Document:

<PAGE>

                                                                    Exhibit 10.2

                                      LEASE

                                     BETWEEN

                      HIBBS/WOODINVILLE ASSOCIATES, L.L.C.

                                    LANDLORD,

                                       AND

                        QUINTON CARDIOLOGY SYSTEMS, INC.

                                     TENANT

                                  FOR PREMISES

                                       AT

                               BOTHELL, WASHINGTON

                                                     DATED AS OF AUGUST __, 2003

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                                      INDEX

<TABLE>
<CAPTION>
SECTION                                               TITLE                                                 PAGE
<S>      <C>                                                                                                <C>
1.       DEMISE AND TERM OF DEMISE......................................................................      2
2.       RENT, TAXES, ASSESSMENTS AND OTHER CHARGES.....................................................      3
3.       USE OF PREMISES: COMPLIANCE WITH LAWS..........................................................     10
4.       REPRESENTATIONS BY TENANT AND LANDLORD.........................................................     11
5.       INSURANCE......................................................................................     11
6.       DAMAGE OR DESTRUCTION..........................................................................     13
7.       CONDEMNATION...................................................................................     14
8.       SUBORDINATION, ATTORNMENT, ESTOPPEL CERTIFICATE................................................     15
9.       REPAIRS, MAINTENANCE, ALTERATIONS, ETC.........................................................     17
10.      INTENTIONALLY OMITTED..........................................................................     19
11.      ASSIGNMENT, SUBLETTING AND MORTGAGING..........................................................     19
12.      INDEMNITY......................................................................................     21
13.      DEFAULT PROVISIONS, LANDLORD'S REMEDIES........................................................     22
14.      BANKRUPTCY AND INSOLVENCY......................................................................     26
15.      ENTRY BY LANDLORD, ETC.........................................................................     28
16.      COVENANT OF QUIET ENJOYMENT....................................................................     28
17.      EFFECT OF CONVEYANCE, LIMITS OF LIABILITY OF LANDLORD, DEFINITION OF "LANDLORD"................     29
18.      SURRENDER, HOLDING OVER BY TENANT..............................................................     30
19.      CURING DEFAULTS; FEES AND EXPENSES.............................................................     30
20.      MECHANICS AND OTHER LIENS......................................................................     31
21.      SIGNS, ADDRESS.................................................................................     31
22.      WAIVERS AND SURRENDERS TO BE IN WRITING, RIGHT TO TERMINATE....................................     32
23.      COVENANTS BINDING ON SUCCESSORS AND ASSIGNS....................................................     32
24.      RESOLUTION OF DISPUTES.........................................................................     32
25.      NOTICES........................................................................................     33
26.      DEFINITIONS; HEADINGS; CONSTRUCTION OF LEASE...................................................     34
27.      FORCE MAJEURE..................................................................................     35
28.      BROKERAGE......................................................................................     35
29.      MISCELLANEOUS PROVISIONS.......................................................................     35
30.      COMPLIANCE WITH ENVIRONMENTAL LAWS.............................................................     36
31.      SECURITY.......................................................................................     39
32.      ACCESS.........................................................................................     40
33.      NET LEASE......................................................................................     40
34.      CAFETERIA SPACE................................................................................     40
35.      SECURITY DEPOSIT..............................................................................      41
</TABLE>

                                       i

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                                    EXHIBITS

EXHIBIT A           -     THE PROPERTY, BUILDINGS, PARKING LOT AND COMMON AREA

EXHIBIT A-1         -     LEGAL DESCRIPTION

EXHIBIT D-3         -     RENTAL SCHEDULE

EXHIBIT F                 DEMISED PREMISES IN ADMINISTRATION BUILDING

EXHIBIT G                 DEMISED PREMISES IN SMALL BARN

EXHIBIT H                 TENANT IMPROVEMENTS

                                       ii

<PAGE>

                                      LEASE

         THIS LEASE (the "Lease") is entered into this as of August __, 2003
between HIBBS/WOODINVILLE ASSOCIATES, LLC, a Washington limited liability
company (the "Landlord"), and QUINTON CARDIOLOGY SYSTEMS, Inc., a Delaware
corporation (the "Tenant")) and amends and entirely replaces all other
agreements between Landlord and Tenant and any of Tenant's subsidiaries or
related companies.

