AMENDED
        AND RESTATED SENIOR MANAGEMENT EMPLOYMENT AGREEMENT

       

      AMENDED
        AND RESTATED SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated as of the 11th
        day of March, 2008, between TARGETED GENETICS CORPORATION, a Washington
        corporation (the “Company”), and H. Stewart Parker (“Executive”).

       

      RECITALS

       

      A. Executive
        is currently employed by the Company or one of its Subsidiaries.

       

      B. The
        Board
        of Directors of the Company (the “Board”) has determined that it is appropriate
        to reinforce the continued attention and dedication of certain members of
        the
        Company’s management, including Executive, to their assigned duties without
        distraction in potentially disturbing circumstances arising from the possibility
        of a Change in Control of the Company, as defined in Schedule A attached
        hereto.

       

      AGREEMENTS

       

      NOW,
        THEREFORE, in consideration of the covenants and agreements hereinafter set
        forth, the Company and Executive agree as follows:

       

      1.  DEFINITIONS

       

      Terms
        capitalized in this Agreement which are not otherwise defined shall have
        the
        meanings assigned to such terms in Schedule A attached hereto.

       

      2.  EFFECTIVENESS;
        PRIOR AGREEMENT

       

      Except
        with respect to Sections 6 through 9 of this Agreement which shall be
        effective immediately, this Agreement shall become effective immediately
        upon
        the occurrence of a Change in Control, provided that Executive is employed
        by
        the Company immediately prior to such Change in Control. This Agreement revokes
        and supersedes the Senior Management Employment Agreement between Executive
        and
        Company dated October 18, 1996 which shall be of no further force and
        effect.

       

      3.  TERM

       

      Unless
        earlier terminated as provided herein, the initial term of this Agreement
        shall
        be from the date hereof until the second anniversary date of this Agreement;
        provided, however, that, unless terminated as provided herein or there shall
        have occurred a Change in Control, on each annual anniversary date of this
        Agreement this Agreement shall automatically be renewed for successive two-year
        terms. In the event of a Change in Control, unless earlier terminated as
        provided herein, this Agreement shall continue in effect until the second
        anniversary date of the Change in Control at which time this Agreement shall
        expire.

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      4.  BENEFITS
        UPON CHANGE IN CONTROL

       

      Executive
        shall be entitled to the following payments and benefits following a Change
        in
        Control, whether or not a Termination occurs:

       

      (A)  SALARY
        AND BENEFITS.
        While
        employed by the Company or any Subsidiary, Executive shall (i) receive an
        annual base salary no less than the Executive’s annual base salary in effect
        immediately prior to the date that the Change in Control occurs, including
        any
        salary which has been earned but deferred, and an annual bonus equal to at
        least
        the average of the three annual bonuses paid to Executive in the three years
        prior to the Change in Control (which bonus shall vest on the last day of
        the
        applicable bonus year and be paid no later than the 15th day of the third
        month
        following the later of the end of the calendar year or the Company’s taxable
        year in which the bonus vests), and (ii) be entitled to participate in all
        employee expense reimbursement, incentive, savings and retirement plans,
        practices, policies and programs (including any Company plan qualified under
        Section 401(a) of the Code) available to other peer executives of the
        Company and its Subsidiaries, but in no event shall the benefits provided
        to
        Executive under this item (ii) be less favorable, in the aggregate, than
        the
        most favorable of those plans, practices, policies or programs in effect
        immediately prior to the date that the Change in Control occurs.

       

      (B)  WELFARE
        PLAN BENEFITS.
        While
        employed by the Company or any Subsidiary, the Company shall at the Company’s
        expense (except for the amount, if any, of any required employee contribution
        which would have been necessary for Executive to contribute as an active
        employee under the plan or program as in effect on the date of the Change
        in
        Control) continue to cover Executive (and his or her dependents) under, or
        provide Executive (and his or her dependents) with insurance coverage no
        less
        favorable than, the Company’s life, disability, health, dental and any other
        employee welfare benefit plans or programs, as in effect on the date of the
        Change in Control (such benefits, the “Welfare Benefits”).

