Document:

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                                                                    Exhibit 10.6

                    * * * * * * * * * * * * * * * * * * * *

                                     Lease

                    * * * * * * * * * * * * * * * * * * * *

                                    Between

                              SAFLINK CORPORATION
                                   (Tenant)

                                      and

                           CARR REDMOND CORPORATION
                                  (Landlord)

                                  May 18, 2000

                                       1
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                                     LEASE

          THIS LEASE (the "Lease") is made as of , 2000 between Carr Redmond
                           -----
Corporation, a Washington corporation (the "Landlord") and the Tenant as named
                                            --------
in the Schedule below. The term "Project" means the building (the "Building")
                                 -------                           --------
known as Redmond East Business Campus, Building 6, and the land (the "Land")
                                                                      ----
located at 18650 N.E. 67th Court, Redmond, Washington 98052. "Premises" means
                                                              --------
that part of the Project leased to Tenant described in the Schedule and outlined
on Appendix A. The land is legally described on Appendix F hereto.

          The following schedule (the "Schedule") is an integral part of this
                                       --------
Lease. Terms defined in this Schedule shall have the same meaning throughout the
Lease.

                                   SCHEDULE

          1.   Tenant: Saflink Corporation
          2.   Premises: Suites 110 and 210, being a portion of Floors 1 and 2
               of Building 6, Redmond East Business Campus, 18650 N.E. 67th
               Court, Redmond, WA 98052
          3.   Rentable Square Feet of the Premises:  18,734
          4.   Tenant's Proportionate Share: (a) 52.94% (based upon a total of
               35,385 rentable square feet for Building 6) as to all Operating
               Costs relating solely to Building 6, including, without
               limitation, HVAC maintenance and repairs, elevator maintenance
               and repairs, building management fee, janitorial services and
               supplies, window cleaning, property insurance, landscape costs,
               parking lot repair and maintenance, and Landlord's liability
               insurance costs; (b) 26.33% of all Taxes; and (c) an amount
               fairly and equitably apportioned by Landlord, based on the
               rentable square feet in the Premises and the total rentable
               square feet in the buildings in Landlord's Pacific Northwest
               portfolio, of Landlord's administration and overhead costs.
          5.   Security Deposit: $100,000 (subject to the terms of Section 20,
               below)
          6.   Tenant's Real Estate Broker for this Lease: Cushman and Wakefield
          7.   Landlord's Real Estate Broker for this Lease: The Broderick
               Group, Inc.
          8.   Tenant Improvements, if any: None; provided, however, that
               Landlord shall make those modifications to the Premises listed on
               Appendix H hereto promptly following the Commencement Date.
          9.   Commencement Date: June 1, 2000, but if the Premises are subject
               to new construction pursuant to Appendix C, then the Completion
               Date, as defined therein, if it is later; Landlord and Tenant
               shall execute a Commencement Date Confirmation substantially in
               the form of Appendix E promptly following the Commencement Date.
          10.  Termination Date/Term: Five (5) years after the Commencement
               Date, or if the Commencement Date is not the first day of a
               month, then after the first day of the following month. Tenant
               shall have one five (5)-year option to renew the term of this
               Lease, as set forth in Rider 1 hereto.
          11.  Guarantor:  N/A

                                       2
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          12.  Base Rent:

<TABLE>
<CAPTION>
                                     Annual Base Rent
                                       Per Rentable               Annual                 Monthly
                  Period               Square Foot               Base Rent              Base Rent
                  ------               -----------               ---------              ---------
               <S>                   <C>                       <C>                    <C>
               Years 1 - 3               $ 16.00               $ 299,744.00            $ 24,978.67
               Years 4 - 5               $ 18.40               $ 344,705.60            $ 28,725.47
</TABLE>

     1.   LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases
          ---------------
the Premises to Tenant, and Tenant leases the Premises from Landlord, for the
Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.

     2.   RENT.
          ----

     A.   Types of Rent. Tenant shall pay the following Rent in accordance
          -------------
with the terms of this Lease in the form of a check to Landlord at the following
address:

          Carr Redmond Corporation
          t/a Redmond East Business Campus
          P.O. Box 277918
          Atlanta, GA 30384-7918

or by wire transfer as follows:

          NationsBank, N.A. (South)
          ABA Number 061-000-052
          Account Number #00 325 183 2509

or in such other manner as Landlord may notify Tenant:

          (1)  Base Rent in monthly installments in advance, the first
               ---------
     monthly installment payable concurrently with the execution of this Lease
     and thereafter on or before the first day of each month of the Term in the
     amount set forth on the Schedule.

          (2)  Operating Cost Share Rent in an amount equal to the Tenant's
               -------------------------
     Proportionate Share of the Operating Costs for the applicable fiscal year
     of the Lease, paid monthly in advance in an estimated amount. Definitions
     of Operating Costs and Tenant's Proportionate Share, and the method for
     billing and payment of Operating Cost Share Rent are set forth in Sections
     2B, 2C and 2D.

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          (3)  Tax Share Rent in an amount equal to the Tenant's Proportionate
               --------------
     Share of the Taxes for the applicable fiscal year of this Lease, paid
     monthly in advance in an estimated amount. A definition of Taxes and the
     method for billing and payment of Tax Share Rent are set forth in Sections
     2B, 2C and 2D.

          (4)  Additional Rent in the amount of all costs, expenses,
               ---------------
     liabilities, and amounts which Tenant is required to pay under this Lease,
     excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but
     including any interest for late payment of any item of Rent.

          (5)  Rent as used in this Lease means Base Rent, Operating Cost Share
               ----
     Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent is
     an independent covenant, with no right of setoff, deduction or counterclaim
     of any kind.

     B.   Payment of Operating Cost Share Rent and Tax Share Rent.
          -------------------------------------------------------

          (1)  Payment of Estimated Operating Cost Share Rent and Tax Share
               ------------------------------------------------------------
     Rent. Landlord shall provide Tenant with a written estimate of the
     ----
     Operating Costs and Taxes of the Project by April 1 of each fiscal year, or
     as soon as reasonably possible thereafter. Landlord may revise these
     estimates whenever it obtains more accurate information, such as the final
     real estate tax assessment or tax rate for the Project.

          Within ten (10) days after receiving the original or revised estimate
     from Landlord, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's
     Proportionate Share of this estimate, multiplied by the number of months
     that have elapsed in the applicable fiscal year to the date of such payment
     including the current month, minus payments previously made by Tenant for
     the months elapsed. On the first day of each month thereafter, Tenant shall
     pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this
     estimate, until a new estimate becomes applicable.

          (2)  Correction of Operating Cost Share Rent. Landlord shall
               ---------------------------------------
     deliver to Tenant a report for the previous fiscal year (the "Operating
                                                                   ---------
     Cost Report") by May 15 of each year, or as soon as reasonably possible
     -----------
     thereafter, setting forth (a) the actual Operating Costs incurred, (b) the
     amount of Operating Cost Share Rent due from Tenant, and (c) the amount of
     Operating Cost Share Rent paid by Tenant. Within twenty (20) days after
     such delivery, Tenant shall pay to Landlord the amount due minus the amount
     paid. If the amount paid exceeds the amount due, Landlord shall apply the
     excess to Tenant's payments of Operating Cost Share Rent next coming due.
     To the extent any excess occurring within sixty (60) days before the end of
     the Lease term exceeds the amount of Operating Cost Share Rent next coming
     due for the then balance of the term, Landlord shall refund the same to
     Tenant in cash or immediately available funds.

          (3)  Correction of Tax Share Rent. Landlord shall deliver to Tenant a
               ----------------------------
     report for the previous fiscal year (the "Tax Report") by May 15 of each
                                               ----------
     year, or as soon as reasonably possible thereafter, setting forth (a) the
     actual Taxes, (b) the amount of Tax Share Rent due from Tenant, and (c) the
     amount of Tax Share Rent paid by Tenant. Within

                                       4
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     twenty (20) days after such delivery, Tenant shall pay to Landlord the
     amount due from Tenant minus the amount paid by Tenant. If the amount paid
     exceeds the amount due, Landlord shall apply the excess to Tenant's
     payments of Tax Share Rent next coming due. To the extent any excess
     occurring within sixty (60) days before the end of the Lease term exceeds
     the amount of Tax Share Rent next coming due for the then balance of the
     term, Landlord shall refund the same to Tenant in cash or immediately
     available funds.

     C.   Definitions.
          -----------

          (1)  Included Operating Costs. "Operating Costs" means any expenses,
               ------------------------   ---------------
     costs and disbursements of any kind other than Taxes, paid or incurred by
     Landlord in connection with the management, maintenance, operation,
     insurance, repair and other related activities in connection with any part
     of the Project and of the personal property, fixtures, machinery,
     equipment, systems and apparatus used in connection therewith, including
     the cost of providing those services required to be furnished by Landlord
     under this Lease. Operating Costs shall also include the costs of any
     capital improvements which are intended to reduce Operating Costs or
     improve safety, and those made to keep the Project in compliance with
     governmental requirements applicable from time to time (collectively,
     "Included Capital Items"); provided, that the costs of any Included Capital
      ----------------------
     Item shall be amortized by Landlord, together with an amount equal to
     interest at ten percent (10%) per annum, over the estimated useful life of
     such item and such amortized costs are only included in Operating Costs for
     that portion of the useful life of the Included Capital Item which falls
     within the Term.

          If the Project is not fully occupied during any portion of any fiscal
     year, Landlord may adjust (an "Equitable Adjustment") among Tenant and all
                                    --------------------
     other tenants in the Project ratably, in accordance with the percentage
     space each tenant occupies, Tenant's Proportionate Share of the Operating
     Costs otherwise payable as Operating Cost Share Rent so that the sum of all
     of the then Project tenants' contributions to the Operating Costs equal
     Landlord's actual Operating Costs for the Project. This Equitable
     Adjustment shall apply only to Operating Costs which are variable and
     therefore increase as occupancy of the Project increases. Landlord may
     incorporate the Equitable Adjustment in its estimates of Operating Costs.

          If Landlord does not furnish any particular service whose cost would
     have constituted an Operating Cost to a tenant other than Tenant who has
     undertaken to perform such service itself, then with respect to the cost of
     that service, Landlord may likewise make an Equitable Adjustment in
     Tenant's Proportionate Share of Operating Costs among Tenant and all other
     tenants in the Project to whom Landlord furnishes the service, ratably, in
     accordance with the percentage space each such tenant occupies in the
     Project, so that the sum of the contributions toward the cost of the
     service by Project tenants who receive the service equal the cost actually
     incurred by Landlord for the service.

          (2)  Excluded Operating Costs.  Operating Costs shall not include:
               ------------------------

          (a)  costs of alterations of tenant premises;

                                       5
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          (b)  costs of capital improvements other than Included Capital Items;

          (c)  interest and principal payments on mortgages or any other debt
               costs, or rental payments on any ground lease of the Project;

          (d)  real estate brokers' leasing commissions;

          (e)  legal fees, space planner fees and advertising expenses incurred
               with regard to leasing the Building or portions thereof;

          (f)  any cost or expenditure for which Landlord is reimbursed, by
               insurance proceeds or otherwise, except by Operating Cost Share
               Rent;

          (g)  the cost of any service furnished to any office tenant of the
               Project which Landlord does not make available to Tenant;

          (h)  depreciation (except on any Included Capital Items);

          (i)  franchise or income taxes imposed upon Landlord, except to the
               extent imposed in lieu of all or any part of Taxes;

          (j)  costs of correcting defects in construction of the Building (as
               opposed to the cost of normal repair, maintenance and replacement
               expected with the construction materials and equipment installed
               in the Building in light of their specifications);

          (k)  legal and auditing fees which are for the benefit of Landlord
               such as collecting delinquent rents, preparing tax returns and
               other financial statements, and audits other than those incurred
               in connection with the preparation of reports required pursuant
               to Section 2B above;

          (l)  the wages of any employee for services not related directly to
               the management, maintenance, operation and repair of the
               Building; and

          (m)  fines, penalties and interest.

          (3)  Taxes. "Taxes" means any and all taxes, assessments and charges
               -----   -----
     of any kind, general or special, ordinary or extraordinary, levied against
     the Project, which Landlord shall pay or become obligated to pay in
     connection with the ownership, leasing, renting, management, use,
     occupancy, control or operation of the Project or of the personal property,
     fixtures, machinery, equipment, systems and apparatus used in connection
     therewith. Taxes shall include real estate taxes, personal property taxes,
     sewer rents, water rents, special or general assessments, transit taxes, ad
     valorem taxes, and any tax levied on the rents hereunder or the interest of
     Landlord under this Lease (the "Rent Tax"). Taxes shall also include all
                                     --------
     fees and other costs and expenses paid by Landlord in

                                       6
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     reviewing any tax and in seeking a refund or reduction of any Taxes,
     whether or not the Landlord is ultimately successful.

          For any year, the amount to be included in Taxes (a) from taxes or
     assessments payable in installments, shall be the amount of the
     installments (with any interest) due and payable during such year, and (b)
     from all other Taxes, shall at Landlord's election be the amount accrued,
     assessed, or otherwise imposed for such year or the amount due and payable
     in such year. Any refund or other adjustment to any Taxes by the taxing
     authority, shall apply during the year in which the adjustment is made.

          Taxes shall not include any net income (except Rent Tax), capital,
     stock, succession, transfer, franchise, gift, estate or inheritance tax,
     except to the extent that such tax shall be imposed in lieu of any portion
     of Taxes.

          (4)  Lease Year. "Lease Year" means each consecutive twelve-month
               ----------   ----------
     period beginning with the Commencement Date, except that if the
     Commencement Date is not the first day of a calendar month, then the first
     Lease Year shall be the period from the Commencement Date through the final
     day of the twelve months after the first day of the following month, and
     each subsequent Lease Year shall be the twelve months following the prior
     Lease Year.

          (5)  Fiscal Year. "Fiscal Year" means the calendar year, except that
               ----------    -----------
     the first fiscal year and the last fiscal year of the Term may be a partial
     calendar year.

     D.   Computation of Base Rent and Rent Adjustments.
          ---------------------------------------------

          (1)  Prorations. If this Lease begins on a day other than the first
               ----------
     day of a month, the Base Rent, Operating Cost Share Rent and Tax Share Rent
     shall be prorated for such partial month based on the actual number of days
     in such month. If this Lease begins on a day other than the first day, or
     ends on a day other than the last day, of the fiscal year, Operating Cost
     Share Rent and Tax Share Rent shall be prorated for the applicable fiscal
     year.

          (2)  Default Interest. Any sum due from Tenant to Landlord not paid
               ----------------
     when due shall bear interest from the date due until paid at eighteen
     percent (18%) per annum.

          (3)  Rent Adjustments. The square footage of the Premises and the
               ----------------
     Building set forth in the Schedule are conclusively deemed to be the actual
     square footage thereof, without regard to any subsequent remeasurement of
     the Premises or the Building. If any Operating Cost paid in one fiscal year
     relates to more than one fiscal year, Landlord may proportionately allocate
     such Operating Cost among the related fiscal years.

