Document:

<PAGE>

                                 EXHIBIT 10.17

                                       TO

                        Targeted Genetics Corporation's

                           Annual Report on Form 10-K

     "[ * ]" = Portions of this exhibit have been omitted based on a request for
confidential treatment filed with the Securities and Exchange Commission.  The
omitted material has been filed separately with the SEC.
<PAGE>

                                OPTION AGREEMENT

     THIS AGREEMENT is made this 31st day of August, 1999 between The University
of North Carolina at Chapel Hill (hereinafter referred to as "UNIVERSITY"), a
university having an office at CB #4105, 308 Bynum Hall, Chapel Hill, North
Carolina 27599-4105 and Targeted Genetics Corporation (hereinafter referred to
as "COMPANY"), a corporation incorporated under the laws of the State of
Washington and having an office at 1100 Olive Way, Suite 100, Seattle, WA 98181.

W I T N E S S E T H:

     WHEREAS, University is the owner of an invention, hereinafter defined,
relating to "rAAV Vectors" an invention by Dr. Christopher E. Walsh,
             -------------
(hereinafter referred to as "Inventor(s)")and identified as University File No.
OTD#00-06 (hereinafter referred to as "Invention"); and

     WHEREAS, Company wishes to obtain an option for a license under the Patent
Rights and University is willing to grant such option upon the terms and
conditions hereinafter set forth:

     NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto do mutually agree as follows:

1.   Definitions

     As used in this Option Agreement, the following terms shall have the
     following meanings:

     (a) "Patent Rights" means any and all patents and applications for patents
     covering the Invention that are owned by University during the term of this
     Option Agreement, including all patents and reissue patents issuing on said
     patent applications and any divisionals, continuations, continuations-in-
     part, provisionals, substitutions, renewals, confirmations, supplementary
     protection certificates, registrations, reissues or continued prosecution
     applications.

     (b) "Option Exercise Period" means the period commencing on the Effective
     Date of this Option Agreement and expiring either [ * ] months after the
     expiration of the Sponsored Research Agreement, or [ * ], whichever is
     sooner.

     (c) "Effective Date" means the date first above written.

     (d) "Confidentiality Agreement" means the mutual Confidentiality Agreement
     entered into between University and Company which relates to the Invention
     and that was signed by University and Company and dated on 07/12/1999.
<PAGE>

     (e) "Territory" means the entire world.

2.   Disclosure and Evaluation

     (a) University shall provide Company with a copy of each U.S. and/or
     foreign Patent Application filed on the Invention during or before the
     Option Exercise Period.  Company shall, based upon such disclosure and/or
     any disclosure made in accordance with the Confidentiality Agreement,
     evaluate the technical, economic and commercial advantages of the
     Invention.

     (b) University shall also furnish to Company reasonable opportunity to
     confer with the Inventor(s) of the Invention.

     (c) The right to evaluate the Patent Rights and granted herein shall not
     include the right to sell or otherwise furnish to any third party the
     Invention, or any product made thereby, nor shall it include the right to
     disclose any product made thereby to any third party.

3.   Consideration

     (a) As consideration for the Option granted Company in Article 4 hereof,
     Company hereby agrees to pay to University all costs, including attorney's
     fees, associated with the preparation, filing, prosecution, issuance and
     maintenance of a U.S. Patent application on the Invention. Payment for such
     shall be due upon receipt of monthly billings from the University.

     (b) During the term of this Option Agreement, copies of all filings and
     drafts thereof shall be transmitted to Company by University's counsel
     simultaneously with the transmittal thereof to University.

     (c) As regards filing of foreign patent applications corresponding to the
     U.S. applications described in subparagraph (b), above, Company shall also
     reimburse University for the costs of such foreign patent filings.  If
     Company later decides not to reimburse University for the costs of such
     foreign patent filings, Company shall no longer have any rights to acquire
     a license to jurisdictions covered by such foreign patent filings and
     University shall be free to exclusively or nonexclusively license to third
     parties. Company shall designate that country or those countries, if any,
     in which it desires such corresponding patent application(s) to be filed.
     Company shall pay all costs and legal fees associated with the preparation,
     filing and maintenance of such designated foreign patent applications and
     such applications shall be in the University's name. University may elect
     to file corresponding patent applications in countries other than those
     designated by Company, but in that event University shall be responsible
     for all costs associated with such nondesignated filings. In such event,
     Company shall forfeit its rights

                                       2
<PAGE>

     under this license in the country(ies) not designated by Company where
     University exercises its option to file such corresponding patent
     applications. Company shall make the required designation(s) in good time
     prior to any bar dates to allow University time to exercise its option to
     make its own filings.

     (d) As further consideration for the granting of the Option, Company agrees
     to pay to the University, within 30 days of the Effective Date, the amount
     of [ * ] U.S. dollars.

     (e) Any amounts paid under this Article 3 shall not be refundable under any
     circumstances, nor shall such amounts be a credit against future royalties
     or other income related to the Invention.

4.   Option

     (a) Subject to the rights, if any, of the U.S. Government arising out of
     its sponsorship of the research leading to the Invention, University grants
     to Company and Company accepts, a non-transferable, exclusive Option to
     obtain an exclusive license under the Patent Rights in the territory. The
     Option may be exercised by Company at any time during the Option Exercise
     Period upon written notice to University. In the event that Company
     exercises the Option, the parties shall commence good faith negotiations
     forthwith regarding the terms of the license.

     (b) The Option Exercise Period may be extended if Company continues to
     sponsor research directly relating to the Invention for a time period and
     at an amount not less than the budget of the existing Sponsored Research
     Agreement between Company and University. Such option shall extend for an
     additional [ * ] months beyond the expiration of any subsequent Sponsored
     Research Agreements, however, in no event shall the Option Exercise period
     be greater than [ * ] years from the Effective Date of this Agreement ([ *
     ]).

     (c) If Company wishes to extend the Option Exercise Period without
     sponsoring additional research at the University in the Inventor's
     laboratory, it may do so at a cost of $[ * ] for each additional year,
     however, in no event shall the Option Exercise period be greater than [ * ]
     years from the Effective Date of this Agreement ([ * ]).

     (d) Any amounts paid under this Article 4 shall not be refundable under any
     circumstances, nor shall such amounts be a credit against future royalties
     or other income related to the Invention.

                                       3
<PAGE>

5.   Termination

     (a) If the Option granted by University pursuant to Article 4 hereof is not
     exercised by Company within the Option Exercise Period this Option
     Agreement shall terminate on [ * ] (or such other date as is consistent
     with any extension of the Option Exercise Period pursuant to Article 4 (b)
     hereof). If the Option granted by University pursuant to Article 4 hereof
     is exercised by Company within the Option Exercise Period and if University
     and Company have not negotiated and executed a license agreement within [ *
     ] days of the date Company notifies University that it intends to exercise
     this Option this Option Agreement shall terminate on the expiration of such
     [ * ]-day period, provided that such date may be extended by mutual consent
     of the parties in writing, such consent not to be unreasonably withheld by
     either party.

     (b) Company may terminate the Option Exercise Period at any time by
     notifying University in writing of its decision not to exercise said
     option. In such event, Company's obligations for reimbursement of patent
     expenses under Article 3 hereof shall terminate on the date University
     receives written notice of termination; however, Company shall be obligated
     to reimburse University for all patent application expenses incurred
     through the date of University's receipt of notice of termination, whether
     or not Company or University have been billed for such expenses as of said
     date.

     (c) In the event this Option Agreement expires or is terminated in
     accordance with the immediately preceding paragraphs, Company shall
     promptly return to University any and all patent applications filed or
     drafted pursuant to this Option Agreement, including any complete or
     partial copies thereof made by or on behalf of Company.

6.   Default

     If Company shall fail to perform or fulfill at the time and in the manner
     herein provided, any obligation or condition required to be performed or
     fulfilled by Company hereunder, and if Company shall fail to remedy such
     default within sixty (60) days after written notice thereof from
     University, University shall have the right to terminate this Option
     Agreement by written notice of termination to Company. Any termination of
     this Agreement pursuant to this Article 7 shall be in addition to, and
     shall not be exclusive of or prejudicial to, any other rights or remedies
     at law or in equity that University may have on account of the default of
     Company.

7.   Survival of Terms

                                       4
<PAGE>

     The provisions of Articles 11, 12, 13, 14, 15 and 17 shall survive the
     termination or expiration of this Option agreement.

8.   Governing Law

     This Agreement shall be construed as having been entered into in the State
     of North Carolina and shall be interpreted and its performance governed by
     the laws of said State.

9.   Severability

     In the event that a court of competent jurisdiction holds any provision of
     this Agreement to be invalid, such holding shall have no effect on the
     remaining provision of this Agreement, and they shall continue in full
     force and effect.

10.  Non-assignability

     Any assignment by Company of this Agreement or of any of the rights or
     licenses granted to it hereunder, without the written consent of
     University, shall be void; provided, however, that nothing contained herein
     shall restrict the transfer of this Agreement as a part of a merger or
     corporate acquisition to which Company may be a party.

11.  Notices

     It shall be a sufficient giving of any notice, request, report, statement,
     disclosure or other communication hereunder, if the party giving the same
     shall deposit it with the U.S. Postal Service, postage prepaid, addressed
     to the other party at its address hereinafter set forth or at such other
     address as the other party shall hereafter designate in writing:

     University of North Carolina at       Targeted Genetics Corporation
     Chapel Hill                           Ms. H. Stewart Parker
     Dr. Francis J. Meyer                  President and Chief Executive Officer
     Associate Vice Provost                1100 Olive Way, Suite 100
     Office of Technology Development      Seattle, WA 98101
     CB #4105, 308 Bynum Hall
     Chapel Hill, N.C.  27599-4105

12.  Indemnification

     Company agrees to indemnify University, its employees and officers and to
     hold such parties harmless from any action, claim, or liability, including
     without limitation

                                       5
<PAGE>

     liability for death, personal injury, and/or property damage, arising
     directly or indirectly from Company's possession, testing, screening,
     distribution or other use of Patent Rights provided under this Option
     Agreement, and/or from Company's publication or distribution of test
     reports, data, and other information relating to said items.

13.  Non-Commercial Use

     Company promises to allow use of Invention, Patent Rights only by its
     authorized personnel and only for the purpose of ascertaining its interest
     in pursuing licensing negotiations with University and will not employ same
     for any gain prior to exercising its option hereunder. Should Company
     market or in any way make or use Invention in a way other than as set forth
     herein, Company shall be liable to University in damages.

14.  University Use

     It is expressly agreed that, notwithstanding any provisions herein,
     University is free to use the results of the research performed during the
     Option Exercise period for its own research, public service, clinical,
     teaching and educational purposes without payment of royalties.
     Furthermore, University shall be free to publish University Technology,
     pursuant to Section 6 of  the Sponsored Research Agreement and during the
     Option Exercise Period, as it sees fit.

15.  Confidentiality

     Company agrees to accept information, samples and other disclosures
     hereunder on a confidential basis. The obligations of this article 15 shall
     survive and continue for three years after termination of this Agreement.
     Specifically excluded from such confidential treatment shall be: (a)
     information which, at the time of disclosure, was published, known
     publicly, or otherwise in the public domain; (b) information which, after
     disclosure, is published, becomes known publicly, or otherwise becomes part
     of the public domain through no fault of the Company or its affiliated
     companies; (c) information which the Company can establish was in its
     possession prior to the time of disclosure; or (d) information which, after
     disclosure, is made available to the Company in good faith by a third party
     under no obligation of confidentiality to the University.  The provisions
     of this article 15 shall not modify or supercede the rights and obligations
     of University or Company under the Confidentiality Agreement.

16.  Transfer

     It is expressly agreed that the University does not transfer by operation
     of this Option Agreement any rights it now has or hereafter acquires in the
     Invention.

                                       6
<PAGE>

17.  Use of University Name

     It is agreed that in no circumstances shall Company use the name of the
     University or its employees in any advertisement, press release, or
     publicity with reference to this Option Agreement, without prior written
     approval of the University.

18.  Data Sharing

     Company agrees that at the end of its evaluation hereunder, it will provide
     to the University a detailed, written scientific report including, but not
     limited to all data resulting from evaluation and all of its findings about
     the Invention.  University shall be free to use the results for its own
     research, educational and licensing purposes.  However, University shall
     not publish data provided by Company consistent with the Confidentiality
     Agreement.

                                       7
<PAGE>

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

UNIVERSITY OF NORTH CAROLINA          TARGETED GENETICS CORPORATION
AT CHAPEL HILL

BY:  /s/ Francis J. Meyer             BY: /s/ Michael T. Burke
     -----------------------              ------------------------
     Francis J. Meyer, Ph.D.              Michael T. Burke
     Associate Vice Provost,              Vice President,
     Technology Development               Corporate Development

     Date: September 2, 1999          Date: August 26, 1999
           -----------------                ----------------------

REVIEWED AND ACCEPTED:

/s/ Christopher E. Walsh
----------------------------
Christopher E. Walsh, MD
Principal Investigator

Date: August 2, 1999
      ----------------------

                                       8<PAGE>

                                                                   EXHIBIT 10.29

OLIVE WAY BUILDING LEASE

METROPOLITAN FEDERAL SAVINGS AND LOAN ASSOCIATION

LANDLORD

TARGETED GENETICS CORPORATION

TENANT
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>

<C>   <S>                                                         <C>
1.    FUNDAMENTAL LEASE PROVISIONS                                 1

2.    PREMISES                                                     2

3.    USE                                                          2

4.    TERM                                                         3
      4.01    Term and Commencement Date                           3
      4.02    Option to Extend                                     3

5.    POSSESSION FOR TENANT'S WORK/DELAY IN COMMENCEMENT/
      EARLY POSSESSION                                             4

6.    BASE RENT                                                    4
      6.01    Initial Term Rent                                    5
      6.02    First Extension Term Rent                            5
      6.03    Second Extension Term Rent                           5
      6.04    Third Extension Term Rent                            5
      6.05    Determination of Market Rent                         5

7.    SECURITY DEPOSIT                                             6
8.    OPERATING EXPENSES                                           6
      8.01    Operating Expenses                                   6
      8.02    Tenant's Proportionate Share                         8

9.    BUILDING SERVICES AND MAINTENANCE                            10

      9.01    Office Services                                      10
      9.2     Landlord's Utility, Maintenance and Repair
              Obligations                                          10
      9.3     Tenant's Utility. Maintenance and Repair
              Obligations                                          10

10.   CONDITION OF PREMISES                                        11

11.   TENANT'S IMPROVEMENTS                                        11
      11.01   Landlord's Work                                      11
      11.02   Tenant's Work                                        11
      11.03   Initial Tenant Improvement Allowance                 12
      11.04   First Extension Term Refurbishment Allowance         12
      11.05   Expansion Space Tenant Improvement Allowances        13
      11.06   Reimbursement of Glazing Expenses                    13
      11.07   Amortization of Tenant Improvements                  13
      11.08   Tenant's Construction and Approvals                  13

12.   ALTERATIONS AND ADDITIONS                                    13

13.   LIENS                                                        14

14.   ASSIGNMENT, SUBLETTING OR SUBSTITUTION OF TENANTS            14
      14.01   Assignment or Subletting by Tenant                   14
      14.02   Assignment by Landlord                               16