                              W I T N E S S E T H:

                                    Recitals:

         WHEREAS, Landlord is the owner of that certain land located in Bothell,
Washington and the improvements and buildings thereon (the "Property"), more
particularly described in Exhibit A-1 attached hereto and made a part hereof,
and

         WHEREAS, various buildings located on the land are known as the
Administrative Building consisting of approximately 90,868 square feet, the
Production Building consisting of approximately 171,816 square feet, the North
Barn consisting of approximately 13,576 square feet and the South Barn
consisting of approximately 6,769 square feet (the Administrative Building, the
Production Building, the North Barn and the South Barn are sometimes
collectively referred to as the "Buildings");

         WHEREAS, there is also located on the Property a paved and striped
parking area consisting of approximately 750 parking spaces (hereinafter
referred to as the "Parking Lot"), and

         WHEREAS, the Property, Buildings and the Parking Lot are depicted on
Exhibits A and A-1 attached hereto.

         WHEREAS, Tenant is currently leasing agreed square footage as follows:
30,225 rentable square feet on the first and second floors of the Administration
Building and 3,887 rentable square feet in the South Barn (a/k/a/ Small Barn)
described and outlined on Exhibits F&G attached hereto ("Demised Premises"), and
Landlord is desirous of leasing the Demised Premises to Tenant on the terms and
conditions set forth herein.

                  WHEREAS, Tenant and Landlord are desirous of replacing all of
the agreements that are set forth below that currently exist between them with
this Lease, which shall replace in their entirety all other and prior agreements
between the parties. These agreements include that certain lease dated June 1,
1998, as amended by the First Amendment thereto dated August 31, 1999 that
certain Second Amendment to Quinton Instrument Company Lease dated December 7,
2000; that certain Cost Sharing and Cross Access Agreement between AHP
Subsidiary Holding Company, a Delaware corporation, Tenant and SWD Holding,
Inc., a Delaware corporation, dated February 27, 1998; and that certain
Settlement Agreement effective November 17, 1999.

         NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and sufficiency of which is
acknowledged by each of the parties hereto, Landlord and Tenant agree as
follows:

                                       1
<PAGE>

         1.   DEMISE AND TERM OF DEMISE

                  1.1      (a) The "Commencement Date" shall be January 1, 2004.

                           (b)      This Lease shall be and become effective as
of the Commencement Date. As of the Commencement Date, the terms and provisions
of this Lease shall govern and control the respective rights and obligations of
Landlord and Tenant with respect to the Demised Premises and the Property.

                  1.2      Landlord demises and leases unto Tenant, and Tenant
hires and takes from Landlord, in consideration of the rents to be paid and the
covenants, agreements and conditions to be performed, observed and fulfilled by
Tenant, the Demised Premises described on Exhibits F & G, attached hereto and
made a part hereof (as same may be modified from time to time in accordance with
this Lease).

                  1.3      The common area of the Property (the "Common Area")
shall mean those interior and exterior portions of the Property designated on
Exhibit A, including the improvements and facilities used for parking areas,
access and perimeter roads, landscaped areas, exterior walks, fitness area, and
washrooms and common hallways located in the Administrative Building, the
Production Building, the North Barn, the South Barn, and the Parking Lot as of
the date hereof as shown on Exhibit A. Tenant shall have the non-exclusive
right, during the term of this Lease, to use the Common Area, in a reasonable
manner, for itself, its employees, invitees, guests, contractors and licensees
for parking, ingress, egress and similar uses and Tenant acknowledges that all
other tenants or occupants of all or any portion of the Property for themselves,
and their employees, invitees, guests, contractors, subtenants (if any) and
licensees shall also have similar rights to use the Common Area. Landlord shall
have the right, at any time and from time to time (a) to grant to any tenant or
tenants which hereafter leases or lease all or any of the Property the same
rights which inure to Tenant and other tenants as herein described, and/or (b)
to (i) limit Tenant to the use of one hundred thirty two (132) parking spaces in
the Parking Lot and to reasonably designate the location thereof and (ii) alter,
modify, increase or reduce the Common Area, provided that access to and from the
Demised Premises shall not be materially or adversely affected thereby. Landlord
will make a good faith effort to continue to provide a fitness area as a part of
the Common Area. All Common Areas shall be subject to the exclusive control and
management of Landlord, subject to the rights of Tenant and any other tenants of
the Property to use and have access to the Common Area, and subject to such
rights as Landlord shall have pursuant to this Lease or otherwise.