          (4)  Books and Records. Landlord shall maintain books and records
               -----------------
     reflecting the Operating Costs and Taxes in accordance with sound
     accounting and management practices. Tenant, its attorneys and its
     certified public accountant shall have the right to inspect Landlord's
     records at Landlord's office upon at least seventy-two (72) hours' prior

                                       7
<PAGE>

         notice during normal business hours during the ninety (90) days
         following the respective delivery of the Operating Cost Report or the
         Tax Report. The results of any such inspection shall be kept strictly
         confidential by Tenant and its agents, and Tenant and its certified
         public accountant must agree, in their contract for such services, to
         such confidentiality restrictions and shall specifically agree that the
         results shall not be made available to any other tenant of the
         Building. Unless Tenant sends to Landlord any written exception to
         either such report within said ninety (90) day period, such report
         shall be deemed final and accepted by Tenant. Tenant shall pay the
         amount shown on both reports in the manner prescribed in this Lease,
         whether or not Tenant takes any such written exception, without any
         prejudice to such exception. If Tenant makes a timely exception,
         Landlord shall cause an independent certified public accountant (who
         shall be subject to the approval of Tenant, such approval not to be
         unreasonably withheld or delayed) to issue a final and conclusive
         resolution of Tenant's exception. Tenant shall pay the cost of such
         certification unless Landlord's original determination of annual
         Operating Costs or Taxes overstated the amounts thereof by more than
         five percent (5%).

                  (5) Miscellaneous. So long as Tenant is in default of any
                      --------------
         obligation under this Lease, Tenant shall not be entitled to any refund
         of any amount from Landlord. If this Lease is terminated for any reason
         prior to the annual determination of Operating Cost Share Rent or Tax
         Share Rent, either party shall pay the full amount due to the other
         within fifteen (15) days after Landlord's notice to Tenant of the
         amount when it is determined. Landlord may commingle any payments made
         with respect to Operating Cost Share Rent or Tax Share Rent, without
         payment of interest.

         3.       PREPARATION AND CONDITION OF PREMISES; POSSESSION AND
                  -----------------------------------------------------
SURRENDER OF PREMISES.
---------------------

         A.       Condition of Premises. Landlord shall make those modifications
                  ----------------------
to the Premises listed on Appendix H hereto promptly following prior to the
Commencement Date. Landlord is otherwise leasing the Premises to Tenant "AS IS",
without any obligation to alter, remodel, improve, repair or decorate any part
of the Premises.

         B.       Tenant's Possession. Tenant's taking possession of any portion
                  --------------------
of the Premises shall be conclusive evidence that the Premises was in good
order, repair and condition. If Landlord authorizes Tenant to take possession of
any part of the Premises prior to the Commencement Date for purposes of doing
business, all terms of this Lease shall apply to such pre-Term possession,
including Base Rent at the rate set forth for the First Lease Year in the
Schedule prorated for any partial month.

         C.       Maintenance. Throughout the Term, Tenant shall maintain the
                  ------------
Premises in their condition as of the Completion Date, loss or damage caused by
the elements, ordinary wear, and fire and other casualty excepted, and at the
termination of this Lease, or Tenant's right to possession, Tenant shall return
the Premises to Landlord in broom-clean condition; provided, however, that
Landlord shall be responsible for maintenance of the structural soundness of the
roof, foundation, and exterior walls of the Building in good repair, reasonable
wear and tear and damage by Tenant, its agents, employees, contractors and
invitees excluded. Landlord's

                                       8
<PAGE>

obligation to maintain the exterior walls shall not include the windows, glass,
doors or entries or any other non-structural portion thereof. To the extent
Tenant fails to perform its obligations under this section, Landlord may, but
need not, restore the Premises to the condition required hereunder and Tenant
shall pay the cost thereof.

         4.       PROJECT SERVICES.
                  ----------------

         Landlord shall furnish services as follows:

         A.       Heating and Air Conditioning. During Tenant's normal business
                  -----------------------------
hours of 7:00 a.m. to 12:00 a.m., Monday through Friday, and 8:00 a.m. to 1:00
p.m. on Saturday, Landlord shall furnish heating and air conditioning to provide
a comfortable temperature, in Landlord's judgment, for normal business
operations, except to the extent Tenant installs equipment which adversely
affects the temperature maintained by the air conditioning system. If Tenant
installs such equipment, Landlord may install supplementary air conditioning
units in the Premises, and Tenant shall pay to Landlord upon demand as
Additional Rent the cost of installation, operation and maintenance thereof.

         Tenant shall pay Landlord all then current charges for the heating or
air conditioning to the Premises to the extent the cost of the same for the
Tenant's normal business hours exceeds the cost otherwise applicable to
Landlord's normal operating hours for the Building (8:00 a.m. to 6:00 p.m.,
Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturday), as reasonably
determined by Landlord. Landlord currently estimates that Tenant's obligation
for such additional HVAC will be $25 per hour.

         B.       Elevators. Landlord shall provide passenger elevator service
                  ---------
during Tenant's normal business hours to Tenant in common with Landlord and all
other tenants. Landlord shall provide limited passenger service at other times,
except in case of an emergency.

         C.       Electricity. Landlord shall provide sufficient electricity to
                  -----------
operate normal office lighting and equipment. Tenant shall not install or
operate in the Premises any electrically operated equipment or other machinery,
other than business machines and equipment normally employed for general office
use, including software development, which do not require high electricity
consumption for operation, without obtaining the prior written consent of
Landlord. If any or all of Tenant's equipment requires electricity consumption
in excess of that which is necessary to operate normal office equipment, such
consumption (including consumption for computer or telephone rooms and special
HVAC equipment) shall be submetered by Landlord at Tenant's expense, and Tenant
shall reimburse Landlord as Additional Rent for the cost of its submetered
consumption based upon Landlord's average cost of electricity. Such Additional
Rent shall be in addition to Tenant's obligations pursuant to Section 2A(2) to
pay its Proportionate Share of Operating Costs.

         D.       Water. Landlord shall furnish hot and cold tap water for
                  -----
drinking, cleaning and toilet purposes. Tenant shall pay Landlord for water
furnished for any other purpose as Additional Rent at rates fixed by Landlord.
Tenant shall not knowingly permit water to be wasted.

                                       9
<PAGE>

         E.       Janitorial Service. If Tenant elects to have Landlord provide
                  ------------------
janitorial service, Landlord shall furnish such janitorial service as generally
provided to other tenants in the Building.

         F.       Interruption of Services. If any of the Building equipment or
                  ------------------------
machinery ceases to function properly for any cause Landlord shall use
reasonable diligence to repair the same promptly. Landlord's inability to
furnish, to any extent, the Project services set forth in this Section 4, or any
cessation thereof resulting from any causes, including any entry for repairs
pursuant to this Lease, and any renovation, redecoration or rehabilitation of
any area of the Building shall not render Landlord liable for damages to either
person or property or for interruption or loss to Tenant's business, nor be
construed as an eviction of Tenant, nor work an abatement of any portion of
Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof.
However, in the event that an interruption of the Project services set forth in
this Section 4 causes the Premises to be untenantable for a period of at least
ten (10) consecutive business days, monthly Rent shall thereafter be abated
proportionately. If the cause of such interruption is within the reasonable
control of Landlord and causes the Premises to be untenantable for a period of
at least sixty (60) consecutive days, Tenant shall have the right to terminate
this Lease on ten (10) days' written notice to Landlord, and this Lease shall
terminate on the 10th day following such notice, as if such date were originally
set forth as the termination date herein, unless the Project services are
restored within such ten-day period.

         5.       ALTERATIONS AND REPAIRS.
                  -----------------------

         A.       Landlord's Consent and Conditions.
                  ----------------------------------

         Tenant shall not make any improvements or alterations to the Premises
(the "Work") without in each instance submitting plans and specifications for
      ----
the Work to Landlord and obtaining Landlord's prior written consent which shall
not be unreasonably withheld or delayed, provided that (a) such Work does not
impact the base structural components or systems of the Building, (b) such Work
will not impact any other tenant's premises, and (c) such Work is not visible
from outside the Premises. Tenant shall pay Landlord's standard charge for
review of the plans and all other items submitted by Tenant. Landlord may
withhold its consent in its sole discretion for any Work which (a) impacts the
base structural components or systems of the Building, (b) impacts any other
tenant's premises, or (c) is visible from outside the Premises.

         Tenant shall reimburse Landlord for actual costs incurred for review of
the plans and all other items submitted by Tenant. Tenant shall pay for the cost
of all Work.

         The following requirements shall apply to all Work:

                  (1) Prior to commencement, Tenant shall furnish to Landlord
         building permits, certificates of insurance satisfactory to Landlord,
         and, at Landlord's request, security for payment of all costs.

                                       10
<PAGE>

                  (2) Tenant shall perform all Work so as not to unreasonably
         interfere with other contractors serving the Project or other work to
         be performed or services to be rendered in the Project.

                  (3) The Work shall be performed in a good and workmanlike
         manner, meeting the standard for construction and quality of materials
         in the Building, and shall comply with all insurance requirements and
         all applicable governmental laws, ordinances and regulations
         ("Governmental Requirements").
           -------------------------

                  (4) Tenant shall perform all Work so as to minimize or prevent
         disruption to other tenants, and Tenant shall comply with all
         reasonable requests of Landlord in response to complaints from other
         tenants.

                  (5) Tenant shall perform all Work in compliance with
         Landlord's "Policies, Rules and Procedures for Construction Projects"
         in effect at the time the Work is performed.

                  (6) Tenant shall permit Landlord to supervise all Work. If
         Landlord's employees or contractors perform the Work, Landlord may
         charge a supervisory fee not to exceed fifteen percent (15%) of labor,
         material, and all other costs of the Work.

                  (7) Upon completion, Tenant shall furnish Landlord with
         contractor's affidavits and full and final statutory waivers of liens,
         as-built plans and specifications, and receipted bills covering all
         labor and materials, and all other close-out documentation required in
         Landlord's "Policies, Rules and Procedures for Construction Projects".

         B.       Damage to Systems. If any part of the mechanical, electrical
                  ------------------
or other systems in the Premises shall be damaged, Tenant shall promptly notify
Landlord, and Landlord shall repair such damage reasonably promptly following
receipt of written notice from Tenant. Landlord may also at any reasonable time
make any repairs or alterations which Landlord deems necessary for the safety or
protection of the Project, or which Landlord is required to make by any court or
pursuant to any Governmental Requirement. Tenant shall at its expense make all
other repairs necessary to keep the Premises and Tenant's fixtures in good
order, condition and repair; to the extent Tenant fails to do so, Landlord may
make such repairs itself. The cost of any repairs made by Landlord on account of
Tenant's default, or on account of the mis-use or neglect by Tenant or its
invitees, contractors or agents anywhere in the Project, shall become Additional
Rent payable by Tenant on demand.

         C.       No Liens. Tenant has no authority to cause or permit any lien
                  ---------
or encumbrance of any kind to affect Landlord's interest in the Project; any
such lien or encumbrance shall attach to Tenant's interest only. If any
mechanic's lien shall be filed or claim of lien made for work or materials
furnished to Tenant, then Tenant shall at its expense within ten (10) days
thereafter either discharge or contest the lien or claim. If Tenant contests the
lien or claim, then Tenant shall (i) within such ten (10) day period, provide
Landlord adequate security for the lien or claim, (ii) contest the lien or claim
in good faith by appropriate proceedings that operate to stay its enforcement,
and (iii) pay promptly any final adverse judgment entered in any such
proceeding.

                                       11
<PAGE>

If Tenant does not comply with these requirements, Landlord may discharge the
lien or claim, and the amount paid, as well as attorney's fees and other
expenses incurred by Landlord, shall become Additional Rent payable by Tenant on
demand.

         D.       Ownership of Improvements. All Work as defined in this Section
                  --------------------------
5, partitions, hardware, equipment, machinery and all other improvements and all
fixtures except Tenant's trade fixtures (and Tenant's movable equipment,
furniture and other personal property), constructed in the Premises by either
Landlord or Tenant, (i) shall become Landlord's property upon the expiration or
sooner termination of the Lease, and (ii) shall at Landlord's option either (a)
be surrendered to Landlord with the Premises at the termination of the Lease or
of Tenant's right to possession, or (b) be removed at Tenant's cost in
accordance with Subsection 5E below (unless Landlord at the time it gives its
consent to the performance of such construction expressly waives in writing the
right to require such removal).

         E.       Removal at Termination. Upon the termination of this Lease or
                  -----------------------
Tenant's right of possession Tenant shall remove from the Project its trade
fixtures, furniture, moveable equipment and other personal property, any
improvements which Landlord elects shall be removed by Tenant pursuant to
Section 5D, and any improvements to any portion of the Project other than the
Premises. Tenant shall repair all damage caused by the installation or removal
of any of the foregoing items. If Tenant does not timely remove such property,
then Tenant shall be conclusively presumed to have, at Landlord's election (i)
conveyed such property to Landlord without compensation or (ii) abandoned such
property, and Landlord may dispose of or store any part thereof in any manner at
Tenant's sole cost, without waiving Landlord's right to claim from Tenant all
expenses arising out of Tenant's failure to remove the property, and without
liability to Tenant or any other person. Landlord shall have no duty to be a
bailee of any such personal property. If Landlord elects abandonment, Tenant
shall pay to Landlord, upon demand, any expenses incurred for disposition.

         6.       USE OF PREMISES. Tenant shall use the Premises only for
                  ---------------
general office purposes, including software development. Tenant shall not allow
any use of the Premises which will negatively affect the cost of coverage of
Landlord's insurance on the Project. Subject to the provisions of Section 28,
below, Tenant shall not allow any inflammable or explosive liquids or materials
to be kept on the Premises. Tenant shall not allow any use of the Premises which
would cause the value or utility of any part of the Premises to diminish or
would interfere with any other Tenant or with the operation of the Project by
Landlord. Tenant shall not permit any nuisance or waste upon the Premises, or
allow any offensive noise or odor in or around the Premises.

         If any governmental authority shall deem the Premises to be a "place of
public accommodation" under the Americans with Disabilities Act or any other
comparable law as a result of Tenant's use, Tenant shall either modify its use
to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Building or the
Premises under such laws.

         7.       GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall
                  --------------------------------------------
comply with all Governmental Requirements applying to its use of the Premises.
Tenant

                                       12
<PAGE>

shall also comply with all reasonable rules established for the Project from
time to time by Landlord; provided, however, that as to any future rules and
regulations, Tenant shall be required to comply with the same only to the extent
they do not materially decrease Tenant's rights or materially increase Tenant's
obligations under this Lease. The present rules and regulations are contained in
Appendix B. Failure by another tenant to comply with the rules or failure by
Landlord to enforce them shall not relieve Tenant of its obligation to comply
with the rules or make Landlord responsible to Tenant in any way. Landlord shall
use reasonable efforts to apply the rules and regulations uniformly with respect
to Tenant and tenants in the Building under leases containing rules and
regulations similar to this Lease. In the event of alterations and repairs
performed by Tenant, Tenant shall comply with the provisions of Section 5 of
this Lease and also Landlord's "Policies, Rules and Regulations for Construction
Projects".

         8.       WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
                  --------------------------------------------

         A.       Indemnification. Tenant shall indemnify, defend and hold
                  ----------------
harmless Landlord and its officers, directors, employees and agents against any
claim by any third party for injury to any person or damage to or loss of any
property occurring in the Project and arising from the use of the Premises or
from any other act or omission or negligence of Tenant or any of Tenant's
employees or agents. Tenant's obligations under this section shall survive the
termination of this Lease.

         Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, employees and agents against any claim by any third party
for injury to any person or damage to or any loss of any property occurring on
the Project and arising from any act or omission or negligence of Landlord or
any of Landlord's employees or agents. Landlord's obligations under this section
shall survive the termination of this Lease.