15.   INSURANCE AND INDEMNIFICATION                                16
      15.01   Liability Insurance                                  16
      15.02   Property Insurance                                   16
      15.03   Insurance Policies                                   17
      15.04   Waiver of Subrogation                                17
      15.05   Indemnity                                            17
      15.06   Exemption of Landlord from Liability                 18

16.   PERSONAL PROPERTY TAXES                                      18

17.   DAMAGE OR DESTRUCTION OF PREMISES                            18
      17.01   Partial Damage--Insured                              18
      17.02   Partial Damage--Uninsured                            19
      17.03   Damage Near End of Term                              19
      17.04   Total Destruction                                    19
      17.05   Abatement of Rent; Tenant's Remedies                 19

18.   CONDEMNATION                                                 19
</TABLE>
<PAGE>

<TABLE>

<C>   <S>                                                         <C>
19.   DEFAULTS; REMEDIES                                           20
      19.01   Defaults                                             20
      19.02   Remedies                                             21
      19.03   Default by Landlord                                  21
      19.04   Late Charges                                         22

20.   ESTOPPEL CERTIFICATES                                        22

21.   BROKER                                                       22

22.   SUBORDINATION                                                23

23.   GENERAL PROVISIONS                                           23
      23.01   Severability                                         23
      23.02   Time of Essence                                      24
      23.03   Incorporation of Prior Agreements; Amendments        24
      23.04   Notices                                              24
      23.05   Waiver                                               24
      23.06   Recording                                            24
      23.07   Holding Over                                         24
      23.08   Covenants and Conditions                             24
      23.09   Binding Effect                                       25
      23.10   Common Areas/Access/and Parking                      25
      23.11   Corporate Authority                                  25
      23.12   Sale of Building                                     25
      23.13   Attorneys' Fees                                      26
      23.14   Landlord's Access                                    26
      23.15   Signs and Auctions                                   26
      23.16   Ouiet Possession                                     26
      23.17   Building Rules and Regulations                       26
      23.18   Relationship of Parties                              26
      23.19   Landlord's Representations                           26
      23.20   Annual Financial Statements                          26
      23.21   Riders                                               27

24.   SPECIAL PROVISIONS                                           27
      24.01   Medical and Hazardous Waste and Materials            27
      24.02   Right of First Opportunity to Lease                  28
      24.03   Limitations in New Leases                            29
      24.04   Expansion Space Undertaking                          29
      24.05   Lease Cancellation                                   29
      24.06   Storage Space                                        30

EXHIBIT A     Legal Description

EXHIBIT B     Premises Description

EXHIBIT C     Tenant's Plans and Specifications

EXHIBIT D     Landlord's Work

EXHIBIT E     Tenant Construction and Approvals

EXHIBIT F     Rules and Regulations

</TABLE>
<PAGE>

OLIVE WAY BUILDING LEASE

  THIS LEASE, dated for reference purposes November 20TH, 1992, is made between
  Metropolitan Federal Savings and Loan Association of Seattle, a federally
  chartered savings and loan association ("Landlord"), and Targeted Genetics
  Corporation, a Washington corporation ("Tenant").

  1.  FUNDAMENTAL LEASE PROVISIONS

  In the event of any conflict between a fundamental lease provision and the
  provisions in the balance of the Lease, the latter controls.

      LANDLORD:
      Metropolitan Federal Savings and Loan Association of Seattle, a federally
      chartered savings and Loan Association of savings and loan association
      whose business address is 1520 Fourth Avenue, Seattle, Washington 98101-
      1648. (Fax No. 206-654-7883.)

      TENANT:
      Targeted Genetics Corporation, a Washington corporation whose business
      address is 1201 Western Avenue, Seattle, Washington 98101. (Fax No. 206-
      587-0606.)

      PREMISES:

      Office and laboratory space comprising approximately 25,300 square feet of
      rentable space in the Olive Way Building located at 1100 Olive Way, Suite
      100, Seattle, Washington, and legally described on Exhibit A attached
      hereto and incorporated herein by this reference. The exact square footage
      of rentable space contained in the Premises will be determined following
      completion of Tenant's Final Plans (as defined in Exhibit E) in accordance
      with the procedure described in Article 2 below.

      TERM:

      The term of this Lease shall be for a period of six (6) years as set forth
      in Article 4.

      OPTIONS TO EXTEND:

      Three (3) five (5) year options to extend the term of this Lease as
      provided in Article 4.

      MONTHLY BASE RENT:

      The initial monthly Base Rent will be based on an annual base rent of
      Eleven and 25/100 dollars ($11.25) per rentable square foot, and shall be
      increased in accordance with Article 6. Assuming total rentable square
      feet of Twenty Five Thousand Three Hundred, the initial monthly Base Rent
      will be Twenty-Three Thousand Seven Hundred Eighteen and 75/100 Dollars
      ($23,718.75). Said Base Rent is subject to adjustment pending the
      determination of the exact square footage of space in accordance with
      Article 2 below.

      1
<PAGE>

      RENT INCREASES:

      The Base Rent shall be increased in accordance with the Schedule contained
      in Article 6.

      OPERATION COSTS/ADDITIONAL RENT:

      Tenant shall pay additional rent equal to Tenant's Proportionate Share of
      increases in Building operating costs over those costs incurred during the
      Base Year (Article 8).

      BASE YEAR:

      1993 calendar year.

      SECURITY DEPOSIT:

      Twenty-Three Thousand Seven Hundred Eighteen and 7S/100 dollars
      ($23,718.75) (Article 7).

      USE:

      The Premises may be used by Tenant for the purposes described in Article
      3.

2. PREMISES

Landlord leases to Tenant and Tenant leases from Landlord for the term, at the
rental, and upon all of the conditions in this Lease, space situated in the
Olive Way Building, located at 1100 Olive Way, Suite 100, Seattle, Washington
(the "Building's) as described in Exhibit B attached hereto and made a part of
this Lease (the "Premises"). The Premises comprise approximately 25,300 rentable
square feet of space in the Building, and include a nonexclusive right to use
the common areas of the Building. The exact square footage of rentable space
contained in the Premises will be determined following completion of Tenant's
Final Plans (as defined on Exhibit E attached hereto). The square footage will
be based on BOMA standards of office building measurement. Upon the
determination of the square footage of rentable area, Landlord and Tenant shall
execute a certificate setting forth such area, and based upon such area, such
certificate shall state the initial monthly Base Rent payable under this Lease,
Tenant's Proportionate Share under this Lease, and the Tenant Improvement
Allowance payable by Landlord under this Lease.

 3.  USE

Tenant shall use the Premises for general office and research laboratory
purposes. Such uses by Tenant, or any Subtenant, will not involve the use of
primates or large animals on the Premises. Tenant shall not use or permit the
Premises to be used for any other purpose without the Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed. Tenant
shall not do or permit any act in or about the Premises nor bring or keep
anything in the Premises which will
<PAGE>

increase the existing rate of any fire or other insurance upon the Building or
its contents, or cause cancellation of any insurance policy covering any part or
all of the Building or any of its contents, or which will unreasonably interfere
with the rights of other tenants or occupants of the Building. Tenant will not
use or allow the Premises to be used for any improper, immoral, or unlawful
purpose, and it will not commit or allow any nuisance or waste in or about the
Premises. Tenant shall, at its sole cost and expense, promptly comply with all
laws, statutes, ordinances and governmental rules or regulations and with the
requirements of any board of fire insurance underwriters or other similar bodies
relating to, or affecting the condition, use or occupancy of the Premises.

 4.  TERM

     4.01  Term and Commencement Date. The term of this Lease is six (6) years,
commencing on April 1, 1993, or ten (10) days following the issuance of a
temporary or permanent Certificate of Occupancy for the Premises, which ever
shall occur sooner (the "Commencement Date"). In no event will the Commencement
Date be later than April 1, 1993 and Tenant agrees to commence paying rent on
that date even if the tenant improvements being constructed by Tenant are not
completed by that date. Notwithstanding the previous sentence, in no event will
the Commencement Date be earlier than the date that Landlord has completed
Landlord's Work (as defined in Exhibit D attached), except that if the
installation of the elevator by Landlord is the only element of Landlord's Work
not completed, then the Lease term shall commence, and the Landlord shall have
until April 15, 1993 to complete the installation of the elevator. In the event
the elevator is not installed and operating by April 15, 1993, rent shall be
abated for each day after April 15, 1993 until the elevator is installed. Tenant
agrees to use its reasonable efforts to complete its improvements and occupy the
Premises as soon as possible. If the Commencement Date is the first day of a
calendar month, the Lease term will begin on that date. If the Commencement Date
is other than the first day of a month, then the period of time between the
Commencement Date and the first day of the following month shall be added to the
term of this Lease, and rent prorated over that period shall be paid by Tenant.

Notwithstanding any other provision of this Lease, Tenant shall have the right,
by written notice delivered to Landlord on or prior to December 15, 1992, to
terminate this Lease on December 15, 1992 if Tenant has not received the Master
Use Permit necessary for the construction of Tenant's Improvements and the use
of the Premises by Tenant as a research facility in accordance with the Final
Plans.

     4.02  Options  to Extend. Landlord grants to Tenant the option to extend
this Lease for three (3) five (5) year terms on the same terms and conditions of
this Lease, provided that Base Rent payable under Article 6 of this Lease shall
be increased in accordance with the terms of Article 6.

Tenant's right to extend the Lease in accordance with the immediately preceding
paragraph is subject to the following conditions:
<PAGE>

a.   Tenant shall have delivered to Landlord, at least nine (9) month's prior to
the expiration of the existing initial term or renewed term of this Lease,
written notice stating Tenant's exercise of the extension option; and

b.   Tenant shall not be in material default under this Lease at the time said
     notice is given nor anytime thereafter prior to or on the date of
     commencement of the extension term; and

c.   This Lease shall be in full force and effect at the time said notice is
     given and at all times thereafter prior to or on the date of commencement
     of the extension term; and

Upon receipt of Tenant's notice of extension, Landlord shall prepare an
amendment modifying the Lease for execution by Tenant and Landlord.

5.   POSSESSION FOR TENANT'S WORK/DELAY IN COMMENCEMENT/EARLY POSSESSION

Landlord shall make the Premises available to Tenant for the purpose of
commencing construction of tenant improvements within fifteen (15) days of the
date of execution of this Lease by Landlord and Tenant. Tenant's access to the
Premises shall be shared with Landlord so as to permit Landlord to accomplish
Landlord's Work where Landlord's Work affects the Premises. Tenant's occupancy
of the Premises prior to the Commencement Date for the purpose of construction
of tenant improvements shall not subject Tenant to the payment of rent under
this Lease, but such occupancy shall be subject to the provisions of this Lease
not pertaining to rent.

If Landlord does not deliver exclusive possession of the Premises (including
installation of the elevator) for any reason at the Commencement Date, this
Lease is not void or voidable, and the Landlord is not liable to the Tenant for
any resulting loss or damage. The expiration date of the Lease term will be
extended accordingly, however all rent shall be abated during the period between
the Commencement Date and the Landlord's delivery of possession. In the event
Landlord does not deliver exclusive possession of the Premises within six (6)
months of April 1, 1993, Tenant shall be entitled to terminate this Lease by
written notice delivered to Landlord within fifteen (15) days of the end of the
six (6) month period and Tenant's security deposit shall be returned to Tenant
within thirty (30) days.

 6.  BASE RENT

All rent payable under this Lease is payable without deduction or offset on the
first day of the month. Rent is payable in lawful money of the United States to
Landlord at its address stated herein or at such other address as Landlord shall
direct Tenant in writing.

The rent payable under this Lease shall be on a per rentable square foot basis
as determined pursuant to Article 2 above.

The rent payable by Tenant for the Premises does not include any of the
following: janitorial service; any water and sewer charges (which will be
separately metered/calculated and
<PAGE>

charged to Tenant); any electricity charges (including electricity utilized by
the HVAC system located in or directly servicing Tenant's Premises) (which will
be separately metered calculated and charged to Tenant); nor does the Base Rent
include any increases in Operating Expenses (defined in paragraph 8.01) beyond
the Base Year.

     6.01  Initial  Term  Rent Tenant will, without prior notice or demand, pay
to Landlord a Base Rent in accordance with the following schedule during the
initial term of this
Lease:

LEASE YEAR          ANNUAL BASE RENT PER RENTABLE FOOT

1                  $11.25

2                  $11.25

3                  $12.75

4                  $13.25

5                  $13.75

6                  $14.25

6.02  First Extension Term Rent. If the Tenant has exercised Tenant's option to
extend the term of this Lease for the first extension period (years 7 through
11), Tenant will, without prior notice or demand, pay to Landlord a Base Rent in
accordance with the following schedule during said extension term of this Lease:

LEASE YEAR          ANNUAL BASE RENT PER RENTABLE FOOT

7                  $15.00

8                  $15.50

9                  $16.00

10                 $16.50

11                 $17.00

6.03  Second Extension Term Rent. The Base Rent for the second extension term
shall be adjusted to a base rent which has the same ratio to the Base Rent on
the Commencement Date ($11.25) as the applicable Consumer Price Index (the
"Index" as defined in Paragraph 6.05 below) published most recently preceding
the second extension term has to the Index published most recently before the
Commencement Date. However, the annual Base Rent for the second extension term
shall in no event be less than $17.00 per rentable square foot.

6.04  Third Extension Term Rent. The Base Rent for the third extension term
shall be adjusted to a base rent which has the same ratio to the Base Rent on
the Commencement Date ($11.25) as the applicable Consumer Price Index (the
"Index" as defined in Paragraph 6.05 below) published most recently preceding
the third extension term has to the Index published most recently before the
Commencement Date. However, the annual Base Rent for the third extension term
shall in no event be less than the greater of $17.00 per rentable square foot,
or the rent during the year immediately preceeding the third extension term.

6.05  Definition of Index. As used in this Lease, the term "Index" shall mean
the Consumer Price index, All Items, All Urban Consumers, U.S. City Average,
(1982--1984 = 100),
<PAGE>

published by the United States Department of Labor, Bureau of Labor Statistics.
In the event the Index is no longer available or in use, the parties agree to
use the index which replaces said Index or, if there is no such replacement, to
use a generally accepted index which most closely measures the same items as the
original Index.

7.   SECURITY DEPOSIT

Upon execution of this Lease, Tenant will pay Landlord Twenty-Three Thousand
Seven Hundred Eighteen and 7S/100 ($23,718.75) as a security deposit. Any
security deposit shall be held by Landlord in an interest bearing account with
interest to accrue to the Tenant as security for the performance by Tenant of
its covenants and obligations under this Lease. It is not an advance payment of
rent or a measure of damages in case of default by Tenant. Landlord may without
prejudice to any other remedy use the security deposit as necessary to make good
any arrearages of rent or any other damage, expense, or liability caused to
Landlord by Tenant's breach or default under this Lease. Following any such use
of the security deposit, Tenant shall pay to Landlord within ten (10) days after
written demand the amount necessary to restore the security deposit to its
original amount. Upon termination of this Lease any remaining balance of the
security deposit shall be returned to Tenant within thirty (30) days after
Tenant ceases occupancy of the premises. In the event Tenant has not been in
default during the first two years of the lease term, said deposit shall be
returned in full to Tenant within thirty (30) days after the expiration of the
second year of the lease term.