                  1.4      The term of the Lease (the "Term") commenced on the
Commencement Date and shall terminate and expire midnight on December 31, 2013
(the "Expiration Date"). Tenant shall, within ten (10) days after request by
Landlord, execute, acknowledge and deliver to Landlord an instrument in form and
substance reasonably acceptable to Landlord confirming (i) the Commencement Date
and the Expiration Date, but no such instrument shall be required to make the
provisions of this Section 1.4 effective.

                  1.5      Tenant shall have the option to renew this Lease for
one (1) renewal term of five (5) years (herein referred to individually as a
"Renewal Term") which shall commence on the day following the expiration of the
Term defined in this Lease and end on the fifth anniversary of the commencement
date of the Renewal Term, unless the Renewal Term shall sooner terminate
pursuant to the terms of this Lease or otherwise. The Renewal Term shall

                                       2
<PAGE>

commence only if (i) Tenant shall have notified Landlord in writing at least
nine (9) months prior to the expiration of Term, and (ii) immediately prior to
the expiration of the Term, this Lease shall be in full force and effect and no
Event of Default shall have occurred and be continuing. Time is of the essence
with respect to the giving of the notice of Tenant's exercise of a renewal
option. A Renewal Term shall be upon all of the agreements, terms, covenants and
conditions hereof binding upon Tenant and Landlord, except that (i) the basic
annual rent (as defined in Section 2.1) shall be at the then current market
rent, escalating annually at the then market escalation rate, (ii) Tenant shall
have no right or option to take any additional or expansion space. Upon the
commencement of a Renewal Term, (x) such Renewal Term shall be added to and
become part of the Term (but shall not be considered part of the initial Term,,
(y) any reference to "this Lease", to the "Term", the "term of this Lease" or
any similar expression shall be deemed to include such Renewal Term, and (z) the
Expiration Date shall become the expiration of such Renewal Term.

                  1.6      Tenant shall have the option to terminate the Lease
for the Premises as of the sixty-first (61st) month of the Lease with nine (9)
month's prior written notice. The Tenant's penalty for such early termination,
payable upon giving notice, and in order for notice to take effect, shall be
240,000.00.

         2.   RENT, TAXES, ASSESSMENTS AND OTHER CHARGES

                  2.1      Commencing as of the Commencement Date, Tenant shall
pay to Landlord basic annual rent as shown on Exhibit D-3 based on the rentable
area of the Demised Premises, as adjusted from time to time in accordance with
the terms and conditions of this Lease (the "Basic Annual Rent").

                  2.2      Such Basic Annual Rent shall be paid by Tenant to
Landlord in equal monthly installments, in advance, on the first day of each
calendar month during the Term without notice, demand, abatement, deduction,
counterclaim or set off of any kind. Tenant shall pay the rent in lawful money
of the United States. Any obligation of Tenant for payment of rent which shall
have accrued during the Term shall survive the expiration or termination of this
Lease.

                  2.3      The installments of Basic Annual Rent payable under
Section 2.1 for the partial calendar months at the beginning and end of the Term
shall be pro-rated in the proportion of the number of days in the partial
calendar month to the number of days in the year.

                  2.4      Whenever under the terms of this Lease any sum of
money is required to be paid by Tenant in addition to the Basic Annual Rent, and
said additional amount so to be paid shall be designated as "Additional Rent,"
and collectible as such with any installment of rental thereafter falling due
hereunder, or, if no such installment thereunder shall fall due, on demand. Rent
or rental for purposes of this Lease shall mean Basic Annual Rent plus all
Additional Rent, including, but not limited to, Tenant's Proportionate Share of
Taxes and Operating Expenses.

