sole owner of the Personal Property,  free from any lien, security interest,
encumbrance  or adverse  claim  thereon of any kind  whatsoever.  Grantor  shall
notify  Beneficiary  of,  and shall  indemnify  and defend  Beneficiary  and the
Personal  Property  against,  all claims and  demands of all persons at any time
claiming the Personal Property or any part thereof or any interest therein.

     (b) Except as otherwise  provided  above,  Grantor  shall not lease,  sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.

     (c) Grantor is a limited partnership  organized under the laws of the State
of  Delaware.  Until the  Indebtedness  is paid in full,  Grantor  (i) shall not
change its legal name without providing  Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve  its  existence  and  shall  not,  in one  transaction  or a series  of
transactions, merge into or consolidate with any other entity.

     (d) At the  request  of  Beneficiary,  Grantor  shall join  Beneficiary  in
executing one or more  financing  statements  and  continuations  and amendments
thereof  pursuant  to the  Uniform  Commercial  Code  in  form  satisfactory  to
Beneficiary,  and  Grantor  shall pay the cost of filing  the same in all public
offices  wherever  filing is deemed by Beneficiary to be necessary or desirable.
Grantor  shall  also,  at  Grantor's  expense,  take  any and all  other  action
requested by Beneficiary to perfect  Beneficiary's  security  interest under the
Uniform  Commercial  Code with  respect  to the  Personal  Property,  including,
without  limitation,  exercising  Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security  interest  in  Personal   Property   consisting  of  deposit  accounts,
letter-of-credit rights, investment property, and electronic chattel paper.

OTHER LIENS.  Grantor agrees to keep the Property or any Personal  Property free
from all other liens  either  prior or  subsequent  to the lien  created by this
instrument  other  than  liens  created by the  Transaction  Documents.  The (i)
creation  of any other lien on any portion of the  Property  or on any  Personal
Property,  whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable  license to collect,  use and enjoy rents and
profits from the  Property,  shall  constitute a default under the terms of this
instrument;  except that upon written notice to Beneficiary,  Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate  proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal  Property  described  herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.

LEASES.  Grantor  covenants with  Beneficiary (a) to observe and perform all the
obligations  imposed upon the lessor under all leases and not to do or permit to
be done anything to impair the same without Beneficiary's prior written consent,
(b) not to collect any of the rent or other amounts due under any lease or other
issues or profits  from the  Property  in any manner in advance of the time when
the same shall become due (save and except only for  collecting one month's rent
in advance plus tenant contributions toward operating expenses plus the security
deposit,  if any, at the time of execution  of a lease),  (c) not to execute any
other  assignment of rents,  issues,  or profits arising or accruing from any of
the leases or from the Property,  except the Transaction  Documents,  (d) not to
enter into any lease  agreement  affecting  the  Property,  except  those leases
entered into in the ordinary course of business and utilizing Grantor's standard
form lease previously approved by Beneficiary, with no substantial modifications
thereto,  without the prior written consent of  Beneficiary,  (e) to execute and
deliver,  at the  request  of  Beneficiary,  all  such  further  assurances  and
acknowledgments  of the  assignment  contained  herein and the other  provisions
hereof, with respect to specific leases or otherwise,  as Beneficiary shall from
time to time require,  (f) to obtain from any tenant at the Property,  from time
to time  as  requested  by  Beneficiary,  estoppel  certificates,  in  form  and
substance  satisfactory  to  Beneficiary,  confirming the terms of such tenant's
lease and the absence of default thereunder, and (g) not to cancel, surrender or
terminate any lease, exercise any option which might lead to such termination or
consent to any change,  modification,  or alteration  thereof, to the release of
any party  liable  thereunder  or to the  assignment  of the  lessee's  interest
therein, without the prior written consent of Beneficiary, and any of said acts,
if done  without the prior  written  consent of  Beneficiary,  shall be null and
void.  Notwithstanding clause (g) of the preceding sentence, with respect to all
leases  (other  than  leases as to which  Beneficiary,  Grantor  and tenant have
executed a separate non-disturbance and attornment agreement),  Grantor may take
actions described in clause (g) without Beneficiary's prior written consent (but
with  written  notice  thereof to  Beneficiary),  if and only if such  action is
consistent with the usual and customary operation of the Property.

COSTS, FEES AND EXPENSES.  Grantor agrees to pay all costs, fees and expenses of
this  trust;  to appear in and  defend any action or  proceeding  purporting  to
affect the  security  hereof or the rights or powers of  Beneficiary  or Trustee
hereunder;  to pay all  costs  and  expenses,  including  the cost of  obtaining
evidence of title and reasonable  attorney's  fees,  incurred in connection with
any  such  action  or  proceeding;  and to pay any and all  attorney's  fees and
expenses of collection and  enforcement in the event the Notes are placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.

<PAGE>

FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein  provided,  Beneficiary  or Trustee  may,  without  obligation  so to do,
without notice to or demand upon Grantor and without  releasing Grantor from any
obligation  hereof: (i) make or do the same in such manner and to such extent as
Beneficiary  may deem necessary to protect the security  hereof,  Beneficiary or
Trustee  being  authorized  to enter upon the  Property for such  purpose;  (ii)
appear in and defend any action or proceeding  purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee;  (iii) pay, purchase,
contest or compromise any  encumbrance,  charge or lien which in the judgment of
Beneficiary  appears to be prior or superior hereto;  and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so  expended  shall be payable  by Grantor  immediately  upon  demand  with
interest from date of expenditure at the Default Rate (as defined in the Notes).
All sums so expended by Beneficiary  and the interest  thereon shall be included
in the Indebtedness and secured by the lien of this instrument.

EVENT OF  DEFAULT  AND  CROSS  DEFAULT.  Any  default  by  Grantor  or the Other
Borrowers  in making  any  required  payment  of the  Indebtedness  or the Other
Indebtedness or any default in any provision,  covenant,  agreement, warranty or
certification  contained in any of the Transaction  Documents  shall,  except as
provided in the two immediately succeeding  paragraphs,  constitute an "Event of
Default".

NOTICE OF DEFAULT.  A default in any payment required in the Notes or Other Note
or any other  Transaction  Document,  whether or not payable to Beneficiary,  (a
"Monetary  Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written  notice of such  Monetary  Default to Grantor and the
Other  Borrowers and Grantor and the Other  Borrowers  shall not have cured such
Monetary  Default  by payment of all  amounts in default  (including  payment of
interest at the Default  Rate,  as defined in the Notes or Other Note,  from the
date of default to the date of cure on amounts owed to Beneficiary)  within five
(5)  business  days  after the date on which  Beneficiary  shall have given such
notice to Grantor and Other Borrowers.

     Any  other  default  under  the  Notes or Other  Note or  under  any  other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default  unless   Beneficiary   shall  have  given  a  written  notice  of  such
Non-Monetary  Default to Grantor  and the Other  Borrowers  and  Grantor and the
Other  Borrowers  shall not have cured such  Non-Monetary  Default within thirty
(30) days after the date on which  Beneficiary  shall have given such  notice of
default to Grantor and the Other Borrowers (or, if the  Non-Monetary  Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have  diligently   undertaken  and  continued  to  pursue  the  curing  of  such
Non-Monetary   Default  and   deposited  an  amount   sufficient  to  cure  such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).

     In no event  shall the  notice and cure  period  provisions  recited  above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).

SUBSTITUTION OF TRUSTEE.  Beneficiary and its successors and assigns may for any
reason  and  at  any  time  appoint  a new  or  substitute  Trustee  by  written
appointment  delivered  to such new or  substitute  Trustee  without  notice  to
Grantor,  without  notice to, or the  resignation or withdrawal by, the existing
Trustee and without  recordation  of such written  appointment  unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment,  the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.

APPOINTMENT  OF RECEIVER.  Upon  commencement  of any  proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or  restriction  by any present or future law,  without regard to the
solvency or  insolvency  at that time of any party liable for the payment of the
Indebtedness,  without regard to the then value of the Property,  whether or not
there  exists a threat  of  imminent  harm,  waste or loss to the  Property  and
whether  or not the same shall  then be  occupied  by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the  revenues,  rents,  profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such  appointment may confer) full power to collect all such income
and, after paying all necessary  expenses of such receivership and of operation,
maintenance and repair of said Property,  to apply the balance to the payment of
any of the Indebtedness then due.

FORECLOSURE.  Upon the  occurrence  of an Event of  Default,  the entire  unpaid
Indebtedness  shall,  at the option of Beneficiary,  become  immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE  EXERCISE OF SUCH OPTION,  OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising  any rights it may have with respect to the Personal  Property  under
the  Uniform  Commercial  Code of the  jurisdiction  in which  the  Property  is
located,  institute  proceedings  in any  court  of  competent  jurisdiction  to
foreclose  this  instrument  as a mortgage,  or to enforce any of the  covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage,  rent or
lease the  Property or any portion  thereof upon such terms as  Beneficiary  may
deem  expedient,  and  collect,  receive  and  receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter  provided in case
of sale.  Trustee is hereby further  authorized  and empowered,  either after or
without such entry,  to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think  best),  and all the right,  title and interest of
Grantor  therein,  by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located,  (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue,  execute and deliver a
deed of

<PAGE>

conveyance,  all as then may be provided by law; and Trustee  shall,  out of the
proceeds or avails of such sale,  after  first  paying and  retaining  all fees,
charges,  costs of  advertising  the  Property  and of  making  said  sale,  and
attorneys'  fees as herein  provided,  pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof,  including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness,  with interest from date of
advance or expenditure at the Default Rate (as defined in the Notes),  rendering
the excess,  if any,  as  provided  by law;  such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the  Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.

PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material  consideration  to  Beneficiary in making the loan secured by this
instrument,  and  Grantor  shall not (i) convey  title to all or any part of the
Property,  (ii) enter into any  contract  to convey  (land  contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a  purchaser  possession  of,  or income  from,  the  Property  prior to a
transfer of title to all or any part of the Property  ("Contract  to Convey") or
(iii) cause or permit a Change in the  Proportionate  Ownership (as  hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the  Proportionate  Ownership  of Grantor  shall  constitute a default
hereunder.

     B.  For  purposes  of  this  instrument,  a  "Change  in the  Proportionate
Ownership"  means any transfer  which  results in Carl E. Berg and/or  Permitted
Transferee's  (as defined below)  collectively,  owning less than 49% of Carl E.
Berg's direct and indirect  ownership  interest in Grantor (existing on the date
of initial  advance  of funds,  as  represented  in the  Certification)  without
Beneficiary's approval.

     C.  Notwithstanding  the above,  a transfer of Carl E. Berg's  ownership in
Grantor  (i) to and among the Berg  Family  (as  hereinafter  defined)  shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E.  Berg,  and (ii) to any entity  owned and  controlled  (ownership  and voting
interest  in excess of 50% by the Berg  Family)  shall be  permitted  for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect  ownership  interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."

     D. For purposes  hereof,  the "Berg  Family"  shall mean Carl E. Berg,  his
spouse, his descendants and their spouses,  Clyde J. Berg, any trusts or estates
for the  benefit  of  said  parties,  and  any  entities  owned  and  controlled
(ownership and voting interests in excess of 50%) by said parties.

     E. A conversion  of all or part of the  ownership  interest of Carl E. Berg
from limited  partnership  units ("L.P.  Units") of Grantor to common  shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.

FINANCIAL STATEMENTS.  Grantor agrees to furnish to Beneficiary:

(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the  "Property  Financial  Statements  Due
Date"):

     (i)  an unaudited balance sheet as of the last day of such fiscal year;

     (ii) an  unaudited  statement  of  operations  for such  fiscal year with a
          detailed  line item  break-down of all sources of income and expenses,
          including capital expenses broken down between,  leasing  commissions,
          tenant improvements,  capital maintenance, common area renovation, and
          expansion;

     (iii)a current rent roll  identifying  location,  leased area,  lease begin
          and end dates,  current  contract  rent,  rent  increases and increase
          dates, percentage rent, expense reimbursements, and any other recovery
          items;

     (iv) an operating budget for the current fiscal year; and

(B) the following financial  statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor,  respectively (the
"Grantor/Guarantor Financial Statements Due Date")

     (i)  an audited balance sheet as of the last day of such fiscal year; and

     (ii) an audited statement of cash flows for such fiscal year; and

<PAGE>

(C) to the extent the following  tenants are not publicly  traded,  Grantor will
use its best efforts to obtain the following  financial  statements  for Fujitsu
(formerly  known as Amdahl),  Apple,  JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective  tenant (the "Tenant
Financial Statements Due Date"):

     (i)  an audited, or unaudited if audited is not available, balance sheet as
          of the last day of such fiscal year; and

     (ii) an audited,  or  unaudited if audited is not  available,  statement of
          cash flows for such fiscal period.