       

      (C)  DEATH
        OF EXECUTIVE.
        In the
        event of Executive’s death prior to Termination, but while employed by the
        Company or any Subsidiary, his or her spouse, if any, or otherwise the personal
        representative of his or her estate shall be entitled to receive
        (i) Executive’s salary at the rate then in effect through the date of
        death, as provided under the Company’s pay policy, (ii) any Accrued
        Benefits for the periods of service prior to the date of death, and
        (iii)  payment of the applicable COBRA premiums, if any, for
        Executive’s dependents, provided the Company receives adequate substantiation of
        such COBRA coverage.

       

      (D)  DISABILITY
        OF EXECUTIVE.
        In the
        event of Executive’s Disability prior to Termination, but while employed by the
        Company or any Subsidiary, Executive shall be entitled to receive (i) his
        or her salary at the rate then in effect through the date of the determination
        of Disability, as provided under the Company’s pay policy, (ii) any Accrued
        Benefits for the periods of service prior to the date of the determination
        of
        Disability, (iii) payments under the Company’s short and long term
        disability plans following the determination of Disability, and
        (iv) payment of the applicable COBRA premiums, if any, for Executive
        and Executive’s dependents, provided the Company receives adequate
        substantiation of such COBRA coverage. 

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (E)  CAUSE;
        UPON EXPIRATION OF THIS AGREEMENT; OTHER THAN FOR GOOD
        REASON.
        If,
        prior to Termination, Executive’s employment shall be terminated by the Company
        for Cause or upon expiration of this Agreement or by Executive other than
        for
        Good Reason, Executive shall be entitled to receive (i) his or her salary
        at the rate then in effect through the date of such termination, as provided
        under the Company’s pay policy, and (ii) any Accrued Benefits for the
        periods of service prior to the date of such termination.

       

      (F)  WITHHOLDING.
        All
        payments under this Section 4 are subject to applicable federal and state
        payroll withholding or other applicable taxes.

       

      5.  PAYMENTS
        AND BENEFITS UPON TERMINATION

       

      Executive
        shall be entitled to the following payments and benefits following
        Termination:

       

      (A)  TERMINATION
        PAYMENT.
        In
        recognition of past services to the Company by Executive, the Company shall
        make
        a lump sum payment in cash to Executive as severance pay equal to two (2)
        times
        the sum of: (i) Executive’s annual base salary in effect immediately prior
        to the date that either a Change in Control shall occur or such date of
        Termination, whichever salary is higher, provided that if Executive is a
        part-time employee on the date of Termination then Executive’s base salary in
        effect immediately prior to the date of Termination shall be used in calculating
        the payment to which Executive may be entitled under this Section 5(a);
        plus (ii) a percentage of Executive’s annual base salary specified in
        subparagraph (i) above, which percentage is equal to the percentage bonus
        paid
        to Executive for the fiscal year ended immediately prior to the Change in
        Control; provided, however, that if Termination occurs prior to the
        determination of such percentage for a fiscal year that has ended or if
        Executive has not received a percentage bonus in the previous year, such
        percentage shall be ten percent (10%). All payments under this Section 5(a)
        (the “Termination Payments”) shall be paid within ten (10) business days
        following the date of Executive’s separation from service (within the meaning of
        Section 409A of the Internal Revenue Code (the “Code”)).

       