                  2.5      "Tenant's Taxes" shall mean all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property, furnishings, equipment,
movable partitions, business machines and other trade fixtures installed,
located or attached to the Property. Tenant shall pay all Tenant's Taxes before
delinquency and, at Landlord's request, shall furnish Landlord satisfactory
evidence thereof. If any lien shall at any time be filed against the Property or
any part thereof with respect to Tenant's

                                       3
<PAGE>

Taxes not paid by Tenant when due, or any judgment, attachment or levy is filed
or recorded against the Property or any part thereof with respect thereto,
Tenant, within thirty (30) days after the attachment thereof, shall cause the
same to be discharged of record by payment, deposit, bond, order of a court of
competent jurisdiction or otherwise. If Tenant shall fail to cause such lien,
judgment, attachment or levy to be discharged within the period aforesaid, then,
in addition to any other right or remedy, Landlord may, but shall not be
obligated to, discharge the same by bonding proceedings, if permitted by law
(and if not so permitted, by deposit in court). Any amount so incurred by
Landlord, including all costs and expenses paid by Landlord in connection
therewith, together with interest thereon at the rate of 15% per annum (or, if
lower, the maximum rate permitted by law) from the respective dates of
Landlord's so incurring any such amount, cost or expenses, shall constitute
additional rent payable by Tenant under this Lease and shall be paid by Tenant
to Landlord on demand.

                  2.6      For purposes of this Lease, the following terms shall
be defined as follows:

                           (a)      "Tenant's Proportionate Share" shall mean
the ratio, expressed as a percentage, of the number of rentable square feet
comprising the Demised Premises from time to time (approximately 34,112 square
feet as of the date of this Third Lease) (which shall hereafter be adjusted upon
any increase or reduction in accordance with this Lease) to the agreed total
number of rentable square feet in the Buildings (283,029), that is to say 12.05%
as of the Commencement Date, subject to later adjustment in accordance herewith.

                           (b)      "Fiscal Year" shall mean each fiscal year of
Landlord or part thereof during the Term, as such fiscal year may be changed at
any time and from time to time in the sole discretion of Landlord. The fiscal
year of Landlord as of the date hereof is January 1 through December 31.

                           (c)      "Lease Year" shall mean a period of one (1)
year commencing on the Commencement Date and thereafter commencing upon each
anniversary thereof.

                           (d)      "Operating Expenses" shall mean and include
all amounts, expenses and costs of whatever nature that Landlord incurs because
of or in connection with the operation, insuring, maintenance, equipping,
securing, policing, protection, repair, or management (the "Operating
Expenses"), Operating Expenses shall be determined on an accrual basis in
accordance with sound management accounting principles consistently applied and
shall include, but shall not be limited to, the following:

                                    (1)      Costs and expenses of maintenance,
         equipping, securing, policing, garbage disposal, and repair of the
         Property, including Common Areas.

                                    (2)      Costs of maintenance and
         replacement of landscaping.

                                    (3)      Costs of providing utilities and
         services to the Common Area.

                                    (4)      Premiums for property (including
         coverage for earthquake, flood and terrorism if carried by Landlord),
         liability, worker's compensation, plate glass, rental income and other
         insurance and commercially reasonable deductible amounts under such
         insurance paid in connection with repair or restoration of the Property
         after any damage or destruction.

                                       4
<PAGE>

                                    (5)      Fees and charges for licenses,
         permits and inspections reasonably necessary for the operation of the
         Property.

                                    (6)      Costs of capital improvements
         required to meet changed governmental regulations or which are,
         reasonably and in good faith, intended to reduce Operating Expenses,
         such costs, together with interest on the unamortized balance at the
         rate paid by Landlord on funds borrowed for the purpose of constructing
         such capital improvements (or, if Landlord funds such costs itself in
         lieu of borrowing such amount, deemed interest equivalent to the
         interest at a commercially reasonable rate that would have been
         incurred had such amount been borrowed by Landlord), to be amortized
         over such reasonable periods as Landlord shall determine, consistent
         with generally accepted accounting principles.

                                    (7)      Costs associated with the
         construction, repair or maintenance of any on-site Property management
         offices or related facilities.

                                    (8)      Reasonable and customary property
         management fees, not to exceed 5% of gross revenue.

                                    (9)      Costs for accounting, legal and
         other professional services incurred in connection with the management
         and operation of the Property and the calculation of Operating Expenses
         and Taxes (as defined below).