     The  Property  Financial   Statements  Due  Date,  the   Grantor/Guarantors
Financial  Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".

     If  audited,  the  financial  statements  identified  in  sections  (A)(i),
(A)(ii),  (B)(i),  (B)(ii),  (C)(i) and (C)(ii) above, shall each be prepared in
accordance  with  generally  accepted  accounting  principles  by a  "Big  Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary.  All unaudited  financial  statements  for Grantor,  Property,  and
Guarantor  shall  contain a  certification  by the managing  general  partner of
Grantor  stating  that they have been  prepared  in  accordance  with  generally
accepted accounting  principles and that they are true and correct.  The expense
of  preparing  all of the  financial  statements  required in (A) and (B) above,
shall be borne by Grantor.

     Grantor  acknowledges that Beneficiary requires the financial statements to
record  accurately  the  value of the  Property  for  financial  and  regulatory
reporting.

     In addition to all other remedies  available to Beneficiary  hereunder,  at
law and in equity,  if any  financial  statement or proof of payment of property
taxes and  assessments  is not  furnished  to  Beneficiary  as  required in this
section entitled  "Financial  Statements" and in the section entitled "Taxes and
Special Assessments",  within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,

     (x) interest on the unpaid  principal  balance of the  Indebtedness and the
     Other Notes shall as of the applicable Financial Statements Due Date or the
     date such proof of  payment  of  property  taxes and  assessments  was due,
     accrue and become  payable at a rate equal to the sum of the Interest  Rate
     (as defined in the Notes) plus one percent  (1%) per annum (the  "Increased
     Rate"); and

     (y) Beneficiary  may elect to obtain an independent  appraisal and audit of
     the Property at Grantor's  expense,  and Grantor agrees that it will,  upon
     request,  promptly make Grantor's books and records  regarding the Property
     available to  Beneficiary  and the person(s)  performing  the appraisal and
     audit (which  obligation  Grantor  agrees can be  specifically  enforced by
     Beneficiary).

     The amount of the  payments  due under the Notes and Other Note  during the
time in which the  Increased  Rate  shall be in effect  shall be  changed  to an
amount which is sufficient to amortize the then unpaid principal  balance at the
Increased  Rate  during  the then  remaining  portion  of a  period  of 20 years
commencing with the  Amortization  Period  Commencement  Date (as defined in the
Notes and Other Note).  Interest shall continue to accrue and be due and payable
monthly  at the  Increased  Rate  until the  financial  statements  and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished  to  Beneficiary  as  required.  Commencing  on the date on which  the
financial  statements and proof of payment of property taxes and assessments are
received by Beneficiary,  interest on the unpaid  principal  balance shall again
accrue at the Interest  Rate and the  payments  due during the  remainder of the
term of the  Notes  and  Other  Note  shall be  changed  to an  amount  which is
sufficient  to amortize the then unpaid  principal  balance at the Interest Rate
during the then remaining  portion of a period of 20 years  commencing  with the
Amortization   Period   Commencement   Date.   Notwithstanding   the  foregoing,
Beneficiary  shall  have the right to conduct  an  independent  audit at its own
expense at any time.

PROPERTY   MANAGEMENT.   The  management  company  for  the  Property  shall  be
satisfactory  to Beneficiary.  Any change in the management  company without the
prior  written  consent of  Beneficiary  shall  constitute a default  under this
instrument.  Beneficiary  shall  be  reasonable  in  giving  its  approval,  and
Beneficiary  may require that the new management  company,  by itself or through
its manager,  have good character and reputation,  and demonstrated  ability and
experience in the  operation and leasing of at least one million  square feet of
property similar to the Property.

EARTHQUAKE.  If the Property is damaged by an earthquake  during the term of the
Indebtedness:

     (A)  Beneficiary  may require a new "Seismic Risk Estimate" (as hereinafter
     defined) to be performed at Grantor's expense, and

     (B)  Grantor  shall  perform  repair and  retrofit  work,  satisfactory  to
     Beneficiary,  which results in (i) the complete  repair of the Property and
     (ii) the performance of a subsequent  Seismic Risk Estimate  verifying that
     the Property meets "Minimum  Seismic

<PAGE>

     Criteria"  (as  hereinafter  defined).  Such work  shall be  commenced  and
     completed  as soon as  possible  and in any  event  within  one year of the
     earthquake.

     Without limiting the Grantor's  obligation to cause the Property to satisfy
Minimum Seismic  Criteria,  during any period of time in which the Property does
not satisfy Minimum Seismic  Criteria,  Grantor shall provide  Beneficiary  with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).

     As used  herein,  "Earthquake  Insurance"  means a policy  satisfactory  to
Beneficiary  with a deductible of no greater than 5% of the  "Replacement  Cost"
(as hereinafter  defined) and in an amount calculated as follows:  (i) the "Loan
Amount" (as  hereinafter  defined) plus (ii) the "Specified  Loss Dollar Amount"
(as defined below) plus (iii) 5% of the  Replacement  Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).

     As used  herein,  "Loan  Amount"  shall  mean the  total  principal  amount
advanced at closing under the Other Note.

     As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).

     As used herein, "Market Value" means the estimated fair market value of the
Property,  determined  by  Beneficiary  in its  sole  discretion,  at the time a
Seismic Risk Estimate is performed.

     As used herein,  "Minimum  Seismic  Criteria" means that both the Specified
Loss Percentage (as hereinafter  defined) for the Property is less than or equal
to 30% and the  Loan  Plus  Specified  Loss is less  than or equal to 90% of the
Market Value.

     As used herein,  "Model" means a computer  based seismic model  selected by
Beneficiary,  currently the  Insurance and  Investment  Risk  Assessment  System
("IRAS") program by Risk Management Solutions ("RMS").

     As  used  herein,  "Replacement  Cost"  means  the  estimated  total  cost,
determined  by  Beneficiary  in its sole  discretion,  to  construct  all of the
Improvements  as if the Property were  completely  unimproved (not including the
cost of site work, utilities and foundation).

     As used herein,  "Seismic Risk Estimate" refers to the results of a seismic
risk  estimate for the Property  produced by the Model.  Grantor  agrees that it
will not rely for its own  evaluation  purposes  on the  Seismic  Risk  Estimate
produced by or for Beneficiary.

     As used herein,  "Specified  Loss Dollar Amount" means the "Specified  Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.

     As used herein,  "Specified Loss Percentage"  means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement  Cost.  Beneficiary's  parameters  for the  Model are based on a 90%
probability  that the  level of  damage  predicted  will not be  exceeded  in an
earthquake with an expected 475 year return period.

DEPOSITS  BY  GRANTOR.  To assure the timely  payment of real  estate  taxes and
special assessments  (including  personal property taxes, if appropriate),  upon
the occurrence of an Event of Default,  Beneficiary  shall thence forth have the
option to require  Grantor to deposit  funds with  Beneficiary  or in an account
satisfactory  to  Beneficiary,  in monthly  or other  periodic  installments  in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and  special  assessments  as they become due. If at any time the funds so
held by Beneficiary,  or in such other account, shall be insufficient to pay any
of said expenses,  Grantor shall,  upon receipt of notice  thereof,  immediately
deposit such additional funds as may be necessary to remove the deficiency.  All
funds so  deposited  shall be  irrevocably  appropriated  to  Beneficiary  to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.

NOTICES.  Any notices,  demands,  requests  and  consents  permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally  or sent by  certified  mail with  postage  prepaid  or by  reputable
courier  service with charges  prepaid.  Any notice or demand sent to Grantor by
certified  mail or reputable  courier  service  shall be addressed to Grantor at
10050  Bandley  Drive,  Cupertino,  CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable  courier  service shall be addressed to The  Northwestern  Mutual Life
Insurance Company to the attention of the Real Estate  Investment  Department at
720 East Wisconsin  Avenue,  Milwaukee,  WI 53202, or at such other addresses as
Beneficiary  shall designate in a notice given in the manner  described  herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand  hereunder  shall be deemed given when received.  Any notice or
demand  which is  rejected,  the  acceptance  of delivery of which is refused or
which is  incapable  of

<PAGE>

being delivered during normal business hours at the address  specified herein or
such other address designated pursuant hereto shall be deemed received as of the
date of attempted delivery.

MODIFICATION OF TERMS.  Without  affecting the liability of Grantor or any other
person  (except any person  expressly  released  in writing)  for payment of the
Indebtedness or for performance of any obligation  contained  herein and without
affecting the rights of  Beneficiary  with respect to any security not expressly
released in writing,  Beneficiary may, at any time and from time to time, either
before or after the  maturity  of the  Notes,  without  notice or  consent:  (i)
release any person liable for payment of all or any part of the  Indebtedness or
for performance of any obligation; (ii) make any agreement extending the time or
otherwise  altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing  with  the  lien or  charge  hereof;  (iii)  exercise  or  refrain  from
exercising  or waive any right  Beneficiary  may have;  (iv)  accept  additional
security of any kind; (v) release or otherwise  deal with any property,  real or
personal, securing the Indebtedness, including all or any part of the Property.

EXERCISE OF OPTIONS.  Whenever, by the terms of this instrument, of the Notes or
any of the other Loan  Documents,  Beneficiary is given any option,  such option
may be  exercised  when the right  accrues,  or at any time  thereafter,  and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.

NATURE AND  SUCCESSION  OF  AGREEMENTS.  Each of the  provisions,  covenants and
agreements  contained  herein  shall inure to the benefit of, and be binding on,
the heirs, executors,  administrators,  successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Notes.

LEGAL  ENFORCEABILITY.  No provision of this instrument,  the Notes or any other
Loan  Documents  shall  require the payment of interest or other  obligation  in
excess of the maximum  permitted by law. If any such excess  payment is provided
for in any Loan  Documents  or  shall  be  adjudicated  to be so  provided,  the
provisions of this paragraph  shall govern and Grantor shall not be obligated to
pay the amount of such interest or other  obligation to the extent that it is in
excess of the amount permitted by law.

LIMITATION OF LIABILITY.  Notwithstanding  any provision contained herein to the
contrary,  the personal liability of Grantor shall be limited as provided in the
Notes.

MISCELLANEOUS.  Time  is of the  essence  in  each of the  Loan  Documents.  The
remedies of Beneficiary  as provided  herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent,  and may be pursued singly,
successively,  or together at the sole  discretion  of  Beneficiary,  and may be
exercised as often as occasion  therefor shall occur; and neither the failure to
exercise any such right or remedy nor any  acceptance by  Beneficiary of payment
of  Indebtedness  in  default  shall in any  event be  construed  as a waiver or
release  of any right or  remedy.  Neither  this  instrument  nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and  Beneficiary.  If any of the  provisions of
any Loan  Document or the  application  thereof to any persons or  circumstances
shall to any extent be  invalid or  unenforceable,  the  remainder  of such Loan
Document  and each of the other  Loan  Documents,  and the  application  of such
provision or provisions to persons or circumstances  other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every  provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.

SURETYSHIP  WAIVERS.  This  instrument  is  intended to  constitute  the primary
obligation  of Grantor  with  respect  to the  Obligations,  and  Grantor is not
intended to be a guarantor or surety or otherwise only  secondarily  liable with
respect to matters covered hereby. However, if said Obligations, or any of them,
should  be  determined  to not  be  direct  obligations  but  rather  suretyship
obligations, Grantor agrees as follows:

Without  limiting or  lessening  the  primary  liability  of Grantor  hereunder,
Beneficiary may, without notice to Grantor,

     (a)  grant extensions of time or any other indulgences on the Indebtedness;

     (b)  take,  give  up,  modify,  vary,  exchange,   renew  or  abstain  from
          perfecting or taking  advantage of any security for the  Indebtedness;
          and

     (c)  accept or make compositions or other arrangements with Other Borrowers
          under  the  Transaction  Documents,   realize  on  any  security,  and
          otherwise deal with Other Borrowers, other parties and any security as
          Beneficiary may deem expedient; and

All  additional  demands,  presentments,  notices of protest and  dishonor,  and
notices of every kind and nature,  including those of any action or no action on
the part of Other  Borrowers,  Beneficiary or Grantor,  are expressly  waived by
Grantor.  Grantor  hereby  waives  the right to require  Beneficiary  to proceed
against the Other  Borrowers  or any other party or to proceed  against or apply
any security it may hold, waives the right to require  Beneficiary to pursue any
other remedy for the benefit of Grantor and agrees that  Beneficiary may

<PAGE>

proceed  against  Grantor  without taking any action against any other party and
without  proceeding  against or applying any  security it may hold.  Beneficiary
may, at its  election,  foreclose  upon any  security  held by it in one or more
judicial  or  non-judicial  sales,  whether or not every  aspect of such sale is
commercially  reasonable,  without  affecting  or  impairing  the  liability  of
Grantor,  except to the extent the  Indebtedness  shall have been paid.  Grantor
waives any defense  arising out of such an election,  notwithstanding  that such
election  may  operate  to impair or  extinguish  any right or remedy of Grantor
against the Other Borrowers or any other security.