      (B)  CERTAIN
        ADDITIONAL PAYMENTS BY THE COMPANY.
        Notwithstanding the foregoing, if all or any portion of the Termination Payments
        either alone or together with all other payments and benefits which Executive
        receives or is then entitled to receive (pursuant to this Agreement or
        otherwise) from the Company or any Subsidiary (all such payments and benefits,
        including the Termination Payments, the “Termination Benefits”), would
        constitute a Parachute Payment, then the Payments to Executive under
        Section 5(a) shall be increased (such increase, a “Gross-Up Payment”), but
        only to the extent necessary to ensure that, after payment by Executive of
        all
        taxes (including any interest or penalties imposed with respect to such taxes),
        including, without limitation, any income taxes and Excise Tax imposed upon
        the
        Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
        to
        the Excise Tax imposed upon the Termination Benefits. The foregoing calculations
        shall be made, at the Company’s expense, by the Company and Executive. If no
        agreement on the calculations is reached within thirty (30) business days
        after
        the date of Termination, then the accounting firm which regularly audits
        the
        financial statements of the Company (the “Auditors”) shall review the
        calculations. The determination of such firm shall be conclusive and binding
        on
        all parties and the expense for such accountants shall be paid by the Company.
        Pending such determination, the Company shall continue to make all other
        required payments to Executive at the time and in the manner provided herein.
        The Gross-Up Payment shall be made as soon as reasonably practicable and
        shall
        in no event be made later than the end of the calendar year next following
        the
        calendar year in which Executive remits the related taxes.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      As
        a
        result of the uncertainty in the application of Section 4999 of the Code,
        it is possible that Gross-Up Payments will have been made by the Company
        which
        should not have been made (an “Overpayment”) or that additional Gross-Up
        Payments which will not have been made by the Company should have been made
        (an
“Underpayment”). If it is determined by the Company and Executive, or, if no
        agreement is reached by the Company and Executive, the Auditors, that an
        Overpayment has been made, such Overpayment shall be treated for all purposes
        as
        a loan to Executive which Executive shall repay to the Company, together
        with
        interest at the applicable federal rate provided for in section 7872(f)(2)
        of
        the Code. In the event that the Company and Executive, or, if no agreement
        is
        reached by the Company and Executive, the Auditors, determine that an
        Underpayment has occurred, such Underpayment shall promptly be paid by the
        Company to or for the benefit of Executive, together with interest at the
        applicable federal rate provided for in section 7872(f)(2)(A) of the Code.
        The
        Company and Executive shall give each other prompt written notice of any
        information that could reasonable result in the determination that an
        Overpayment or Underpayment has been made. Any Underpayment shall be made
        as
        soon as reasonably practicable and shall in no event be made later than the
        end
        of the calendar year next following the calendar year in which Executive
        remits
        the related taxes.

       

      (C)  ACCRUED
        BENEFITS.
        The
        Company shall make a lump sum payment in cash to Executive in the amount
        of any
        Accrued Benefits for the periods of service prior to the date of
        Termination.

       

      (D)  WELFARE
        PLAN BENEFITS.
        For a
        period of one year following the date of Termination, the Company shall pay
        a
        portion of  the applicable COBRA premiums, if any, for Executive and
        Executive’s dependents equal to the Company-paid portion of comparable active
        employee coverage as in effect on the date of Termination,
        provided the Company receives adequate substantiation of
        such COBRA coverage. Notwithstanding the foregoing, if Executive is
        provided by another employer during such one-year period with health benefits
        that are substantially comparable to the active employee coverage as
        in effect on the date of Termination (including with respect to the
        amount of employer premium subsidy), the Company’s obligation under this
        paragraph shall cease. 

       

      (E)  DEATH
        OF EXECUTIVE.
        In the
        event of Executive’s death subsequent to Termination and prior to receiving all
        benefits and payments provided for by this Section 5, such benefits shall
        be
        paid to his or her spouse, if any, or otherwise to the personal representative
        of his or her estate, in accordance with the payment terms described above,
        unless Executive has otherwise directed the Company in writing prior to his
        or
        her death.

       

      (F)  EXCLUSIVE
        SOURCE OF SEVERANCE PAY.
        Benefits
        provided hereunder shall replace the amount of any severance payments to
        which
        Executive would otherwise be entitled under any severance plan or policy
        generally available to employees of the Company.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      (G)  NONSEGREGATION.
        No
        assets of the Company need be segregated or earmarked to represent the liability
        for benefits payable hereunder. The rights of any person to receive benefits
        hereunder shall be only those of a general unsecured creditor.

       

      (H)  WITHHOLDING.
        All
        payments under this Section 5 are subject to applicable federal and state
        payroll withholding or other applicable taxes.

       

      6.  ARBITRATION

       

      Any
        dispute or controversy arising under or in connection with this Agreement
        shall
        be settled exclusively by arbitration in Seattle, Washington, in accordance
        with
        the Rules of the American Arbitration Association then in effect. Judgment
        may
        be entered on the arbitrator’s award in any jurisdiction.