         AS BETWEEN LANDLORD AND TENANT, TENANT HEREBY WAIVES ITS IMMUNITY WITH
RESPECT TO LANDLORD UNDER THE INDUSTRIAL INSURANCE ACT (RCW TITLE 51) AND/OR THE
LONGSHOREMAN'S AND HARBORWORKER'S ACT AND/OR ANY EQUIVALENT ACTS AND TENANT
EXPRESSLY AGREES TO ASSUME POTENTIAL LIABILITY FOR ACTIONS BROUGHT AGAINST
LANDLORD BY TENANT'S EMPLOYEES. THIS WAIVER HAS BEEN SPECIFICALLY NEGOTIATED BY
THE PARTIES TO THIS LEASE AND TENANT HAS HAD THE OPPORTUNITY TO, AND HAS BEEN
ENCOURAGED, TO CONSULT WITH INDEPENDENT COUNSEL REGARDING THIS WAIVER.

         B.       Tenant's Insurance. Tenant shall maintain insurance as
                  -------------------
follows, with such other terms, coverages and insurers, as Landlord shall
reasonably require from time to time:

                  (1) Commercial General Liability Insurance, with (a)
         Contractual Liability including the indemnification provisions
         contained in this Lease, (b) a severability of interest endorsement,
         (c) limits of not less than One Million Dollars ($1,000,000) combined
         single limit per occurrence and not less than Two Million Dollars
         ($2,000,000) in the aggregate for bodily injury, sickness or death, and
         property damage, and umbrella coverage of not less than Five Million
         Dollars ($5,000,000).

                                       13
<PAGE>

                  (2) Property Insurance against "All Risks" of physical loss
         covering the replacement cost of all improvements, fixtures and
         personal property.

                  (3) Workers' compensation or similar insurance in form and
         amounts required by law, and Employer's Liability with not less than
         the following limits:

                           Each Accident             $500,000
                           Disease--Policy Limit     $500,000
                           Disease--Each Employee    $500,000

         Tenant's insurance shall be primary and not contributory to that
carried by Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's
building manager or agent and ground lessor shall be named as additional
insureds as respects to insurance required of the Tenant in Section 8C(1). The
company or companies writing any insurance which Tenant is required to maintain
under this Lease, as well as the form of such insurance, shall at all times be
subject to Landlord's approval, which approval shall not be unreasonably
withheld, and any such company shall be licensed to do business in the state in
which the Building is located. Such insurance companies shall have a A.M. Best
rating of A VI or better.

         Tenant shall cause any contractor of Tenant performing work on the
Premises to maintain insurance as follows, with such other terms, coverages and
insurers, as Landlord shall reasonably require from time to time:

                  (1) Commercial General Liability Insurance, including
         contractor's liability coverage, contractual liability coverage,
         completed operations coverage, broad form property damage endorsement,
         and contractor's protective liability coverage, to afford protection
         with limits, for each occurrence, of not less than One Million Dollars
         ($1,000,000) with respect to personal injury, death or property damage.

                  (2) Workers' compensation or similar insurance in form and
         amounts required by law, and Employer's Liability with not less than
         the following limits:

                           Each Accident             $500,000
                           Disease--Policy Limit     $500,000
                           Disease--Each Employee    $500,000

                  Such insurance shall contain a waiver of subrogation provision
         in favor of Landlord and its agents.

         Tenant's contractor's insurance shall be primary and not contributory
to that carried by Tenant, Landlord, their agents or mortgagees. Tenant and
Landlord, and if any, Landlord's building manager or agent, mortgagee or ground
lessor shall be named as additional insured on Tenant's contractor's insurance
policies.

                                       14
<PAGE>

         C.       Insurance Certificates. Tenant shall deliver to Landlord
                  -----------------------
certificates evidencing all required insurance no later than five (5) days prior
to the Commencement Date and each renewal date. Each certificate will provide
for thirty (30) days prior written notice of cancellation to Landlord and
Tenant.

         D.       Landlord's Insurance. Landlord shall maintain "All-Risk"
                  ---------------------
property insurance at replacement cost, including loss of rents, on the
Building, and Commercial General Liability insurance policies covering the
common areas of the Building, each with such terms, coverages and conditions as
are normally carried by reasonably prudent owners of properties similar to the
Project.

         E.       Waiver of Subrogation. The "All-Risk" property insurance
                  ----------------------
obtained by Landlord and Tenant shall include a waiver of subrogation by the
insurers and all rights based upon an assignment from its insured, against
Landlord or Tenant, respectively, and to the extent obtainable, their respective
officers, directors, employees, managers, agents, invitees and contractors in
connection with any loss or damage thereby insured against. Neither party nor,
to the extent such waiver is obtainable, its officers, directors, employees,
managers, agents or contractors, shall be liable to the other for loss or damage
caused by any risk actually covered or required hereunder to be covered by "All-
Risk" property insurance and each party waives any claims against the other
party and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver.

         9.       FIRE AND OTHER CASUALTY.
                  -----------------------

         A.       Termination. If a fire or other casualty causes substantial
                  ------------
damage to the Building or the Premises, Landlord shall engage a registered
architect to certify within one (1) month of the casualty to both Landlord and
Tenant the amount of time needed to restore the Building and the Premises to
tenantability, using standard working methods. If the time needed exceeds twelve
(12) months from the beginning of the restoration, or two (2) months therefrom
if the restoration would begin during the last twelve (12) months of the Lease,
then in the case of the Premises, either Landlord or Tenant may terminate this
Lease, and in the case of the Building, Landlord may terminate this Lease, by
notice to the other party within ten (10) days after the notifying party's
receipt of the architect's certificate. Notwithstanding the foregoing, if flood,
earthquake, or other peril for which Landlord does not carry insurance causes
substantial damage to the Building or the Premises, Landlord may also terminate
this Lease by written notice given to Tenant within thirty (30) days from the
date of the casualty. The termination shall be effective thirty (30) days from
the date of the notice and Rent shall be paid by Tenant to that date, with an
abatement for any portion of the Premises which has been untenantable after the
casualty.

         B.       Restoration. If a casualty causes damage to the Building or
                  ------------
the Premises but this Lease is not terminated for any reason, then subject to
the rights of any mortgagees or ground lessors, Landlord shall obtain the
applicable insurance proceeds and use reasonable efforts to restore the Building
and the Premises within a reasonable amount of time, subject to current
Governmental Requirements. Tenant shall replace its damaged improvements,
personal property and fixtures. Rent shall be abated on a per diem basis during
the restoration for any portion of

                                       15
<PAGE>

the Premises which is untenantable, except to the extent that Tenant's
negligence caused the casualty.

         10.      EMINENT DOMAIN. If a part of the Project is taken by eminent
                  --------------
domain or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of the Project is taken without affecting the Premises, then
Landlord may terminate this Lease as of the date of such taking. Rent shall
abate from the date of the taking in proportion to any part of the Premises
taken. The entire award for a taking of any kind shall be paid to Landlord, and
Tenant shall have no right to share in the award. All obligations accrued to the
date of the taking shall be performed by the party liable to perform said
obligations, as set forth herein.

         11.      RIGHTS RESERVED TO LANDLORD.
                  ---------------------------

         Landlord may exercise at any time any of the following rights
respecting the operation of the Project without liability to the Tenant of any
kind:

         A.       Name. To change the name or street address of the Building or
                  ----
the suite number(s) of the Premises.

         B.       Signs. To install and maintain any signs on the exterior and
                  -----
in the interior of the Building (other than on the interior of the Premises),
and to approve at its sole discretion, prior to installation, any of Tenant's
signs in the Premises visible from the common areas or the exterior of the
Building.

         C.       Window Treatments. To approve, at its discretion, prior to
                  -----------------
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building or any interior common area.

         D.       Keys. To retain and use at any time passkeys to enter the
                  ----
Premises or any door within the Premises. Tenant shall not alter or add any lock
or bolt.

         E.       Access. To have access to inspect the Premises, and to perform
                  ------
its obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease.

         F.       Preparation for Reoccupancy. To decorate, remodel, repair,
                  ---------------------------
alter or otherwise prepare the Premises for reoccupancy at any time after Tenant
abandons the Premises, without relieving Tenant of any obligation to pay Rent.

         G.       Heavy Articles. To approve the weight, size, placement and
                  --------------
time and manner of movement within the Building of any safe, central filing
system or other heavy article of Tenant's property. Tenant shall move its
property entirely at its own risk.

         H.       Show Premises. To show the Premises to prospective purchasers,
                  -------------
tenants, brokers, lenders, investors, rating agencies or others at any
reasonable time, provided that Land-

                                       16
<PAGE>

lord gives reasonable prior notice to Tenant and does not materially interfere
with Tenant's use of the Premises.

         I.       Relocation of Tenant. To relocate the Tenant, upon thirty
                  --------------------
days' prior written notice, from all or part of the Premises (the "Old
                                                                   ---
Premises") to another area in the Project (the "New Premises"), provided that:
--------                                        ------------

                  (1) the size of the New Premises is at least equal to the size
         of the Old Premises;

                  (2) such relocation shall not cause unreasonable interference
         with Tenant's business;

                  (3) Landlord pays the cost of moving the Tenant and improving
         the New Premises to the standard of the Old Premises. Tenant shall
         cooperate with Landlord in all reasonable ways to facilitate the move,
         including supervising the movement of files or fragile equipment,
         designating new locations for furniture, equipment and new telephone
         and electrical outlets, and determining the color of paint in the new
         premises; and

                  (4) if the New Premises is larger than the Old Premises,
         Tenant shall have no obligation to pay Rent, nor shall Tenant's
         Proportionate Share of Operating Costs or Taxes increase, to the extent
         Tenant does not use or occupy any portion of the increased premises
         area. Any such area of the New Premises not intended for Tenant's use
         or occupancy shall be identified at the time of the relocation.

         J.       Use of Lockbox. To designate a lockbox collection agent for
                  ---------------
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment. However, Landlord may reject
any payment for all purposes as of the date of receipt or actual collection by
mailing to Tenant within 21 days after such receipt or collection a check equal
to the amount sent by Tenant; provided, however, that the foregoing shall not
apply to any payments timely made in full performance of Tenant's obligations
under this Lease, inclusive of any payments made within any applicable cure
period. It is the intent of this provision to prevent waiver of claims for
payment as the result of any partial payments or of any full payments made after
the expiration of any applicable cure period.

         K.       Repairs and Alterations. To make repairs or alterations to the
                  ------------------------
Project and in doing so transport any required material through the Premises, to
close entrances, doors, corridors, elevators and other facilities in the
Project, to open any ceiling in the Premises, or to temporarily suspend services
or use of common areas in the Buildings; provided, however, that Landlord shall
use reasonable efforts to avoid unreasonable interference with Tenant's business
operations in the Premises while nevertheless completing the Work to be
performed. Landlord may perform any such repairs or alterations during
Landlord's ordinary business hours, except that Tenant may require any Work in
the Premises to be done between the hours of 6:00 p.m. and 8:00 a.m. if Tenant
pays Landlord for overtime and any other expenses incurred as a result of
performing the

                                       17
<PAGE>

Work during such hours. Landlord may do or permit any work on any nearby
building, land, street, alley or way.

         L.       Landlord's Agents. If Tenant is in default under this Lease,
                  ------------------
possession of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlord's agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.

         M.       Building Services. To install, use and maintain through the
                  ------------------
Premises, pipes, conduits, wires and ducts serving the Building, provided that
such installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises.

         N.       Other Actions. To take any other action which Landlord deems
                  --------------
reasonable in connection with the operation, maintenance or preservation of the
Building.

         12.      TENANT'S DEFAULT.
                  ----------------

         Any of the following shall constitute a default by Tenant:

         A.       Rent Default.  Tenant fails to pay any Rent when due.
                  -------------

         B.       Assignment/Sublease or Hazardous Substances Default. Tenant
                  ----------------------------------------------------
defaults in its obligations under Section 17 Assignment and Sublease or Section
28 Hazardous Substances;

         C.       Other Performance Default. Tenant fails to perform any other
                  --------------------------
obligation to Landlord under this Lease, and this failure continues for ten (10)
days after written notice from Landlord, except that if Tenant begins to cure
its failure within the ten (10) day period but cannot reasonably complete its
cure within such period, then, so long as Tenant continues to diligently attempt
to cure its failure, the ten (10) day period shall be extended to sixty (60)
days, or such lesser period as is reasonably necessary to complete the cure;

         D.       Credit Default.  One of the following credit defaults occurs:
                  ---------------

                  (1) Tenant commences any proceeding under any law relating to
         bankruptcy, insolvency, reorganization or relief of debts, or seeks
         appointment of a receiver, trustee, custodian or other similar official
         for the Tenant or for any substantial part of its property, or any such
         proceeding is commenced against Tenant and either remains undismissed
         for a period of thirty days or results in the entry of an order for
         relief against Tenant which is not fully stayed within fifteen days
         after entry;

                  (2) Tenant becomes insolvent or bankrupt, does not generally
         pay its debts as they become due, or admits in writing its inability to
         pay its debts, or makes a general assignment for the benefit of
         creditors;

                  (3) Any third party obtains a levy or attachment under process
         of law against Tenant's leasehold interest.

                                       18
<PAGE>

         E.       Vacation or Abandonment Default. Tenant vacates or abandons
                  --------------------------------
the Premises.

         13.      LANDLORD REMEDIES.
                  -----------------

         A.       Termination of Lease or Possession. If Tenant defaults,
                  -----------------------------------
Landlord may elect by notice to Tenant given at any time before Tenant shall
have cured the default either to terminate this Lease or to terminate Tenant's
possession of the Premises without terminating this Lease. In either case,
Tenant shall immediately vacate the Premises and deliver possession to Landlord,
and Landlord may repossess the Premises and may, at Tenant's sole cost, remove
any of Tenant's signs and any of its other property, without relinquishing its
right to receive Rent or any other right against Tenant.

         B.       Lease Termination Damages. If Landlord terminates the Lease,
                  --------------------------
Tenant shall pay to Landlord all Rent due on or before the date of termination,
plus Landlord's reasonable estimate of the aggregate Rent that would have been
payable from the date of termination through the Termination Date, reduced by
the rental value of the Premises calculated as of the date of termination for
the same period, taking into account anticipated vacancy prior to reletting,
reletting expenses and market concessions, both discounted to present value at
the rate of five percent (5%) per annum. If Landlord shall relet any part of the
Premises for any part of such period before such present value amount shall have
been paid by Tenant or finally determined by a court, then the amount of Rent
payable pursuant to such reletting (taking into account vacancy prior to
reletting and any reletting expenses or concessions) shall be deemed to be the
reasonable rental value for that portion of the Premises relet during the period
of the reletting.

         C.       Possession Termination Damages. If Landlord terminates
                  -------------------------------
Tenant's right to possession without terminating the Lease and Landlord takes
possession of the Premises itself, Landlord shall use reasonable efforts to
relet the Premises for such Rent, for such time, and upon such terms as Landlord
in its sole discretion shall determine, without any obligation to do so prior to
renting other vacant areas in the Building. Any proceeds from reletting the
Premises shall first be applied to the expenses of reletting, including
redecoration, repair, alteration, advertising, brokerage, legal, and other
reasonably necessary expenses. If the reletting proceeds after payment of
expenses are insufficient to pay the full amount of Rent under this Lease,
Tenant shall pay such deficiency to Landlord monthly upon demand as it becomes
due. Any excess proceeds shall be retained by Landlord.