Grantor waives all rights and defenses arising out of an election of remedies by
Beneficiary,  even  though  that  election of  remedies,  such as a  nonjudicial
foreclosure of the Lien Instrument, has destroyed Grantor's right of subrogation
and  reimbursement  against the Other Borrowers by the operation of Section 580d
of the  California  Code of Civil  Procedure or  otherwise.  Grantor  waives all
rights and defenses that Grantor may have because the Other  Borrowers'  debt is
secured by real property.  This means, among other things,  that (i) Beneficiary
may foreclose on the real and personal property pledged by Grantor without first
foreclosing on any real or personal  collateral  pledged by the Other Borrowers,
and (ii) if Beneficiary  forecloses on any real property  collateral  pledged by
the Other Borrowers: (A) the amount of the debt may be reduced only by the price
for  which  that  collateral  is  sold  at the  foreclosure  sale,  even  if the
collateral  is worth more than the sale price and (B)  Beneficiary  may  collect
from  Grantor  even  if  Beneficiary,   by  foreclosing  on  the  real  property
collateral,  has  destroyed  any right  Grantor  may have to collect  from Other
Borrowers.  This is an  unconditional  and irrevocable  waiver of any rights and
defenses  Grantor may have because the Other  Borrowers' debt is secured by real
property.  These  rights and  defenses  waived by Grantor  include,  but are not
limited to, any rights or defenses based upon Sections 580a,  580b,  580d or 726
of the  California  Code of Civil  Procedure.  Without  limiting the  foregoing,
Grantor hereby waives any and all benefits that might  otherwise be available to
Grantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849,
2850, 2899 and 3433.

SUBORDINATION.  Notwithstanding  anything to the contrary contained in this Deed
of Trust  (Second  Priority),  the  terms and  provisions  of this Deed of Trust
(Second  Priority) and the lien created hereby shall be subject and  subordinate
to the terms and provisions of the first and prior lien instrument  ("First Lien
Instrument")  of even  date  herewith  executed  and  delivered  by  Grantor  to
Beneficiary  to  secure  the  Other  Note,  the  lien  created  thereby  and all
modifications  and  supplements  thereto.  The  First  Lien  Instrument  and the
indebtedness   secured  thereby,  and  any  increases  therein  or  renewals  or
extensions thereof,  shall  unconditionally be and remain at all times a lien or
charge  on the Land  prior  and  superior  to the lien or charge of this Deed of
Trust (Second Priority).

WAIVER OF JURY  TRIAL.  Grantor  hereby  waives  any right to trial by jury with
respect to any action or proceeding  (a) brought by Grantor,  Beneficiary or any
other  person  relating  to  (i)  the  obligations  secured  hereby  and/or  any
understandings  or prior  dealings  between the parties  hereto or (ii) the Loan
Documents or the Environmental  Indemnity Agreement, or (b) to which Beneficiary
is a party.

CAPTIONS.  The captions  contained herein are for convenience and reference only
and in no way define,  limit or  describe  the scope or intent of, or in any way
affect this instrument.

GOVERNING  LAW.  This  instrument  shall be  governed  by and  construed  in all
respects in accordance  with the laws of the State of California  without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning  any dispute  arising  under or related to this  instrument  shall be
brought in a state or federal  court  located  in the State of  California,  and
Beneficiary and Grantor hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California

REQUEST FOR NOTICE.  Pursuant to California  Government Code Section 27321.5(b),
Grantor  hereby  requests that a copy of any notice of default and a copy of any
notice of sale given  pursuant  to this  instrument  be mailed to Grantor at the
address set forth herein.


<PAGE>



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


                MISSION WEST PROPERTIES, L.P. II, a Delaware limited partnership

                By:      Mission West Properties, Inc., a
                         Maryland corporation, its general
                         partner

                         By: Carl E. Berg

                         Name: Carl E. Berg

                         Title: CEO of G.P.

STATE OF California                         )
                                            )ss.
COUNTY OF         Santa Clara               )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature /s/   GW Shott
         -----------------------------------
         G.W. Shott
         -----------------------------------
         Name (typed or printed)




This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.




<PAGE>


                                   EXHIBIT "A"
                                (Mission West II)



PROPERTY ONE:

All that certain real property situated in the City of San Jose, County of Santa
Clara, State of California, described as follows:

Parcel  2, as shown on the  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on November 26, 1979,
in Book 455 of Maps, Page(s) 1 and 2.

Assessors Parcel No:  706-09-023

PROPERTY TWO:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara,  State of  California on May 22, 1980, in
Book 463 of Maps, Page(s) 43 and 44.

Assessors Parcel No:  706-02-034


PROPERTY THREE:

Parcel 7, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara,  State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.

Assessors Parcel No:  086-33-092

PROPERTY FOUR:

Parcel 3 as shown on that  Parcel  Map filed for  recorded  in the Office of the
Recorder of the County of Santa Clara,  State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.

Assessors Parcel No:  086-41-017 & 086-41-018


<PAGE>


EXHIBIT 10.41

RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn
Loan No. C-332757      SPACE ABOVE THIS LINE FOR RECORDER'S USE
---------------------------------------------------------------

            ABSOLUTE ASSIGNMENT OF LEASES AND RENTS (FIRST PRIORITY)
                          Mission West Properties, L.P.
                               (With License Back)

     THIS  Absolute  Assignment  of Leases  and  Rents  (First  Priority)  (this
"Assignment") is made as of the 3rd day of January, 2003, by and between MISSION
WEST PROPERTIES, L.P., a Delaware limited partnership,  whose mailing address is
10050 Bandley Drive,  Cupertino,  CA 95014,  (herein called  "Borrower") and THE
NORTHWESTERN  MUTUAL LIFE  INSURANCE  COMPANY,  a Wisconsin  corporation,  whose
mailing  address  is c/o Real  Estate  Department,  720 East  Wisconsin  Avenue,
Milwaukee, Wisconsin 53202, (herein called "Lender").

                               W I T N E S S E T H

     FOR  AND  IN  CONSIDERATION  of  the  indebtedness  hereinafter  described,
Borrower has granted,  bargained,  sold and conveyed, and by these presents does
grant,  bargain,  sell and  convey,  unto  Lender,  its  successors  and assigns
forever, all and singular the property hereinafter described (collectively,  the
"Security"), to wit:

          (a) All rents, issues and profits arising from or related to the land,
     situated  in the City of San  Jose,  County  of Santa  Clara  and  State of
     California  and  described  in  Exhibit  "A"  attached   hereto  and  fully
     incorporated  herein by reference for all purposes and all improvements and
     any other property, whether real, personal or mixed, located thereon (which
     land,  improvements and other property are hereinafter  collectively called
     the "Property");

          (b) All of Borrower's  rights,  titles,  interests and privileges,  as
     lessor,  in the  leases  now  existing  or  hereafter  made  affecting  the
     Property, whether or not made by Borrower and as the same may have been, or
     may  from  time  to time  hereafter  be,  modified,  extended  and  renewed
     (hereinafter   collectively   called  the  "Leases"),   including   without
     limitation that certain lease dated February 3, 1999 and amended on October
     7, 1999, between Borrower, as landlord, and E-Tek Dynamics, Inc., as tenant
     (the interest of the latter is now held by JDS Uniphase Corporation);

          (c) All tenant  security  deposits and other  amounts due and becoming
     due under the Leases;

          (d) All  guarantees  of the  Leases,  including  guarantees  of tenant
     performance;

          (e)  All  insurance  proceeds,  including  rental  loss  coverage  and
     business interruption coverage with respect to the Leases; and

          (f) All  judgments  and  settlements  of claims  in favor of  Borrower
     (including condemnation proceeds, if any) and all rights, claims and causes
     of action under any court  proceeding,  including  without  limitation  any
     bankruptcy,  reorganization or insolvency proceeding,  or otherwise arising
     from the Leases.

     TO HAVE AND TO HOLD the Security unto Lender,  its  successors  and assigns
forever, and Borrower does hereby bind itself, its heirs, legal representatives,
successors and assigns,  to warrant and forever defend the Security unto Lender,
its  successors and assigns  forever  against the claim or claims of all persons
whomsoever claiming the same or any part thereof.

<PAGE>

                                    ARTICLE I
                                   DEFINITIONS

     1.01 TERMS DEFINED ABOVE. As used in this Assignment, the terms "Borrower",
"Leases",  "Lender",  "Property",  and  "Security"  shall  have  the  respective
meanings indicated above.

     1.02  CERTAIN  DEFINITIONS.  The  following  terms shall have the  meanings
assigned to them below  whenever  they are used in this  Assignment,  unless the
context clearly otherwise requires. Except where the context otherwise requires,
words in the singular form shall include the plural and vice versa.

          "Event of  Default"  shall mean any Event of Default as defined in the
     Lien Instrument.

          "Lien  Instrument"  shall mean that certain Deed of Trust and Security
     Agreement (First Priority) of even date herewith,  executed by Borrower and
     granting a lien on the Property to a trustee for the benefit of Lender,  as
     such instrument may be amended, renewed and restated from time to time.

          "Loan Commitment",  "Loan Documents",  "Note" and "Obligations"  shall
     each have the meaning set forth in the Lien Instrument.



                                   ARTICLE II
                                   ASSIGNMENT

     2.01 ABSOLUTE  ASSIGNMENT.  This  Assignment  is, and is intended to be, an
absolute and present  assignment  of the Security from Borrower to Lender with a
concurrent  license back to the Borrower (which license is subject to revocation
upon the  occurrence  of an Event of  Default  as  herein  provided)  and is not
intended  as  merely  the  granting  of a  security  interest  relating  to  the
Obligations.

     2.02 LICENSE.  Borrower is hereby granted the license to manage and control
the Security and to collect at the time of, but not prior to, the date  provided
for the payment thereof,  all rents, issues and profits from the Property and to
retain,  use and enjoy the same. The license created and granted hereby shall be
revocable upon the terms and conditions contained herein.

     2.03 REVOCATION OF LICENSE.  Immediately upon the occurrence of an Event of
Default and at any time thereafter, Lender may, at its option and without regard
to the  adequacy of the security for the  Obligations,  either by an  authorized
representative or agent, with or without bringing or instituting any judicial or
other action or proceeding,  or by a receiver appointed by a court,  immediately
revoke the license  granted in Section 2.02, as evidenced by a written notice to
said effect given to  Borrower,  and further,  at Lender's  option  (without any
obligation to do so), take possession of the Property and the Security and have,
hold, manage,  lease and operate the Property and the Security on such terms and
for such period of time as Lender may deem proper, and, in addition, either with
or without  taking  possession  of the  Property,  demand,  sue for or otherwise
collect and receive all rents,  issues and profits from the Property,  including
those  past due and  unpaid,  with full  power to make,  from time to time,  all
alterations, renovations, repairs or replacements thereto or thereof as may seem
proper to the  Lender in its sole  discretion,  and to apply (in such  order and
priority as Lender shall determine in its sole  discretion)  such rents,  issues
and profits to the payment of:

          (a) all  expenses of (i)  managing  the  Property,  including  without
     implied  limitation,  the salaries,  fees and wages of a managing agent and
     such other employees as Lender may in its sole discretion deem necessary or
     desirable,  (ii) operating and maintaining the Property,  including without
     implied limitation, all taxes, charges, claims,  assessments,  water rents,
     sewer rents and any other  liens,  and  premiums  for all  insurance  which
     Lender may in its sole  discretion  deem necessary or desirable,  (iii) the
     cost of any and all alterations, renovations, repairs or replacements of or
     to the  Property,  and (iv) any and all  expenses  incident  to taking  and
     retaining possession of the Property and the Security; and

          (b) the Obligations.