8.   OPERATING EXPENSES

     8.01  .Operating Expenses. Subject to Tenant's payment of its Proportionate
Share of Operating Expenses, Landlord shall provide for those Building operation
and maintenance items delineated in Article 9. Operating Expenses are all the
direct costs of operation and maintenance of the Building determined by standard
accounting practices, including without limitation:  common area water and sewer
charges; all utilities charges for utilities not separately metered to or
calculated for the Premises (but not specifically relating to other tenant
spaces) and taxes; common area janitorial services; window cleaning; snow, trash
or debris removal; gardening and landscape maintenance; direct labor and
accounting costs incurred in the management of the Building; management fees;
common area air-conditioning and heating; elevator maintenance; supplies,
materials, equipment, and tools, and maintenance costs and upkeep of all parking
and common areas, all property taxes and assessments, rent taxes, personal
property taxes, gross receipts taxes, and insurance premiums on the Building.
Landlord shall use all reasonable efforts to minimize operating expenses.
"Operating Expenses" shall not include any income, franchise, corporate, estate
or inheritance tax of Landlord, or any assessment upon the Building (including,
but not limited to, the initial cost of developing the Building) that Landlord
elects to be placed upon the Building in the form of an assessment or tax
payable over a term of years (e.g., sewers initially installed and connection of
utilities) or any tax or assessment on rent or any other charge payable by
Tenant under this Lease. In addition, notwithstanding anything in this
<PAGE>

Lease to the contrary, the following costs, charges and expenses of Landlord
shall not be included among the Operating Expenses charges for which Tenant is
responsible under this Lease:

     (a)  leasing commissions and other costs of seeking to rent space;

     (b)  managing agents' fees or commissions in excess of the rates then
          customarily charged for property management for buildings of like
          class and character to the Building;

     (c)  executives' salaries above the grade of property manager;

     (d)  expenditures for capital improvements, except those which under
          generally applied real estate practice are expensed or regarded as
          deferred expenses and except for capital expenditures required by law,
          in either of which cases the cost thereof shall be included in
          Operating Expenses for the year in which such costs are incurred and
          subsequent years, and shall be amortized over an appropriate period on
          a straight--line basis;

     (e)  amounts received by Landlord through proceeds of insurance to the
          extent such proceeds are compensation for expenses that were
          previously included in the Operating Expenses hereunder;

     (f)  cost of repairs or replacements incurred by reason of fire or other
          casualty to the extent Landlord is compensated therefor through
          proceeds of insurance, or caused by the exercise of the right of
          eminent domain;

     (g)  consulting fees, marketing fees, advertising and promotional
          expenditures;

     (h)  legal fees for disputes with tenants and legal and auditing fees,
          other than legal and auditing fees reasonably incurred in connection
          with the maintenance and operation of the Premises or in connection
          with the preparation of statements required pursuant to additional
          rent or lease escalation provisions;

     (i)  costs incurred in performing work or furnishing services for
          individual tenants (including Tenant) at such tenant's expense to the
          extent that such work or service is in excess of any work or service
          Landlord at its expense is obligated to furnish to Tenant; costs of
          performing work or furnishing services for tenants other than Tenant
          at Landlord's expense to the extent that such work or services are in
          excess of any work or service Landlord is obligated to furnish to
          Tenant at Landlord's expense;
<PAGE>

     (j)  principal and interest payments on loans secured by mortgages or deeds
          of trust on, or assignments of rent from, all or any portion of the
          Premises;

     (k)  depreciation;

     (1)  penalties due to any violation of law by Landlord or other tenants;

     (m)  costs of preparing tenant space for tenant occupancy;

     (n)  costs of any utilities, services or capital improvements relating to
          all or any portion of the Premises that were paid directly by Tenant
          or any other tenant;

     (o)  costs allocable to properties other than the Building in which the
          Premises are located in which Landlord has an interest;

     (p)  structural repairs or replacements; and

     (q)  rent payable in connection with any ground or underlying lease.

It is agreed by Tenant that in addition to Tenant's Proportionate Share of
Operating Expenses, Tenant shall be solely responsible for providing and paying
for janitorial services for the Premises; water and sewer services; electrical
services; air conditioning and heating services (including electricity
therefor); and plumbing services; as those items relate to the Premises.
Landlord will establish at its sole cost and expense separate meters for, or if
meters cannot be installed, will separately and equitably calculate the charges
for, the utilities supplied to the Premises.

     8.02  Tenant's Proportionate Share. Commencing with respect to the 1994
Comparison Year (as defined below), in addition to the Base Rent payable
pursuant to Article 6, Tenant shall pay, as additional rent, Tenant's
Proportionate Share of the increase in total Operating Expenses in each
Comparison Year over the total Operating Expenses incurred by Landlord during
the Base Year. For purposes of this Lease (including any extensions), the Base
Year shall be calendar year 1993. Each succeeding year shall be a Comparison
Year.

Tenant's Proportionate Share will be determined in accordance with paragraph 2
above.

Landlord shall give to Tenant on or before the first day of June, 1994 and on or
before the first day of June of each year thereafter during the term of this
Lease, an itemized statement of the increase in rent payable by Tenant hereunder
for the preceding Comparison Year, but failure by Landlord to give such
statement by said date shall not constitute a waiver by Landlord of its right to
require an increase in rent.

For calendar year 1994, Landlord shall deliver to Tenant, no later than June 1,
1994, an estimate of the Operating Expense increase over the Base Year which
will be due for 1994. Said estimated increased amount shall be divided into
equal installments to be paid each month remaining in the calendar year
<PAGE>

1994, commencing with the month following Tenant's receipt of Landlord's
estimate, provided that payments for 1994 shall not be due for any month prior
to the month following the date which is twelve (12) months from the
Commencement Date. For example, if Landlord's estimate is delivered in February,
1994, and the Commencement Date is April 1, 1993, the estimated annual increase
shall be divided into eight equal installments and paid each month, May through
December, 1994.

For years after 1994, upon receipt of the statement for the preceding Comparison
Year, Tenant shall pay a lump sum equal to the total amount of increase in
Operating Expenses over the Base Year, less amounts previously paid on account
thereof as estimated increases. In addition, the amount of any such increase
shall be used as the basis for an estimate of the increase due for the current
year, and that amount shall be divided into equal installments to be paid each
month remaining in the calendar year, commencing with the month following
Tenant's receipt of Landlord's estimate. For example, if Landlord's estimate is
delivered in February, the estimated annual increase shall be divided into ten
equal installments and paid each month, March through December.

If in any Comparison Year the Tenant's share of Operating Expenses are less than
the preceding year, then upon receipt of Landlord's statement, any overpayment
made by Tenant on the monthly installment basis provided above shall be credited
towards the next monthly rent falling due and the estimated monthly installments
of Operating Expenses to be paid shall be adjusted to reflect such lower
Operating Expenses for the most recent Comparison Year.

Tenant, at reasonable times and upon reasonable notice, shall have the right to
inspect Landlord's books and records pertaining to the Building and the
determination of Operating Expenses.

Even though the term has expired and Tenant has vacated the Premises, when the
final determination is made of Tenant's share of Operating Expenses for the year
in which this Lease terminates, Tenant shall immediately pay any increase due
over the estimated expenses paid and conversely any overpayment made in the
event said expenses decrease shall be immediately rebated by Landlord to Tenant.

The statements furnished to Tenant by Landlord, which shall contain such
supporting documentation as Tenant may reasonably request, shall constitute a
final determination as between Landlord and Tenant of Operating Expenses for the
periods represented thereby, unless Tenant, within 60 days after they are
furnished, shall give a notice to Landlord that it disputes their accuracy or
their appropriateness, which notice shall specify the particular respects in
which the statement is inaccurate or inappropriate. Any such dispute shall be
resolved (a) by arbitration in the Seattle, Washington area by 3 arbitrators,
each of whom shall have at least 10 years' experience in the supervision of the
operation and management of projects in Seattle, Washington, like the project in
which the Premises are located and (b) in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Pending the
<PAGE>

resolution of such dispute, Tenant shall continue to pay additional rent to
Landlord in the same amounts as before Tenant received the statement that is the
subject of such dispute. Within 30 days after the resolution of such dispute,
Tenant shall pay to Landlord any deficiency in additional rent found by the
arbitrators to be owing to Landlord by Tenant.

The Base Rent payable by Tenant shall in no event be less than the Base Rent
specified in Article 6 even if Operating Expenses incurred by Landlord in any
Comparison Year are less than those incurred in the Base Year.

9.   BUILDING SERVICES AND MAINTENANCE

     9.01  Office Services. Landlord will provide normal and customary basic
janitorial services to the common areas. Tenant shall provide janitorial
services for the Premises.

     9.02  Landlord's Utility, Maintenance and Repair Obligations. Landlord will
endeavor to manage and maintain the Building as quality office buildings are
managed and maintained in Seattle, Washington. Landlord has the obligation to
maintain the Building and the equipment Tenant is not responsible for located
therein and all common areas thereof, subject to the Tenant's obligation to pay
additional rent pursuant to Article 8. Landlord shall have the responsibility
for repairs of the structural components and roof of the Building.

Landlord shall have no liability to Tenant for any damage, interference or
inconvenience with the Tenant's use of the Premises as a result of repair work
by Landlord, except for any personal injury occasioned by the negligent acts or
omissions or willful misconduct by Landlord or its employees, agents or
contractors, or except for damage to Tenant's personal property occasioned by
the gross negligence or willful misconduct of Landlord or its employees or
agents. Landlord shall have no duty to repair Tenant's property or equipment.
Tenant is not entitled to any reduction of rent for any failure to furnish any
utilities, and Landlord is not liable under any circumstances for injury or
damage to persons or property, however occurring, in connection with or
incidental to such a failure except as occasioned by the negligence or willful
misconduct of Landlord or its employees, agents or contractors. If heat-
generating machines or equipment used in the Premises affect the temperature
otherwise maintained by the air-conditioning system, Landlord reserves the
right to install supplementary air-conditioning units in the Premises and the
costs of installation, operating and maintenance of those units shall be paid by
Tenant to Landlord upon demand.

Tenant will not connect its machinery, equipment or devices with electric
current except through electrical outlets in the Premises installed as part of
Tenant's Final Plans. Tenant may obtain water or electric current in excess of
that furnished or supplied pursuant to the Final Plans with the prior written
consent of Landlord, which consent will not be unreasonably withheld. The cost
of any meters and of installation, maintenance and repair of any such additional
electrical or water systems required by Tenant in excess of that furnished
pursuant to the Tenant's Final Plans shall be paid for by Tenant promptly upon
demand, at the rates charged for the services by
<PAGE>

the local public utility furnishing them.  If a separate meter is not installed
the excess cost for water and electric current to the Premises will be
established by an estimate made by a utility company or electrical engineer.

     9.03  Tenant's  Utility,  Maintenance  and  Repair  Obligations. Tenant
will pay for the utilities serving the Premises, including sewer and water,
electricity, and air conditioning and heating. Landlord will not be responsible
for the furnishing of any of the above utilities to the Premises.

Tenant, at Tenant's sole cost and expense, shall at all times maintain the
Premises in good and sanitary order, condition and repair, including, but not
limited to, the interior surfaces of the ceilings, walls and floors, all doors,
interior windows, all plumbing pipes, electrical wiring, switches, and fixtures.
Tenant will supply and pay for its own janitorial services.

Tenant shall be responsible for the maintenance of the plumbing systems in the
Premises, as well as those elements of the EVAC system located in and serving
the Premises. As part of Tenant's tenant improvements, Tenant is installing
certain equipment shafts and ducts which serve the Premises and will penetrate
the roof areas of the Building. Tenant shall be solely responsible for the
maintenance and operation of these items of equipment and modifications to the
Building.

10.  CONDITION OF PREMISES

By occupying the Premises, Tenant accepts them and acknowledges that they comply
fully with Landlord's covenants and obligations under this Lease subject to
completion of any items noted in writing by Landlord and Tenant upon inspection
of the Premises noted prior to Tenant's initial occupancy. Tenant acknowledges
that neither Landlord, nor any agent, employee or representative of Landlord,
has made any representation or warranty with respect to the Building or Premises
or with respect to the suitability or fitness of the Building or Premises for
the conduct of Tenant's business or for any other use. On termination of the
Lease, Tenant shall surrender the Premises broom clean and in as good condition
as received, ordinary wear and tear excepted, and if Tenant fails to do so
Landlord may restore the Premises to the condition just described, after giving
Tenant ten (10) days prior written notice thereof, at Tenant's expense. Tenant
shall repair all damage to the Building or to the Premises caused by the
installation or removal of Tenant's property or resulting from negligence or
tortious conduct of Tenant, its employees, contractors, agents, licensees and
invitees.

11.  TENANT'S IMPROVEMENTS

     11.01 Landlord's Work. The Landlord will provide, at Landlord's expense,
shell space improvements to the Premises in addition to Landlord's Tenant
Improvement Allowance. The shell space improvements to be provided by Landlord
are described on Exhibit D to this Lease ("Landlord's Work").

     11.02 Tenant's Work. The Premises will be completed by Tenant, at Tenant's
sole expense (except for the Tenant Improvement Allowance provided by Landlord)
in accordance with
<PAGE>

the plans and specifications set forth on Exhibit C to this Lease ("Tenant's
Plans and Specifications").

     11.03  Initial  Tenant  Improvement  Allowance. Landlord agrees to
reimburse Tenant for tenant improvement expenses in the amount of Twenty Dollars
($20.00) per rentable square foot of the Premises. The exact amount of the
allowance is subject to determination of the exact amount of rentable square
feet in the Premises in accordance with Article 2 above.

The tenant improvement reimbursements will be paid to Tenant as follows:

     (a) No reimbursement payments shall be made prior to the date the Master
Use Permit is obtained (but payments may reimburse expenditures made prior to
that date);

     (b) Payments shall be made no more frequently than monthly;

     (c) Payment by Landlord will only be required upon delivery to Landlord of
the following documents:

          (i)  Contractor's draw requests;

          (ii) Invoices for the payment being requested describing in detail the
work performed and the amounts due.

     (d) Payments in an amount equal to one-half the invoiced amounts will be
made to Tenant within ten (10) days of receipt of the materials required by this
paragraph 11.03

     (e) Within thirty (30) days of payment by Landlord, Tenant shall forward
Landlord evidence that Tenant has made Tenant's portion of each invoiced
payment, and lien releases from all contractors and subcontractors performing
work on the Premises through the date of payment;

It is a material element of this Lease that Tenant agrees to expend at least One
Million Five Hundred Thousand Dollars ($1,500,000) (in addition to the tenant
improvement payment made by Landlord) on real property tenant improvements to
the Premises.