         D.       Landlord's Remedies Cumulative. All of Landlord's remedies
                  -------------------------------
under this Lease shall be in addition to all other remedies Landlord may have at
law or in equity. Waiver by Landlord of any breach of any obligation by Tenant
shall be effective only if it is in writing, and shall not be deemed a waiver of
any other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment. Landlord may advance such monies and take such other
actions for Tenant's account as reasonably may be required to cure or mitigate

                                       19
<PAGE>

any default by Tenant. Tenant shall immediately reimburse Landlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.

         E.       WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN
                  ------------------------
THE EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS
LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH
THIS LEASE IN A FEDERAL OR STATE COURT LOCATED IN WASHINGTON, CONSENTS TO THE
JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.

         F.       Litigation Costs. In the event of Tenant's default hereunder,
                  -----------------
Tenant shall pay Landlord's reasonable attorneys' fees and other costs in
enforcing this Lease, whether or not suit is filed. In the event of any
litigation between the parties, the prevailing party shall be entitled to
recover from the non-prevailing party, the prevailing party's reasonable
attorney's fees and expenses of litigation.

         14.      SURRENDER. Upon termination of this Lease or Tenant's right to
                  ----------
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and casualty damage excepted. If Landlord requires
Tenant to remove any alterations, then Tenant shall remove the alterations in a
good and workmanlike manner and restore the Premises to its condition prior to
their installation.

         15.      HOLDOVER. Tenant shall have no right to holdover possession of
                  ---------
the Premises after the expiration or termination of this Lease without
Landlord's prior written consent, which consent may be withheld in Landlord's
sole and absolute discretion. If Tenant retains possession of any part of the
Premises after the Term, Tenant shall become a month-to-month tenant for the
entire Premises upon all of the terms of this Lease as might be applicable to
such month-to-month tenancy, except that Tenant shall pay all of Base Rent,
Operating Cost Share Rent and Tax Share Rent at double the rate in effect
immediately prior to such holdover, computed on a monthly basis for each full or
partial month Tenant remains in possession. Tenant shall also pay Landlord all
of Landlord's direct and consequential damages if Tenant holds over in the
Premises without the prior written approval of Landlord. No acceptance of Rent
or other payments by Landlord under these holdover provisions shall operate as a
waiver of Landlord's right to regain possession or any other of Landlord's
remedies.

         16.      SUBORDINATION TO GROUND LEASES AND MORTGAGES.
                  --------------------------------------------

         A.       Subordination. This Lease shall be subordinate to any present
                  -------------
or future ground lease or mortgage respecting the Project, and any amendments to
such ground lease or mortgage, at the election of the ground lessor or mortgagee
as the case may be, effected by notice to Tenant in the manner provided in this
Lease. The subordination shall be effective upon such notice, but at the request
of Landlord or ground lessor or mortgagee, Tenant shall within ten (10) days of
the request, execute and deliver to the requesting party any reasonable
documents provided to evi-

                                       20
<PAGE>

dence the subordination. Any mortgagee has the right, at its option, to
subordinate its mortgage to the terms of this Lease, without notice to, nor the
consent of, Tenant.

         B.       Termination of Ground Lease or Foreclosure of Mortgage. If any
                  ------------------------------------------------------
ground lease is terminated or mortgage foreclosed or deed in lieu of foreclosure
given and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Project. At the request of Landlord,
ground lessor or mortgagee, Tenant shall execute and deliver within ten (10)
days of the request any document furnished by the requesting party to evidence
Tenant's agreement to attorn.

         C.       Security Deposit. Any ground lessor or mortgagee shall be
                  -----------------
responsible for the return of any security deposit by Tenant only to the extent
the security deposit is received by such ground lessor or mortgagee.

         D.       Notice and Right to Cure. The Project is subject to any ground
                  ------------------------
lease and mortgage identified with name and address of ground lessor or
mortgagee in Appendix D to this Lease (as the same may be amended from time to
time by written notice to Tenant). Tenant agrees to send by registered or
certified mail to any ground lessor or mortgagee identified either in such
Appendix or in any later notice from Landlord to Tenant a copy of any notice of
default sent by Tenant to Landlord. If Landlord fails to cure such default
within the required time period under this Lease, but ground lessor or mortgagee
begins to cure within ten (10) days after such period and proceeds diligently to
complete such cure, then ground lessor or mortgagee shall have such additional
time as is necessary to complete such cure, including any time necessary to
obtain possession if possession is necessary to cure, and Tenant shall not begin
to enforce its remedies so long as the cure is being diligently pursued.

         E.       Definitions. As used in this Section 16, "mortgage" shall
                  ------------
include "deed of trust" and/or "trust deed" and "mortgagee" shall include
"beneficiary" and/or "trustee", "mortgagee" shall include the mortgagee of any
ground lessee, and "ground lessor", "mortgagee", and "purchaser at a foreclosure
sale" shall include, in each case, all of its successors and assigns, however
remote.

         17.      ASSIGNMENT AND SUBLEASE.
                  -----------------------

         A.       In General. Tenant shall not, without the prior consent of
                  -----------
Landlord in each case, (i) make or allow any assignment or transfer, by
operation of law or otherwise, of any part of Tenant's interest in this Lease,
(ii) grant or allow any lien or encumbrance, by operation of law or otherwise,
upon any part of Tenant's interest in this Lease, (iii) sublet any part of the
Premises, or (iv) permit anyone other than Tenant and its employees to occupy
any part of the Premises. Tenant shall remain primarily liable for all of its
obligations under this Lease, notwithstanding any assignment or transfer. No
consent granted by Landlord shall be deemed to be a consent to any subsequent
assignment or transfer, lien or encumbrance, sublease or occupancy. Tenant shall

                                       21
<PAGE>

pay all of Landlord's reasonable attorneys' fees and other expenses incurred in
connection with any consent requested by Tenant or in reviewing any proposed
assignment or subletting. Any assignment or transfer, grant of lien or
encumbrance, or sublease or occupancy without Landlord's prior written consent
shall be void. If Tenant shall assign this Lease or sublet the Premises in its
entirety any rights of Tenant to renew this Lease, extend the Term or to lease
additional space in the Project shall be extinguished thereby and will not be
transferred to the assignee or subtenant, all such rights being personal to the
Tenant named herein.

         B. Landlord's Consent. Landlord will not unreasonably withhold its
            ------------------
consent to any proposed assignment or subletting. It shall be reasonable for
Landlord to withhold its consent to any assignment or sublease if (i) Tenant is
in default under this Lease, (ii) the proposed assignee or sublessee is a tenant
in the Project or an affiliate of such a tenant or a party that Landlord has
identified as a prospective tenant in the Project, (iii) the financial
responsibility, nature of business, and character of the proposed assignee or
subtenant are not all reasonably satisfactory to Landlord, (iv) in the
reasonable judgment of Landlord the purpose for which the assignee or subtenant
intends to use the Premises (or a portion thereof) is not in keeping with
Landlord's standards for the Building or are in violation of the terms of this
Lease or any other leases in the Project, (v) the proposed assignee or subtenant
is a government entity, or (vi) the proposed assignment is for less than the
entire Premises or for less than the remaining Term of the Lease. The foregoing
shall not exclude any other reasonable basis for Landlord to withhold its
consent.

         C. Procedure. Tenant shall notify Landlord of any proposed assignment
            ---------
or sublease at least thirty (30) days prior to its proposed effective date. The
notice shall include the name and address of the proposed assignee or subtenant,
its corporate affiliates in the case of a corporation and its partners in a case
of a partnership, an execution copy of the proposed assignment or sublease, and
sufficient information to permit Landlord to determine the financial
responsibility and character of the proposed assignee or subtenant. As a
condition to any effective assignment of this Lease, the assignee shall execute
and deliver in form satisfactory to Landlord at least fifteen (15) days prior to
the effective date of the assignment, an assumption of all of the obligations of
Tenant under this Lease. As a condition to any effective sublease, subtenant
shall execute and deliver in form satisfactory to Landlord at least fifteen (15)
days prior to the effective date of the sublease, an agreement to comply with
all of Tenant's obligations under this Lease, and at Landlord's option, an
agreement (except for the economic obligations which subtenant will undertake
directly to Tenant) to attorn to Landlord under the terms of the sublease in the
event this Lease terminates before the sublease expires.

         D. Change of Management or Ownership. Any transfer of the direct or
            ---------------------------------
indirect power to affect the management or policies of Tenant or direct or
indirect acquisition of or transfer of control of twenty-five percent (25%) or
more of the ownership interest in Tenant to any individual or entity and/or
their affiliate shall constitute an assignment of this Lease.

         E. Permitted Transfers. Landlord hereby consents to Tenant's assignment
            -------------------
of this Lease or sublease of all or any part of the Premises to any affiliate of
Tenant or to any corporation resulting from the reorganization, merger, or
consolidation with Tenant (any of the foregoing referred to herein as a
"Permitted Transfer"); provided, however, that in the case of a permitted
assignment, the assignee shall assume in writing all of the Tenant's obligations
under

                                       22
<PAGE>

this Lease arising after the effective date of the transfer, and in the case of
a permitted sublease, Tenant shall execute an agreement to comply with all of
the Tenant's obligations under this Lease, and at Landlord's option, an
agreement (except for economic obligations which such subtenant will under take
directly to Tenant), to attorn to Landlord under the terms of the sublease in
the event this Lease terminates before the sublease expires. Tenant shall
provide Landlord with written notice of any proposed Permitted Transfer as soon
as reasonably practical prior to the effective date thereof, and shall provide
Landlord with a final execution copy of the assignment or sublease as soon as
reasonably possible thereafter.

         F.  Excess Payments.  If Tenant shall assign this Lease or sublet any
             ---------------
part of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, then Tenant shall
pay to Landlord as Additional Rent 50% of any such excess immediately upon
receipt.

         G.  Recapture.  Landlord may, by giving written notice to Tenant within
             ---------
thirty (30) days after receipt of Tenant's notice of assignment or subletting,
terminate this Lease with respect to the space described in Tenant's notice, as
of the effective date of the proposed assignment or sublease and all obligations
under this Lease as to such space shall expire except as to any obligations that
expressly survive any termination of this Lease.

         18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
             ----------------------
interest in the Project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations. This
Lease shall not be affected by any such transfer.

         19. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of
             --------------------
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committed no uncured defaults and has no
offsets or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
the amount of any security deposit, and such other matters as may be reasonably
requested. Failure to deliver such statement within the time required shall be
conclusive evidence against the non-certifying party that this Lease, with any
amendments identified by the requesting party, is in full force and effect, that
there are no uncured defaults by the requesting party, that not more than one
month's Rent has been paid in advance, that the non-certifying party has not
paid any security deposit, and that the non-certifying party has no claims or
offsets against the requesting party.

         20. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date of
             ----------------
this Lease, as security for the performance of all of its obligations, an
irrevocable, unconditional standby letter of credit (the "Letter of Credit") in
form and content reasonably satisfactory to Landlord, in

                                       23
<PAGE>

the amount of One Hundred Thousand Dollars ($100,000.00). Tenant may at any time
deposit cash amounts with Landlord equivalent to such amount, and such cash or
the Letter of Credit or any combination thereof, shall be deemed the "Security
Deposit." If Tenant defaults under the Lease, Landlord may use any part of the
Security Deposit to make any defaulted payment, to pay for Landlord's cure of
any defaulted obligation or to compensate Landlord for any loss or damage
resulting from any default. To the extent any portion of the deposit is used,
Tenant shall, within five (5) days after demand from Landlord, restore the
deposit to its full amount, as adjusted pursuant to the foregoing provisions of
this Section 20. Landlord may keep the Security Deposit, if cash, in its general
funds and shall not be required to pay interest to Tenant on the deposit amount.
So long as Tenant shall have timely performed its obligations under this Lease
prior to such date, Landlord shall agree to reduction of the amount of the
Security Deposit to Fifty Thousand Dollars ($50,000.00) on the first day of the
fourth (4th) year of the Lease term, and at such time shall return to Tenant any
cash that has been deposited in excess of such Fifty Thousand Dollars
($50,000.00). If Tenant shall perform all of its obligations under this Lease
and return the Premises to Landlord at the end of the Term, Landlord shall
return all of the remaining Security Deposit to Tenant within thirty (30) days
after the end of the Term. The Security Deposit shall not serve as an advance
payment of Rent or a measure of Landlord's damages for any default under this
Lease.

         If Landlord transfers its interest in the Project or this Lease,
Landlord shall transfer the Security Deposit or the unused portion to its
transferee or shall refund it to Tenant. Upon such transfer, Landlord shall have
no further obligation to return the Security Deposit to Tenant, and Tenant's
right to the return of the Security Deposit shall apply solely against
Landlord's transferee. The terms of the Security Deposit shall not be affected
by any such transfer.

         21. FORCE MAJEURE. Landlord shall not be in default under this Lease to
             -------------
the extent Landlord is unable to perform any of its obligations on account of
any strike or labor problem, energy shortage, governmental pre-emption or
prescription, national emergency, or any other cause of any kind beyond the
reasonable control of Landlord ("Force Majeure").
                                 -------------

         22. [INTENTIONALLY OMITTED.]

         23. NOTICES.  All notices, consents, approvals and similar
             -------
communications to be given by one party to the other under this Lease, shall be
given in writing, mailed or personally delivered as follows:

         A.  Landlord.  To Landlord as follows:
             --------

             Carr Redmond Corporation
             10785 Willows Road N.E., Suite 250
             Redmond, Washington  98052
             Attn:  Market Officer

                                       24
<PAGE>

             with a copy to:

             CarrAmerica Realty Corporation
             1850 K Street, NW
             Suite 500
             Washington, D.C. 20006
             Attn:  Lease Administration

or to such other person at such other address as Landlord may designate by
notice to Tenant.

         B.  Tenant.  To Tenant as follows:
             -------

             Saflink Corporation
             Redmond East Business Campus, Building 6, Suite 110
             18650 N.E. 67th Court
             Redmond, Washington  98032
             Attn:  Chief Financial Officer

or to such other person at such other address as Tenant may designate by notice
to Landlord.

         Mailed notices shall be sent by United States certified or registered
mail, or by a reputable national overnight courier service, postage prepaid.
Mailed notices shall be deemed to have been given on the earlier of actual
delivery or three (3) business days after posting in the United States mail in
the case of registered or certified mail, and one business day in the case of
overnight courier.

         24. QUIET POSSESSION.  So long as Tenant shall perform all of its
             -----------------
obligations under this Lease, Tenant shall have peaceful and quiet possession
and enjoyment of the Premises against any party claiming through the Landlord.

         25. REAL ESTATE BROKER. Each party represents to the other party that
             ------------------
the representing party has not dealt with any real estate broker with respect to
this Lease except for any broker(s) listed in the Schedule, and no other broker
is in any way entitled to any broker's fee or other payment in connection with
this Lease. The party so representing shall indemnify and defend the other party
against any claims by any other broker or third party for any payment of any
kind in connection with this Lease.

         26.  MISCELLANEOUS.
              -------------

         A.   Successors and Assigns.  Subject to the limits on Tenant's
              ----------------------
assignment contained in Section 17, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.

         B.   Date Payments Are Due.  Except for payments to be made by Tenant
              ---------------------
under this Lease which are due upon demand or are due in advance (such as Base
Rent), Tenant shall pay to

                                       25
<PAGE>

Landlord any amount for which Landlord renders a statement of account within ten
days of Tenant's receipt of Landlord's statement.