The exercise by Lender of the rights  granted it in this Section  2.03,  and the
collection and receipt of rents,  issues and profits and the application thereof
as herein provided, shall not be considered a waiver of any Event of Default.

     2.04 TRUST FUNDS.  All monies or funds covered by this  Assignment paid to,
or for the benefit of, Borrower after any default are hereby declared, and shall
be deemed to be,  trust funds in the hands of Borrower  for the sole  benefit of
Lender,  until all defaults  have been cured or waived or the  Obligations  have
been  paid  and  performed  in  full.  Borrower,   or  any  officer,   director,
representative  or agent thereof receiving such trust funds or having control or
direction of same, is hereby made and shall be construed to be a trustee

<PAGE>

of such trust funds so received  or under its  control and  direction,  and such
person shall be under a strict  obligation and duty should such persons  receive
or constructively  receive trust funds to (1) remit any and all such trust funds
to Lender  within  twenty-four  (24) hours of receipt,  upon demand  therefor by
Lender or (2) to apply such  trust  funds  only to  Obligations  then due or the
operating expenses of the Property.

                                   ARTICLE III
                    COVENANTS, REPRESENTATIONS AND WARRANTIES

     3.01  LIABILITY.  Lender  shall not be  liable  for any loss  sustained  by
Borrower  resulting from Lender's  failure to let the Property after an Event of
Default or from any other act or omission of Lender in managing  the Property or
the  Security  after an Event of  Default,  except for acts  constituting  gross
negligence  or willful  misconduct.  Lender shall not be obligated to perform or
discharge,  nor does  Lender  hereby  undertake  to  perform or  discharge,  any
obligation,  duty or  liability  under any Lease,  and  Borrower  shall and does
hereby indemnify Lender for, and save and hold Lender harmless from, any and all
liability,  loss or  damages,  except so much  thereof as shall  result from the
gross negligence or willful misconduct of Lender, which may or might be incurred
under any Lease or under or by  reason of this  Assignment  and from any and all
claims and demands  whatsoever which may be asserted against Lender by reason of
any alleged obligation or undertaking on its part to perform or discharge any of
the terms,  covenants or agreements  contained in any Lease,  including  without
implied limitation, any claims by any tenants of credit for rents for any period
paid to and received by Borrower  but not  delivered  to Lender.  Should  Lender
incur any such liability under any Lease in defense of any such claim or demand,
the amount thereof, including without implied limitation all costs, expenses and
attorneys'  fees, shall be added to the principal of the Note and Borrower shall
reimburse  Lender therefor  immediately  upon demand.  This Assignment shall not
operate to place  responsibility  upon  Lender for the  control,  care,  upkeep,
management,  operation  or repair of the  Property  and the  Security or for the
carrying  out of any of the terms and  conditions  of any Lease;  nor shall this
Assignment  operate to make Lender responsible or liable for any waste committed
on the  Property  by the  tenants  or any  other  party,  for any  dangerous  or
defective condition of the Property or for any negligence in the control,  care,
upkeep,  operation,  management  or repair of the Property  resulting in loss or
injury or death to any tenant,  licensee,  employee,  stranger  or other  person
whatsoever.

     3.02 TERMINATION.  Upon payment and performance of the Obligations in full,
this  Assignment  shall  become  null and void and of no further  legal force or
effect,  but the  affidavit,  certificate,  letter or  statement of any officer,
agent,  authorized  representative or attorney of Lender showing any part of the
Obligations  remaining unpaid or unperformed shall be and constitute  conclusive
evidence of the validity,  effectiveness and continuing force of this Assignment
upon which any person may, and is hereby  authorized to, rely.  Borrower  hereby
authorizes  and directs all tenants under the Leases,  all guarantors of Leases,
all  insurers  providing  rental loss or business  interruption  insurance  with
respect to the Property, all governmental authorities and all other occupants of
the  Property,  upon  receipt  from Lender of written  notice to the effect that
Lender is then the  holder of the Note and that an Event of Default  exists,  to
pay over to Lender all rents and other  amounts  due and to become due under the
Leases and under  guaranties of the Leases and all other issues and profits from
the  Property  and to continue so to do until  otherwise  notified in writing by
Lender. This right may be exercised without Lender taking actual or constructive
possession of the Property or any part thereof.

     3.03  SECURITY.  Lender may take or release any security for the payment or
performance of the  Obligations,  may release any party primarily or secondarily
liable therefor and may apply any security held by it to the satisfaction of all
or any portion of the Obligations,  without prejudice to any of its rights under
this  Assignment,  the other Loan Documents or otherwise  available at law or in
equity.

     3.04 COVENANTS.  Borrower  covenants with Lender (a) to observe and perform
all the  obligations  imposed  upon the lessor under all Leases and not to do or
permit to be done  anything to impair the same without  Lender's  prior  written
consent, (b) not to collect any of the rent or other amounts due under any Lease
or other  issues or profits  from the  Property  in any manner in advance of the
time when the same shall  become due (save and except  only for  collecting  one
month's rent in advance plus tenant contributions toward operating expenses plus
the security deposit,  if any, at the time of execution of a Lease),  (c) not to
execute any other  assignment  of rents,  issues or profits  arising or accruing
from the Leases or from the Property,  except the Transaction Documents, (d) not
to enter into any lease  agreement  affecting the Property,  except those leases
entered  into in the  ordinary  course  of  business  and  utilizing  Borrower's
standard  form  lease  previously   approved  by  Lender,  with  no  substantial
modifications  thereto,  without  the prior  written  consent of Lender,  (e) to
execute and deliver,  at the request of Lender,  all such further assurances and
acknowledgments  of the  assignment  contained  herein and the other  provisions
hereof, with respect to specific Leases or otherwise,  as Lender shall from time
to time  require,  (f) to obtain from any tenant at the  Property,  from time to
time as  requested  by  Lender,  estoppel  certificates,  in form and  substance
satisfactory  to Lender,  confirming  the terms of such  tenant's  Lease and the
absence of default thereunder, and (g) not to cancel, surrender or terminate any
Lease,  exercise any option which might lead to such  termination  or consent to
any change,  modification,  or alteration  thereof,  to the release of any party
liable thereunder or to the assignment of the lessee's interest therein, without
the prior written  consent of Lender,  and any of said acts, if done without the
prior written consent of Lender, shall be null and void.  Notwithstanding clause
(g) of the preceding sentence,  with respect to all leases (other than leases as
to  which   Beneficiary,   Grantor   and   tenant   have   executed  a  separate
non-disturbance  and  attornment  agreement),   Grantor  may  take  the  actions
described in

<PAGE>

clause (g) without  Beneficiary's prior written consent (but with written notice
thereof to Beneficiary), if and only if such action is consistent with the usual
and customary operation of the Property.

     3.05  AUTHORITY  TO  ASSIGN.  Borrower  represents  and  warrants  that (a)
Borrower  has full right and  authority to execute  this  Assignment  and has no
knowledge of any existing  defaults  under any of the existing  Leases,  (b) all
conditions  precedent to the  effectiveness  of said  existing  Leases have been
satisfied,  (c)  Borrower has not  executed or granted any  modification  of the
existing  Leases,  either orally or in writing,  (d) the existing  Leases are in
full force and effect according to the terms set forth in the lease  instruments
heretofore  submitted  to Lender,  and (e)  Borrower  has not executed any other
instrument  which might prevent Lender from operating under any of the terms and
conditions of this  Assignment,  including any other assignment of the Leases or
the rents, issues and profits from the Property.

     3.06  CROSS-DEFAULT.  Violation  or  default  under  any of the  covenants,
representations,  warranties  and  provisions  contained in this  Assignment  by
Borrower  shall be deemed a default  hereunder as well as under the terms of the
other Loan  Documents,  and any default  thereunder  shall likewise be a default
under this  Assignment.  Any default by  Borrower  under any of the terms of any
Lease shall be deemed a default  hereunder and under the terms of the other Loan
Documents,  and any  expenditures  made by  Lender  in curing  such  default  on
Borrower's behalf,  with interest thereon at the Default Rate (as defined in the
Note), shall become part of the Obligations.

     3.07  NO  MORTGAGEE  IN  POSSESSION.  The  acceptance  by  Lender  of  this
Assignment,  with all of the rights,  powers,  privileges and authority  created
hereby,  shall not, prior to entry upon and taking possession of the Property by
Lender, be deemed or construed to constitute Lender a "mortgagee in possession",
or  hereafter  or at any time or in any  event  obligate  Lender to appear in or
defend any action or  proceeding  relating  to any Lease,  the  Property  or the
Security, to take any action hereunder,  to expend any money, incur any expense,
perform or discharge any  obligation,  duty or liability  under any Lease, or to
assume any  obligation  or  responsibility  for any  security  deposits or other
deposits  delivered  to Borrower  by any tenant and not  actually  delivered  to
Lender.  Lender  shall not be liable in any way for any  injury or damage to any
person or property sustained in or about the Property.

                                   ARTICLE IV
                                     GENERAL

     4.01 REMEDIES.  The rights and remedies  provided Lender in this Assignment
and  the  other  Loan  Documents  are  cumulative.  Nothing  contained  in  this
Assignment,  and no act done or omitted  by Lender  pursuant  hereto,  including
without implied  limitation the collection of any rents, shall be deemed to be a
waiver  by Lender  of any of its  rights  and  remedies  under  the  other  Loan
Documents  or  applicable  law or a waiver of any  default  under the other Loan
Documents,  and this Assignment is made and accepted without prejudice to any of
the rights and remedies  provided Lender by the other Loan Documents.  The right
of Lender to  collect  the  principal  sum and  interest  due on the Note and to
enforce the other Loan  Documents  may be exercised  by Lender  either prior to,
simultaneously with, or subsequent to any action taken by it hereunder.

     4.02  NOTICES.  Any notices,  demands,  requests and consents  permitted or
required hereunder or under any other Loan Document shall be in writing,  may be
delivered  personally  or sent by  certified  mail with  postage  prepaid  or by
reputable  courier  service with charges  prepaid.  Any notice or demand sent to
Borrower by certified  mail or reputable  courier  service shall be addressed to
Borrower at 10050 Bandley  Drive,  Cupertino,  CA 95014 or such other address in
the United States of America as Borrower  shall  designate in a notice to Lender
given in the manner  described  herein.  Any notice sent to Lender by  certified
mail or reputable courier service shall be addressed to The Northwestern  Mutual
Life Insurance Company to the attention of the Real Estate Investment Department
at 720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Lender shall  designate in a notice given in the manner  described  herein.  Any
notice given to Lender  shall refer to the Loan No. set forth above.  Any notice
or demand  hereunder  shall be deemed given when received.  Any notice or demand
which is rejected,  the  acceptance  of delivery of which is refused or which is
incapable  of being  delivered  during  normal  business  hours  at the  address
specified  herein or such other  address  designated  pursuant  hereto  shall be
deemed received as of the date of attempted delivery.

     4.03 CAPTIONS. The titles and headings of the various Articles and Sections
hereof are intended solely for reference and are not intended to modify, explain
or affect the meaning of the provisions of this Assignment.

     4.04  SEVERABILITY.  If any of the  provisions  of this  Assignment  or the
application  thereof  to any  persons  or  circumstances  shall to any extent be
invalid or unenforceable,  the remainder of this Assignment, and the application
of such provision or provisions to persons or circumstances  other than those as
to whom or which it is held  invalid  or  unenforceable,  shall not be  affected
thereby,  and every provision of this Assignment  shall be valid and enforceable
to the fullest extent permitted by law.

     4.05 ATTORNEYS' FEES. In the event of any controversy,  claim,  dispute, or
litigation  between  the  parties  hereto  to  enforce  any  provision  of  this
Assignment or any right of Lender  hereunder,  Borrower  agrees to pay to Lender
all costs and expenses, including

<PAGE>

reasonable  attorneys' fees incurred  therein by Lender,  whether in preparation
for or during any  trial,  as a result of an appeal  from a judgment  entered in
such litigation or otherwise.

     4.06 AMENDMENTS.  This Assignment may not be modified, amended or otherwise
changed  in any  manner  unless  done so by a writing  executed  by the  parties
hereto.

     4.07 BENEFITS. This Assignment and all the covenants,  terms and provisions
contained  herein  shall be binding upon and inure to the benefit of the parties
hereto and their respective  heirs,  executors,  administrators,  successors and
assigns.