     11.04 First Extension Term Refurbishment Allowance. In the event that
Tenant exercises its option to extend the terms of this Lease for the first
extension term provided in Article 4, Landlord shall pay to Tenant a
refurbishment allowance of up to One Hundred Thousand Dollars ($100,000) for use
in refurbishing the Premises. Said refurbishment payment will only be made for
refurbishment expenditures incurred and paid within twelve (12) months of the
commencement date of the extended term of this Lease, and only upon delivery to
Landlord of lien releases from all contractors and subcontractors performing
work on the Premises and delivery to Landlord of Tenant's accounting records and
invoices covering the payment for labor and materials utilized in the
refurbishment of the Premises.
<PAGE>

     11.05  Expansion Space Tenant Improvement Allowance. In the event that
Tenant, during the initial term or any extended term of this Lease rents
additional space in the Building beyond the 25,300 rentable square feet
initially comprising the Premises, Landlord agrees to pay to Tenant a tenant
improvement allowance of Twenty--Five Cents ($0.25) per rentable square foot
(Twenty--Four Cents ($0.24) for improvements and One Cent ($0.01) for additional
interior glazing) of such additional space for each month remaining in the term,
including the term of any extension term for which Tenant has already exercised
its option, at the time Tenant occupies the additional space, provided, however,
Landlord's maximum obligation for all space occupied by Tenant shall be Twenty
Dollars ($20.00) per rentable square foot. Said allowance is to be used for the
construction and refurbishment of said expansion space and for glazing
improvements similar to those made at the time of the initial occupancy of the
Premises.

     11.06  Reimbursement of Glazing Expenses. In the event that Tenant
exercises any of its options to extend the Lease term, Landlord shall, within
thirty (30) days after the commencement of such renewal term, reimburse Tenant
for glazing costs incurred by Tenant in connection with any expansion options
exercised during the initial term, or the previous renewal term (as the case may
be) of the Lease. The reimbursement amount shall be based upon the difference
between the actual cost of glazing at the time of expansion and the expansion
allowance that Tenant received in connection with the expansion space under
paragraph 11.OS.

     11.07  Amortization of Tenant Improvements. For purposes of this Lease, and
wherever reference is made herein to "amortization of tenant improvements" or
"unamortized portion of tenant improvements" said terms or similar phrase shall
have the meaning described in this paragraph. Only Tenant's tenant improvement
expenditures made by Tenant for the initial improvement of the initial Premises
and any expansion space to be occupied by Tenant shall become amortizable
expenses for purposes of this Lease. Tenant shall deliver an accounting of
Tenant's tenant improvement costs to Landlord within thirty (30) days of the
Commencement Date or date of expenditure, and said costs are subject to review
by Landlord for compliance with Tenant's approved tenant improvement plans and
specifications within sixty (60) days thereafter.

Only the cost of real property improvements shall be utilized in any
amortization, personal property of the Tenant shall not be included. All
improvements shall be amortized over the eleven (11) year period commencing with
the Commencement Date for all purposes under this Lease, even though the
improvement expenditures are made prior or subsequent to the Commencement Date.

     11.08  Tenant's Construction and Approvals. Tenant shall proceed with its
construction of Tenant's improvements in accordance with Exhibit E attached
hereto ("Tenant's Construction and Approvals").

12.  ALTERATIONS AND ADDITIONS

Tenant shall not, without Landlord's prior written consent, which will not
unreasonably be withheld or delayed, make any
<PAGE>

Premises, except for nonstructural alterations to be made at one time not
exceeding a cumulative five thousand dollars ($5,000.00) in cost. Any
alterations, improvements or additions made without the prior approval of
Landlord, shall be removed at Tenant's cost at any time upon the request of
Landlord. Tenant's proposed alterations, improvements or additions must be
presented to Landlord in written detailed plans. Consent by Landlord is
conditioned upon Tenant's compliance with the provisions of Exhibit E, Paragraph
4, subparagraph (a) through (j), unless waived in writing by Landlord. In any
event, Tenant shall acquire all required permits from appropriate governmental
agencies, and comply with all conditions thereof. All alterations, improvements
and additions on the Premises shall become the property of Landlord and shall be
surrendered with the Premises at the expiration of the term, with the exception
of Tenant's trade fixtures and equipment which shall remain the property of
Tenant. Tenant shall, at its sole cost and expense, repair any damage to the
Premises where removal of Tenant's machinery or equipment causes damage to the
Premises.

13.  LIENS

Tenant shall pay, when due, all claims for labor or materials furnished or
alleged to have been furnished to or for Tenant at or for use in the Premises,
which claims are or may be secured by any mechanics' or materialmen's lien
against the Premises or any interest therein. Tenant shall give Landlord not
less than ten (10) days' notice prior to the commencement of any work in the
Premises, and Landlord may post notices of non-responsibility in or on the
Premises as provided by law. If Tenant, in good faith, contests the validity of
any lien, claim or demand, Tenant shall, at its sole expense, defend itself and
Landlord and shall satisfy any adverse judgment before its enforcement against
Landlord or the Premises. In such event, if Landlord requires, Tenant shall
furnish to Landlord a lien and completion bond or a surety bond reasonably
satisfactory to Landlord in an amount equal to 1 1/2 times the estimated costs
of all the work or equal to the contested lien, claim or demand, respectively,
to insure Landlord against any liability for mechanics' liens and to ensure
completion of the work and indemnifying Landlord against reasonable attorney's
fees and costs in participating in the action if Landlord decides it is in its
best interest to do so.

14.  ASSIGNMENT  SUBLETTING OR SUBSTITUTION OF TENANTS

     14.01  Assignment or Subletting by Tenant.

     (a) Tenant shall not assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein and shall not sublet the Premises or
any part thereof, or allow occupation or use thereof by any other party or
entity (a "Transfer"), without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. In the event Tenant
should desire to Transfer this Lease or any interest therein, Tenant shall
notify Landlord in writing (hereinafter referred to as the "Transfer Notice") of
the terms of the proposed Transfer and the identity of the proposed transferee
at least forty--five (45) days in advance of the date
<PAGE>

then have a period of fifteen (15) business days following receipt of the
Transfer Notice within which to notify Tenant in writing that Landlord elects to
do one of the following:

          (i)  Terminate this Lease as to the space so affected as of the date
so specified by Tenant in the Transfer Notice and make payment to (or receive
payment from) the Tenant of the unamortized portion of the Tenant improvement
payments made by Tenant, (offset by the unamortized portion of the Tenant
Improvement Allowance paid by Landlord), in which event Tenant shall be relieved
of all further obligations hereunder as to such space from and after such date,
provided, however, that Tenant shall have the right to withdraw its Transfer
Notice for a period of five (5) days following receipt of Landlord's notice of
termination; or

          (ii) Permit Tenant to transfer the Lease or interest therein to the
proposed transferee on the terms set forth in the Transfer Notice.

Notwithstanding the provisions of Paragraph 14.01(a)(i) immediately above,
Tenant shall have the right to sublease up to ten thousand (10,000) rentable
square feet of the Tenant's premises and Landlord shall not have the right to
terminate pursuant to Paragraph 14.0l(a)(i) as to any of said 10,000 square
feet. All other provisions of Paragraph 14.01, including specifically Landlord's
right to approve the subtenant, shall govern any subletting by Tenant.

     (b) If Tenant proposes to sublease less than all of the Premises, an
election by Landlord under subparagraph (a)(i) above to terminate this Lease
with respect to such space shall not affect the force or validity of the Lease
with respect to the remainder of the Premises, provided that the Rent payable
hereunder shall be adjusted on a pro rata basis in accordance with the reduction
in the rentable area of the Premises. If Landlord shall fail to notify Tenant in
writing of its election under subparagraph (a) within the fifteen business (15)
day period, Landlord shall be deemed to have waived the option described in
subparagraph (a)(i), but prior written approval by Landlord of the transferee
shall be required. Landlord agrees to approve or disapprove the proposed
transferee within fifteen business (15) days of receipt of complete financial
statements and business history information including the name and legal
composition of the proposed transferee and the nature of the business it
proposes to carry on in the Premises.

     (c) If Tenant sublets or assigns during the amortization period established
in Paragraph 11.07, Tenant shall be entitled to any rent or other consideration
in excess of the Base Rent and Tenant's Share of Operating Costs payable under
this Lease as reimbursement for the unamortized portion of Tenant's Tenant
improvement expenses in connection with the Premises. After the amortization
period established in Paragraph 11.07, or following the reimbursement to Tenant
of its total Tenant improvement expenses, (whichever comes earlier), Landlord
shall be entitled to all sublease rent or other consideration in excess of the
Base Rent and Tenant's Share of Operating Costs payable under this Lease to
Landlord.
<PAGE>

     (d) The consent of Landlord to any Transfer shall not release Tenant from
any of Tenant's obligations hereunder or discharge any liability of Tenant under
this Lease, nor shall said consent be deemed to be a consent to any subsequent
similar or dissimilar Transfer. Any such Transfer, without such consent shall be
void and shall constitute, at the option of Landlord, a material default
hereunder. The acceptance of rent by Landlord from any other person or entity
shall not be deemed to be a waiver by Landlord of any provision of this Lease or
to be a consent to any Transfer thereof.

     (e) For purposes of this Article 14, sales, transfers or assignments, in
any single transaction, of a controlling interest in the stock of Tenant shall
constitute a Transfer hereunder.

     (f) The voluntary or other surrender of this Lease or of the Premises by
Tenant or a mutual cancellation of this Lease shall not work a merger, and at
the option of Landlord any existing subleases may be terminated or be deemed
assigned to Landlord in which event the tenants under such subleases shall
become tenants of Landlord.

     (g) Tenant shall reimburse Landlord for all costs incurred by Landlord in
connection with its review and consideration of any proposed Transfer, including
without limitation, reasonable attorney's fees and costs and credit report
costs.

Notwithstanding anything in this Lease to the contrary, Landlord hereby consents
to an assignment of this Lease, or a sublease of all or part of the Premises, to
the parent of Tenant or to a wholly-owned subsidiary of Tenant or of such
parent, or to any corporation into or with which Tenant may be merged or
consolidated, or to any joint venture or partnership Tenant may enter into in
connection with the business to be operated on the Premises; provided that, in
the case of a merger or consolidation, the net worth of the resulting
corporation is at least equal to the greater of (a) the net worth of Tenant on
the date hereof or (b) the net worth of Tenant immediately prior to such merger
or consolidation; provided, further, any such assignment of lease shall contain
an assumption of all of the terms, covenants and conditions of this Lease to be
performed, and any subtenant shall agree to perform all applicable provisions of
this Lease to be performed by Tenant. Tenant agrees that no such assignment or
subletting shall be effective unless and until Tenant gives Landlord written
notice thereof, together with a true copy of the assignment or of the sublease.

     14.02  Assignment by Landlord. Landlord may assign, encumber or dispose of
all or any part of its interest in the Building, Premises or this Lease without
affecting this Lease or Tenant's obligations. Tenant agrees to accept and
attorney to such transferee, provided that any transferee(s) shall accept in
writing all Landlord's responsibilities and obligations under this Lease.

15.  INSURANCE AND INDEMNIFICATION

15.01 Liability Insurance.  Tenant shall at Tenant's expense obtain and keep in
force during the term of this Lease
<PAGE>

a policy of commercial/general liability insurance for bodily injury and
property damage liability arising out of Tenant's (or Tenant's agents, invitees,
employees or servants) use and occupancy of the Building, the Premises and all
areas appurtenant thereto. The insurance shall be in amounts reasonable under
the circumstances and shall have limits of at least five hundred thousand
dollars ($500,000) for property damage and for death or injury to one person,
and at least five million dollars ($5,000,000) for any one occurrence. The
policy shall insure risks covered by standard liability policies. The limits of
insurance shall not limit the liability of Tenant. If Tenant fails to procure
and maintain this insurance, Landlord may, but is not required to, procure and
maintain it at Tenant's expense.

     15.02 Property  Insurance. Landlord shall procure and maintain at all times
during the term of the Lease a policy of insurance covering loss or damage to
the Premises in the amount of the full replacement value thereof (exclusive of
Tenant's trade fixtures, and equipment and business personal property, but
inclusive of the value of all Tenant Improvements that become a part of the
Building) providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk), sprinkler leakage, and loss of rental
income, including, if required by a lender, coverage against such other hazards
that are then commonly insured against for similar properties. Such insurance
shall provide for payment of loss thereunder to Landlord and/or the holder of
any mortgages or deeds of trust or real estate contracts on the Premises or the
Building. The cost of such insurance shall be paid by Tenant as part of its
Proportionate Share of Operating Expenses.

     15.03  Insurance Policies. Insurance required by this Article shall be in
companies duly qualified in Washington and reasonably acceptable to Landlord.
Tenant shall deliver to Landlord copies of any policies of insurance or binder
certificates Tenant obtains showing amount of coverage and loss payable clauses
satisfactory to Landlord. No policy shall be cancellable or subject to any
modification except after ten (10) days' prior written notice to Landlord.
Tenant shall furnish Landlord with evidence of policy renewals at least ten (10)
days prior to the expiration of each policy if available, or Landlord may order
the insurance at Tenant's expense. Tenant shall not do or permit anything which
invalidates the insurance policies referred to in this Article. Tenant shall
upon Landlord's demand reimburse Landlord for any additional premiums paid by
Landlord attributable to any act or omission of Tenant causing an increase in
the cost of insurance.

     15.04  Waiver of Subrogation. Tenant and Landlord each waive all rights of.
recovery against the other, or against the employees, agents and representatives
of the other, for loss or damage to the waiving party or its property or the
property of others under its control to the extent that the loss or damage is
insured against under any insurance policy in force at the time of the loss or
damage.

     15.05 Indemnity. Tenant shall indemnify and hold Landlord harmless from all
claims for loss, damage or injury
<PAGE>

including all costs, reasonable attorneys' fees, expenses and liabilities
incurred in the defense of any claim or action) to any person or property
arising out of Tenant's use and occupancy of the Premises or at the Premises or
arising from the conduct of Tenant's business or related activities except to
the extent caused by the negligence or willful misconduct of Landlord or its
agents, employees or contractors. Tenant shall further indemnify and hold
Landlord harmless from all claims for loss or damage arising from any negligence
of Tenant, or any of its agents, contractors or employees (including all costs,
reasonable attorneys' fees, expenses and liabilities incurred in the defense of
any claim or action).

Landlord shall defend and indemnify Tenant and save it harmless from and against
any and all liability, damages, costs and expenses, including but not limited to
reasonable attorneys' fees, arising from any act, omission or negligence of
Landlord, or the officers, contractors, licensees, agents, servants, employees,
guests or invitees of Landlord, in or about the Premises or the Building or
appurtenances thereto.

     15.06  Exemption of Landlord from Liability. Unless caused by the
negligence or willful misconduct of Landlord, Landlord's agents or employees, or
contractors, Landlord is not liable for injury to Tenant's business or any loss
of income or for injury or damage to the person or property of Tenant, or
Tenant's principals, employees, invitees or any other person in or about the
Premises, where the damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from defects of pipes, sprinklers, wires,
appliance, plumbing, air--conditioning, lighting fixtures, or failure of
utilities. Landlord is not liable for any damages arising from any act or
neglect of any other tenant of the Building.

16.  PERSONAL PROPERTY TAXES

Tenant shall pay prior to delinquency all taxes assessed against and levied upon
Tenant's trade fixtures, furnishings, equipment, and all other personal property
at the Premises. When possible, Tenant shall cause its fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property. If any of Tenant's personal property is assessed with
the Premises or Building as real property, Tenant shall pay Landlord the taxes
attributable to Tenant's property within ten (10) days after receipt of a
written statement setting forth those taxes.