         C.   Meaning of "Landlord", "Re-Entry, "including" and "Affiliate". The
              ------------------------------------------------------------
term "Landlord" means only the owner of the Project and the lessor's interest in
this Lease from time to time. The words "re-entry" and "re-enter" are not
restricted to their technical legal meaning. The words "including" and similar
words shall mean "without limitation." The word "affiliate" shall mean a person
or entity controlling, controlled by or under common control with the applicable
entity. "Control" shall mean the power directly or indirectly, by contract or
otherwise, to direct the management and policies of the applicable entity.

         D.   Time of the Essence.  Time is of the essence of each provision of
              -------------------
this Lease.

         E.   No Option.  This document shall not be effective for any purpose
              ---------
until it has been executed and delivered by both parties; execution and delivery
by one party shall not create any option or other right in the other party.

         F.   Severability.  The unenforceability of any provision of this Lease
              ------------
shall not affect any other provision.

         G.   Governing Law.  This Lease shall be governed in all respects by
              --------------
the laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.

         H.   Lease Modification.  Tenant agrees to modify this Lease in any way
              -------------------
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.

         I.   No Oral Modification.  No modification of this Lease shall be
              ----------------------
effective unless it is a written modification signed by both parties.

         J.   Landlord's Right to Cure. If Landlord breaches any of its
              ------------------------
obligations under this Lease, Tenant shall notify Landlord in writing and shall
take no action respecting such breach so long as Landlord promptly begins to
cure the breach and diligently pursues such cure to its completion. Landlord may
cure any default by Tenant; any expenses incurred shall become Additional Rent
due from Tenant on demand by Landlord.

         K.   Captions.  The captions used in this Lease shall have no effect on
              --------
the construction of this Lease.

         L.   Authority.  Landlord and Tenant each represents to the other that
              ---------
it has full power and authority to execute and perform this Lease.

         M.   Landlord's Enforcement of Remedies.  Landlord may enforce any of
              ----------------------------------
its remedies under this Lease either in its own name or through an agent.

                                       26
<PAGE>

         N.   Entire Agreement.  This Lease, together with all Appendices,
              ----------------
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.

         O.   Landlord's Title.  Landlord's title shall always be paramount to
              -----------------
the interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.

         P.   Light and Air Rights. Landlord does not grant in this Lease any
              --------------------
rights to light and air in connection with Project. Landlord reserves to itself,
the Land, the Building below the improved floor of each floor of the Premises,
the Building above the ceiling of each floor of the Premises, the exterior of
the Premises and the areas on the same floor outside the Premises, along with
the areas within the Premises required for the installation and repair of
utility lines and other items required to serve other tenants of the Building.

         Q.   Singular and Plural.  Wherever appropriate in this Lease, a
              -------------------
singular term shall be construed to mean the plural where necessary, and a
plural term the singular. For example, if at any time two parties shall
constitute Landlord or Tenant, then the relevant term shall refer to both
parties together.

         R.   No Recording by Tenant. Tenant shall not record in any public
              ----------------------
records any memorandum or any portion of this Lease. The preceding sentence
shall not prohibit, nor shall it be deemed to prohibit or be construed to
prohibit, Tenant from complying with all applicable laws including, but not
limited to, the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder.

         S.   Exclusivity.  Landlord does not grant to Tenant in this Lease any
              -----------
exclusive right except the right to occupy its Premises.

         T.   No Construction Against Drafting Party.  The rule of construction
              --------------------------------------
that ambiguities are resolved against the drafting party shall not apply to this
Lease.

         U.   Survival.  All obligations of Landlord and Tenant under this Lease
              --------
shall survive the termination of this Lease.

         V.   Rent Not Based on Income. No rent or other payment in respect of
              ------------------------
the Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.

         W.   Building Manager and Service Providers.  Landlord may perform any
              --------------------------------------
of its obligations under this Lease through its employees or third parties hired
by the Landlord.

         X.   Late Charge and Interest on Late Payments. Without limiting the
              -----------------------------------------
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within five (5)
business days after the same becomes due and payable, then

                                       27
<PAGE>

Tenant shall pay a late charge equal to the greater of five percent (5%) of the
amount of such payment or $250. In addition, interest shall be paid by Tenant to
Landlord on any late payments of Rent from the date due until paid at the rate
provided in Section 2D(2). Such late charge and interest shall constitute
Additional Rent due and payable by Tenant to Landlord upon the date of payment
of the delinquent payment referenced above.

         Y.   Tenant's Financial Statements.  Within ten (10) days after
              -----------------------------
Landlord's written request therefor, Tenant shall deliver to Landlord the
current audited annual financial statements and quarterly financial statements
of Tenant, and annual audited financial statements of the two (2) years prior to
the current year's financial statements, each with an option of a certified
public accountant and including a balance sheet and profit and loss statement,
all prepared in accordance with generally accepted accounting principles
consistently applied.

         Z.   Parking.  Landlord shall maintain a parking ratio of three (3)
              -------
cars per 1,000 rentable square feet of Premises in the parking area serving the
Premises. Such parking shall be provided at no additional cost to Tenant.

         AA.  Signs.  Subject to Section 11B, Tenant shall have the right to
              -----
place a sign displaying the name of its business above the door to the Premises.

         BB.  Television and Radio Equipment.  Notwithstanding Rule 26 of the
              ------------------------------
rules and regulations contained in Appendix B, Landlord hereby consents to
Tenant's use inside the Premises of its computer equipment and television and
radio reception and related equipment.

         27.  UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel
              -------------------------
at any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.

         28.  HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any
              --------------------
Hazardous Substances to be brought upon, produced, stored, used, discharged or
disposed of in or near the Project unless Landlord has consented to such storage
or use in its sole discretion. "Hazardous Substances" include those hazardous
                                --------------------
substances described in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et
seq., any other applicable federal, state or local law, and the regulations
adopted under these laws. If any lender or governmental agency shall require
testing for Hazardous Substances in the Premises, Tenant shall pay for such
testing to the extent that such testing is necessitated by action taken by
Tenant since the Commencement Date. Landlord agrees that Tenant may use and
store in the Premises such inks, document duplication fluids, and janitorial
supplies (the "Necessary Hazardous Substances") as are necessary for the normal
               ------------------------------
operation of Tenant's business in the Premises if Tenant (i) uses and stores all
Necessary Hazardous Substances in strict compliance with all applicable
Governmental Requirements; (ii) indemnifies and holds Landlord harmless from any
claims, costs, damages, fines, liabilities or expenses, including reasonable
attorney's

                                       28
<PAGE>

and expert fees, arising from the presence of Tenant's Necessary Hazardous
Substances in the Building; and (iii) pays any increased insurance premium
arising from the presence of any such Necessary Hazardous Substances in the
Building.

         29.   EXCULPATION. Landlord shall have no personal liability under this
               -----------
Lease; its liability shall be limited to its interest in the Project, and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.

         30.   STOCK WARRANTS. As additional consideration for Landlord entering
               --------------
into this Lease, Tenant shall execute and deliver to Landlord, simultaneously
with Tenant's execution and delivery of this Lease to Landlord, a stock warrant
subscription and purchase agreement (the "Warrant Subscription and Purchase
Agreement") and a warrant to purchase up to twenty-five thousand (25,000) shares
of Tenant's common stock (the "Stock Warrant") in the forms attached as Appendix
G hereto. The issuance of the Stock Warrant shall be subject to and in
accordance with the terms and conditions of the Warrant Subscription and
Purchase Agreement.

                                       29
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed this Lease.

                                            LANDLORD:

                                            CARR REDMOND CORPORATION,
                                            a Washington corporation

                                            By: _______________________________
                                            Print Name: _______________________
                                            Print Title:_______________________

                                            TENANT:

                                            SAFLINK CORPORATION,
                                            a Washington corporation

                                            By: _______________________________
                                            Print Name: _______________________
                                            Print Title:_______________________

                                       30
<PAGE>

DISTRICT OF COLUMBIA       )
                           ) ss.
                           )

         On this _______ day of __________, 2000, before me, the undersigned, a
Notary Public in and for the District of Columbia, duly commissioned and sworn
as such, personally appeared _________________, to me known to be the
___________________ of Carr Redmond Corporation, the corporation that executed
the within and 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 he was authorized to execute
said instrument, and that the seal affixed is the corporate seal of said
corporation.

         WITNESS my hand and official seal the day and year in this certificate
first above written.

                             ____________________________________
                             Printed Name:_______________________
                             NOTARY PUBLIC in and for the District of Columbia
                             residing at ________________________
                             My commission expires:______________

STATE OF WASHINGTON        )
                           )  ss.
COUNTY OF KING             )

         I CERTIFY that I know or have satisfactory evidence that
__________________________ is the person who appeared before me, and
acknowledged that signed this instrument, on oath stated that was authorized to
execute the instrument, and acknowledged it as the ______________
_________________ of Saflink Corporation, to be the free and voluntary act of
such party for the uses and purposes mentioned in the instrument.

         DATED:______________________________

                               _________________________________
                               _________________________________
                                        (Print Name)
                               NOTARY PUBLIC in and for the State of Washington,
                               residing at______________________
                               My commission expires:___________

                                       31
<PAGE>

                                  APPENDIX A

                             PLAN OF THE PREMISES

                  (attach floor plan depicting the Premises)

                                       32
<PAGE>

                                  APPENDIX B

                             RULES AND REGULATIONS

         1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.

         2. The Project directory shall be available to Tenant solely to display
names and their location in the Project, which display shall be as directed by
Landlord.

         3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Project. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Project.

         4. The toilet rooms, urinals, wash bowls and other apparatuses shall
not be used for any purposes other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein, and to
the extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.

         5. Tenant shall not cause any unnecessary janitorial labor or services
by reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.

         6. Tenant shall not install or operate any refrigerating, heating or
air conditioning apparatus, or carry on any mechanical business without the
prior written consent of Landlord; use the Premises for housing, lodging or
sleeping purposes; or permit preparation or warming of food in the Premises
(warming of coffee and individual meals with employees and guests excepted).
Tenant shall not occupy or use the Premises or permit the Premises to be
occupied or used for any purpose, act or thing which is in violation of any
Governmental Requirement or which may be dangerous to persons or property.

         7. Tenant shall not bring upon, use or keep in the Premises or the
Project any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed hazardous to persons or property, or use any method
of heating or air conditioning other than that supplied by Landlord.

                                       33
<PAGE>

         8.  Landlord shall have sole power to direct electricians as to where
and how telephone and other wires are to be introduced. No boring or cutting for
wires is to be allowed without the consent of Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Landlord.

         9.  No additional locks shall be placed upon any doors, windows or
transoms in or to the Premises. Tenant shall not change existing locks or the
mechanism thereof. Upon termination of the lease, Tenant shall deliver to
Landlord all keys and passes for offices, rooms, parking lot and toilet rooms
which shall have been furnished Tenant.

             In the event of the loss of keys so furnished, Tenant shall
pay Landlord therefor. Tenant shall not make, or cause to be made, any such keys
and shall order all such keys solely from Landlord and shall pay Landlord for
any keys in addition to the two sets of keys originally furnished by Landlord
for each lock.

         10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.

         11. No furniture, packages, supplies, equipment or merchandise will be
received in the Project or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances of the Building, or take or permit on other elevators, any item
normally taken in or out through the trucking concourse or service doors or in
or on freight elevators.

         12. Tenant shall cause all doors to the Premises to be closed and
securely locked and shall turn off all utilities, lights and machines before
leaving the Project at the end of the day.

         13. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.

         14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Project's heating and air
conditioning, and shall refrain from attempting to adjust any controls, other
than room thermostats installed for Tenant's use. Tenant shall keep corridor
doors closed.

         15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.

         16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.

         17. Tenant shall not advertise the business, profession or activities
of Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics

                                       34
<PAGE>

adopted by any recognized association or organization pertaining to such
business, profession or activities.

         18. No bicycle or other vehicle and no animals or pets shall be allowed
in the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not
make or permit any noise, vibration or odor to emanate from the Premises, or do
anything therein tending to create, or maintain, a nuisance, or do any act
tending to injure the reputation of the Building.

         19. Tenant acknowledges that Building security problems may occur which
may require the employment of extreme security measures in the day-to-day
operation of the Project.

         Accordingly:

             (a) Landlord may, at any time, or from time to time, or for
regularly scheduled time periods, as deemed advisable by Landlord and/or its
agents, in their sole discretion, require that persons entering or leaving the
Project or the Property identify themselves to watchmen or other employees
designated by Landlord, by registration, identification or otherwise.

             (b) Tenant agrees that it and its employees will cooperate fully
with Project employees in the implementation of any and all security procedures.

             (c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith, it being understood that Landlord is not required to
provide any security procedures and shall have no liability for such security
procedures or the lack thereof.

         20. Tenant shall not do or permit the manufacture, sale, purchase, use
or gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.

         21. Tenant shall not disturb the quiet enjoyment of any other tenant.

         22. Tenant shall not provide any janitorial services or cleaning
without Landlord's written consent and then only subject to supervision of
Landlord and at Tenant's sole responsibility and by janitor or cleaning
contractor or employees at all times satisfactory to Landlord.

         23. Landlord may retain a pass key to the Premises and be allowed
admittance thereto at all times to enable its representatives to examine the
Premises from time to time and to exhibit the same and Landlord may place and
keep on the windows and doors of the Premises at any time signs advertising the
Premises for Rent.

         24. No equipment, mechanical ventilators, awnings, special shades or
other forms of window covering shall be permitted either inside or outside the
windows of the Premises without the prior written consent of Landlord, and then
only at the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.

                                       35
<PAGE>

         25. Tenant shall not during the term of this Lease canvas or solicit
other tenants of the Building for any purpose.

         26. Tenant shall not install or operate any phonograph, musical or
sound- producing instrument or device, radio receiver or transmitter, TV
receiver or transmitter, or similar device in the Building, nor install or
operate any antenna, aerial, wires or other equipment inside or outside the
Building, nor operate any electrical device from which may emanate electrical
waves which may interfere with or impair radio or television broadcasting or
reception from or in the Building or elsewhere, without in each instance the
prior written approval of Landlord. The use thereof, if permitted, shall be
subject to control by Landlord to the end that others shall not be disturbed.

         27. Tenant shall promptly remove all rubbish and waste from the
Premises.

         28. Tenant shall not exhibit, sell or offer for sale, Rent or exchange
in the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.

         29. Tenant shall list all furniture, equipment and similar articles
Tenant desires to remove from the Premises or the Building and deliver a copy of
such list to Landlord and procure a removal permit from the Office of the
Building authorizing Building employees to permit such articles to be removed.

         30. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.

         31. Tenant shall not do any painting in the Premises, or mark, paint,
cut or drill into, drive nails or screws into, or in any way deface any part of
the Premises or the Building, outside or inside, without the prior written
consent of Landlord.

         32. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.