     4.08  ASSIGNMENT.  Borrower  shall have no right to assign or transfer  the
revocable  license  granted  herein.  Any  such  assignment  or  transfer  shall
constitute a default.

     4.09 TIME OF ESSENCE. Time is of the essence of this Assignment.

     4.10 GOVERNING LAW. This  Assignment  shall be governed by and construed in
all  respects in  accordance  with the laws of the State of  California  without
regard to any  conflict of law  principles.  Any action,  lawsuit or other legal
proceeding  concerning any dispute  arising under or related to this  Assignment
shall be brought in a state or federal court located in the State of California,
and Lender and Borrower hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California.

     4.11 LIMITATION OF LIABILITY.  Notwithstanding  any provision  contained in
this Assignment, the personal liability of Borrower shall be limited as provided
in the Note.


<PAGE>



     IN WITNESS WHEREOF, this Assignment has been entered into as of the day and
year first-above written.

          BORROWER:      MISSION WEST PROPERTIES, L.P.,
                         a Delaware limited partnership

                         By:      Mission West Properties, Inc., a
                                  Maryland corporation, its general partner

                                  By: Carl E. Berg

                                  Name: Carl E. Berg

                                  Title: CEO of G.P.



          LENDER:        THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a
                         Wisconsin corporation

                         By:  Northwestern Investment Management Company, LLC, a
                              Delaware limited liability company, its wholly-
                              owned affiliate and authorized representative

                              By: /s/     ER Skagg
                                 -----------------------------------------
                                 E.R. Skaggs, Managing Director

                              Attest:  /s/ Richard A. Schnell
                                     -------------------------------------
                                     Richard A. Schnell, Assistant Secretary



<PAGE>


STATE OF California                         )
                                            )ss.
COUNTY OF         Santa Clara               )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature    /s/     GW Shott
         -----------------------------------
         G.W. Shott
         -----------------------------------
         Name (typed or printed)



<PAGE>


STATE OF WISCONSIN                          )
                                            )ss.
COUNTY OF MILWAUKEE                         )

The foregoing  instrument  was  acknowledged  before me this 3rd day of January,
2003, by E.R. Skaggs and Richard A. Schnell, the Managing Director and Assistant
Secretary  respectively,  of Northwestern Investment Management Company, LLC, on
behalf of THE  NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY and acknowledged the
execution of the foregoing instrument as the act and deed of said corporation.

My commission expires: May 9, 2004

                                               Janet M. Szukalski, Notary Public





This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.



<PAGE>


                                   EXHIBIT "A"

                                (Mission West LP)

Parcel One:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on December 23, 1997,
in Book 698 of Maps, Page(s) 1 and 2.

Reserving  therefrom  an  easement  for  ingress  and over that  portion of land
designated and delineated as "C.O.E.- 30'" Reciprocal-Ingress, Egress- Easement"
on that Parcel Map filed for record in the Office of the  Recorder of the County
of Santa Clara,  State of California,  on December 23, 1997 in Book 698 of Maps,
Pages 1 and 2.

Parcel Two:

An easement for ingress and egress over those portion of Parcel 2 designated and
delineated as "C.O.E.- 30'  Reciprocal-Ingress,  Egress-Easement" on that Parcel
Map filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.

Parcel Three:

An easement for ingress and egress over those portion of Parcel 3 designated and
delineated as "C.O.E-26'Reciprocal-Ingress,  Egress-Easement" on that Parcel Map
filed for record in the  Office of the  Recorder  of the County of Santa  Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.

Assessors Parcel No:  244-13-015




<PAGE>


EXHIBIT 10.42

RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn
Loan No. C-332757      SPACE ABOVE THIS LINE FOR RECORDER'S USE
-------------------------------------------------------------------------------

            ABSOLUTE ASSIGNMENT OF LEASES AND RENTS (FIRST PRIORITY)
                         Mission West Properties, L.P. I
                               (With License Back)

     THIS  Absolute  Assignment  of Leases  and  Rents  (First  Priority)  (this
"Assignment") is made as of the 3rd day of January, 2003, by and between MISSION
WEST PROPERTIES,  L.P. I, a Delaware limited partnership,  whose mailing address
is 10050 Bandley Drive,  Cupertino, CA 95014, (herein called "Borrower") and THE
NORTHWESTERN  MUTUAL LIFE  INSURANCE  COMPANY,  a Wisconsin  corporation,  whose
mailing  address  is c/o Real  Estate  Department,  720 East  Wisconsin  Avenue,
Milwaukee, Wisconsin 53202, (herein called "Lender").

                               W I T N E S S E T H

     FOR  AND  IN  CONSIDERATION  of  the  indebtedness  hereinafter  described,
Borrower has granted,  bargained,  sold and conveyed, and by these presents does
grant,  bargain,  sell and  convey,  unto  Lender,  its  successors  and assigns
forever, all and singular the property hereinafter described (collectively,  the
"Security"), to wit:

          (a) All rents, issues and profits arising from or related to the land,
     situated in the Cities of Santa Clara and Cupertino,  County of Santa Clara
     and State of California  and  described in Exhibit "A" attached  hereto and
     fully   incorporated   herein  by  reference   for  all  purposes  and  all
     improvements  and any other  property,  whether  real,  personal  or mixed,
     located   thereon  (which  land,   improvements   and  other  property  are
     hereinafter collectively called the "Property");

          (b) All of Borrower's  rights,  titles,  interests and privileges,  as
     lessor,  in the  leases  now  existing  or  hereafter  made  affecting  the
     Property, whether or not made by Borrower and as the same may have been, or
     may  from  time  to time  hereafter  be,  modified,  extended  and  renewed
     (hereinafter   collectively   called  the  "Leases"),   including   without
     limitation  that  certain  lease dated July 1, 2002  between  Borrower,  as
     landlord, and Apple Computer, Inc., as tenant;

          (c) All tenant  security  deposits and other  amounts due and becoming
     due under the Leases;

          (d) All  guarantees  of the  Leases,  including  guarantees  of tenant
     performance;

          (e)  All  insurance  proceeds,  including  rental  loss  coverage  and
     business interruption coverage with respect to the Leases; and

          (f) All  judgments  and  settlements  of claims  in favor of  Borrower
     (including condemnation proceeds, if any) and all rights, claims and causes
     of action under any court  proceeding,  including  without  limitation  any
     bankruptcy,  reorganization or insolvency proceeding,  or otherwise arising
     from the Leases.

     TO HAVE AND TO HOLD the Security unto Lender,  its  successors  and assigns
forever, and Borrower does hereby bind itself, its heirs, legal representatives,
successors and assigns,  to warrant and forever defend the Security unto Lender,
its  successors and assigns  forever  against the claim or claims of all persons
whomsoever claiming the same or any part thereof.

<PAGE>


                                    ARTICLE I
                                   DEFINITIONS

     1.01 TERMS DEFINED ABOVE. As used in this Assignment, the terms "Borrower",
"Leases",  "Lender",  "Property",  and  "Security"  shall  have  the  respective
meanings indicated above.

     1.02  CERTAIN  DEFINITIONS.  The  following  terms shall have the  meanings
assigned to them below  whenever  they are used in this  Assignment,  unless the
context clearly otherwise requires. Except where the context otherwise requires,
words in the singular form shall include the plural and vice versa.

          "Event of  Default"  shall mean any Event of Default as defined in the
     Lien Instrument.

          "Lien  Instrument"  shall mean that certain Deed of Trust and Security
     Agreement (First Priority) of even date herewith,  executed by Borrower and
     granting a lien on the Property to a trustee for the benefit of Lender,  as
     such instrument may be amended, renewed and restated from time to time.

          "Loan Commitment",  "Loan Documents",  "Note" and "Obligations"  shall
     each have the meaning set forth in the Lien Instrument.



                                   ARTICLE II
                                   ASSIGNMENT

     2.01 ABSOLUTE  ASSIGNMENT.  This  Assignment  is, and is intended to be, an
absolute and present  assignment  of the Security from Borrower to Lender with a
concurrent  license back to the Borrower (which license is subject to revocation
upon the  occurrence  of an Event of  Default  as  herein  provided)  and is not
intended  as  merely  the  granting  of a  security  interest  relating  to  the
Obligations.

     2.02 LICENSE.  Borrower is hereby granted the license to manage and control
the Security and to collect at the time of, but not prior to, the date  provided
for the payment thereof,  all rents, issues and profits from the Property and to
retain,  use and enjoy the same. The license created and granted hereby shall be
revocable upon the terms and conditions contained herein.

     2.03 REVOCATION OF LICENSE.  Immediately upon the occurrence of an Event of
Default and at any time thereafter, Lender may, at its option and without regard
to the  adequacy of the security for the  Obligations,  either by an  authorized
representative or agent, with or without bringing or instituting any judicial or
other action or proceeding,  or by a receiver appointed by a court,  immediately
revoke the license  granted in Section 2.02, as evidenced by a written notice to
said effect given to  Borrower,  and further,  at Lender's  option  (without any
obligation to do so), take possession of the Property and the Security and have,
hold, manage,  lease and operate the Property and the Security on such terms and
for such period of time as Lender may deem proper, and, in addition, either with
or without  taking  possession  of the  Property,  demand,  sue for or otherwise
collect and receive all rents,  issues and profits from the Property,  including
those  past due and  unpaid,  with full  power to make,  from time to time,  all
alterations, renovations, repairs or replacements thereto or thereof as may seem
proper to the  Lender in its sole  discretion,  and to apply (in such  order and
priority as Lender shall determine in its sole  discretion)  such rents,  issues
and profits to the payment of:

          (a) all  expenses of (i)  managing  the  Property,  including  without
     implied  limitation,  the salaries,  fees and wages of a managing agent and
     such other employees as Lender may in its sole discretion deem necessary or
     desirable,  (ii) operating and maintaining the Property,  including without
     implied limitation, all taxes, charges, claims,  assessments,  water rents,
     sewer rents and any other  liens,  and  premiums  for all  insurance  which
     Lender may in its sole  discretion  deem necessary or desirable,  (iii) the
     cost of any and all alterations, renovations, repairs or replacements of or
     to the  Property,  and (iv) any and all  expenses  incident  to taking  and
     retaining possession of the Property and the Security; and

          (b) the Obligations.

The exercise by Lender of the rights  granted it in this Section  2.03,  and the
collection and receipt of rents,  issues and profits and the application thereof
as herein provided, shall not be considered a waiver of any Event of Default.

     2.04 TRUST FUNDS.  All monies or funds covered by this  Assignment paid to,
or for the benefit of, Borrower after any default are hereby declared, and shall
be deemed to be,  trust funds in the hands of Borrower  for the sole  benefit of
Lender,  until all defaults  have been cured or waived or the  Obligations  have
been  paid  and  performed  in  full.  Borrower,   or  any  officer,   director,
representative  or agent thereof receiving such trust funds or having control or
direction of same, is hereby made and shall be construed to be a trustee

<PAGE>

of such trust funds so received  or under its  control and  direction,  and such
person shall be under a strict  obligation and duty should such persons  receive
or constructively  receive trust funds to (1) remit any and all such trust funds
to Lender  within  twenty-four  (24) hours of receipt,  upon demand  therefor by
Lender or (2) to apply such  trust  funds  only to  Obligations  then due or the
operating expenses of the Property.

                                   ARTICLE III
                    COVENANTS, REPRESENTATIONS AND WARRANTIES

     3.01  LIABILITY.  Lender  shall not be  liable  for any loss  sustained  by
Borrower  resulting from Lender's  failure to let the Property after an Event of
Default or from any other act or omission of Lender in managing  the Property or
the  Security  after an Event of  Default,  except for acts  constituting  gross
negligence  or willful  misconduct.  Lender shall not be obligated to perform or
discharge,  nor does  Lender  hereby  undertake  to  perform or  discharge,  any
obligation,  duty or  liability  under any Lease,  and  Borrower  shall and does
hereby indemnify Lender for, and save and hold Lender harmless from, any and all
liability,  loss or  damages,  except so much  thereof as shall  result from the
gross negligence or willful misconduct of Lender, which may or might be incurred
under any Lease or under or by  reason of this  Assignment  and from any and all
claims and demands  whatsoever which may be asserted against Lender by reason of
any alleged obligation or undertaking on its part to perform or discharge any of
the terms,  covenants or agreements  contained in any Lease,  including  without
implied limitation, any claims by any tenants of credit for rents for any period
paid to and received by Borrower  but not  delivered  to Lender.  Should  Lender
incur any such liability under any Lease in defense of any such claim or demand,
the amount thereof, including without implied limitation all costs, expenses and
attorneys'  fees, shall be added to the principal of the Note and Borrower shall
reimburse  Lender therefor  immediately  upon demand.  This Assignment shall not
operate to place  responsibility  upon  Lender for the  control,  care,  upkeep,
management,  operation  or repair of the  Property  and the  Security or for the
carrying  out of any of the terms and  conditions  of any Lease;  nor shall this
Assignment  operate to make Lender responsible or liable for any waste committed
on the  Property  by the  tenants  or any  other  party,  for any  dangerous  or
defective condition of the Property or for any negligence in the control,  care,
upkeep,  operation,  management  or repair of the Property  resulting in loss or
injury or death to any tenant,  licensee,  employee,  stranger  or other  person
whatsoever.