17.  DAMAGE OR DESTRUCTION OF PREMISES

     17.01  Partial Damage--Insured. If the Premises are partially damaged by a
casualty covered by the insurance policy that Landlord is required to maintain
under this Lease, Landlord shall at its expense repair the damage, but not
Tenant's fixtures, equipment or tenant improvements unless they are part of the
Premises, provided Landlord shall receive all insurance proceeds covering such
loss. Landlord shall make all repairs as soon as reasonably possible after
receipt of insurance proceeds, but in all events within six months of damage,
and this Lease shall continue in full force.
<PAGE>

Partial damage is herein described as any damage (other than total destruction
of the Premises) which can be repaired within six (6) months.

     17.02  Partial  Damage--Uninsured.  If the Premises are partially damaged,
except by a negligent or willful act of Tenant (in which event Tenant shall make
the repairs, at its expense) by a casualty not covered by the insurance policy
that Landlord is required to maintain under this Lease, Landlord may at its
option either (i) repair the damage as soon as reasonably possible at Landlord's
expense, and this Lease shall continue in full force, or (ii) give written
notice to Tenant with thirty (30) days after the date of the damage of the
intention to cancel and terminate this Lease as of the date of the occurrence of
damage. Tenant may, within ten (10) days after receipt of Landlord's notice,
give written notice to Landlord of Tenant's intention to repair the damage at
Tenant's expense, without reimbursement from Landlord. This Lease will then
continue in full force and Tenant shall make repairs as soon as reasonably
possible. If Tenant does not give its notice after Landlord elects termination,
this Lease shall be canceled and terminated as of the date of the occurrence of
damage.

     17.03  Damage Near End of Term. If the Premises are partially destroyed or
damaged during the last six months of the term of this Lease, Landlord or Tenant
may at its option cancel and terminate this Lease as of the date of occurrence
of damage by giving written notice to the other of that election within thirty
(30) days after the date of occurrence of damage.

     17.04  Total  Destruction. If the Premises are totally destroyed from any
cause whether or not covered by insurance (including any total destruction
required' by any authorized public authority), this Lease shall automatically
terminate as of the date of total destruction.

     17.05 Abatement of Rent: Tenant's Remedies. The Base Rent payable under
Articles 6 and 8 for the period from the date of the casualty until repairs are
completed shall be abated in proportion to the degree of impairment of Tenant's
use of the Premises. Except for abatement of rent, Tenant shall have no claim
against Landlord for any damage suffered for any partial damage, destruction, or
repair of the Premises unless caused by the negligence or willful misconduct of
Landlord or Landlord's agents, employees or contractors. If Landlord does not
commence repairs within forty--five (45) days after its obligation to repair
accrues under this Article, Tenant may at its option cancel this Lease by giving
Landlord written notice at any time prior to the commencement of repairs. This
Lease will terminate as of the date of that notice.

18.  CONDEMNATION

If the Premises or any portion thereof are taken under the power of eminent
domain, or sold under the threat of its exercise (a "condemnation"), this Lease
shall terminate as to the part taken as of the date the condemning authority
takes title or possession, whichever is earlier. If more than ten percent (10%)
of the floor area of the Premises, or more than twenty-
<PAGE>

five percent (25%) of the land area of the property which is not occupied by any
improvements, is taken by condemnation, or if by condemnation a material change
in the character of the Premises prevents their continued use in substantially
the same manner as before the condemnation, Tenant may, at its option, terminate
this Lease as of the date the condemning authority takes possession. Tenant must
exercise its option in writing within ten (10) days after the condemning
authority takes possession. If Tenant does not terminate this Lease, it shall
remain in full force as to the remaining Premises, except that the Base Rent,
and Tenant's Proportionate Share, shall be reduced in the proportion that the
floor area taken bears to the total original floor area of the Premises. Any
award for taking all or any part of the Premises by condemnation, or any payment
made under threat of condemnation, is the property of Landlord, whether the
award is made as compensation for diminution in value of the leasehold, for the
taking of the fee, or as severance damages. Tenant is entitled to any award for
loss of or damage to its trade fixtures, removable personal property, and for
the cost of the unamortized portion of Tenant's improvements. If this Lease is
not terminated after condemnation, Landlord shall, to the extent of severance
damages received by it, repair any damage to the Premises caused by the
condemnation, except to the extent that Tenant was reimbursed therefor by the
condemning authority. Nothing in this Lease shall prevent Tenant from pursuing
its own damage claim against the condemning authority.

19.  DEFAULTS: REMEDIES

     19.01  Defaults. Each of the following is a material default and breach of
this Lease by Tenant:

     (a)  Vacating or abandoning the Premises for more than thirty (30)
          consecutive days;

     (b)  Failure to make any required rent or other payment as and when due if
          such failure continues for a period of five (5) business days after
          written notice thereof from Landlord;

     (c)  Failure to comply with any of the covenants or provisions of this
          Lease, other than those described in subparagraph (b), if the failure
          continues for a period of thirty (30) days after written notice from
          the Landlord. If the nature of Tenant's default reasonably requires
          more than thirty (30) days for its cure, Tenant will not be in default
          if it commences to cure with the thirty (30) day period and thereafter
          diligently pursues its completion.

     (d)  Tenant's making any general assignment or arrangement for the benefit
          of creditors; the filing by or against Tenant of a petition to have it
          adjudged a bankrupt or a petition for reorganization or arrangement
          under any bankruptcy law (unless, any petition filed against Tenant is
          dismissed within sixty (60) days); the appointment of a trustee or
          receiver to take possession of substantially all of Tenant's assets at
          the Premises or its interest in this Lease, if possession is not
          restored to Tenant within sixty
<PAGE>

          (60) days; or the attachment, execution or other judicial seizure of
          substantially all of Tenant's assets at the Premises or its interest
          in this Lease, if that seizure is not discharged within sixty (60)
          days.

     (e)  Discovery by Landlord that any financial statement given to Landlord
          by Tenant, or by any assignee, subtenant, successor in interest of
          Tenant, or any guarantor of its obligations was materially false at
          the time given.

    19.02  Remedies. If any material default or breach by Tenant occurs,
    Landlord may at any time thereafter without notice or demand do any or all
    of the following:

     (a)  Terminate Tenant's right to possession of the Premises by any lawful
          means, and this Lease shall terminate; Landlord may reenter and take
          possession of and remove all persons or property, and Tenant shall
          immediately surrender possession of the Premises to Landlord. Landlord
          may recover from Tenant all damages incurred by Landlord for Tenant's
          default including, but not limited to, the cost of recovering
          possession of the Premises; expenses of reletting, including necessary
          and reasonable renovation and alteration of the Premises.

          Landlord may also recover reasonable attorney's fees and any real
          estate commissions actually paid in connection with any reletting of
          the Premises; the worth at the time of award by a court of competent
          jurisdiction of the amount by' which the unpaid rent for the balance
          of the term after the time of the award exceeds the amount of rent
          loss for the same period that Tenant proves could be reasonably
          avoided; and any leasing commission applicable to the unexpired term
          of this Lease (calculated by amortizing the commission over the
          initial term of this Lease).

     (b)  Maintain Tenant's right to possession, and this Lease shall continue
          in force whether or not Tenant has abandoned the Premises. Landlord
          shall be entitled to enforce all of its rights and remedies under this
          Lease, including the right to recover rent as it becomes due.

     (c)  Pursue any other remedy available to Landlord under the law.

These remedies are not exclusive.

     19.03  Default by Landlord. Landlord is not in default unless it fails to
perform obligations required of it within a reasonable time, and not later than
thirty (30) days after delivery of written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the Premises whose
name and address has been furnished to Tenant in writing, specifying Landlord's
failure to perform its obligations. If Landlord's obligation reasonably requires
more than
<PAGE>

thirty (30) days for performance or cure, Landlord is not in default if it
commences performance or cure within the thirty (30) day period and thereafter
diligently pursues its completion.

     19.04  Late Charges. Late payment by Tenant of rent and other sums due will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult to ascertain. The costs include, but are
not limited to, processing and accounting charges, and late charges which may be
imposed on Landlord by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sums due from
Tenant are not received by Landlord or its designee within ten (10) working days
after the amount is due, Tenant shall pay to Landlord a late charge equal to
five percent (5%) of the overdue amount. The parties agree that this late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of a late charge by Landlord is not
a waiver of Tenant's default, nor a waiver of greater charges which may be
incurred by Landlord.

20.  ESTOPPEL CERTIFICATES

Tenant shall at any time upon ten (10) days' prior written notice from Landlord
execute, acknowledge and deliver to Landlord a statement in writing (i) stating
the Commencement Date and certifying that this Lease is unmodified and in full
force (or, stating the nature of any modification and certifying that this
Lease, as modified is in full force) and stating the date to which the rent and
other charges are paid in advance, if any, and (ii) acknowledging that there are
not, to Tenant's knowledge, any uncured defaults on the part of Landlord (or
specifying any defaults claimed). This statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises.

Tenant's failure to deliver this statement within ten (10) days shall be
conclusive upon Tenant (i) that this Lease is in full force as represented by
Landlord, (ii) that there are no uncured defaults in Landlord's performance, and
(iii) that not more than one month's rent has been paid in advance. Any such
failure may also be considered by Landlord as a material default by Tenant under
this Lease.

If Landlord desires to finance or refinance the Building or part of it, Tenant
agrees to provide reasonable financial information to any lender in order to
facilitate financing or refinancing. These financial statements shall be
remitted directly to the lender and shall be kept confidential by the lender.

21.  BROKER

Landlord and Tenant each warrant to the other that it has had no dealings with
any real estate broker or agent in connection with the negotiation of this
Lease, except CB Commercial Real Estate, Inc., which represented Landlord, and
Teutsch Partners, which represented Tenant, and that it knows of no other real
estate broker or agent who is or might be entitled to a commission in connection
with this Lease. If Landlord or Tenant has
<PAGE>

dealt with any other person or real estate agent with respect to leasing or
renting space in the Building, such party shall be solely responsible for the
payment of any fee due said person or firm, and Landlord and Tenant shall each
indemnify and hold the other harmless from and against any liability in respect
thereof. Landlord acknowledges that it shall pay to CB Commercial Real Estate
Inc., as listing broker, a total of six and one--half percent (6.5%) of the
gross lease consideration (base rent only) for years one through five and three
and one--quarter percent (3.25%) of the gross lease consideration (base rent
only) for year 6, and CB Commercial Real Estate, Inc. shall be solely
responsible for and liable to compensate Teutsch Partners (as co--broker) a
total of four percent (4%) of the gross lease consideration (base rent only) for
years one through five and two percent (2%) of the gross lease consideration
(base rent only) for year six. Such payment shall be made one-half on the date
the Lease is fully executed by both Landlord and Tenant and the Master Use
Permit permitting Tenant's use of the Premises has been issued, and one--half on
the date Tenant has occupied the Premises for its business use and has commenced
paying rent.

22.  SUBORDINATION

This Lease, at Landlord's option, shall be subordinate to any ground lease,
mortgage, deed of trust, any other hypothecation for security or encumbrance
upon the real property of which the Premises are a part and to any and all
advances made on that security and to all renewals, modifications,
consolidations, replacements and extensions thereof. Despite any subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed and
none of Tenant's other rights under this Lease shall be diminished if Tenant is
not in default under this Lease. If any mortgagee, trustee, or ground lessor
prefers to have this Lease prior to the lien of its mortgage, deed or trust or
ground lease, and gives written notice to Tenant, this Lease shall be prior to
that mortgage, deed of trust, or ground lease, whether this Lease is dated prior
to or subsequent to the date of the mortgage, deed of trust or ground lease or
its recording date.

Tenant will execute any documents required to effectuate subordination or make
this Lease prior to any mortgage, deed of trust or ground lease within ten (10)
days after written request. Notwithstanding the foregoing, Tenant shall not be
required to subordinate this Lease to any mortgage or deed of trust unless the
mortgagee or beneficiary agrees with Tenant, pursuant to a nondisturbance
agreement, that upon a foreclosure (or deed in lieu thereof), and as long as
Tenant is not in default hereunder, such mortgagee or beneficiary will recognize
this Lease and all of Tenant's rights hereunder and will not disturb or
interfere with Tenant's occupancy. Landlord represents that, as of the date of
execution of this Lease, there is no mortgage or deed of trust encumbering the
Building or the Premises.

23.  GENERAL PROVISIONS

     23.01  Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction will not affect the validity of
any other provision.
<PAGE>

     23.02 Time of Essence.  Time is of the essence of this Lease.

     23.03  Incorporation of Prior Agreements; Amendments. This Lease contains
all agreements of the parties with respect to all matters mentioned in it. No
prior agreement or understanding concerning those matters is effective. This
Lease may be modified only in writing, signed by the parties in interest at the
time of the modification.

     23.04  Notices. Any notice given under this Lease shall be in writing and
may be given by personal delivery, facsimile transmission, or by certified mail,
postage prepaid, addressed to Tenant or to Landlord at their addresses in
Article 1. Either party may by notice under this Article change its address for
notice purposes. Notices personally delivered or transmitted by facsimile are
considered received upon delivery. Mailed notices are considered received five
(5) days after deposit in the mail. A copy of all notices given to Landlord
shall be concurrently transmitted to Landlord's lender designated in writing by
Landlord.

     23.05  Waiver. Waiver by Landlord of the breach of any provision of this
Lease is not a waiver of any subsequent breach by Tenant of the same or any
other provision. Landlord's consent to or approval of any act does not make the
Landlord's consent to or approval of any subsequent act unnecessary. Acceptance
of rent by Landlord is not a waiver of any preceding breach of any provision of
this Lease, other than Tenant's failure to pay the rent so accepted.

     23.06  Recording. Tenant shall not record this Lease without Landlord's
prior written consent, and unauthorized recordation, at the option of Landlord,
constitutes a noncurable default by Tenant. Landlord and Tenant shall, upon
request of the other party, execute, acknowledge and deliver to Landlord a
"short form" memorandum of this Lease suitable for recording.

     23.07  Holding Over. Any holding over after the expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall be construed to be a tenancy from month to month on
all the terms, covenants and conditions herein specified so far as applicable,
except that the Base Rent shall be an amount equal to one hundred twenty-five
percent (125%) of the Base Rent otherwise payable by Tenant immediately prior to
such holding over; provided, however, if such holding over is without the
written consent of Landlord, the Base Rent shall be an amount equal to Two
Hundred percent (200%) of the Base Rent otherwise payable by Tenant immediately
prior to such holding over. Acceptance by Landlord of Rent after the expiration
or termination of this Lease shall not constitute a consent by Landlord to any
such tenancy from month to month or result in any other tenancy or any renewal
of the term hereof. The provisions of this paragraph are in addition to, and do
not affect, Landlord's right to re--entry or other rights provided by this Lease
or by law.

     23.08  Covenants and Conditions. Each provision of this Lease performable
by Tenant is both a covenant and a condition.
<PAGE>

     23.09  Binding Effect. Subject to the provisions restricting assignment or
subletting, this Lease binds and benefits the parties, their personal
representatives, successors and assigns.