       

      7.  CONFLICT
        IN BENEFITS

       

      Except
        for the amount of any severance payments to which Executive would otherwise
        be
        entitled under any severance plan or policy generally available to employees
        of
        the Company, this Agreement is not intended to and shall not adversely affect,
        limit or terminate any other agreement or arrangement between Executive and
        the
        Company presently in effect or hereafter entered into, including any employee
        benefit plan under which Executive is entitled to benefits.

       

      8.  TERMINATION

       

      (A)  TERMINATION
        PRIOR TO A CHANGE IN CONTROL.

       

      (i)  At
        any
        time prior to a Change in Control, the Company may terminate this Agreement
        upon
        nine (9) months’ prior written notice in the form of a Notice of Termination,
        and this Agreement shall terminate upon the effective date specified in such
        Notice of Termination; provided, however, such Notice of Termination shall
        have
        no force or effect in the event of the occurrence of a Change in Control
        prior
        to such effective date.

       

      (ii)  At
        any
        time prior to a Change in Control, Executive may terminate this Agreement
        upon
        thirty (30) days’ prior written notice in the form of a Notice of Termination,
        and this Agreement shall terminate upon the effective date specified in such
        Notice of Termination notwithstanding the occurrence of a Change in Control
        prior to such effective date.

       

      (B)  TERMINATION
        AFTER A CHANGE IN CONTROL.
        After a
        Change in Control, either party may terminate this Agreement upon thirty
        (30)
        days’ prior written notice in the form of a Notice of Termination.

       

      (C)  EFFECT
        OF TERMINATION.
        Notwithstanding the termination or expiration of this Agreement, the Company
        shall remain liable for any rights or payments arising prior to such termination
        to which Executive is entitled under this Agreement.

       

      
        
          
          

        

        
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      9.  MISCELLANEOUS

       

      (A)  AMENDMENT.
        This
        Agreement may not be amended except by written agreement between Executive
        and
        the Company.

       

      (B)  NO
        MITIGATION.
        All
        payments and benefits to which Executive is entitled under this Agreement
        shall
        be made and provided without offset, deduction or mitigation on account of
        income Executive could or may receive from other employment or otherwise,
        except
        as provided in Section 5(d) hereof.

       

      (C)  EMPLOYMENT
        NOT GUARANTEED.
        Nothing
        contained in this Agreement, and no decision as to the eligibility for benefits
        or the determination of the amount of any benefits hereunder, shall give
        Executive any right to be retained in the employ of the Company or rehired,
        and
        the right and power of the Company to dismiss or discharge any employee for
        any
        reason is specifically reserved. Except as expressly provided herein, no
        employee or any person claiming under or through him or her shall have any
        right
        or interest herein, or in any benefit hereunder.

       

      (D)  LEGAL
        EXPENSES.
        In
        connection with any litigation, arbitration or similar proceeding, whether
        or
        not instituted by the Company or Executive, with respect to the interpretation
        or enforcement of any provision of this Agreement, the prevailing party shall
        be
        entitled to recover from the other party all costs and expenses, including
        reasonable attorneys’ fees and disbursements, in connection with such
        litigation, arbitration or similar proceeding. The Company shall pay prejudgment
        interest on any money judgment obtained by Executive as a result of such
        proceedings, calculated at the published commercial interest rate of Seafirst
        Bank for its best customers, as in effect from time to time from the date
        that
        payment should have been made to Executive under this Agreement.

       

      (E)  NOTICES.
        Any
        notices required under the terms of this Agreement shall be effective when
        mailed, postage prepaid, by certified mail and addressed to, in the case
        of the
        Company:

       

      Targeted
        Genetics Corporation

      1100
        Olive Way, Suite 100

      Seattle,
        WA 98101

      Attention:
        Chief Financial Officer

       

      and
        to,
        in the case of Executive:

       

      H.
        Stewart Parker

      1733
        -
        39th
        Avenue

      Seattle,
        WA 98122


       

      Either
        party may designate a different address by giving written notice of change
        of
        address in the manner provided above.