     3.02 TERMINATION.  Upon payment and performance of the Obligations in full,
this  Assignment  shall  become  null and void and of no further  legal force or
effect,  but the  affidavit,  certificate,  letter or  statement of any officer,
agent,  authorized  representative or attorney of Lender showing any part of the
Obligations  remaining unpaid or unperformed shall be and constitute  conclusive
evidence of the validity,  effectiveness and continuing force of this Assignment
upon which any person may, and is hereby  authorized to, rely.  Borrower  hereby
authorizes  and directs all tenants under the Leases,  all guarantors of Leases,
all  insurers  providing  rental loss or business  interruption  insurance  with
respect to the Property, all governmental authorities and all other occupants of
the  Property,  upon  receipt  from Lender of written  notice to the effect that
Lender is then the  holder of the Note and that an Event of Default  exists,  to
pay over to Lender all rents and other  amounts  due and to become due under the
Leases and under  guaranties of the Leases and all other issues and profits from
the  Property  and to continue so to do until  otherwise  notified in writing by
Lender. This right may be exercised without Lender taking actual or constructive
possession of the Property or any part thereof.

     3.03  SECURITY.  Lender may take or release any security for the payment or
performance of the  Obligations,  may release any party primarily or secondarily
liable therefor and may apply any security held by it to the satisfaction of all
or any portion of the Obligations,  without prejudice to any of its rights under
this  Assignment,  the other Loan Documents or otherwise  available at law or in
equity.

     3.04 COVENANTS.  Borrower  covenants with Lender (a) to observe and perform
all the  obligations  imposed  upon the lessor under all Leases and not to do or
permit to be done  anything to impair the same without  Lender's  prior  written
consent, (b) not to collect any of the rent or other amounts due under any Lease
or other  issues or profits  from the  Property  in any manner in advance of the
time when the same shall  become due (save and except  only for  collecting  one
month's rent in advance plus tenant contributions toward operating expenses plus
the security deposit,  if any, at the time of execution of a Lease),  (c) not to
execute any other  assignment  of rents,  issues or profits  arising or accruing
from the Leases or from the Property,  except the Transaction Documents, (d) not
to enter into any lease  agreement  affecting the Property,  except those leases
entered  into in the  ordinary  course  of  business  and  utilizing  Borrower's
standard  form  lease  previously   approved  by  Lender,  with  no  substantial
modifications  thereto,  without  the prior  written  consent of Lender,  (e) to
execute and deliver,  at the request of Lender,  all such further assurances and
acknowledgments  of the  assignment  contained  herein and the other  provisions
hereof, with respect to specific Leases or otherwise,  as Lender shall from time
to time  require,  (f) to obtain from any tenant at the  Property,  from time to
time as  requested  by  Lender,  estoppel  certificates,  in form and  substance
satisfactory  to Lender,  confirming  the terms of such  tenant's  Lease and the
absence of default thereunder, and (g) not to cancel, surrender or terminate any
Lease,  exercise any option which might lead to such  termination  or consent to
any change,  modification,  or alteration  thereof,  to the release of any party
liable thereunder or to the assignment of the lessee's interest therein, without
the prior written  consent of Lender,  and any of said acts, if done without the
prior written consent of Lender, shall be null and void.  Notwithstanding clause
(g) of the preceding sentence,  with respect to all leases (other than leases as
to  which   Beneficiary,   Grantor   and   tenant   have   executed  a  separate
non-disturbance  and  attornment  agreement),   Grantor  may  take  the  actions
described in

<PAGE>

clause (g) without  Beneficiary's prior written consent (but with written notice
thereof to Beneficiary), if and only if such action is consistent with the usual
and customary operation of the Property.

     3.05  AUTHORITY  TO  ASSIGN.  Borrower  represents  and  warrants  that (a)
Borrower  has full right and  authority to execute  this  Assignment  and has no
knowledge of any existing  defaults  under any of the existing  Leases,  (b) all
conditions  precedent to the  effectiveness  of said  existing  Leases have been
satisfied,  (c)  Borrower has not  executed or granted any  modification  of the
existing  Leases,  either orally or in writing,  (d) the existing  Leases are in
full force and effect according to the terms set forth in the lease  instruments
heretofore  submitted  to Lender,  and (e)  Borrower  has not executed any other
instrument  which might prevent Lender from operating under any of the terms and
conditions of this  Assignment,  including any other assignment of the Leases or
the rents, issues and profits from the Property.

     3.06  CROSS-DEFAULT.  Violation  or  default  under  any of the  covenants,
representations,  warranties  and  provisions  contained in this  Assignment  by
Borrower  shall be deemed a default  hereunder as well as under the terms of the
other Loan  Documents,  and any default  thereunder  shall likewise be a default
under this  Assignment.  Any default by  Borrower  under any of the terms of any
Lease shall be deemed a default  hereunder and under the terms of the other Loan
Documents,  and any  expenditures  made by  Lender  in curing  such  default  on
Borrower's behalf,  with interest thereon at the Default Rate (as defined in the
Note), shall become part of the Obligations.

     3.07  NO  MORTGAGEE  IN  POSSESSION.  The  acceptance  by  Lender  of  this
Assignment,  with all of the rights,  powers,  privileges and authority  created
hereby,  shall not, prior to entry upon and taking possession of the Property by
Lender, be deemed or construed to constitute Lender a "mortgagee in possession",
or  hereafter  or at any time or in any  event  obligate  Lender to appear in or
defend any action or  proceeding  relating  to any Lease,  the  Property  or the
Security, to take any action hereunder,  to expend any money, incur any expense,
perform or discharge any  obligation,  duty or liability  under any Lease, or to
assume any  obligation  or  responsibility  for any  security  deposits or other
deposits  delivered  to Borrower  by any tenant and not  actually  delivered  to
Lender.  Lender  shall not be liable in any way for any  injury or damage to any
person or property sustained in or about the Property.

                                   ARTICLE IV
                                     GENERAL

     4.01 REMEDIES.  The rights and remedies  provided Lender in this Assignment
and  the  other  Loan  Documents  are  cumulative.  Nothing  contained  in  this
Assignment,  and no act done or omitted  by Lender  pursuant  hereto,  including
without implied  limitation the collection of any rents, shall be deemed to be a
waiver  by Lender  of any of its  rights  and  remedies  under  the  other  Loan
Documents  or  applicable  law or a waiver of any  default  under the other Loan
Documents,  and this Assignment is made and accepted without prejudice to any of
the rights and remedies  provided Lender by the other Loan Documents.  The right
of Lender to  collect  the  principal  sum and  interest  due on the Note and to
enforce the other Loan  Documents  may be exercised  by Lender  either prior to,
simultaneously with, or subsequent to any action taken by it hereunder.

     4.02  NOTICES.  Any notices,  demands,  requests and consents  permitted or
required hereunder or under any other Loan Document shall be in writing,  may be
delivered  personally  or sent by  certified  mail with  postage  prepaid  or by
reputable  courier  service with charges  prepaid.  Any notice or demand sent to
Borrower by certified  mail or reputable  courier  service shall be addressed to
Borrower at 10050 Bandley  Drive,  Cupertino,  CA 95014 or such other address in
the United States of America as Borrower  shall  designate in a notice to Lender
given in the manner  described  herein.  Any notice sent to Lender by  certified
mail or reputable courier service shall be addressed to The Northwestern  Mutual
Life Insurance Company to the attention of the Real Estate Investment Department
at 720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Lender shall  designate in a notice given in the manner  described  herein.  Any
notice given to Lender  shall refer to the Loan No. set forth above.  Any notice
or demand  hereunder  shall be deemed given when received.  Any notice or demand
which is rejected,  the  acceptance  of delivery of which is refused or which is
incapable  of being  delivered  during  normal  business  hours  at the  address
specified  herein or such other  address  designated  pursuant  hereto  shall be
deemed received as of the date of attempted delivery.

     4.03 CAPTIONS. The titles and headings of the various Articles and Sections
hereof are intended solely for reference and are not intended to modify, explain
or affect the meaning of the provisions of this Assignment.

     4.04  SEVERABILITY.  If any of the  provisions  of this  Assignment  or the
application  thereof  to any  persons  or  circumstances  shall to any extent be
invalid or unenforceable,  the remainder of this Assignment, and the application
of such provision or provisions to persons or circumstances  other than those as
to whom or which it is held  invalid  or  unenforceable,  shall not be  affected
thereby,  and every provision of this Assignment  shall be valid and enforceable
to the fullest extent permitted by law.

     4.05 Attorneys' Fees. In the event of any controversy,  claim,  dispute, or
litigation  between  the  parties  hereto  to  enforce  any  provision  of  this
Assignment or any right of Lender  hereunder,  Borrower  agrees to pay to Lender
all costs and expenses, including

<PAGE>

reasonable  attorneys' fees incurred  therein by Lender,  whether in preparation
for or during any  trial,  as a result of an appeal  from a judgment  entered in
such litigation or otherwise.

     4.06 AMENDMENTS.  This Assignment may not be modified, amended or otherwise
changed  in any  manner  unless  done so by a writing  executed  by the  parties
hereto.

     4.07 BENEFITS. This Assignment and all the covenants,  terms and provisions
contained  herein  shall be binding upon and inure to the benefit of the parties
hereto and their respective  heirs,  executors,  administrators,  successors and
assigns.

     4.08  ASSIGNMENT.  Borrower  shall have no right to assign or transfer  the
revocable  license  granted  herein.  Any  such  assignment  or  transfer  shall
constitute a default.

     4.09 TIME OF ESSENCE. Time is of the essence of this Assignment.

     4.10 GOVERNING LAW. This  Assignment  shall be governed by and construed in
all  respects in  accordance  with the laws of the State of  California  without
regard to any  conflict of law  principles.  Any action,  lawsuit or other legal
proceeding  concerning any dispute  arising under or related to this  Assignment
shall be brought in a state or federal court located in the State of California,
and Lender and Borrower hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California.

     4.11 LIMITATION OF LIABILITY.  Notwithstanding  any provision  contained in
this Assignment, the personal liability of Borrower shall be limited as provided
in the Note.


<PAGE>



     IN WITNESS WHEREOF, this Assignment has been entered into as of the day and
year first-above written.

          BORROWER:      MISSION WEST PROPERTIES, L.P. I,
                         a Delaware limited partnership

                         By:      Mission West Properties, Inc., a
                                  Maryland corporation, its general partner

                                  By: Carle E. Berg

                                  Name: Carl E. Berg

                                  Title: CEO of G.P.



          LENDER:        THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
                         a Wisconsin corporation

                         By:   Northwestern Investment Management Company, LLC,
                               a Delaware limited liability company, its wholly-
                               owned affiliate and authorized representative

                               By: /s/     ER Skaggs
                                  ----------------------------------------------
                                  E.R. Skaggs, Managing Director

                               Attest: /s/  Richard A. Schnell
                                      ------------------------------------------
                                      Richard A. Schnell, Assistant Secretary



<PAGE>


STATE OF California                                  )
                                                     )ss.
COUNTY OF         Santa Clara                        )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared  Carl E.  Berg,  CEO of G.P.,  personally  known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature    /s/     GW Shott
         -----------------------------------
         G.W. Shott
         -----------------------------------
         Name (typed or printed)



<PAGE>


STATE OF WISCONSIN                  )
                                    )ss.
COUNTY OF MILWAUKEE                 )

The foregoing  instrument  was  acknowledged  before me this 3RD day of January,
2003, by and between E.R. Skaggs and Richard A. Schnell,  the Managing  Director
and Assistant  Secretary  respectively,  of Northwestern  Investment  Management
Company,  LLC, on behalf of THE NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY and
acknowledged  the execution of the  foregoing  instrument as the act and deed of
said corporation.