     23.10  Common Areas/Access/Parking. All elevators, stairways, halls, public
toilet facilities and other areas for the common use of all tenants of the
building shall be open for reasonable use by Tenant and its employees. Tenant
and its employees shall have twenty-four hour access to the Premises. Tenant
shall have the right to lease up to forty--two (42) non-reserved parking spaces
in the Building parking garage. During the initial term of this Lease (years one
through six) such parking spaces shall be provided at Eighty-Five Dollars
($85.00) per month. Thirty (30) days prior to the Commencement Date, Tenant
shall notify Landlord of the initial number of parking spaces Tenant desires to
lease pursuant to this paragraph. After the Commencement Date, additional
parking spaces up to the allotment of 42 will be made available to Tenant (at
the $85.00 per space rate during the initial term) upon thirty (30) days written
request from Tenant. Tenant may reduce the number of spaces it leases upon
thirty (30) days prior written notice to Landlord. Spaces leased by Tenant but
subsequently given up by Tenant may be used by the Landlord and Tenant's right
to lease those spaces in the future is subject to availability and market rates.
For example, if Tenant initially leased 42 spaces and one year later reduces its
spaces rented to 20 spaces, Tenant would only be able to rent additional spaces
beyond 20 if they were not leased to others, and Tenant would have to pay market
rate for those spaces above 20.

If Tenant leases space in the Building in addition to the initial Premises,
Tenant shall be entitled to lease additional parking spaces at the ratio of one
space for each additional Five Hundred Forty-Six (546) rentable square feet
leased. The parking spaces shall be provided at Eighty-Five Dollars ($85.00) per
month per space during the initial term of this Lease. During any extended term
of this Lease the parking spaces shall be leased to Tenant at market value. All
parking rights and uses are subject to this Lease and any reasonable rules and
regulations of Landlord for such parking facilities which may be established or
altered by Landlord at any time or from time to time during the term thereof.

     23.11  Corporate Authority.   If Tenant is a corporation, each individual
executing this Lease on behalf of that corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of the
corporation, in accordance with the duly adopted resolution of its Board of
Directors or in accordance with its Bylaws, and that this Lease is binding upon
that corporation in accordance with its terms.

     23.12  Sale of Building. If Landlord's rights in the Building are sold,
Landlord will be relieved of all liability under the covenants and conditions in
this Lease arising out of any act, occurrence or omission after consummation of
the sale upon written assumption of the Lease by the purchaser. The purchaser
shall be deemed, without any further agreement by parties or their successors in
interest, to have assumed and agreed to carry out all of the covenants and
obligations of Landlord under this Lease.
<PAGE>

     23.13  Attorneys' Fees. In any dispute hereunder, or in any action to
enforce or interpret this Lease, the prevailing party is entitled to recover
reasonable attorneys' fees from the losing party.

     23.14  Landlord's Access Landlord and its agents have the right to enter
the Premises at reasonable times and after reasonable notice for the purpose of
inspecting them, showing them to prospective purchasers, lenders, or lessees,
and making necessary or desirable alterations, repairs, improvements or
additions to the Premises or to the Building. Landlord may display ordinary "For
Sale" signs at any place or time except in windows of the Premises while Tenant
occupies the Premises. All of these rights may be exercised without rebate of
rent or liability to Tenant.

     23.15  Signs and Auctions. Tenant may not place any sign upon the Premises
without Landlord's prior written consent, except signs conforming to the rules
and regulations of the Building, and the Master Use Permit sign required by the
City of Seattle.

     23.16  Quiet Possession. Upon paying the rent and observing and performing
all of its covenants and conditions of this Lease, Tenant shall have quiet
possession of the Premises for the entire term subject to all of the provisions
of this Lease.

     23.17  Building Rules and Regulations. Tenant will abide by all reasonable
rules and regulations which Landlord may make from time to time for the
management, safety, care, and cleanliness of the Building and grounds, the
parking of vehicles and the preservation of good order as well as for the
convenience of other occupants and tenants of the Building provided Landlord
gives Tenant reasonable prior written notice thereof. Violation of any rules and
regulations is a material breach of this Lease. A copy of current rules and
regulations is attached to this Lease as Exhibit F, which Tenant hereby
approves. Future rules and regulations which Landlord may from time to time make
will be reasonable and will not deprive Tenant from use of the Premises as
contemplated by the Lease.

     23.18  Relationship of Parties. For the purpose of this Lease, the
relationship of the parties hereto is strictly that of landlord and tenant.
Landlord has no interest in the Tenant's enterprise and this Lease cannot be
construed as a joint venture or partnership. Tenant is not an agent or
representative of the Landlord for any purpose.

     23.19  Landlord's Representations. Landlord represents to Tenant that
Landlord is vested with a fee title interest in the Building and the parking
spaces located in the Building and has the power and authority to execute this
Lease; that there are no mechanics or materialmen's liens affecting the Building
or the Premises; and that the Building has a B-2 occupancy classification.

     23.20  Annual Financial  Statements. Tenant shall within thirty (30) days
of Landlord's request, provide Landlord annual financial statements for Tenant.
Said financial statements are to be prepared in accordance with generally
accepted accounting policies and shall include a. signed copy of the current
year's income tax return.
<PAGE>

     23.21  Riders.  Riders, if any attached area a part of the Lease.

24.  SPECIAL PROVISIONS

     24.01  Medical and Hazardous Waste and Materials. Tenant shall not dispose
of or otherwise allow the improper or illegal release of any medical waste or
hazardous waste or materials in, on or under the leased Premises, or any
adjacent property, or in any improvements placed on the Leased Premises. Tenant
shall comply at all times with all statutes, regulations and ordinances, and
with all orders, decrees or judgments of governmental authorities or courts
having jurisdiction, relating to the use, collection, treatment, disposal,
storage, control, removal or cleanup of medical waste and hazardous waste or
materials in, on or under the leased Premises or any adjacent property, or
incorporated in any improvements, at Tenant's sole expense.

After notice to Tenant and a reasonable opportunity for Tenant to effect such
compliance, Landlord may, but is not obligated to, enter upon the leased
Premises and take such actions and incur such costs and expenses to effect such
compliance as it reasonably deems advisable to protect its interest in the
leased Premises; provided however, that Landlord shall not be obligated to give
Tenant notice and an opportunity to effect such compliance if (1) such delay
might result in material adverse harm to Landlord or the leased Premises, (2)
Tenant has already had actual knowledge of the situation and a reasonable
opportunity to effect such compliance, or (3) an emergency exists. Whether or
not Tenant has actual knowledge of the release of hazardous waste or materials
on the Premises or any adjacent property as the result of Tenant's use of the
leased Premises, Tenant shall reimburse Landlord for the full amount of all
costs and expenses reasonably incurred by Landlord in connection with such
compliance activities, and such obligation shall continue even after the
termination of this Lease. Tenant shall notify Landlord immediately of any
release of any hazardous waste or materials or improper release of any medical
waste or materials on the leased Premises or in the Building.

Tenant shall indemnify and hold Landlord harmless against any and all losses,
liabilities, suits, obligations, fines, damages, judgments, penalties, claims,
charges, cleanup costs, remedial actions, costs and expenses (including, without
limitation, attorneys' fees and disbursements) which may be imposed on, incurred
or paid by, or asserted against Landlord or the Premises by reason of, or in
connection with (1) any misrepresentation, breach of warranty or other default
by Tenant under this paragraph, or (2) the acts or omissions of Tenant, or any
subtenant or other person for whom Tenant would otherwise be liable, resulting
in the release of any medical waste or hazardous waste or materials or the
violation of any law, rule, regulation or order pertaining to medical waste or
hazardous waste or materials.

Landlord represents and warrants to Tenant that to the best of Landlord's
knowledge Landlord has not received any notification from any governmental
agency indicating that the Premises, the Building or the real property upon
which the Building is located is or may be targeted for a federal or state
superfund
<PAGE>

cleanup and, except as described in the next sentence, Landlord has no knowledge
that the Premises, the Building or the real property upon which the Building is
located is contaminated with any hazardous wastes or materials. Landlord hereby
discloses and Tenant acknowledges that certain areas of the basement contained
small amounts of hydraulic fluid and sludge contaminated with elevated
concentrations of TPH and metals, and said fluid and sludge were removed and
disposed of in accordance with applicable regulations. Landlord has obtained and
supplied to Tenant an environmental assessment report on the Building. Landlord
agrees to indemnify and hold Tenant harmless from and against any and all loss,
damage, claims, penalties, liability, suits, costs and expenses (including,
without limitation, reasonable attorneys' fees) and also including, without
limitation, costs of remedial action or cleanup, suffered or incurred by Tenant
arising out of or related to any release or presence of hazardous wastes or
materials on, under or in the Premises, the Building or the real property upon
which the Building is located, unless such release or presence is due to the
acts or omissions of Tenant, its agents and employees. The term "hazardous
wastes or materials" means any substance, waste or material defined as
hazardous, toxic or dangerous by any federal, state or local statute rule,
ordinance requirement or regulation now or hereafter in effect, and shall
specifically include asbestos-- containing materials, PCBs and petroleum or
hydrocarbon products.

     24.02.  Right of First Opportunity to Lease. At all times during the term
of this Lease and any renewal terms, Tenant shall have the right of first
opportunity to lease any space which becomes available in the Building. Tenant
shall be informed in writing of space coming available when Landlord learns of
upcoming vacancies in the Building. In addition, prior to accepting an offer to
lease from a prospective tenant ("Third--Party Offer"), Landlord shall deliver
to Tenant notification of the availability of the space Landlord intends to
lease. Tenant shall have seven (7) business days after Landlord delivers such
notification to deliver written notice to Landlord that Tenant will lease the
space offered.

If Tenant fails to deliver said notice, Tenant's right of first opportunity
shall terminate as to that space until it once again becomes available and
Landlord shall be free to enter into a lease of the space to the third party who
made the Third--Party Offer for a period of six (6) months from the date of the
notice to Tenant. If the Landlord does not consummate a lease with the third
party within said six (6) month period, Tenant's right of first opportunity as
to that space shall revive.

If Tenant delivers notice of acceptance to Landlord within the required seven
(7) day period, Tenant shall, commencing with the first day of the month which
is three months from the date the existing tenant vacates the space, lease the
offered space on the same terms and conditions then in effect under this Lease.
The rental rate shall be the rate paid under this Lease plus the amount of
Operating Costs and Expenses paid on a square footage basis at the time of
commencement of the lease on the offered space. Landlord shall provide Tenant
with a Tenant improvement allowance as provided in paragraph 11.05.
<PAGE>

     24.03  Limitations in New Leases. During the initial term of this Lease
(years one through six only), any new leases of space in the Building entered
into by Landlord, (including any leases entered into following Tenant's failure
to exercise its right of first opportunity to lease as provided in paragraph
24.02 above), shall be limited to a maximum term of six (6) years and shall give
Landlord the right to terminate such leases effective as of the thirty-seventh
month after the commencement dates of such leases in order to provide Tenant the
opportunity to expand into the space leased to other tenants thirty--six (36)
months after the commencement dates of the leases executed with other tenants.
Landlord shall provide Tenant with nine (9) month's written notice of the
available space, and Tenant shall have twenty (20) days to deliver to Landlord
Tenant's notice of acceptance of the other Tenant's space. If Tenant declines
the space or fails to accept the space, Landlord shall be free to continue the
other tenantts occupancy of the space under the terms of the other tenant's
lease. If Tenant elects to lease the space, Tenant shall, on the first day of
the thirty-seventh month after the term of the third party lease term commenced,
lease the offered space on the same terms and conditions then in effect under
this Lease. The rental rate shall be the rate paid under this Lease plus the
amount of Operating Costs and Expenses paid on a square footage basis at the
time of commencement of the lease on the offered space. Landlord shall provide
Tenant with a Tenant improvement allowance as provided in paragraph 11.05.

     24.04  Expansion  Space  Undertaking. Tenant desires to lease additional
space in the Building currently occupied by a printing company (northeast corner
of ground floor), and restaurant and delicatessen (east side of second floor).
Upon written notice from Tenant that Tenant desires to lease such space,
Landlord agrees to in good faith attempt to negotiate an early cancellation of
the leases of such existing tenants. Landlord shall not be obligated to pay any
relocation costs or early termination costs nor take any action negatively
impacting the Building or Landlord's ability to lease or sell the Building in
connection with any negotiated cancellations. Landlord shall inform Tenant of
any demands for early termination compensation or lease concessions required by
any existing tenant and Tenant shall have the right to pay such compensation or
concession. In the event that any cancellation or relocations costs required by
the existing tenants are not approved by Tenant, Landlord's obligation to
attempt to obtain such early cancellations shall terminate. In the event of
vacation by the existing tenant or tenants, Tenant shall have One Hundred Twenty
(120) days after such vacation to complete its tenant improvements, at which
time Tenant's obligation to pay rent shall commence. The terms and conditions,
including rental rate, tenant improvement allowance, and other terms shall be as
provided in paragraph 24.02 above, Right of First Opportunity to Lease.

     24.05  Lease Cancellation. After the fourth year of the initial term of
this Lease Tenant shall have the right to cancel the Lease in the event that
Tenant needs to lease expansion space in the Building, and said space is not
available, under the following terms and conditions:
<PAGE>

1.   Tenant must need expansion space in an amount equal to at least fifteen
percent (15%) of the total space then leased by Tenant; and

2.   Tenant has in good faith been unable to accept the terms of any
     cancellation negotiated by Landlord pursuant to paragraph 24.04 (Expansion
     Space Undertaking), or the Building does not contain the amount of
     available expansion space required by Tenant (greater than 15% of its then
     current occupancy) whether or not then occupied by other Tenants; and

3.   (a) Tenant has delivered to Landlord written notice of Tenant's
     cancellation of the Lease, which shall be effective not less than nine (9)
     months from the date of delivery of the notice; and (b) no less than six
     (6) months prior to the effective date of the cancellation notice, Tenant
     delivers to Landlord Tenant's non--refundable first cancellation payment in
     the amount of $100,000; and

4.   No later than fifteen (15) days prior to the effective date of cancellation
     a second cancellation payment equal to the unamortized portion of the funds
     paid by Landlord for Tenant improvements to the Premises (which shall be
     calculated by amortizing the Tenant improvement allowance over the eleven
     (11) year period commencing with the Commencement Date) and real estate
     commissions paid by Landlord in connection with the Lease (which commission
     amount shall be calculated by amortizing the commissions over the initial
     term of this Lease).

In the event that the above conditions are met, Tenant's cancellation of the
Lease shall become `effective on the date specified in Tenant's cancellation
notice, which shall be not less than nine months from the date of delivery to
Landlord of Tenant's cancellation notice. In such event, the provisions of this
Lease pertaining to the condition of the Premises and the ownership of tenant
improvements upon expiration or termination of the Lease shall apply.

     24.06  Storage Space Landlord shall provide Tenant Three Hundred (300)
rentable square feet of dead storage area in the parking garage at an annual
rental of $6.00 per square foot of dead storage space. In addition Landlord
shall provide an additional 625 rentable square feet of dead storage in the ramp
area adjacent to and above the Premises at no charge for the first lease year,
then $6.00 per square foot per year thereafter. Said space shall not be used in
calculating Tenant's Proportionate Share percentage. The exact square footage of
such storage space will be determined in accordance with the procedure described
in Article 2 above.