       

       

      
        
          
          

        

        
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      (F)  WAIVER;
        CURE.
        No
        waiver or modification in whole or in part of this Agreement, or any term
        or
        condition hereof, shall be effective against any party unless in writing
        and
        duly signed by the party sought to be bound. Any waiver of any breach of
        any
        provision hereof or any right or power by any party on one occasion shall
        not be
        construed as a waiver of, or a bar to, the exercise of such right or power
        on
        any other occasion or as a waiver of any subsequent breach. Any breach of
        this
        Agreement may be cured by the breaching party within ten (10) days of the
        date
        that such breaching party shall have received written notice of such breach
        from
        the party asserting such breach.

       

      (G)  BINDING
        EFFECT; SUCCESSORS.
        Subject
        to the provisions hereof, nothing in this Agreement shall prevent the
        consolidation of the Company with, or its merger into, any other corporation,
        or
        the sale by the Company of all or substantially all of its properties and
        assets, or the assignment of this Agreement by the Company in connection
        with
        any of the foregoing actions. This Agreement shall be binding upon, inure
        to the
        benefit of and be enforceable by the Company and Executive and their respective
        heirs, legal representatives, successors and assigns. If the Company shall
        be
        merged into or consolidated with another entity, the provisions of this
        Agreement shall be binding upon and inure to the benefit of the entity surviving
        such merger or resulting from such consolidation. The Company shall require
        any
        successor (whether direct or indirect, by purchase, merger, consolidation
        or
        otherwise) to all or substantially all of the business or assets of the Company,
        including the successor to all or substantially all of the business or assets
        of
        any Subsidiary, division or profit center of the Company, to expressly assume
        and agree to perform this Agreement in the same manner and to the same extent
        that the Company would be required to perform it if no such succession had
        taken
        place. The provisions of this Section 10(g) shall continue to apply to each
        subsequent employer of Executive hereunder in the event of any subsequent
        merger, consolidation or transfer of assets of such subsequent
        employer.

       

      (H)  SEPARABILITY.
        Any
        provision of this Agreement which is held to be unenforceable or invalid
        in any
        respect in any jurisdiction shall be ineffective in such jurisdiction to
        the
        extent that it is unenforceable or invalid without affecting the remaining
        provisions hereof, which shall continue in full force and effect. The
        enforceability or invalidity of any provision of this Agreement in one
        jurisdiction shall not invalidate or render unenforceable such provision
        in any
        other jurisdiction.

       

      (I)  SECTION
        409A. This
        Agreement is not intended to constitute a “nonqualified deferred compensation
        plan” within the meaning of Section 409A of the Code. Notwithstanding the
        foregoing, in the event this Agreement or any compensation or benefit paid
        to
        Executive hereunder is deemed to be subject to Section 409A of the Code,
        Executive and the Company agree to negotiate in good faith to adopt such
        amendments that are necessary to comply with Section 409A of the Code or to
        exempt such compensation or benefits from Section 409A of the Code. In
        addition, to the extent (i) any compensation or benefits to which Executive
        becomes entitled under this agreement, or any agreement or plan referenced
        herein, in connection with Executive’s termination of employment with the
        Company constitute deferred compensation subject to Section 409A of the
        Code and (ii) Executive is deemed at the time of such termination of
        employment to be a “specified employee” under Section 409A of the Code,
        then such compensation or benefits shall not be made or commence until the
        date
        that is six months after the date of Executive’s “separation from service” (or,
        if earlier, the date of the Executive’s death); provided, however, that such
        deferral shall only be effected to the extent required to avoid adverse tax
        treatment to Executive, including (without limitation) the additional twenty
        percent (20%) tax for which Executive would otherwise be liable under
        Section 409A(a)(1)(B) of the Code in the absence of such deferral. During
        any period compensation or benefits to Executive are deferred pursuant to
        the
        foregoing, Executive shall be entitled to interest on such deferral at a
        per
        annum rate equal to the highest rate of interest applicable to six (6)-month
        money market accounts offered by the following institutions: Citibank N.A.,
        Wells Fargo Bank, N.A. or Bank of America, on the date of such “separation from
        service.” Upon the expiration of the applicable deferral period, any
        compensation or benefits which would have otherwise been paid during that
        period
        (whether in a single sum or in installments) in the absence of this section
        shall be paid to Executive or Executive’s beneficiary, if applicable, in one
        lump sum.