My commission expires: May 9, 2004

                                             Janet M. Szukalski, Notary Public

















This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.



<PAGE>


                                   EXHIBIT "A"
                                (Mission West I)


PROPERTY ONE:

Parcel One:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on April 13, 1979, in
Book 439 of Maps, page(s) 17 and 18.

Parcel Two:

A 17.5' ingress and egress  Easement No. 1 (appurtenant to Parcel 1) situated at
the Northwesterly  corner of Parcel 2 and being shown on that certain Parcel Map
recorded April 13, 1979 in Book 439 of Maps, pages 17 and 18, Santa Clara County
Records.

Assessors Parcel No:  224-44-019



PROPERTY TWO:

PARCEL ONE:

Parcel 3 as shown on that certain  Parcel Map recorded  August 9, 1974,  in Book
344, Page 10, Santa Clara County.

Excepting  therefrom the underground water rights, but without surface rights of
entry,  as granted to the City of Cupertino by  instrument  recorded  January 3,
1975 in Book B233 of Official Records at Page 276.

PARCEL TWO:

An easement for ingress and egress and for the installation and maintenance of a
public  utilities  over the Westerly 15 feet of Parcels 1 and 2 and the Easterly
15 feet of  Parcel  4, as said  Parcels  are shown on that  certain  Parcel  Map
recorded  August 9, 1974 in Book 344 at Page 10 of Maps,  Records of Santa Clara
County, California.

Assessors Parcel No:  326-10-046






<PAGE>


EXHIBIT 10.43

RECORDING REQUESTED BY

American Title Company
632004LZ

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn:  Nadine T. Hansohn
Loan No. C-332757      SPACE ABOVE THIS LINE FOR RECORDER'S USE
-------------------------------------------------------------------------------

            ABSOLUTE ASSIGNMENT OF LEASES AND RENTS (FIRST PRIORITY)
                        Mission West Properties, L.P. II
                               (With License Back)

     THIS  Absolute  Assignment  of Leases  and  Rents  (First  Priority)  (this
"Assignment") is made as of the 3rd day of January, 2003, by and between MISSION
WEST PROPERTIES, L.P. II, a Delaware limited partnership,  whose mailing address
is 10050 Bandley Drive,  Cupertino, CA 95014, (herein called "Borrower") and THE
NORTHWESTERN  MUTUAL LIFE  INSURANCE  COMPANY,  a Wisconsin  corporation,  whose
mailing  address  is c/o Real  Estate  Department,  720 East  Wisconsin  Avenue,
Milwaukee, Wisconsin 53202, (herein called "Lender").

                               W I T N E S S E T H

     FOR  AND  IN  CONSIDERATION  of  the  indebtedness  hereinafter  described,
Borrower has granted,  bargained,  sold and conveyed, and by these presents does
grant,  bargain,  sell and  convey,  unto  Lender,  its  successors  and assigns
forever, all and singular the property hereinafter described (collectively,  the
"Security"), to wit:

          (a) All rents, issues and profits arising from or related to the land,
     situated in the Cities of San Jose and Milpitas,  County of Santa Clara and
     State of California and described in Exhibit "A" attached  hereto and fully
     incorporated  herein by reference for all purposes and all improvements and
     any other property, whether real, personal or mixed, located thereon (which
     land,  improvements and other property are hereinafter  collectively called
     the "Property");

          (b) All of Borrower's  rights,  titles,  interests and privileges,  as
     lessor,  in the  leases  now  existing  or  hereafter  made  affecting  the
     Property, whether or not made by Borrower and as the same may have been, or
     may  from  time  to time  hereafter  be,  modified,  extended  and  renewed
     (hereinafter collectively called the "Leases");

          (c) All tenant  security  deposits and other  amounts due and becoming
     due under the Leases;

          (d) All  guarantees  of the  Leases,  including  guarantees  of tenant
     performance;

          (e)  All  insurance  proceeds,  including  rental  loss  coverage  and
     business interruption coverage with respect to the Leases; and

          (f) All  judgments  and  settlements  of claims  in favor of  Borrower
     (including condemnation proceeds, if any) and all rights, claims and causes
     of action under any court  proceeding,  including  without  limitation  any
     bankruptcy,  reorganization or insolvency proceeding,  or otherwise arising
     from the Leases.

     TO HAVE AND TO HOLD the Security unto Lender,  its  successors  and assigns
forever, and Borrower does hereby bind itself, its heirs, legal representatives,
successors and assigns,  to warrant and forever defend the Security unto Lender,
its  successors and assigns  forever  against the claim or claims of all persons
whomsoever claiming the same or any part thereof.

<PAGE>



                                    ARTICLE I
                                   DEFINITIONS

     1.01 TERMS DEFINED ABOVE. As used in this Assignment, the terms "Borrower",
"Leases",  "Lender",  "Property",  and  "Security"  shall  have  the  respective
meanings indicated above.

     1.02  CERTAIN  DEFINITIONS.  The  following  terms shall have the  meanings
assigned to them below  whenever  they are used in this  Assignment,  unless the
context clearly otherwise requires. Except where the context otherwise requires,
words in the singular form shall include the plural and vice versa.

          "Event of  Default"  shall mean any Event of Default as defined in the
     Lien Instrument.

          "Lien  Instrument"  shall mean that certain Deed of Trust and Security
     Agreement (First Priority) of even date herewith,  executed by Borrower and
     granting a lien on the Property to a trustee for the benefit of Lender,  as
     such instrument may be amended, renewed and restated from time to time.

          "Loan Commitment",  "Loan Documents",  "Note" and "Obligations"  shall
     each have the meaning set forth in the Lien Instrument.



                                   ARTICLE II
                                   ASSIGNMENT

     2.01 ABSOLUTE  ASSIGNMENT.  This  Assignment  is, and is intended to be, an
absolute and present  assignment  of the Security from Borrower to Lender with a
concurrent  license back to the Borrower (which license is subject to revocation
upon the  occurrence  of an Event of  Default  as  herein  provided)  and is not
intended  as  merely  the  granting  of a  security  interest  relating  to  the
Obligations.

     2.02 LICENSE.  Borrower is hereby granted the license to manage and control
the Security and to collect at the time of, but not prior to, the date  provided
for the payment thereof,  all rents, issues and profits from the Property and to
retain,  use and enjoy the same. The license created and granted hereby shall be
revocable upon the terms and conditions contained herein.

     2.03 REVOCATION OF LICENSE.  Immediately upon the occurrence of an Event of
Default and at any time thereafter, Lender may, at its option and without regard
to the  adequacy of the security for the  Obligations,  either by an  authorized
representative or agent, with or without bringing or instituting any judicial or
other action or proceeding,  or by a receiver appointed by a court,  immediately
revoke the license  granted in Section 2.02, as evidenced by a written notice to
said effect given to  Borrower,  and further,  at Lender's  option  (without any
obligation to do so), take possession of the Property and the Security and have,
hold, manage,  lease and operate the Property and the Security on such terms and
for such period of time as Lender may deem proper, and, in addition, either with
or without  taking  possession  of the  Property,  demand,  sue for or otherwise
collect and receive all rents,  issues and profits from the Property,  including
those  past due and  unpaid,  with full  power to make,  from time to time,  all
alterations, renovations, repairs or replacements thereto or thereof as may seem
proper to the  Lender in its sole  discretion,  and to apply (in such  order and
priority as Lender shall determine in its sole  discretion)  such rents,  issues
and profits to the payment of:

          (a) all  expenses of (i)  managing  the  Property,  including  without
     implied  limitation,  the salaries,  fees and wages of a managing agent and
     such other employees as Lender may in its sole discretion deem necessary or
     desirable,  (ii) operating and maintaining the Property,  including without
     implied limitation, all taxes, charges, claims,  assessments,  water rents,
     sewer rents and any other  liens,  and  premiums  for all  insurance  which
     Lender may in its sole  discretion  deem necessary or desirable,  (iii) the
     cost of any and all alterations, renovations, repairs or replacements of or
     to the  Property,  and (iv) any and all  expenses  incident  to taking  and
     retaining possession of the Property and the Security; and

          (b) the Obligations.

The exercise by Lender of the rights  granted it in this Section  2.03,  and the
collection and receipt of rents,  issues and profits and the application thereof
as herein provided, shall not be considered a waiver of any Event of Default.

     2.04 TRUST FUNDS.  All monies or funds covered by this  Assignment paid to,
or for the benefit of, Borrower after any default are hereby declared, and shall
be deemed to be,  trust funds in the hands of Borrower  for the sole  benefit of
Lender,  until all defaults  have been cured or waived or the  Obligations  have
been  paid  and  performed  in  full.  Borrower,   or  any  officer,   director,
representative  or agent thereof receiving such trust funds or having control or
direction of same, is hereby made and shall be construed to be a trustee

<PAGE>

of such trust funds so received  or under its  control and  direction,  and such
person shall be under a strict  obligation and duty should such persons  receive
or constructively  receive trust funds to (1) remit any and all such trust funds
to Lender  within  twenty-four  (24) hours of receipt,  upon demand  therefor by
Lender or (2) to apply such  trust  funds  only to  Obligations  then due or the
operating expenses of the Property.

                                   ARTICLE III
                    COVENANTS, REPRESENTATIONS AND WARRANTIES

     3.01  LIABILITY.  Lender  shall not be  liable  for any loss  sustained  by
Borrower  resulting from Lender's  failure to let the Property after an Event of
Default or from any other act or omission of Lender in managing  the Property or
the  Security  after an Event of  Default,  except for acts  constituting  gross
negligence  or willful  misconduct.  Lender shall not be obligated to perform or
discharge,  nor does  Lender  hereby  undertake  to  perform or  discharge,  any
obligation,  duty or  liability  under any Lease,  and  Borrower  shall and does
hereby indemnify Lender for, and save and hold Lender harmless from, any and all
liability,  loss or  damages,  except so much  thereof as shall  result from the
gross negligence or willful misconduct of Lender, which may or might be incurred
under any Lease or under or by  reason of this  Assignment  and from any and all
claims and demands  whatsoever which may be asserted against Lender by reason of
any alleged obligation or undertaking on its part to perform or discharge any of
the terms,  covenants or agreements  contained in any Lease,  including  without
implied limitation, any claims by any tenants of credit for rents for any period
paid to and received by Borrower  but not  delivered  to Lender.  Should  Lender
incur any such liability under any Lease in defense of any such claim or demand,
the amount thereof, including without implied limitation all costs, expenses and
attorneys'  fees, shall be added to the principal of the Note and Borrower shall
reimburse  Lender therefor  immediately  upon demand.  This Assignment shall not
operate to place  responsibility  upon  Lender for the  control,  care,  upkeep,
management,  operation  or repair of the  Property  and the  Security or for the
carrying  out of any of the terms and  conditions  of any Lease;  nor shall this
Assignment  operate to make Lender responsible or liable for any waste committed
on the  Property  by the  tenants  or any  other  party,  for any  dangerous  or
defective condition of the Property or for any negligence in the control,  care,
upkeep,  operation,  management  or repair of the Property  resulting in loss or
injury or death to any tenant,  licensee,  employee,  stranger  or other  person
whatsoever.

     3.02 TERMINATION.  Upon payment and performance of the Obligations in full,
this  Assignment  shall  become  null and void and of no further  legal force or
effect,  but the  affidavit,  certificate,  letter or  statement of any officer,
agent,  authorized  representative or attorney of Lender showing any part of the
Obligations  remaining unpaid or unperformed shall be and constitute  conclusive
evidence of the validity,  effectiveness and continuing force of this Assignment
upon which any person may, and is hereby  authorized to, rely.  Borrower  hereby
authorizes  and directs all tenants under the Leases,  all guarantors of Leases,
all  insurers  providing  rental loss or business  interruption  insurance  with
respect to the Property, all governmental authorities and all other occupants of
the  Property,  upon  receipt  from Lender of written  notice to the effect that
Lender is then the  holder of the Note and that an Event of Default  exists,  to
pay over to Lender all rents and other  amounts  due and to become due under the
Leases and under  guaranties of the Leases and all other issues and profits from
the  Property  and to continue so to do until  otherwise  notified in writing by
Lender. This right may be exercised without Lender taking actual or constructive
possession of the Property or any part thereof.

     3.03  SECURITY.  Lender may take or release any security for the payment or
performance of the  Obligations,  may release any party primarily or secondarily
liable therefor and may apply any security held by it to the satisfaction of all
or any portion of the Obligations,  without prejudice to any of its rights under
this  Assignment,  the other Loan Documents or otherwise  available at law or in
equity.