         33. Tenant and its employees shall cooperate in all fire drills
conducted by Landlord in the Building.

                                       36
<PAGE>

                                  APPENDIX C

                         TENANT IMPROVEMENT AGREEMENT

                                      N/A

                                       37
<PAGE>

                                  APPENDIX D

                   MORTGAGES CURRENTLY AFFECTING THE PROJECT
                   -----------------------------------------

                                       38
<PAGE>

                                  APPENDIX E

                        COMMENCEMENT DATE CONFIRMATION
                        ------------------------------

Landlord:    Carr Redmond Corporation, a Washington corporation

Tenant:      Saflink Corporation, a Washington corporation

         This Commencement Date Confirmation is made by Landlord and Tenant
pursuant to that certain Lease dated as of _________, 2000 (the "Lease") for
certain premises known as Suites 110 and 210 in the building commonly known as
Building 6, Redmond East Business Campus, 18650 N.E. 67th Court, Redmond,
Washington 98032 (the "Premises"). This Confirmation is made pursuant to Item 9
of the Schedule to the Lease.

         1.    Lease Commencement Date, Termination Date. Landlord and Tenant
               -----------------------------------------
hereby agree that the Commencement Date of the Lease is _____________, 2000, and
the Termination Date of the Lease is ________________, _________.

         2.    Acceptance of Premises. Tenant has inspected the Premises and
               -----------------------
affirms that the Premises is acceptable in all respects in its current "as is"
condition.

         3.    Incorporation. This Confirmation is incorporated into the Lease,
               -------------
and forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.

                                 TENANT:

                                 Saflink Corporation, a Washington corporation

                                 By: _____________________________________
                                 Name: ___________________________________
                                 Title: __________________________________

                                 LANDLORD:

                                 Carr Redmond Corporation, a Washington
                                 corporation

                                 By: _____________________________________
                                 Name: ___________________________________
                                 Title: __________________________________

                                       39
<PAGE>

                                  APPENDIX F
                               LEGAL DESCRIPTION

                                       40
<PAGE>

                                    RIDER 1

      EXTENSION OPTION. Subject to Subsection B below, Tenant may at its option
extend the Term of this Lease for one (1) period of five (5) years. Such period
is called a "Renewal Term." The Renewal Term shall be upon the same terms
             ------------
contained in this Lease except for the payment of Base Rent during the Renewal
Term; and any reference in the Lease to the "Term" of the Lease shall be deemed
to include any Renewal Term and apply thereto, unless it is expressly provided
otherwise. Tenant shall have no additional extension options.

      A. The Base Rent during the Renewal Term shall be the greater of (i) the
Base Rent applicable to the last day of the final Lease Year prior to the
Renewal Term, or (ii) the Market Rate (defined hereinafter) for such space for a
term commencing on the first day of the Renewal Term. "Market Rate" shall mean
                                                       -----------
the then prevailing market rate for a comparable term commencing on the first
day of the Renewal Term for tenants of comparable size and creditworthiness for
comparable space in the Building and other first class office buildings in the
vicinity of the Building.

      B. To exercise any option, Tenant must deliver a binding notice to
Landlord not less than twelve (12) months prior to the expiration of the initial
Term of this Lease. Thereafter, the Market Rate for the particular Renewal Term
shall be calculated pursuant to Subsection C below and Landlord shall inform
Tenant of the Market Rate. Such calculations shall be final and shall not be
recalculated at the actual commencement of such Renewal Term. If Tenant fails to
timely give its notice of exercise, Tenant will be deemed to have waived its
option to extend.

      C. Market Rate shall be determined as follows:

         (i)  If Tenant provides Landlord with its binding notice of exercise
      pursuant to Subsection B above, then at some point between thirteen (13)
      and eleven (11) months prior to the commencement of the applicable Renewal
      Term (or, at Landlord's election, at an earlier point), Landlord shall
      calculate and inform Tenant of the Market Rate. If Tenant rejects the
      Market Rate as calculated by Landlord, Tenant shall inform Landlord of its
      rejection within ten (10) days after Tenant's receipt of Landlord's
      calculation, and Landlord and Tenant shall commence negotiations to agree
      upon the Market Rate. If Tenant fails to timely reject Landlord's
      calculation of the Market Rate it will be deemed to have accepted such
      calculation. If Landlord and Tenant are unable to reach agreement within
      twenty-one (21) days after Landlord's receipt of Tenant's notice of
      rejection, then the Market Rate shall be determined in accordance with
      (ii) below.

         (ii) If Landlord and Tenant are unable to reach agreement on the Market
      Rate within said twenty-one (21) day period, then within seven (7) days,
      Landlord and Tenant shall each simultaneously submit to the other in a
      sealed envelope its good faith estimate of the Market Rate. If the higher
      of such estimates is not more than one hundred five percent (105%) of the
      lower, then the Market Rate shall be the average of the two. Otherwise,
      the dispute shall be resolved by arbitration in accordance with (iii) and
      (iv) below.

                                       41
<PAGE>

         (iii) Within seven (7) days after the exchange of estimates, the
      parties shall select as an arbitrator an independent MAI appraiser with at
      least five (5) years of experience in appraising office space in the
      metropolitan area in which the Project is located (a "Qualified
                                                            ---------
      Appraiser"). If the parties cannot agree on a Qualified Appraiser, then
      ---------
      within a second period of seven (7) days, each shall select a Qualified
      Appraiser and within ten (10) days thereafter the two appointed Qualified
      Appraisers shall select a third Qualified Appraiser and the third
      Qualified Appraiser shall be the sole arbitrator. If one party shall fail
      to select a Qualified Appraiser within the second seven (7) day period,
      then the Qualified Appraiser chosen by the other party shall be the sole
      arbitrator.

         (iv)  Within twenty-one (21) days after submission of the matter to the
      arbitrator, the arbitrator shall determine the Market Rate by choosing
      whichever of the estimates submitted by Landlord and Tenant the arbitrator
      judges to be more accurate. The arbitrator shall notify Landlord and
      Tenant of its decision, which shall be final and binding. If the
      arbitrator believes that expert advice would materially assist him, the
      arbitrator may retain one or more qualified persons to provide expert
      advice. The fees of the arbitrator and the expenses of the arbitration
      proceeding, including the fees of any expert witnesses retained by the
      arbitrator, shall be paid by the party whose estimate is not selected.
      Each party shall pay the fees of its respective counsel and the fees of
      any witness called by that party. The arbitration shall take place in King
      County, Washington.

      D. Tenant's option to extend this Lease is subject to the conditions that:
(i) on the date that Tenant delivers its binding notice exercising an option to
extend, Tenant is not in default under this Lease after the expiration of any
applicable notice and cure periods, and (ii) Tenant shall not have assigned the
Lease, or sublet any portion of the Premises under a sublease which is effective
at any time during the final twelve (12) months of the initial Term or the First
Renewal Term, as applicable.

                                       42
<PAGE>

                                 NET RENT FORM
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
1.       LEASE AGREEMENT                                                                3

2.       RENT                                                                           3
         A.       Types of Rent                                                         3
                  (1)      Base Rent                                                    3
                  (2)      Operating Cost Share Rent                                    3
                  (3)      Tax Share Rent                                               4
                  (4)      Additional Rent                                              4
                  (5)      Rent                                                         4
         B.       Payment of Operating Cost Share Rent and Tax Share Rent               4
                  (1)      Payment of Estimated Operating Cost Share Rent
                           and Tax Share Rent                                           4
                  (2)      Correction of Operating Cost Share Rent                      4
                  (3)      Correction of Tax Share Rent                                 4
         C.       Definitions                                                           5
                  (1)      Included Operating Costs                                     5
                  (2)      Excluded Operating Costs                                     5
                  (3)      Taxes                                                        6
                  (4)      Lease Year                                                   7
                  (5)      Fiscal Year                                                  7
         D.       Computation of Base Rent and Rent Adjustments                         7
                  (1)      Prorations                                                   7
                  (2)      Default Interest                                             7
                  (3)      Rent Adjustments                                             7
                  (4)      Books and Records                                            7
                  (5)      Miscellaneous                                                8

3.       PREPARATION AND CONDITION OF PREMISES;
         POSSESSION AND SURRENDER OF PREMISES                                           8
         A.       Condition of Premises                                                 8
         B.       Tenant's Possession                                                   8
         C.       Maintenance                                                           8

4.       PROJECT SERVICES                                                               9
         A.       Heating and Air Conditioning                                          9
         B.       Elevators                                                             9
         C.       Electricity                                                           9
         D.       Water                                                                 9
         E.       Janitorial Service                                                   10
         F.       Interruption of Services                                             10
</TABLE>

                                       43
<PAGE>

<TABLE>
<S>                                                                                     <C>
5.       ALTERATIONS AND REPAIRS                                                        10
         A.       Landlord's Consent and Conditions                                     10
         B.       Damage to Systems                                                     11
         C.       No Liens                                                              11
         D.       Ownership of Improvements                                             12
         E.       Removal at Termination                                                12

6.       USE OF PREMISES                                                                12

7.       GOVERNMENTAL REQUIREMENTS AND BUILDING RULES                                   13

8.       WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE                                   13
         A.       Indemnification                                                       13
         B.       Tenant's Insurance                                                    13
         C.       Insurance Certificates                                                15
         D.       Landlord's Insurance                                                  15
         E.       Waiver of Subrogation                                                 15

9.       FIRE AND OTHER CASUALTY                                                        15
         A.       Termination                                                           15
         B.       Restoration                                                           15

10.      EMINENT DOMAIN                                                                 16

11.      RIGHTS RESERVED TO LANDLORD                                                    16
         A.       Name                                                                  16
         B.       Signs                                                                 16
         C.       Window Treatments                                                     16
         D.       Keys                                                                  16
         E.       Access                                                                16
         F.       Preparation for Reoccupancy                                           16
         G.       Heavy Articles                                                        16
         H.       Show Premises                                                         17
         I.       Relocation of Tenant                                                  17
         J.       Use of Lockbox                                                        17
         K.       Repairs and Alterations                                               17
         L.       Landlord's Agents                                                     18
         M.       Building Services                                                     18
         N.       Other Actions                                                         18

12.      TENANT'S DEFAULT                                                               18
         A.       Rent Default                                                          18
         B.       Assignment/Sublease or Hazardous Substances Default                   18
         C.       Other Performance Default                                             18
         D.       Credit Default                                                        18
         E.       Vacation or Abandonment Default                                       19

13.      LANDLORD REMEDIES                                                              19
         A.       Termination of Lease or Possession                                    19
</TABLE>

                                       44
<PAGE>

<TABLE>
<S>                                                                                     <C>
         B.       Lease Termination Damages                                             19
         C.       Possession Termination Damages                                        19
         D.       Landlord's Remedies Cumulative                                        19
         E.       WAIVER OF TRIAL BY JURY                                               20
         F.       Litigation Costs                                                      20

14.      SURRENDER                                                                      20

15.      HOLDOVER                                                                       20

16.      SUBORDINATION TO GROUND LEASES AND MORTGAGES                                   20
         A.       Subordination                                                         20
         B.       Termination of Ground Lease or Foreclosure of Mortgage                21
         C.       Security Deposit                                                      21
         D.       Notice and Right to Cure                                              21
         E.       Definitions                                                           21

17.      ASSIGNMENT AND SUBLEASE                                                        21
         A.       In General                                                            21
         B.       Landlord's Consent                                                    22
         C.       Procedure                                                             22
         D.       Change of Management or Ownership                                     22
         E.       Permitted Transfers                                                   22
         F.       Excess Payments                                                       23
         G.       Recapture                                                             23

18.      CONVEYANCE BY LANDLORD                                                         23

19.      ESTOPPEL CERTIFICATE                                                           23

20.      SECURITY DEPOSIT                                                               23

21.      FORCE MAJEURE                                                                  24

22.      [INTENTIONALLY OMITTED]                                                        24
</TABLE>

                                       45
<PAGE>

<TABLE>
<S>                                                                                     <C>
23.      NOTICES                                                                        24
         A.       Landlord                                                              24
         B.       Tenant                                                                25

24.      QUIET POSSESSION                                                               25

25.      REAL ESTATE BROKER                                                             25

26.      MISCELLANEOUS                                                                  25
         A.       Successors and Assigns                                                25
         B.       Date Payments Are Due                                                 25
         C.       Meaning of "Landlord", "Re-Entry, "including" and "Affiliate"         26
         D.       Time of the Essence                                                   26
         E.       No Option                                                             26
         F.       Severability                                                          26
         G.       Governing Law                                                         26
         H.       Lease Modification                                                    26
         I.       No Oral Modification                                                  26
         J.       Landlord's Right to Cure                                              26
         K.       Captions                                                              26
         L.       Authority                                                             26
         M.       Landlord's Enforcement of Remedies                                    26
         N.       Entire Agreement                                                      27
         O.       Landlord's Title                                                      27
         P.       Light and Air Rights                                                  27
         Q.       Singular and Plural                                                   27
         R.       No Recording by Tenant                                                27
         S.       Exclusivity                                                           27
         T.       No Construction Against Drafting Party                                27
         U.       Survival                                                              27
         V.       Rent Not Based on Income                                              27
         W.       Building Manager and Service Providers                                27
         X.       Late Charge and Interest on Late Payments                             27
         Y.       Tenant's Financial Statements                                         28
         Z.       Parking                                                               28
         A A.     Signs                                                                 28
         BB.      Television and Radio Equipment                                        28

27.      UNRELATED BUSINESS INCOME                                                      28

28.      HAZARDOUS SUBSTANCES                                                           28

29.      EXCULPATION                                                                    29

30.      STOCK WARRANTS                                                                 29
</TABLE>

                                       46
<PAGE>

APPENDIX A - PLAN OF THE PREMISES
APPENDIX B - RULES AND REGULATIONS
APPENDIX C - TENANT IMPROVEMENT AGREEMENT
APPENDIX D - MORTGAGES CURRENTLY AFFECTING THE PROJECT
APPENDIX E - COMMENCEMENT DATE CONFIRMATION
APPENDIX F - LEGAL DESCRIPTION
APPENDIX G - WARRANT SUBSCRIPTION AND PURCHASE AGREEMENT
APPENDIX H - LANDLORD'S WORK LETTER

RIDER 1

                                       47<PAGE>

                                                                   EXHIBIT 10(a)

                              EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made as of August 7, 2000 (the "Agreement") by
and between ARMSTRONG HOLDINGS, INC., a Pennsylvania corporation (the
"Company"), and MICHAEL D. LOCKHART (the "Executive");

                                   WITNESSETH:

     WHEREAS, the Company desires to employ the Executive and the Executive
desires to become an employee of the Company on the terms and conditions set
forth in this Agreement;

     NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:

     1.   DEFINED TERMS.
          -------------

     The definitions of capitalized terms used in this Agreement, unless
otherwise defined herein, are provided in the last Section hereof.

     2.   EMPLOYMENT.
          ----------

     The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to serve the Company and its subsidiaries and affiliates, on the terms
and conditions set forth herein, during the Term of this Agreement.

     3.   TERM OF AGREEMENT.
          -----------------

     The Term will commence on the date first above written (the "Effective
Date") and shall continue until the third anniversary of the Effective Date;
provided, that, the Term of this Agreement shall automatically be extended for
one (1) additional year on such third anniversary date and each succeeding
anniversary date unless the Company shall have given written notice to the
Executive at least 180 days prior to the third anniversary date or any
succeeding anniversary date thereafter to the effect that the Term of this
Agreement shall not be extended. Notwithstanding anything in this Agreement to
the contrary, the Company may terminate this Agreement in the event of
Executive's Disability; provided, that any such termination shall not, by
itself, terminate the Executive's employment with the Company.