IN WITNESS WHEREOF, the parties have executed this Lease at the place and on the
date specified adjacent to their respective signatures below:
<PAGE>

LANDLORD:

METROPOLITAN FEDERAL SAVINGS AND LOAN ASSOCIATION OF SEATTLE

BY   /s/ Patrick F. Patrick
Its  President/CEO

Date    November 20, 1992

TENANT:

TARGETED GENETICS CORPORATION

By /s/ H. Stewart Parker

Its  President and CEO

Date  November 19, 1992
STATE OF WASHINGTON   )
                      ) ss
COUNTY OF KING        )

     I certify that I know or have satisfactory evidence that Patrick F. Patrick
is the person who appeared before me and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the instrument
and acknowledged it as the Pres/CEO of Metropolitan Federal Savings & Loan
Association of Seattle to be the free and voluntary act of such party for the
uses and purposes mentioned in the instrument.

Dated:  November 20, 1992

/s/ Jack B. Jacobson
Notary Public
My appointment expires 5/5/93

I certify that I know or have satisfactory evidence that H. Stewart Parker the
person who appeared before me and said person acknowledged that she signed this
instrument, on oath stated that she was authorized to execute the instrument and
acknowledged it as the President and CEO of Targeted

Genetics Corporation to be her free and voluntary act of such party for the uses
and purposes mentioned in the instrument.

     Dated November 19, 1992

Laura M Mulholland
Notary Public
My appointment expires 2/9/92
<PAGE>

Exhibit A

LEGAL DESCRIPTION OF

OLIVE WAY BUILDING

Lots 1, 2, 3, 4 and 5 Block 50, Second Addition to the Town of  Seattle as laid
off by Heirs of Sarah A. Bell, deceased (commonly known as Heirs of Sarah A.
Bell's 2nd Addition to the  City of Seattle), according to plat recorded in
Volume 1 of  Plats, page 121, records of King County, in the City of  Seattle,
King County, Washington.
<PAGE>

EXHIBIT B

PREMISES DESCRIPTION

PREMISES AREA:  25,300 Rentable Square Feet

LOCATION:       First Floor, West Side
<PAGE>

EXHIBIT C

TENANT'S PLANS AND SPECIFICATIONS

The plans and specifications prepared by NBBJ Architects filed
with the City of Seattle Department of Construction and Land
Use for a Master Use Permit on November 9, 1992, and signed by
Scott Wyatt.
<PAGE>

EXHIBIT D

LANDLORD' S WORK

Landlord agrees, at its sole cost and expense, to construct and/or make the
following improvements to the Building:
<PAGE>

Assumptions and Clarifications

Smith Gandy Building

August 7, 1992
Revised September 8, 1992
Revised October 20, 1992

The following assumptions and clarifications are based on jobsite meetings with
the Owner, and sketches by NBBJ, pages SK-1 through SK-3.

Description

 01000   General Conditions assumes a project duration of 6 weeks,

 01002   Building permits and Fees are included in this proposal by an allowance

                of $3,000.00.

 02110   Demolition includes the following:

         a)  Remove garage office

         b)  Remove portion of stairwell landing

         c)  Remove 25 if of corridor partition

         d)  Remove corridor/lobby flooring

         e)  Dumpsters

         f)  MFSL will reimburse tenants' Contractor if, for economic advantage
             perform demolition

 03000   Concrete includes the following:

         a)  Excavating for the elevator pit

         b)  New concrete walls and floor

         c)  6 deep by 16" diameter lined cylinder hole

         d)  An allowance of 2 man-days to rework entry concrete

 03045   Concrete Cutting includes sawcutting first floor arid garage slabs
             for the elevator shaft.

 05110   Structural Steel is included by an allowance of $2,200.00 to support
             first floor slab at elevator shaft opening.

 08250   Doors and Frames include 2 ea 3'0" x 7'0" paint grade solid core
             doors and frames.

         08700  Finish Hardware includes the following;

             a)     2 ea latchsets
             b)     Replace 8 ea aluminium entry door pulls (allowance $75.00
                 ea)
<PAGE>

         08750  Window Tinting includes the following:

             a)  3M Scotchtint solar control window film on all exterior panes

             b)  Film to be spliced horizontally 50"" up from sill

             c)  Film to be chosen from 3M styles PI8AR, RE2ONEARL or RE35NEARL
                 or LE 50AMARL

         08800   Glass and glazing includes the following:

             a)  All glass panels, including 1/4" single pane of glass in
                 aluminum frames approximately 1-1/2" in from existing window to
                 aid in sound control

             b)  Frames to be vented at top and bottom to help control
                 condensation

             c)  Replace 2 ea broken exterior panes

         09250   Gypsum Drywall includes the following:

             a)  Approximately 25 if of new corridor partition

             b)  New corridor drywall ceiling at relocated partition

             c)  Elevator shaft wall and pump room

             d)  Entry lid with cove soffit and furred walls

             e)          Miscellaneous patch and repair due to demolition

         09689   Carpet includes the following:
             a)  144 SY over pad in corridor/lobby is included by an installed
                 allowance of $20.00 per SY
                 a)          An entry mat allowance of $360.00

         09900   Painting includes the following:

             a)  All new corridor, entry soffit and walls, and exposed elevator
                 shaft drywall surfaces to be finished with one coat PVA primer
                 and one coat eggshell latex

             b)  All existing corridor/lobby drywall surfaces to receive two
                 coats eggshell latex

If for asthetic or functional reasons tenant elects to install a superior window
treatment, landlord agrees to contribute whole amount allocated for above
tinting and glazing to these improvements.
<PAGE>

             c)       All existing and new corridor and elevator machine room
                 doors to be finished with one coat oil primer and one coat
                 semi-gloss enamel

             d)       Pressure wash entire building exterior

             e)  Paint aluminium storefront entry (solvent clean, prime with
                 wash primer, paint 2 coats Aliphatic Urethane)

             f)  Clean facade above entry doors with Glidden Ultras Klean
                 #20502.

     13480   Acoustical Ceiling includes repairing ceiling in tenant area at
     relocated corridor partition.

     14200   Elevator includes the following:

             a)  1 ea Dover Cimarron 20-H oildraulic passenger elevator.
                 Elevator is 2,000 lbs. capacity, meeting all A.D.A.
                 requirements as of this date, at a speed of 100 FPM, and 2
                 stops with 2 openings in line. Dimensions are 5'8" wide by 4'3"
                 deep

             b)  All finishes to be standard hallway doors and frames will have
                 bake enamel finish, signal fixtures and cab front return and
                 handrails will be #4 satin finish stainless steel finish, cab
                 will be standard Dover "DLP-1" 1" model with standard suspended
                 ceiling, baked enamel finish on cab door and Dover standard
                 carpet on the floor.

     15600   Elevator Relief Venting is included by an allowance of $1,500.00

     16100   Electrical includes the following:

             a)  Permit, including drawing of plans
             b)  Demolition and general rework

             c)  Relocate 5 ea conduits and 3 ea panels out of new elevator
                 shaft locations

             d)  Wire new elevator, including elevator motor and controls,
                 pressurization fan, smoke detection and shunt trip for recall,
                 and mechanical room

             e)  Lobby relamping by an allowance of $485.00
             f)  Digital metering for new tenant space - Electrical and Water

             g)  Elevator pit light fixture and outlet

             h)  Entry soffit lighting

             j)  4 ea lobby wall sconces (material allowance of $250.00 per
                 fixture)

             j)  Power and light for exterior signage

16560  Continuous and Final Clean includes an ongoing maintenance of all
       affected areas during construction and a general clean prior to tenant
       occupancy.

16700  Contengency:  A contingency in the amount of $2,500.00 has been included
       in this proposal

**           No work other than that specifically outlined above has been
             included In this proposal.

**           No Washington state sales tax has been included in this proposal.
<PAGE>

EXHIBIT 3

TENANT CONSTRUCTION AND APPROVALS

     1.   Shell Provided by Landlord. Landlord agrees, at its sole cost and
expense, to provide Premises in their existing condition. Landlord agrees to
construct those improvements described on Exhibit D ("Landlord's Work'").

     2.   Tenant Improvements. Except for Landlord's Work as provided in
paragraph 1 of this Exhibit E and in Exhibit D, Tenant, at its sole cost and
expense, shall perform all work required to complete the Premises to a finished
condition ready for Tenant to conduct its business at the Premises ("Tenant's
Work'"). The design and construction of all Tenant Work shall be provided at
Tenant's sole cost and expense in accordance with the terms and conditions of
this Exhibit. Landlord shall provide Tenant with the Tenant Improvement
Allowance which will be applied to the cost and expense of the Tenant's Work.

     3.   Plans and Specifications.

          (a) Preliminary Plans. Within fifteen (15) business days (a "`business
day" being a day other than a Saturday, Sunday or public holiday) after the date
that Landlord and Tenant execute this Lease ("Plan Submittal Date"), Tenant
shall deliver to Landlord for its approval two (2) copies of preliminary plans
and specifications prepared by an architect or gualified space planner
("Tenant's Architect") approved in advance by Landlord for Tenant's Work
("Preliminary Plans"). Preliminary Plans shall be signed by Tenant and include:
architectural floor. plans dimensioned with partition layout, identification and
location of plumbing and mechanical systems and any floor or ceiling
penetrations. Within seven (7) days after receipt of the Preliminary Plans,
Landlord shall approve the same or deliver to Tenant, Landlord's specific
objections thereto, together with Landlord's proposed solution to each
objection. If Landlord fails to either approve or object to the Preliminary
Plans within the seven (7) day period, Landlord shall be deemed to have approved
the Preliminary Plans. If Landlord objects to the Preliminary Plans within such
seven (7) day period, Tenant shall revise and resubmit the Preliminary Plans for
Landlord's approval within seven (7) days after receiving notice of Landlord's
objection; and this process shall continue until the Preliminary Plans are
approved by Landlord. If the Preliminary Plans are not submitted by the Plan
Submittal Date, or if the Preliminary Plans are not approved by Landlord by the
twenty--fifth (25) business day after the Plan Submittal Date, Tenant may
terminate this Lease by written notice to Landlord, and this Lease shall cease
and terminate on the date specified in the notice.

          (b) Plans for Engineering. Within ten (10) business days after
Landlord's approval of Preliminary Plans, Tenant's Architect shall submit two
(2) sets of Engineering drawings based upon approved Preliminary Plans and the
following information (collectively referred to as "Engineering Plans"), for
Landlord's engineers to review for compatibility with the Building's systems:
<PAGE>

          (l) Identification or the location of all electrical and telephone
outlets (with dimensions), dedicated circuits, or power outlets greater than 120
volts.

              (2) Reflected ceiling plan indicating all light fixtures and power
requirements, plus HVAC system interior and exterior locations and ductwork
distribution including supply and return air grilles.

              (3) Manufacturer's brochures for all fixtures and related
equipment.

          (c) Final Plans. Within four (4) weeks after the Engineering Plans
have been approved by Landlord, Tenant shall deliver to Landlord two (2) copies
of final plans and specifications ("Final Plans") prepared by Tenant's Architect
based on the approved Preliminary Plans and Plans for Engineering. Tenant shall
obtain approval of the Final Plans from all appropriate government agencies, and
after they have been approved, a copy shall be initialed and dated by the
Landlord and Tenant.

          (d) Quality. All Tenant Improvements described in the Preliminary
Plans and in the Final Plans must be of a quality and appearance which is not
less than the standard for a first class building.

          (e) Plan Changes. If Tenant wishes to make any change to the approved
Final Plans, such request shall be made to Landlord in writing, and shall be
accompanied by all plans and specifications necessary to show and explain the
changes from the approved Final Plans. No material change in the approved Final
Plans shall be made without the prior written consent of Landlord which consent
will not be unreasonably withheld.

          (f) Effect  of  Landlord's  Approval. Approval of Tenant's Preliminary
Plans, Final Plans and Specifications shall not constitute the assumption of any
responsibility by Landlord for the accuracy or sufficiency of such plans and
specifications and Tenant shall be solely responsible for the content and
correctness of such plans and specifications.

          (g) Drawing  Standard. All drawings shall be on standard 30" x 42"
sheets at 1/8" scale.

     4.   Construction of  Tenant  Improvements. Tenant shall construct or cause
to be constructed the tenant improvements comprising Tenant's Work ("Tenant
Improvements") in accordance with the approved Final Plans and with each of the
following requirements:

          (a) Tenant shall submit to Landlord the name of Tenant's proposed
contractor, a copy of the construction contract between Tenant and its
contractor, and a certificate of public liability and property damage insurance
in an amount no less than one million dollars carried by Tenant's contractor
naming Landlord as an additional insured at least five (5) business days before
the date Tenant wishes to commence construction of Tenant Improvements. The
contractor's policy of insurance shall contain an endorsement providing that the
insurance cannot be cancelled or modified unless Landlord has
<PAGE>

EXHIBIT F

RULES AND REGULATIONS

     1.   Signs and Windows

          (a) No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, or printed or affixed on or to the outside or inside of
the Building without prior written consent of Landlord, and it may remove any
unauthorized sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant.

          (b) All approved signs, or lettering shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.

          (c) Tenant shall not place or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises. Landlord may, at Landlord's expense, furnish and install a
building standard window covering at all exterior windows. Tenant shall not
without prior written consent of Landlord sunscreen any window.

     2.   Passageways. The sidewalks, halls, passages, exits, entrances,
elevators and stairways shall not be obstructed by any Tenant or used by them
for any purpose other than for ingress and egress from their respective
Premises.

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

     4.   Care of the Premises. Tenant shall not overload the floor of the
Premises or in any way deface the Premises or any part thereof.

     5.   Wiring. Landlord will direct electricians as to where and how
telephone and telegraph wires are to be introduced. No boring or cutting of
wires will be allowed without the consent of Landlord. The location of
telephones, all boxes and other office equipment affixed to the Premises is
subject to Landlord's approval.

     6.   Violations. Landlord reserves the right to exclude or expel from the
Building any person who, in its judgment, is intoxicated or under the influence
of liquor or drugs, or who violates any of the rules and regulations of the
Building.

7.   Vending. No vending machines or machines of any kind shall be installed,
--
maintained or operated upon the Premises without the written consent of
Landlord.
<PAGE>

8.   Building Name. Landlord has the right, exercisable without liability to
tenants, to change the name of the Building. In the event the street address is
changed at the request of Landlord, Landlord shall reimburse Tenant for Tenant"s
reasonable expenses in changing Tenant's stationary, signs and promotional
materials to show the new address.

     9.   Solicitation. Tenant shall not disturb, solicit, or canvass any
occupant of the Building and shall cooperate to prevent these occurrences.

     10.  Building  Operations. Landlord has the right to control, open and
operate the public portions of the Building, and the public facilities, and
heating and air--conditioning, as well as facilities furnished for the common
use of the tenants, in the manner it deems best for the benefit of the tenants
generally.

     11.  Premises Locked. All entrance doors in the Premises shall be left
locked when the Premises are not in use, and all doors opening to public
corridors shall be kept closed except for normal ingress and egress from the
Premises.