       

      
        (J)  GOVERNING
          LAW.
          This
          Agreement shall be governed by and construed in accordance with the laws of the
          state of Washington applicable to contracts made and to be performed
          therein.

         

      

      
        
          
          

        

        
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      IN
        WITNESS WHEREOF, the Company and Executive have executed this Agreement as
        of
        the day and year first above written.

       

      
        	 	 	 
	 	TARGETED
                GENETICS CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/
                Jeremy L. Curnock Cook 
	 	
                
Jeremy
                L. Curnock Cook
	 	Title:
                Chairman of the Board 


      

       

      
        	 	 	 
	 	EXECUTIVE:
	 
 	 
 	 
 
	 	By:  	/s/
                H.
                Stewart Parker
	 	
                
H.
                Stewart Parker
	 	Title:
                President and Chief Executive
                Officer 


      

       

       

       

       

       

      


      
        
          
          

        

        
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      Schedule
        A

       

      CERTAIN
        DEFINITIONS

       

      As
        used
        in this Agreement, and unless the context requires a different meaning, the
        following terms have the meanings indicated:

       

      “Accrued
        Benefits” means the aggregate of any compensation previously deferred by
        Executive (together with any accrued interest or earnings thereon), any accrued
        vacation pay and, in the case of Termination, if the date of Termination
        occurs
        after the end of a Fiscal Year for which a bonus is payable to Executive,
        such
        bonus, in each case to the extent previously earned and not paid, plus an
        amount
        equal to the product of the bonus paid to Executive the prior Fiscal Year
        and a
        fraction, the numerator of which is the number of days since the end of the
        prior Fiscal Year, and the denominator of which is 365. Accrued Benefits
        payable
        under this Agreement shall be paid within ten (10) business days following
        the
        Executive’s separation from service, provided that any compensation previously
        deferred by Executive (together with any accrued interest or earnings thereon)
        shall be paid in accordance with the terms of such deferred compensation.
        

       

      “Beneficial
        Owner” and “Beneficial Ownership” have the meanings set forth in Rules 13d-3 and
        13d-5 of the General Rules and Regulations promulgated under the Exchange
        Act.

       

      “Board
        Change” means that a majority of the seats (other than vacant seats) on the
        Board have been occupied by individuals who were neither (a) nominated or
        appointed by a majority of the Incumbent Directors nor (b) nominated or
        appointed by directors so nominated or appointed.

       

      “Business
        Combination” means a reorganization, merger or consolidation or sale of
        substantially all of the assets of the Company.

       

      “Cause”
        means (a) willful misconduct on the part of Executive that has a materially
        adverse effect on the Company and its Subsidiaries, taken as a whole,
        (b) Executive’s engaging in conduct which could reasonably result in his or
        her conviction of a felony or a crime against the Company or involving substance
        abuse, fraud or moral turpitude, or which would materially compromise the
        Company’s reputation, as determined in good faith by a written resolution duly
        adopted by the affirmative vote of not less than two-thirds of all of the
        directors who are not employees or officers of the Company, or
        (c) unreasonable refusal by Executive to perform the duties and
        responsibilities of his or her position in any material respect. No action,
        or
        failure to act, shall be considered willful or unreasonable if it is done
        by
        Executive in good faith and with reasonable belief that his or her action
        or
        omission was in the best interests of the Company.