     3.04 COVENANTS.  Borrower  covenants with Lender (a) to observe and perform
all the  obligations  imposed  upon the lessor under all Leases and not to do or
permit to be done  anything to impair the same without  Lender's  prior  written
consent, (b) not to collect any of the rent or other amounts due under any Lease
or other  issues or profits  from the  Property  in any manner in advance of the
time when the same shall  become due (save and except  only for  collecting  one
month's rent in advance plus tenant contributions toward operating expenses plus
the security deposit,  if any, at the time of execution of a Lease),  (c) not to
execute any other  assignment  of rents,  issues or profits  arising or accruing
from the Leases or from the Property,  except the Transaction Documents, (d) not
to enter into any lease  agreement  affecting the Property,  except those leases
entered  into in the  ordinary  course  of  business  and  utilizing  Borrower's
standard  form  lease  previously   approved  by  Lender,  with  no  substantial
modifications  thereto,  without  the prior  written  consent of Lender,  (e) to
execute and deliver,  at the request of Lender,  all such further assurances and
acknowledgments  of the  assignment  contained  herein and the other  provisions
hereof, with respect to specific Leases or otherwise,  as Lender shall from time
to time  require,  (f) to obtain from any tenant at the  Property,  from time to
time as  requested  by  Lender,  estoppel  certificates,  in form and  substance
satisfactory  to Lender,  confirming  the terms of such  tenant's  Lease and the
absence of default thereunder, and (g) not to cancel, surrender or terminate any
Lease,  exercise any option which might lead to such  termination  or consent to
any change,  modification,  or alteration  thereof,  to the release of any party
liable thereunder or to the assignment of the lessee's interest therein, without
the prior written  consent of Lender,  and any of said acts, if done without the
prior written consent of Lender, shall be null and void.  Notwithstanding clause
(g) of the preceding sentence,  with respect to all leases (other than leases as
to  which   Beneficiary,   Grantor   and   tenant   have   executed  a  separate
non-disturbance  and  attornment  agreement),   Grantor  may  take  the  actions
described in

<PAGE>

clause (g) without  Beneficiary's prior written consent (but with written notice
thereof to Beneficiary), if and only if such action is consistent with the usual
and customary operation of the Property.

     3.05  AUTHORITY  TO  ASSIGN.  Borrower  represents  and  warrants  that (a)
Borrower  has full right and  authority to execute  this  Assignment  and has no
knowledge of any existing  defaults  under any of the existing  Leases,  (b) all
conditions  precedent to the  effectiveness  of said  existing  Leases have been
satisfied,  (c)  Borrower has not  executed or granted any  modification  of the
existing  Leases,  either orally or in writing,  (d) the existing  Leases are in
full force and effect according to the terms set forth in the lease  instruments
heretofore  submitted  to Lender,  and (e)  Borrower  has not executed any other
instrument  which might prevent Lender from operating under any of the terms and
conditions of this  Assignment,  including any other assignment of the Leases or
the rents, issues and profits from the Property.

     3.06  CROSS-DEFAULT.  Violation  or  default  under  any of the  covenants,
representations,  warranties  and  provisions  contained in this  Assignment  by
Borrower  shall be deemed a default  hereunder as well as under the terms of the
other Loan  Documents,  and any default  thereunder  shall likewise be a default
under this  Assignment.  Any default by  Borrower  under any of the terms of any
Lease shall be deemed a default  hereunder and under the terms of the other Loan
Documents,  and any  expenditures  made by  Lender  in curing  such  default  on
Borrower's behalf,  with interest thereon at the Default Rate (as defined in the
Note), shall become part of the Obligations.

     3.07  NO  MORTGAGEE  IN  POSSESSION.  The  acceptance  by  Lender  of  this
Assignment,  with all of the rights,  powers,  privileges and authority  created
hereby,  shall not, prior to entry upon and taking possession of the Property by
Lender, be deemed or construed to constitute Lender a "mortgagee in possession",
or  hereafter  or at any time or in any  event  obligate  Lender to appear in or
defend any action or  proceeding  relating  to any Lease,  the  Property  or the
Security, to take any action hereunder,  to expend any money, incur any expense,
perform or discharge any  obligation,  duty or liability  under any Lease, or to
assume any  obligation  or  responsibility  for any  security  deposits or other
deposits  delivered  to Borrower  by any tenant and not  actually  delivered  to
Lender.  Lender  shall not be liable in any way for any  injury or damage to any
person or property sustained in or about the Property.

                                   ARTICLE IV
                                     GENERAL

     4.01 REMEDIES.  The rights and remedies  provided Lender in this Assignment
and  the  other  Loan  Documents  are  cumulative.  Nothing  contained  in  this
Assignment,  and no act done or omitted  by Lender  pursuant  hereto,  including
without implied  limitation the collection of any rents, shall be deemed to be a
waiver  by Lender  of any of its  rights  and  remedies  under  the  other  Loan
Documents  or  applicable  law or a waiver of any  default  under the other Loan
Documents,  and this Assignment is made and accepted without prejudice to any of
the rights and remedies  provided Lender by the other Loan Documents.  The right
of Lender to  collect  the  principal  sum and  interest  due on the Note and to
enforce the other Loan  Documents  may be exercised  by Lender  either prior to,
simultaneously with, or subsequent to any action taken by it hereunder.

     4.02  NOTICES.  Any notices,  demands,  requests and consents  permitted or
required hereunder or under any other Loan Document shall be in writing,  may be
delivered  personally  or sent by  certified  mail with  postage  prepaid  or by
reputable  courier  service with charges  prepaid.  Any notice or demand sent to
Borrower by certified  mail or reputable  courier  service shall be addressed to
Borrower at 10050 Bandley  Drive,  Cupertino,  CA 95014 or such other address in
the United States of America as Borrower  shall  designate in a notice to Lender
given in the manner  described  herein.  Any notice sent to Lender by  certified
mail or reputable courier service shall be addressed to The Northwestern  Mutual
Life Insurance Company to the attention of the Real Estate Investment Department
at 720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Lender shall  designate in a notice given in the manner  described  herein.  Any
notice given to Lender  shall refer to the Loan No. set forth above.  Any notice
or demand  hereunder  shall be deemed given when received.  Any notice or demand
which is rejected,  the  acceptance  of delivery of which is refused or which is
incapable  of being  delivered  during  normal  business  hours  at the  address
specified  herein or such other  address  designated  pursuant  hereto  shall be
deemed received as of the date of attempted delivery.

     4.03 CAPTIONS. The titles and headings of the various Articles and Sections
hereof are intended solely for reference and are not intended to modify, explain
or affect the meaning of the provisions of this Assignment.

     4.04  SEVERABILITY.  If any of the  provisions  of this  Assignment  or the
application  thereof  to any  persons  or  circumstances  shall to any extent be
invalid or unenforceable,  the remainder of this Assignment, and the application
of such provision or provisions to persons or circumstances  other than those as
to whom or which it is held  invalid  or  unenforceable,  shall not be  affected
thereby,  and every provision of this Assignment  shall be valid and enforceable
to the fullest extent permitted by law.

     4.05 ATTORNEYS' FEES. In the event of any controversy,  claim,  dispute, or
litigation  between  the  parties  hereto  to  enforce  any  provision  of  this
Assignment or any right of Lender  hereunder,  Borrower  agrees to pay to Lender
all costs and expenses, including

<PAGE>

reasonable  attorneys' fees incurred  therein by Lender,  whether in preparation
for or during any  trial,  as a result of an appeal  from a judgment  entered in
such litigation or otherwise.

     4.06 AMENDMENTS.  This Assignment may not be modified, amended or otherwise
changed  in any  manner  unless  done so by a writing  executed  by the  parties
hereto.

     4.07 BENEFITS. This Assignment and all the covenants,  terms and provisions
contained  herein  shall be binding upon and inure to the benefit of the parties
hereto and their respective  heirs,  executors,  administrators,  successors and
assigns.

     4.08  ASSIGNMENT.  Borrower  shall have no right to assign or transfer  the
revocable  license  granted  herein.  Any  such  assignment  or  transfer  shall
constitute a default.

     4.09 TIME OF ESSENCE. Time is of the essence of this Assignment.

     4.10 GOVERNING LAW. This  Assignment  shall be governed by and construed in
all  respects in  accordance  with the laws of the State of  California  without
regard to any  conflict of law  principles.  Any action,  lawsuit or other legal
proceeding  concerning any dispute  arising under or related to this  Assignment
shall be brought in a state or federal court located in the State of California,
and Lender and Borrower hereby  irrevocably  consent to the  jurisdiction of the
courts located in the State of California and  irrevocably  waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action,  lawsuit or other legal  proceeding  brought in any court located in the
State of California.

     4.11 LIMITATION OF LIABILITY.  Notwithstanding  any provision  contained in
this Assignment, the personal liability of Borrower shall be limited as provided
in the Note.


<PAGE>



     IN WITNESS WHEREOF, this Assignment has been entered into as of the day and
year first-above written.

            BORROWER:      MISSION WEST PROPERTIES, L.P. II,
                           a Delaware limited partnership

                           By:      Mission West Properties, Inc., a
                                    Maryland corporation, its general partner

                                    By: Carl E. Berg

                                    Name: Carl E. Berg

                                    Title: CEO of G.P.



            LENDER:        THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
                           a Wisconsin corporation

                           By: Northwestern Investment Management Company, LLC,
                               a Delaware limited liability company, its wholly-
                               owned affiliate and authorized representative

                               By:  /s/    ER Skaggs
                                  ----------------------------------------------
                                  E.R. Skaggs, Managing Director

                               Attest: /s/  Richard A. Schnell
                                      ------------------------------------------
                                      Richard A. Schnell, Assistant Secretary



<PAGE>


STATE OF California                                  )
                                                     )ss.
COUNTY OF         Santa Clara                        )

On January 7th, 2003, before me, G.W. Shott, a notary for the state,  personally
appeared Carl E. Berg, CEO of G.P.,  personally  known to me to be the person(s)
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized  capacity,  and that by his signature on the
instrument  the person,  or the entity  upon  behalf of which the person  acted,
executed the instrument.

WITNESS my hand and official seal.


Signature   /s/      GW Shott
         -----------------------------------
          G.W. Shott
         -----------------------------------
         Name (typed or printed)



<PAGE>


STATE OF WISCONSIN                  )
                                    )ss.
COUNTY OF MILWAUKEE                 )

The foregoing  instrument  was  acknowledged  before me this 3rd day of January,
2003, by and between E.R. Skaggs and Richard A. Schnell,  the Managing  Director
and Assistant  Secretary  respectively,  of Northwestern  Investment  Management
Company,  LLC, on behalf of THE NORTHWESTERN  MUTUAL LIFE INSURANCE  COMPANY and
acknowledged  the execution of the  foregoing  instrument as the act and deed of
said corporation.

My commission expires: May 9, 2004

                                               Janet M. Szukalski, Notary Public













This instrument was prepared by Sally J. Lewis,  Attorney,  for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.



<PAGE>


                                   EXHIBIT "A"
                                (Mission West II)



PROPERTY ONE:

All that certain real property situated in the City of San Jose, County of Santa
Clara, State of California, described as follows:

Parcel  2, as shown on the  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara, State of California on November 26, 1979,
in Book 455 of Maps, Page(s) 1 and 2.

Assessors Parcel No:  706-09-023

PROPERTY TWO:

Parcel 1, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara,  State of  California on May 22, 1980, in
Book 463 of Maps, Page(s) 43 and 44.

Assessors Parcel No:  706-02-034


PROPERTY THREE:

Parcel 7, as shown on that  Parcel  Map filed  for  record in the  Office of the
Recorder of the County of Santa Clara,  State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.

Assessors Parcel No:  086-33-092

PROPERTY FOUR:

Parcel 3 as shown on that  Parcel  Map filed for  recorded  in the Office of the
Recorder of the County of Santa Clara,  State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.

Assessors Parcel No:  086-41-017 & 086-41-018






<PAGE>




EXHIBIT 23.1





                       Consent of Independent Accountants



We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement  on Form S-8 No.  333-80369 of Mission  West  Properties,  Inc. of our
reports  dated  January  28,  2003  relating  to the  financial  statements  and
financial statement schedules, which appear in this Form 10-K.



PricewaterhouseCoopers LLP


San Francisco, California
March 26, 2003