     12.  Approval/Consent. If Tenant is required to obtain Landlord's consent
          or approval under these Rules and Regulations such consent or approval
          shall not be unreasonably withheld or delayed.
<PAGE>

FIRST AMENDMENT TO OLIVE WAY BUILDING LEASE

                  Targeted Genetics and Metropolitan Federal

This First Amendment to Olive Way Building Lease is executed by and between
Targeted  Genetics, Inc., a Washington corporation ("Tenant") and Metropolitan
Federal Savings and Loan Association of Seattle, a federally chartered savings
and loan association ("Landlord") and is effective upon its execution by
Landlord and Tenant.

                                REPRESENTATIONS

     A.   Landlord and Tenant are parties to that Olive Way Building Lease for
the lease of portions of the Olive Way Building located at 1100 Olive Way,
Seattle, Washington and dated November 20, 1992 (hereinafter referred to as the
"Lease").

     B.   Landlord and Tenant have agreed to certain modifications and
clarifications to the Lease and wish to memorialize their understandings in this
First Amendment to Olive Way Lease.

                                   AGREEMENT

Based upon the above representations and for and in consideration of the mutual
promises contained herein, the parties agree as follows:

     1.   Confirmation of Rentable Square Footage. Landlord and Tenant hereby
agree that pursuant to paragraph 2 of the Lease, the total rentable square
footage occupied by Tenant in the premises was 25,008 at the commencement of the
Lease term. Landlord and Tenant agree that as a result of the expansion space
outlined below, the total rentable square footage leased by Tenant in the
premises as of November 1, 1994 is 28,901 and Tenant's Proportional Share shall
be increased accordingly.

     2.   Confirmation of Rentable Storage Space. Landlord and Tenant agree that
pursuant to Paragraph 24.06 of the Lease, the Tenant occupies 625 rentable
square feet of dead storage space in the ramp area above the leased Premises at
a rental rate of $6.00 per square foot. Rental of the 625 square feet of the
storage space entitles Tenant to unlimited use of the balance of the storage
space located in the ramp area above the leased Premises at no additional rent.
The parties hereby also confirm that Tenant occupies a total of 812 rentable
square feet of storage space in the parking garage area at a rental rate of
$6.00 per square foot.

     3.   Expansion Space - Exhibit "A". Effective November 1, 1994, Tenant
agrees to lease 2,202 rentable square feet of additional space located in the
southeast corner of the Olive Way Building. The location of this additional
space is shown on the drawing attached hereto as
<PAGE>

Exhibit "A" and incorporated herein by this reference. Said additional space
shall be added to the Premises for all purposes under the Lease as of November
1, 1994.

Rent for this expansion space shall be as provided in Paragraph 6 of the Lease,
with the Base Rent for this space currently being $11.25 pursuant to Paragraph
6.01. Rent for this expansion space commenced November 1, 1994.

Tenant shall accept the additional space as is in its present condition with no
Landlord's Work required. Pursuant to Paragraph 11.05 of the Lease, Landlord
shall pay to Tenant, an Expansion Space Tenant Improvement Allowance of
$29,176.50 upon the execution of this First Amendment to Lease. Said amount was
determined by the following formula: 25 cents per square foot X 2202 square feet
X 53 months remaining in the lease term = $29,176.50.

     4.   Expansion Space - Exhibit "B". Effective November 1, 1994, Tenant
agrees to lease 1,691 rentable square feet of additional space located in the
east side plaza level of the Olive Way Building. The location of this additional
space is shown on the drawing attached hereto as Exhibit "B" and incorporated
herein by this reference. Said additional space shall be added to the Premises
for all purposes under the Lease (except the payment of rent and utilities) as
of November 1, 1994.

Rent for this expansion space shall be as provided in Paragraph 6 of the Lease,
with the Base Rent for this space being $12.75 as of May 1, 1995 pursuant to
Paragraph 6.01. Utility charges for this space shall commence on January 1, 1995
and rent for this expansion space shall not commence until May 1,1995.

Landlord shall have the right until January 1, 1995 to remove any existing
fixtures and equipment located in the space.

Tenant shall accept the additional space as is in its present condition with no
Landlord's Work required. Pursuant to Paragraph 11.05 of the Lease, Landlord
shall pay to Tenant, the Expansion Space Tenant Improvement Allowance upon
Tenant's occupancy of the space.

     5.   Expansion Space - Exhibit "C".  Effective July 1, 1995, Tenant agrees
to lease 1,483 rentable square feet of additional space located in the northeast
corner of the ground floor of the Olive Way Building. The location of this
additional space is shown on the drawing attached hereto as Exhibit "C" and
incorporated herein by this reference. Said additional space shall be added to
the Premises for all purposes under the Lease as of July 1, 1994. The effective
date is approximately 120 days from the date the space will become available to
Tenant for construction of tenant's improvements. The availability date and the
subsequent effective date may be delayed by Landlord up to sixty (60) days in
the event Landlord is unable to obtain the space on time.

Rent for this expansion space shall be as provided in Paragraph 6 of the Lease,
with the Base Rent for this space being $12.75 as of July 1, 1995 pursuant to
Paragraph 6.01
<PAGE>

Tenant shall accept the additional space as is in its present condition with no
Landlord's Work required. Pursuant to Paragraph 11.05 of the Lease, Landlord
shall pay to Tenant, the Expansion Space Tenant Improvement Allowance upon
Tenant's occupancy of the space.

  6. No Further Modifications. All terms and conditions of the Lease remain in
  full force and effect except as modified by this First Amendment to Olive Way
  Building Lease.

  The parties have executed this First Amendment to Olive Way Building Lease on
  the dates shown by their respective signatures below:

  LANDLORD:

  Metropolitan Federal Savings and Loan Association of  Seattle

  By: /s/ Jack B. Jacobson,             Date Signed:  12/8/94
     Jack B. Jacobson, Vice-President

  TENANT:

  Targeted Genetics, Inc.

  By:_/s/ H. Stewart Parker             Date Signed  12/10/94

     H. Stewart Parker, President & CEO

  STATE OF WASHINGTON)
                     ) ss.
  COUNTY OF KING     )

  I certify that I know or have satisfactory evidence that Jack B. Jacobson is
  the person who appeared before me and said person acknowledged that he signed
  this instrument, on oath stated that he was authorized to execute the
  instrument and acknowledged it as the Vice-President of Metropolitan Federal
  Savings and Loan Association of Seattle to be the free and voluntary act of
  such party for the uses and purposes mentioned in the instrument.

                            DATED:12/8/94
                                             Robyn G. Reynolds
                                             Notary Public
                                             My appointment expires: 7/20/94

STATE OF WASHINGTON)
                   ) ss.
COUNTY OF KING     )

I certify that I know or have satisfactory evidence that H. Stewart Parker is
the person who appeared before me and said person acknowledged that she signed
this instrument, on oath stated that she was authorized to execute the
instrument and acknowledged it as the President and CEO of Targeted Genetics,
Inc. to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.

                            DATED:12/10/94
                                             Jon M. Case
                                             Notary Public
                                             My appointment expires: 10/29/97
<PAGE>

EXHIBIT A

(DRAWING OF FIRST FLOOR)
<PAGE>

EXHIBIT B

(DRAWING OF FIRST FLOOR)
<PAGE>

EXHIBIT C

(DRAWING OF GARAGE FLOORPLAN)
<PAGE>

                      SECOND AMENDMENT TO LEASE AGREEMENT

(Targeted Genetics)

This Second Amendment to Lease Agreement (the "Amendment") is entered into as of
6/12/96 between Ironwood Apartments, Inc., successor in interest to Metropolitan
Federal Saving and Loan Association of Seattle, as Landlord, and Targeted
Genetics, Inc., a Washington corporation, as Tenant, whose address for purposes
hereof is 1100 Olive Way, Seattle, Washington 98101.

                                REPRESENTATIONS

     A.   Landlord and Tenant, entered into that certain Olive Way Building
          Lease for the lease of portions of the Olive Way Building located at
          1100 Olive Way, Seattle, Washington and dated November 20, 1992
          (hereinafter referred to as the "Lease");

     B .  Landlord and Tenant entered into that certain First Amendment to Olive
          Way Lease dated December 10, 1994 (hereinafter referred to as the
          "First Amendment");

     C .  Landlord and Tenant have agreed to certain modifications and
          clarifications to the Lease and First Amendment and wish to
          memorialize their understanding in this Second Amendment to Olive Way
          Lease.

                                   AGREEMENT

     NOW, THEREFORE, for the foregoing purposes and in consideration of Ten
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:

          Expansion Space - Exhibit "A"  Effective May 1, 1996, Tenant agrees to
          lease 3,090 square feet of additional space located in the northwest
          corner of the ground floor of the Olive Way Building. The location of
          this additional space is shown on the drawing attached hereto as
          Exhibit "A" and incorporated herein by this reference. Said additional
          space shall be added to the Premises for all purposes under the Lease
          as of May 1, 1996.

          Rent for the expansion space shall be as provided in Paragraph 6 of
          the Lease, with Base Rent for this space being $13.25 per square foot
          as of May 1, 1996 pursuant to Paragraph 6.01 .

          Tenant shall accept the additional space as is in its present
          condition with no Landlord's Work required . Pursuant to Paragraph
          11.05 of the Lease, Landlord shall pay to Tenant, the Expansion Space
          Tenant Improvement Allowance upon Tenant's occupancy of the space.
<PAGE>

              2.  Ratification.  Except as expressly set forth in this Second
          Amendment, the
          Lease and each provision thereof, as amended, is hereby ratified and
          affirmed in its entirety .

     3.   No Further Modification.     All terms and conditions of the Lease
          remain in full force and effect except as modified by this agreement
          by this Second Amendment to Olive Way Building Lease. This Second
          Amendment shall be construed and interpreted according to the laws of
          the State of Washington.

     IN WITNESS WHEREOF, this Second Amendment is executed by Landlord and
Tenant as of the date first set forth above .

          LANDLORD:

          IRONWOOD APARTMENTS, Inc.

          By: /s/ John Stone

          Its: President

          Date:  6/12/96

          TENANT:

          TARGETED GENETICS, INC.

          By:  /s/ James A. Johnson

          Its:  Vice President, Finance

          Date:  May 22, 1996
<PAGE>

EXHIBIT "A"

          (PARKING DIAGRAM)
<PAGE>

          TENANT NOTARY

                                  PARTNERSHIP
STATE OF    )
            )ss
COUNTY OF   )

      On this day personally appeared before me ______________________________
to me known to be the individual(s) described in and who executed the within
and foregoing instruments as _________________________ of and acknowledged that
they signed the same as their free and voluntary act and deed on behalf of said
___________________ for the uses and purposes therein mentioned.

     GIVEN under my hand and official seal this ____ day of
________________________, 19__.

                                  _____________________________________Notary
                                  Public in
                                  and for the State of _________________
                             residing at _________
                                  __________________________________

                                  CORPORATION
STATE OF       )

COUNTY OF      )

     On this 22nd day of May 1996 before me, the undersigned, a Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared James A. Johnson, to me known to be the Vice President, Finance of
Targeted Genetics Corporation, the corporation that executed the foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned
and on oath stated that they were authorized to execute the said instrument and
that the seal affixed is the corporate seal of said corporation.

     WITNESS my hand and official seal hereto affixed the day and year first
above written.

/s/ Jon M. Case, Notary Public in and for the State of Washington, residing at
Seattle Washington

<PAGE>

LANDLORD NOTARY

                                  PARNTERSHIP

STATE OF      )
              )
COUNTY OF     )

     On this day personally appeared before me _____________________________ to
me known to be the individual(s) described in and who executed the within and
foregoing instruments as ______________________ of and acknowledged that they
signed the same as their free and voluntary act and deed on behalf of said for
the uses and purposes therein mentioned.

                           GIVEN under my hand and official seal this  day
of____________
                          ________ 19

                          Notary Public in and for the State of
                          residing at

                                  CORPORATION

STATE OF      )
              )
COUNTY OF     )
                                      7/1
On this 12th day of June 1996, before me the undersigned a Notary Public and for
the State of Washington duly commissioned and sworn, personally John Stone to me
known to be the President of Ironwood Apartmnets, Inc., the corporation that
executed the foregoing instrument, and acknowledged the said instrument to be
the free and voluntary act and deed of  said corporation, for the uses and
purposes therein mentioned and on oath stated that they were authorized to
execute the said instrument and that the seal affixed is the corporate seal of
said corporation.

      WITNESS my hand and official seal hereto affixed the day and
      year first above written.
      /s/ Durinda M. Howard
      Notary Public in and for the State of Washington residing at Spokane,
      Washington.

<PAGE>

     THIRD AMENDMENT TO LEASE AGREEMENT

     This THIRD AMENDMENT TO LEASE AGREEMENT (this "Amendment") is entered into
as of October 1998 by and between Ironwood Apartments, Inc., as successor to
Metropolitan Federal Savings and Loan Association ("Landlord") and Targeted
Genetics Corporation (`Tenant").

     Landlord and Tenant are parties to that certain Olive Way Building Lease
dated November 20, 1992, as modified by that certain First Amendment to Olive
Way Building Lease dated December 10, 1994 and that certain Second Amendment to
Lease Agreement executed on June 12, 1996 and May 22, 1996 (as modified, the
"Lease").

     Section 4.02 of the Lease grants to Tenant three options to extend the
Lease term for 5 years each. Tenant has exercised the first of these three
options, leaving two remaining. The purpose of this Amendment to modify the
Lease to reflect exercise of that option.

     Landlord and Tenant do hereby amend the Lease as follows:

1.   EXTENSION. The term of the Lease is hereby extended for an additional 60
months to April 1, 2004.  The rent for the extended term is set forth in Section
6.02 of the Lease.

2.   NO OTHER AMENDMENTS. Except as modified by this Amendment and by the
Amendments referenced above, the Lease remains in full force and effect and has
not been modified or amended.

     DATED:October 30,1998.

                                   LANDLORD:

                               IRONWOOD APARTMENTS, INC.,
                                a Washington Corporation

                               By:/s/ John Stone
                                       John Stone, President

                                    TENANT:

                               TARGETED GENETICS CORPORATION

                               By: /s/ James A. Johnson
                                   Its Vice President, Finance
<PAGE>

STATE OF WASHINGTON    )
                       )ss
COUNTY OF SPOKANE      )

          I certify that I know or have satisfactory evidence that John Stone is
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the President of Ironwood Apartments, Inc. to
be the free and voluntary act of such party for the uses and purposes mentioned
in this instrument.

                            Dated:  October 30, 1998
                              /s/ Durinda M Howard
                          (Signature of Notary Public)
                                DURINDA M HOWARD
                        (PRINTED NAME OF NOTARY PUBLIC)
                         My Appointment Expires 2/27/99

STATE OF WASHINGTON    )
                       )ss
COUNTY OF KING         )

          I certify that I know or have satisfactory evidence that James Johnson
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the Vice President of Targeted Genetics to be
the free and voluntary act of such party for the uses and purposes mentioned in
this instrument.

                                Dated:  11/27/98
                                /s/ Gary Michael
                          (Signature of Notary Public)
                                  GARY MICHAEL
                        (PRINTED NAME OF NOTARY PUBLIC)
                         My Appointment Expires 12/8/98

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