       

      “Change
        in Control” means, and shall be deemed to occur upon the happening of, any one
        of the following:

       

      (a)  A
        Board
        Change; or

       

      (b)  The
        acquisition (whether directly or indirectly, beneficially or of record) by
        any
        Person of (i) fifteen percent (15%) or more of the combined voting power of
        the then outstanding voting securities of the Company entitled to vote generally
        in the election of directors, which acquisition is not approved in advance
        by a
        majority of the Incumbent Directors; or (ii) thirty-three percent (33%) or
        more of the combined voting power of the then outstanding voting securities
        of
        the Company entitled to vote generally in the election of directors, which
        acquisition has been approved in advance by a majority of the Incumbent
        Directors; provided, however, that the following acquisitions shall not
        constitute a Change in Control: (x) any acquisition by the Company,
        (y) any acquisition by any employee benefit plan (or related trust)
        sponsored or maintained by the Company or any company controlled by the Company,
        or (z) any acquisition by any company pursuant to a reorganization, merger
        or consolidation, if, following such reorganization, merger or consolidation,
        the conditions described in clauses (i), (ii) and (iii) of the following
        subsection (c) are satisfied; or

       

      
        
          
          

        

        
          A-1

          
            

          

        

        
          
          

        

      

       

      (c)  Approval
        by the shareholders of the Company of a reorganization, merger or consolidation
        in which the Company is not the continuing or surviving corporation, or pursuant
        to which shares of the Company’s Common Stock are converted into cash,
        securities or other property, unless following such reorganization, merger
        or
        consolidation (i) at least sixty-six and two-thirds percent (66-2/3%) of
        the then outstanding shares of common stock of the company resulting from
        such
        reorganization, merger or consolidation and the combined voting power of
        the
        then outstanding voting securities of such company entitled to vote generally
        in
        the election of directors is then beneficially owned, directly or indirectly,
        by
        all or substantially all of the individuals and entities who were the beneficial
        owners of the Company’s voting securities immediately prior to such
        reorganization, merger or consolidation, (ii) no Person (excluding the
        Company, any employee benefit plan (or related trust) of the Company or such
        company resulting from such reorganization, merger or consolidation and any
        Person beneficially owning, immediately prior to such reorganization, merger
        or
        consolidation, directly or indirectly, thirty-three percent (33%) or more
        of the
        Company’s voting securities) beneficially owns, directly or indirectly,
        thirty-three percent (33%) or more of, respectively, the then outstanding
        shares
        of common stock of the company resulting from such reorganization, merger
        or
        consolidation or the combined voting power of the then outstanding voting
        securities of such company entitled to vote generally in the election of
        directors, and (iii) at least a majority of the members of the board of
        directors of the company resulting from such reorganization, merger or
        consolidation were members of the Incumbent Board at the time of the execution
        of the initial agreement providing for such reorganization, merger or
        consolidation; or

       

      (d)  Approval
        by the shareholders of the Company of (i) any plan or proposal for
        liquidation or dissolution of the Company or (ii) any sale, lease, exchange
        or other transfer in one transaction or a series of transactions of all or
        substantially all of the assets of the Company other than to a company with
        respect to which following such sale or other disposition (A) at least
        sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares
        of
        common stock of such company and the combined voting power of the then
        outstanding voting securities of such company entitled to vote generally
        in the
        election of directors is then beneficially owned, directly or indirectly,
        by all
        or substantially all of the individuals and entities who were the beneficial
        owners of the Company’s voting securities immediately prior to such sale or
        other disposition, (B) no Person (excluding the Company and any employee
        benefit plan (or related trust) of the Company or such company and any Person
        beneficially owning, immediately prior to such sale or other disposition,
        directly or indirectly, thirty-three percent (33%) or more of the Company’s
        voting securities) beneficially owns, directly or indirectly, thirty-three
        percent (33%) or more of, respectively, the then outstanding shares of common
        stock of such company and the combined voting power of the then outstanding
        voting securities of such company entitled to vote generally in the election
        of
        directors, and (C) at least a majority of the members of the board of
        directors of such company were approved by a majority of the Incumbent Board
        at
        the time of the execution of the initial agreement or action of the Board
        providing for such sale or other disposition of assets of the
        Company.

       

       

      
        
          
          

        

        
          A-2

          
            

          

        

        
          
          

        

      

       

      “Code”
        means the Internal Revenue Code of 1986, as amended.