     4.   POSITION AND DUTIES.
          -------------------

     During the Term of this Agreement, the Executive shall serve as Chairman of
the Board and Chief Executive Officer of the Company and as a member of the
Board and shall also serve in any other executive officer position of the
Company and its subsidiaries and affiliates as the Board may reasonably request.
The Executive shall be the chief executive officer of the Company and shall have
such duties and responsibilities as are customary for the Executive's

<PAGE>

position and such other duties not inconsistent therewith as the Board may
reasonably assign from time to time. During the Term of this Agreement,
excluding any periods of vacation and sick leave to which the Executive is
entitled under the Company's policies and practices (as the same may be
increased in the future), the Executive shall devote substantially all his
working time and efforts to the business and affairs of the Company and its
subsidiaries and affiliates and shall diligently and faithfully perform his
duties to the best of his ability; provided, however, that the Executive may
engage in activities relating to personal matters (including personal financial
matters) and in such corporate, industry, civic and charitable activities,
including membership on corporate and charitable boards of directors or trustees
of non-affiliated companies and organizations, so long as such service does not
substantially interfere with the performance of his duties hereunder or violate
his obligations under Section 10 hereof.

     5.   COMPENSATION AND RELATED MATTERS.
          --------------------------------

     5.1  HIRING COMPENSATION.
          -------------------

          (a) On the Effective Date, the Company shall pay to the Executive a
cash signing bonus of $5,000,000.

          (b) As of the Effective Date, the Company shall award the Executive
150,000 shares of restricted Common Stock under the Company's Stock Award Plan,
which shares of restricted Common Stock shall vest and shall become free of
restrictions in equal annual installments on the first, second and third
anniversary of the Effective Date and the Executive shall have the opportunity
to make a voluntary deferral election prior to the lapse of the restrictions on
such restricted Common Stock. Notwithstanding anything in the Company's Stock
Award Plan to the contrary, the Executive shall be entitled to receive any cash
dividends paid on the shares of restricted Common Stock. At the Executive's
election, the Executive will either pay the Company an amount of cash or
authorize the Company to withhold shares from any shares of Common Stock which
vest and become free of restrictions, in order to permit the Company to satisfy
its tax withholding obligations with respect to such shares.

          (c) The Company shall grant the Executive stock options for 300,000
shares of Common Stock under the Company's Long-Term Incentive Plan, which
options shall be granted as follows: (i) 100,000 options on the Effective Date,
(ii) 100,000 options on the four month anniversary of the Effective Date and
(iii) 100,000 options on the eight month anniversary of the Effective Date. Such
stock options shall have an exercise price equal to the fair market value of the
Common Stock on the date of grant. Each such stock option shall vest in equal
annual installments over a term of three years from the date of grant and will
have a ten year term. Notwithstanding anything in the Company's Long-Term
Incentive Plan to the contrary, in the event of the termination of the
Executive's employment, vested options shall be exercisable as follows: (A) in
the event of the Executive's death or disability (as defined for purposes of the
Company's Long-Term Incentive Plan), for a period equal to the remaining Term
under this Agreement, (B) in the event of the Executive's retirement which is
approved by the Board, for the remaining Term of this Agreement, (C) in the
event of the termination of the Executive's employment by the Executive for Good
Reason or by the Company without Cause, for the remaining Term of this
Agreement, (D) in the event of a termination of the Executive's

                                       2
<PAGE>

employment by the Executive other than for Good Reason, for the three (3) months
after the Date of Termination, and (E) in the event of the termination of the
Executive for Cause, the stock options shall not be exercisable and shall be
forfeited, and the agreement evidencing the grant shall so provide.

     (d) The Company will hold the Executive harmless against any and all losses
that he may directly or indirectly incur as a result of (i) any third party
claims brought against the Executive (other than by any taxing authority) with
respect to the Company's performance of, or (ii) the Company's failure to
perform any commitment made to the Executive in, this Section 5.

     5.2 BASE SALARY. The Company shall pay, or cause to be paid, to the
         -----------
Executive an annual base salary ("Base Salary") during the Term of this
Agreement which shall be at an initial rate of not less than $800,000 per year.
The Base Salary shall be paid in accordance with the Company's payroll practices
for its senior officers, but not less frequently than monthly, in arrears. For
purposes of this Agreement, "Base Salary" shall include any increases in Base
Salary during the Term of this Agreement. The Base Salary in effect from time to
time shall not be decreased during the Term of this Agreement except in
connection with across-the-board salary reductions similarly affecting all
senior officers of the Company and all senior officers of any person in control
of the Company which have been agreed to by the Executive. Compensation of the
Executive by Base Salary payments shall not be deemed exclusive and shall not
prevent the Executive from participating in any other compensation or benefit
plan of the Company. The Base Salary payments (including any increased Base
Salary payments) shall not in any way limit or reduce any other obligation of
the Company hereunder, and no other compensation, benefit or payment hereunder
shall in any way limit or reduce the obligation of the Company to pay the
Executive's Base Salary.

     5.3 BENEFIT PLANS. During the Term, the Executive and his eligible
         -------------
dependents shall be entitled to participate in and receive benefits under all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended from time to time ("ERISA")), and
employee benefit arrangements in which senior officers of the Company generally
participate, including without limitation, (i) all savings, deferred
compensation, profit sharing and retirement plans, practices, policies and
programs and (ii) all welfare benefit plans, practices, policies and programs
(including all medical, prescription, dental, disability, employee life
insurance, group life insurance, group hospitalization, health, accidental death
and travel accident insurance plans and programs) as are made generally
available to senior officers of the Company, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans,
practices, policies and programs, including provisions which permit such plans,
practices, policies and programs to be modified or terminated, provided, that if
the Company reduces the benefits provided under or terminates any such employee
benefit plan, practice, policy or program in which the Executive participates,
the Company shall offer to the Executive participation in another plan or
program that provides the Executive with benefits at least comparable to those
that were reduced or eliminated, and provided, further, that all eligibility
requirements under any such plan, practice, policy or program shall be waived.
The Executive shall not be entitled to credit for service at any prior employer
for purposes of the level of benefits to which the Executive is entitled under
any such plan, practice, policy or program. The Executive's participation in
such employee benefit plans,

                                       3
<PAGE>

practices, policies and programs shall be at a level appropriate for the
Executive's position. Such employee benefit plans, practices, policies and
programs, shall include, without limitation, the plans, programs, policies and
practices in which the senior officers of the Company generally participate on
the date of this Agreement. Notwithstanding anything to the contrary in this
Agreement, in the Company's Retirement Income Plan or in the Company's
Retirement Benefit Equity Plan, the Executive shall be credited with that amount
of service equal to two times the service with which he would otherwise be
credited for purposes of determining his retirement benefits under the
Retirement Income Plan. To the extent that the Executive's retirement benefits
as so determined are not payable under the Retirement Income Plan, they shall be
paid by the Company under the Retirement Benefit Equity Plan or otherwise.

     5.4  INCENTIVE COMPENSATION.
          ----------------------

          (a) During the Term of this Agreement, the Executive shall be entitled
to participate in and receive benefits under all annual incentive (bonus) plans
and long-term incentive compensation plans in which other senior officers of the
Company generally participate, including all restricted share, performance
restricted share and stock option plans of the Company. The Executive's
participation in such incentive plans shall be at a level appropriate for the
Executive's position. Except as otherwise provided in this Agreement, such
incentive compensation shall be subject to and on a basis consistent with the
terms, conditions and overall administration of such plans, including provisions
which permit such plans to be modified or terminated, provided, that if the
Company reduces the incentive compensation opportunities provided under or
terminates any such plan in which the Executive participates, the Company shall
offer to the Executive participation in another plan that provides the Executive
with an incentive compensation opportunity at least comparable to that which was
reduced or eliminated. The target performance measures under the Company's
annual incentive program for each year shall be based on a reasonably achievable
level of net income, Economic Value Added or other performance measures
established by the Management Development and Compensation Committee of the
Board, adjusted for extraordinary events.

          (b) Without limiting the generality of the foregoing Section 5.4(a),
(i) during the Term of this Agreement, the Company shall provide the Executive
with an annual cash incentive opportunity which at target performance levels is
at least equal to 125% of the Executive's Base Salary, provided, however, that
the minimum cash incentive award payable to the Executive for the remainder of
calendar year 2000 shall not be less than a pro rata portion of $1,000,000,
based on the period from the Effective Date to December 31, 2000; and (ii)
beginning in March 2001, the Company shall provide the Executive with annual
long-term incentive awards under the Company's stock incentive plan or plans
then in effect and available for the issuance of long-term incentive awards to
senior officers of the Company generally, consisting of approximately 40% stock
options and 60% three-year performance restricted share grants (based on the
present value of the awards), with an aggregate present value on the date of
grant at least equal to 150% of Executive's target annual cash compensation for
the year, which is the sum of the Executive's Base Salary and annual incentive
opportunity at target performance levels. For purposes of the preceding
sentence, the present value of the awards shall be determined applying
reasonable Black Scholes assumptions in the case of stock options and using the
market value of the Common Stock on the date of grant in the case of restricted
stock.

                                       4
<PAGE>

     5.5 OTHER BENEFITS. The Executive shall participate on the same terms and
         --------------
conditions as all other senior officers of the Company in all other benefit
plans, programs, or arrangements as may be now or hereafter sponsored or
maintained for senior officers of the Company generally and shall participate on
the same terms and conditions as other senior officers generally participate.

     5.6 FRINGE BENEFITS. During the Term of this Agreement, the Executive shall
         ---------------
be entitled to receive all perquisites and fringe benefits which the Company
makes available to senior officers of the Company generally. Without limiting
the generality of the foregoing, the Executive shall be entitled to (i) the
reasonable use of the Company's aircraft for personal use, provided such
aircraft is available, and (ii) the reimbursement of all reasonable and
documented expenses of relocating his home to Lancaster, Pennsylvania, and in
each case, the Company shall pay to the Executive, promptly upon receipt of a
certification from the Executive's tax preparer, a "gross up" payment in an
amount such that after payment by the Executive of all taxes, including, without
limitation, any income taxes imposed upon such gross-up payment, the Executive
retains an amount of such gross-up payment equal to the income tax imposed with
respect to such benefits.

     5.7 EXPENSES. During the Term of this Agreement, the Executive is
         --------
authorized to incur, and shall be reimbursed by the Company for all reasonable
and customary business-related expenses, including travel, entertainment, gifts
and similar items, incurred by the Executive in connection with his employment
hereunder.

     5.8 WORKING FACILITIES. During the Term of this Agreement, the Company
         ------------------
shall furnish the Executive with offices and working facilities in the Company's
principal executive offices and shall provide secretarial and other assistance
suitable to Executive's position and adequate for the performance of his duties
hereunder.

     5.9 VACATION. During the Term of this Agreement, the Executive shall be
         --------
entitled to vacation in accordance with the Company's current policies and
practices, provided that the Executive shall be entitled to not less than five
(5) weeks of vacation during each year of this Agreement, or such greater period
as the Board shall approve, without reduction in salary or other benefits.

     5.10 ANNUAL REVIEW. During the Term of this Agreement, the Board (or the
          -------------
Management Development and Compensation Committee of the Board) shall in good
faith review the Executive's total compensation package (including but not
limited to the Base Salary provided for in Section 5.2, the benefit plans
provided for in Section 5.3 and the short and long-term incentive compensation
opportunity provided for in Section 5.4) at least annually for possible
increase, taking into account, among other things, (i) the performance of the
Executive, (ii) the performance of the Company, and (iii) the overall
compensation of executives in similar positions at comparable companies.

     6.   COMPENSATION IN THE EVENT OF EXECUTIVE'S DISABILITY.
          ---------------------------------------------------

     During the Term of this Agreement, during any period that the Executive
fails to perform the Executive's full-time duties hereunder as a result of
incapacity due to physical or mental

                                       5
<PAGE>

illness, the Company shall pay, or cause to be paid, to the Executive his Base
Salary at the rate in effect at the commencement of any such period, together
with all compensation and benefits payable to the Executive under the terms of
any compensation or benefit plan, program or arrangement maintained by the
Company for the benefit of the Executive during such period, until this
Agreement is terminated by the Company for Disability; provided, however, that
such payments shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under disability benefit
plans of the Company, which amounts were not previously applied to reduce any
such payment.

     7.   TERMINATION COMPENSATION AND BENEFITS.
          -------------------------------------

     7.1 If the Executive's employment is terminated for any reason during the
Term of this Agreement, the Company shall pay to the Executive (or in accordance
with Section 11.2 in the event of the Executive's death), (i) the Executive's
Base Salary through the Date of Termination at the rate in effect immediately
prior to the time the Notice of Termination is given, (ii) all compensation and
benefits (other than severance compensation and benefits) payable to the
Executive through the Date of Termination or thereafter under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, including any short-term or long-term incentive compensation
to which the Executive is entitled, by virtue of previous awards, in accordance
with the terms of the plans in which Executive participates, and (iii) any
unreimbursed expenses payable pursuant to Section 5.7 of the Agreement that were
incurred before the Date of Termination.

     7.2 In the event the Executive's employment is terminated prior to the
third anniversary of the Effective Date by the Executive for Good Reason or by
the Company for any reason other than Cause, death of the Executive or
Disability, the Company shall (i) pay the Executive, in addition to amounts
payable under Section 7.1 and 7.5, a lump sum cash payment to be made within
thirty (30) days after the Date of Termination equal to the product of (A) the
sum of (w) the higher of the Base Salary in effect immediately prior to the
occurrence of the event or circumstance upon which the Notice of Termination is
based or the Base Salary in effect immediately prior to the date of the Notice
of Termination plus (x) the higher of the annual cash incentive award that may
be earned by the Executive if target performance levels are achieved in the year
in which the Date of Termination occurs or the highest annual incentive award
that was actually paid by the Company to the Executive for any year in the three
preceding years, times (B) the greater of (y) two or (z) the number of years and
fraction thereof remaining in the Term of this Agreement from the Date of
Termination; and (ii) continue the benefits provided for in Section 5.3 of this
Agreement for a period equal to the greater of (A) two years, or (B) the
remaining Term of this Agreement, provided that such benefits shall be
discontinued if comparable benefits are obtained from a subsequent employer
during the remaining Term of this Agreement.

     7.3 In the event the Executive's employment is terminated after the third
anniversary of the Effective Date by the Executive for Good Reason or by the
Company for any reason other than Cause, death of the Executive or Disability,
the Company shall (i) pay the Executive, in addition to amounts payable under
Section 7.1 and 7.5, a lump sum cash payment to be made within thirty (30) days
after the Date of Termination equal to the product of (A) the sum of (w)

                                       6
<PAGE>

the higher of the Base Salary in effect immediately prior to the occurrence of
the event or circumstance upon which the Notice of Termination is based or the
Base Salary in effect immediately prior to the date of the Notice of Termination
plus (x) the higher of the annual cash incentive award that may be earned by the
Executive if target performance levels are achieved in the year in which the
Date of Termination occurs or the highest annual incentive award that was
actually paid by the Company to the Executive for any year in the three
preceding years, times (B) the greater of (y) one or (z) a fraction the
numerator of which is the number of months (rounded up to the nearest whole
month) remaining in the Term of this Agreement from the Date of Termination and
the denominator of which is 12; and (ii) continue the benefits provided for in
Section 5.3 of this Agreement for the remaining Term of this Agreement, provided
that such benefits shall be discontinued if comparable benefits are obtained
from a subsequent employer during the remaining Term of this Agreement.