       

      “Disability”
        means that (a) a person has been incapacitated by bodily injury or physical
        or mental disease so as to be prevented thereby from performance of his or
        her
        duties with the Company for one hundred twenty (120) days in any twelve (12)
        month period, and (b) such person is disabled for purposes of any and all
        of the plans or programs of the Company or any Subsidiary that employs Executive
        under which benefits, compensation or awards are contingent upon a finding
        of
        disability. The determination with respect to whether Executive is suffering
        from such a Disability will be determined by a mutually acceptable physician
        or,
        if there is no physician mutually acceptable to the Company and Executive,
        by a
        physician selected by the then Dean of the University of Washington Medical
        School.

       

      “Exchange
        Act” means the Securities Exchange Act of 1934, as amended.

       

      “Excise
        Tax” means the excise tax, including any interest or penalties thereon, imposed
        by Section 4999 of the Code.

       

      “Fiscal
        Year” means the twelve (12) month period ending on December 31 in each year
        (or such other fiscal year period established by the Board).

       

      “Good
        Reason” means, without Executive’s express written consent:

       

      (a)  the
        assignment to Executive of duties, or limitation of Executive’s
        responsibilities, materially inconsistent with Executive’s duties and
        responsibilities with the Company or any Subsidiary that employs Executive
        as
        such duties and responsibilities existed immediately prior to the date of
        the
        Change in Control, or

       

      (b)  failure
        by the Company to pay in any material respect, or material reduction by the
        Company of, Executive’s annual base salary, as reflected in the Company’s
        payroll records for Executive’s last pay period immediately prior to the Change
        in Control;

       

      (c)  the
        Company materially reduces Executive’s bonus described in Section 4(A)(i);


       

      (d)  the
        Company requires that Executive relocate to a distance more than thirty (30)
        miles from the Company’s present location in Seattle, Washington or such other
        location where Executive is employed by the Company prior to being asked
        to
        relocate; or

       

      (e)  the
        material breach of any material provision of this Agreement by the Company,
        including, without limitation, failure by the Company to bind any successor
        to
        the Company to the terms and provisions of this Agreement in accordance with
        Section 9(g) of this Agreement.

       

      
        
          
          

        

        
          A-3

          
            

          

        

        
          
          

        

      

       

      To
        have
        Good Reason to resign, Executive must first notify the Company in writing
        of the
        reason(s) Executive believes Good Reason exists within 90 days of the initial
        existence thereof and provide (30) days for the Company to cure. The parties
        intend that this “Good Reason” trigger qualify as an involuntary trigger under
        Treasury Regulation Section 1.409A-1(n)(2)(i).

       

      “Incumbent
        Director” means a member of the Board who has been either (a) nominated by
        a majority of the directors of the Company then in office or (b) appointed
        by directors so nominated, but excluding, for this purpose, any such individual
        whose initial assumption of office occurs as a result of either an actual
        or
        threatened election contest (as such terms are used in Rule 14a-11 of Regulation
        14A promulgated under the Exchange Act) or other actual or threatened
        solicitation of proxies or consents by or on behalf of a Person other than
        the
        Board.

       

      “Notice
        of Termination” means a written notice to Executive or to the Company, as the
        case may be, which shall indicate those specific provisions in this Agreement
        relied upon and which sets forth in reasonable detail the facts and
        circumstances claimed to provide a basis for the termination of Executive’s
        employment constituting a Termination, if any, under the provision so
        indicated.

       

      “Parachute
        Payment” means any payment deemed to constitute a “parachute payment” as defined
        in Section 280G of the Code.

       

      “Person”
        means any individual, entity or group within the meaning of Section 3(a)(9)
        or
        of Section 13(d)(3) (as in effect on the date of this Agreement) of the Exchange
        Act.

       

      “Subsidiary”
        with respect to the Company has the meaning set forth in Rule 12b-2 of the
        General Rules and Regulations promulgated under the Exchange Act.

       

      “Termination”
        means, following the occurrence of any Change in Control by the Company,
        (a) the involuntary termination of the employment of Executive for any
        reason other than death, Disability or for Cause or (b) the termination of
        employment by Executive for Good Reason.

       

      “Voting
        Securities” means the voting securities of the Company entitled to vote
        generally in the election of directors.

      
 

      
        
          
          

        

        
          A-4