     7.4 In the event that the Executive's employment is terminated by the
Executive for any reason other than death, Disability or Good Reason or is
terminated by the Company for Cause, the Company shall pay the Executive any
amounts due pursuant to Section 7.1 and 7.5 hereof and the Executive shall pay
the Company: (i) a lump sum cash payment of $3,000,000 if such termination is
prior to the second anniversary date of the Effective Date; or (ii) a lump sum
cash payment of $1,500,000 if such termination is prior to the third anniversary
date of the Effective Date;

     7.5 If the Executive's employment is terminated for any reason during the
Term of this Agreement, the Company shall pay the Executive's normal
post-termination compensation and benefits (other than severance compensation
and benefits) to the Executive as such payments become due. Such normal
post-termination compensation and benefits (other than severance compensation
and benefits) shall be determined under, and paid in accordance with the
Company's retirement, insurance and other compensation or benefit plans,
programs and arrangements (other than this Agreement), as applicable.

     7.6 (a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment, benefit, or distribution by the
Company or its affiliates to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment ("Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

          (b) Subject to the provisions of Section 7.6(c) hereof, all
determinations required to be made under this Section 7.6, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be used in arriving at such determinations, shall be made by the
Company's principal outside accounting firm (the

                                       7
<PAGE>

"Accounting Firm") which shall provide detailed supporting calculations both to
the Board and the Executive within fifteen (15) business days after the Date of
Termination and/or such earlier date(s) as may be requested by the Company or
the Executive (each such date and the Date of Termination shall be referred to
as a "Determination Date" for purposes of this Section 7.6(b) and Section 7.7
hereof). All fees and expenses of the Accounting Firm shall be borne solely by
the Company. The initial Gross-Up Payment, if any, as determined pursuant to
this Section 7.6(b), shall be paid by the Company to the Executive within thirty
(30) days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure to report the
Excise Tax on the Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty. Any determination
by the Accounting Firm under this Section 7.6(b) shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment") consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7.6(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

          (c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of an Underpayment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which he gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:

               (i) give the Company any information reasonably requested by the
Company relating to such claim;

               (ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company;

               (iii) cooperate with the Company in good faith in order to
effectively contest such claim; and

               (iv) permit the Company to participate in any proceeding relating
to such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred in
connection with such contest

                                       8
<PAGE>

and shall indemnify and hold the Executive harmless, on an after-tax basis, for
any Excise Tax or income tax, including interest and penalties with respect
thereto, imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 7.6(c),
the Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and provided,
further, that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

          (d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7.6(c) hereof, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's compliance with the requirements of Section 7.6(c) hereof)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7.6(c) hereof, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid.

     7.7 The payments provided for in Section 7.6 hereof (other than Section
7.6(c) and (d)) shall be made not later than the thirtieth (30th) day following
each Determination Date; provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined by the Executive, of the
minimum amount of such payments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the forty-fifth (45th) day after each
Determination Date. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).

                                       9
<PAGE>

     8.   TERMINATION PROCEDURES.
          ----------------------

     8.1  NOTICE OF TERMINATION. During the Term of this Agreement, any
          ---------------------
purported termination of the Executive's employment (other than by reason of
death) shall be communicated by written Notice of Termination from one party
hereto to the other party hereto in accordance with Section 12 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and, in the case of a termination by the Company for Cause or by the Executive
for Good Reason, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the purpose
of considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause herein,
and specifying the particulars thereof in detail.

     8.2  DATE OF TERMINATION. "Date of Termination," with respect to any
          -------------------
purported termination of the Executive's employment during the Term of this
Agreement, shall mean (i) if the Executive's employment is terminated by his
death, the date of his death, (ii) if the Executive's employment is terminated
by the Executive other than for Good Reason, the date specified in the Notice of
Termination (which shall not be less than one hundred eighty (180) days after
such Notice of Termination is given), (iii) if the Executive's employment is
terminated by the Company for Cause, on the date that the Notice of Termination
is sent by the Board in accordance with Section 8.1, and (iv) if the Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which shall not be less than sixty (60) days) after such Notice
of Termination is given.

     9.   NO MITIGATION.
          -------------

     The Company agrees that, if the Executive's employment hereunder is
terminated during the Term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company hereunder. Further, the amount of any payment or
benefit provided for hereunder (other than pursuant to Section 7.2, 7.3, 7.4 or
7.6(d) hereof) shall not be reduced by any compensation earned by the Executive
as the result of employment by another employer, by retirement benefits, by
offset against any amount claimed to be owed by the Executive to the Company, or
otherwise, provided, that the proviso to Section 7.2(ii), Section 7.3(ii),
Section 7.4 and Section 7.6(d) shall apply.

     10.  CONFIDENTIALITY AND NONCOMPETITION.
          ----------------------------------

     10.1 The Executive shall not, during or after the Term of this Agreement,
without the prior written consent of the Company disclose to any entity or
person any information which is treated as confidential by the Company or any of
their subsidiaries or affiliates (each, a

                                       10
<PAGE>

"Company Entity"), and is not generally known or available in to the public,
provided, that the Executive may make disclosures of such confidential
information (i) during the Term of this Agreement in the course of and to the
extent required by and consistent with the performance of his duties hereunder,
and (ii) to the extent required by law or legal process.

     10.2 Except as permitted by the Company with its prior written consent, the
Executive shall not, during the Executive's employment with the Company and for
the period ending twenty-four (24) months after the Executive's employment with
the Company terminates for any reason, directly or indirectly, own, enter into
the employ of or render, any services (whether as a consultant or otherwise) to
any person, firm or corporation within the United States or any foreign country
in which the Company is doing or is contemplating doing business on the Date of
Termination which is a competitor of any Company Entity with respect to products
which any Company Entity is then producing or services which any Company Entity
is then providing (a "Competitor"), or approach, canvass, solicit, or otherwise
endeavor to entice away from the Company, any customer in respect of any service
or product in any way competitive with the services or products supplied by any
Company Entity to such customer, or solicit the services of, or endeavor to
entice away from the Company, any director, executive officer or employee of the
Company; provided, that it shall not be a violation of this provision for the
Executive to be employed by, or render services to, a Competitor, if the
Executive renders those services only with respect to those lines of business of
the Competitor which are not directly competitive with a line of business of any
Company Entity or are located in any country in which the Company does not do
business and was not contemplating doing business on the Date of Termination.

     10.3 The Executive acknowledges and agrees that any breach of this Section
10 by the Executive will result in immediate and irreparable harm to the
Company, the amount of which will be extremely difficult to ascertain, and that
the Buyer could not be reasonably or adequately compensated by damages in an
action at law. For these reasons, the Company shall have the right to obtain
such preliminary, temporary or permanent mandatory or restraining injunctions,
orders or decrees as may be necessary to protect the Company against or on
account of any breach by the Executive of the provisions of this Section 10
without proof of any actual damage caused to the Company.

     11.  SUCCESSORS; BINDING AGREEMENT.
          -----------------------------

     11.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, as the case may be, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
upon the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason, except that, for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.

                                       11
<PAGE>

     11.2 This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.

                                       12
<PAGE>

     12.  NOTICES.
          -------

     For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the respective
addressees set forth below, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon actual receipt:

     To the Company:

     Armstrong Holdings, Inc.
     2500 Columbia Avenue
     Lancaster, PA 17603
     Attention:  Executive Vice President, Human Resources
     Telecopy:  717-396-6119

     To the Executive:

     At the Executive's residence address as maintained by the Company in the
regular course of its business for payroll purposes.

     13.  MISCELLANEOUS.
          -------------

     If the Executive, in his capacity as a director, votes for, or in his
capacity as an officer, approves in writing, any action that will adversely
affect the Executive's rights under this Agreement, such vote or approval shall
be deemed to constitute the Executive's consent to such action under this
Agreement; otherwise, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the Executive and such officers as may be specifically designated
by the Board. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by any party
which are not expressly set forth in this Agreement, provided that nothing
contained herein shall be interpreted to amend or nullify those obligations of
the Company and the Executive pursuant to the Change in Control Agreement and
the Indemnification Agreement by and between the Company and the Executive, as
the same may be amended from time to time. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled, except as otherwise provided in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the Commonwealth of Pennsylvania, without
giving effect to choice of law principles.

                                       13
<PAGE>

     All references to sections of the Code shall be deemed also to refer to any
successor provisions to such sections. There shall be withheld from any payments
provided for hereunder any amounts required to be withheld under federal, state
or local law and any additional withholding amounts to which the Executive has
agreed. The obligations under this Agreement of the Company or the Executive
which by their nature and terms require satisfaction after the end of the Term
shall survive such event and shall remain binding upon such party.

     14.  VALIDITY.
          --------

     The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.

     15.  COUNTERPARTS.
          ------------

     This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.

     16.  SETTLEMENT OF DISPUTES; ARBITRATION.
          -----------------------------------

     All claims by the Executive for benefits under this Agreement shall be in
writing and shall be directed to and initially determined by the Board. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to the Executive for a review of the
decision denying a claim and shall further allow the Executive to appeal to the
Board a decision of the Board within sixty (60) days after notification by the
Board that the Executive's claim has been denied. To the extent permitted by
applicable law and subject to the right of the Company to seek equitable relief
in a court pursuant to Section 10.3, any further dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Allegheny County, Pennsylvania, in accordance with the rules for
the resolution of employment law disputes of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.

     17.  FEES AND EXPENSES.
          -----------------

     The Company shall pay to the Executive all reasonable legal fees and
expenses incurred by the Executive (i) in connection with his pre-signing review
of this Agreement and the related Change in Control Agreement and
Indemnification Agreement, and (ii) in disputing any termination or in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder; provided, however, the Company shall not be required
to pay to the Executive legal fees and expenses to the extent such legal fees
and expenses were incurred in connection with a contest controlled by the
Company pursuant to Section 7.6(c) hereof in connection with which the Company
complied with its obligations under said Section 7.6(d). Such payments shall be
made within thirty (30)

                                       14
<PAGE>

business days after delivery of the Executive's written request for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.

     18.  OTHER AGREEMENTS.
          ----------------

     Simultaneously with the execution of this Agreement, the Company and the
Executive shall enter into a Change in Control Agreement ("Change in Control
Agreement") and a Indemnification Agreement ("Indemnification Agreement"), and
forms of which are attached hereto as Exhibits A and B, respectively.

     19.  COORDINATION OF BENEFITS.
          ------------------------

     Notwithstanding anything in this Agreement to the contrary, if the
Executive is paid "Severance Payments" under the Change in Control Agreement
dated the date hereof between the Company and the Executive, in connection with
a Change in Control (as defined therein), then this Agreement (including Section
10.2 hereof) shall forthwith terminate and the Executive shall not be entitled
to the payment of any amounts under this Agreement other than pursuant to
Section 7.1 hereof (and any amounts theretofore paid to the Executive pursuant
to Section 7.2 or 7.3 hereof shall be credited against any "Severance Payments"
to which the Executive is entitled under said Change in Control Agreement).

     20.  DEFINITIONS.
          -----------

     For purposes of this Agreement, the following terms shall have the meaning
indicated below:

     (a) "Base Salary" shall have the meaning stated in Section 5.1 hereof.

     (b) "Board" shall mean the Board of Directors of Armstrong Holdings, Inc.

     (c) "Cause" for termination by the Company of the Executive's employment,
for purposes of this Agreement, shall mean (i) the willful and continued failure
by the Executive to substantially perform the Executive's duties hereunder
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination for Good Reason by the Executive pursuant to
Section 8.1) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive in conduct
which is demonstrably and materially injurious to the Company, monetarily or
otherwise, including but not limited to fraud or embezzlement by the Executive,
or (iii) the Executive's conviction (or entering into a plea bargain admitting
guilt) of any felony, or (iv) a material breach by the Executive of this
Agreement, including a violation of Section 10. For purposes of clauses (i) and
(ii) of this definition, no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be done, by the Executive
not in good faith and without reasonable belief that the Executive's act, or
failure to act, was in the best interest of the Company. In the event of a
dispute concerning the application of this provision,

                                       15
<PAGE>

no claim by the Company that Cause exists shall be given effect unless the
Company establishes to the Board by clear and convincing evidence that Cause
exists.

     (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

     (e) "Common Stock" shall mean the common stock, par value $1.00 per share
of the Company.

     (f) "Date of Termination" shall have the meaning stated in Section 8.2
hereof.

     (g) "Disability" shall be deemed the reason for the termination of this
Agreement by the Company, if, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from the
full-time performance of the Executive's duties hereunder for a period of six
(6) consecutive months, the Company shall have given the Executive Notice of
Termination for Disability, and, within thirty (30) days after such Notice of
Termination is given, the Executive shall not have returned to the full-time
performance of the Executive's duties.

     (h) "Excise Tax" shall have the meaning stated in Section 7.6(a) hereof.

     (i) "Executive" shall mean the individual named in the first paragraph of
this Agreement.

     (j) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraphs (i) or (ii) below, such act or failure to act is corrected prior to
the Date of Termination specified in the Notice of Termination given in respect
thereof:

          (i) the assignment to the Executive of any duties inconsistent with
the Executive's status as an executive officer of the Company or a substantial
alteration in the nature or status of the Executive's responsibilities
consistent with the title set forth in Section 4, unless the Executive has
indicated to the Company his intention to terminate his employment prior to the
end of the Term, and such assignment or alteration is made by the Board in good
faith in order to facilitate a transition to successor management;

          (ii) any material breach of any provision of this Agreement by the
Company;

          (iii) the relocation of the Executive's principal place of employment
to a location more than 250 miles from the Executive's principal place of
employment (unless such relocation is closer to the Executive's principal
residence) or the Company's requiring the Executive to be based anywhere other
than such principal place of employment (or permitted relocation thereof) except
for required travel on the Company's business to an extent substantially
consistent with the Executive's present business travel obligations;

          (iv) a reduction by the Company in the Executive's Base Salary as in
effect on the date hereof or as the same may be increased from time to time
except for across-the-board salary

                                       16
<PAGE>

reductions similarly affecting all senior officers of the Company and all senior
officers of any person in control of the Company; or

          (v) the failure by the Company to continue in effect any employee
benefit plan or incentive compensation plan in which the Executive currently
participates which is material to the Executive's total compensation, unless
such plan or arrangement has been replaced by a new plan on a basis not
materially less favorable, both in terms of the amount or timing of payment of
benefits provided and the level of the Executive's participation relative to
other participants.

          The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.

     (k) "Gross-Up Payment" shall have the meaning stated in Section 7.6(a)
hereof.

     (l) "Notice of Termination" shall have the meaning stated in Section 8.1
hereof.

     (m) "Severance Payments" shall mean those payments described in Section 7.2
and 7.3 hereof.

     (n) "Term" shall have the meaning stated in Section 3 hereof.

                                       17
<PAGE>

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

                       ARMSTRONG HOLDINGS, INC.

                       By:
                                ---------------------------
                                Name:  Douglas L. Boles
                                Title: Executive Vice President, Human Resources

                       The undersigned, Armstrong World Industries, Inc., agrees
                       to be jointly and severally bound by the terms of this
                       Agreement, including specifically with respect to the
                       obligations of the Company hereunder.

                       ARMSTRONG WORLD INDUSTRIES, INC.

                       By:
                                ---------------------------
                                Name:  Douglas L. Boles
                                Title: Executive Vice President, Human Resources

                       EXECUTIVE

                       ---------------------------------
                       Michael D. Lockhart

                                       18

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