                                    (10)     A reasonable allowance for
         depreciation on machinery and equipment used to maintain the Property
         and on other personal property used by Landlord on the Property in
         connection with the management and operation of the Property consistent
         with generally accepted accounting principles.

                                    (11)     The reasonable cost of contesting
         the validity or applicability of any governmental enactments that may
         affect the Property.

                                    (12)     Wages, salaries, fees, related
         taxes, insurance costs, benefits (including amounts payable under
         medical, pension and welfare plans and any amounts payable under
         collective bargaining agreements) and reimbursement of expenses of and
         relating to all personnel principally engaged in operating, repairing,
         managing, replacing and maintaining the Property.

                                    (13)     All supplies, tools, equipment and
         materials used in operating, equipping, repairing and maintaining the
         Property.

                                    (14)     Cost of security and security
         personnel, devices and systems (including, without limitation, any
         security office on the Property).

Notwithstanding any contrary provision of this Lease, Operating Expenses shall
not include: (i) capital improvements other than those specifically enumerated
above in clause (6) of the definition of Operating Expenses; (ii) costs of
special or additional services rendered to individual tenants (including Tenant)
for which a special charge is made; (iii) interest and principal payments on
loans or indebtedness secured by the Property or ground rent payments (if

                                       5
<PAGE>

any); (iv) costs of improvements for other tenants of the Property; (v) costs of
services or other benefits of a type which are not available to Tenant but which
are available to other tenants or occupants, and costs for which Landlord is
reimbursed by other tenants of the Property other than through payment of
tenants' shares of Operating Expenses and Taxes, (vi) leasing commissions,
attorneys' fees and other expenses incurred in connection with negotiations of
disputes with other tenants, prospective tenants or occupants of the Property,
or in connection with the enforcement or violation by Landlord or such tenant or
occupant of any lease; (vii) depreciation or amortization, other than as
specifically enumerated above in the definition of Operating Expenses, (viii)
costs, fines or penalties incurred due to Landlord's violation of any law or
governmental regulation, (ix) the excess of the cost of supplies and services
provided by subsidiaries and affiliates of Landlord, or Landlord itself, over
competitive costs by independent suppliers and contractors of comparable
buildings in the vicinity of the Property; and (x) Taxes.

         If Landlord does not furnish during any Fiscal Year any particular work
or service (the cost of which, if performed by Landlord, would constitute an
Operating Expense) to a tenant which has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, then Operating Expenses
shall be deemed to be increased by an amount equal to the additional expense
which would reasonably have been incurred during such Fiscal Year by Landlord if
it had, at its cost, furnished such work or service to such tenant; provided,
however, Landlord shall not be entitled to be reimbursed for an amount in excess
of the actual Operating, Expenses. If during any Fiscal Year less than 95% of
the leasable square feet of the Property is leased and occupied by tenants, then
the Operating Expenses for such Lease Year shall be increased proportionately to
reflect the amount of the Operating Expenses which, in Landlord's reasonable
judgment, would have been incurred during such Lease Year if 95% of the leasable
square feet of the Property was leased and occupied by tenants.

                           (e)      "Taxes" shall mean and include all real
property taxes and general, special or district assessments or other
governmental impositions, of whatever kind, nature or origin, imposed on or by
reason of the ownership or use of the Property; governmental charges, fees or
assessments for transit (including without limitation, area wide traffic
improvement assessments and transportation system management fees), housing,
police, fire or other governmental service or purported benefits to the
Property; personal property taxes assessed on the personal property of Landlord
used in or related to the operation of the Property service payments in lieu of
taxes and taxes and assessments of every kind and nature whatsoever levied or
assessed in addition to, in lieu of or in substitution for existing or
additional real or personal property taxes on the Property or the personal
property described above, taxes and assessments on the gross or net rental
receipts of Landlord derived from the Property (excluding, however, state and
federal personal or corporate income taxes measured by the net income of
Landlord from all sources and inheritance, franchise or estate taxes), and the
reasonable cost of contesting by appropriate proceedings the amount or validity
of any taxes, assessments or charges described above. Taxes shall also include
any personal property taxes imposed upon the furniture, fixtures, machinery,
equipment, apparatus, systems and appurtenances of Landlord used in connection
with the Property for the operation thereof. Taxes shall also include the amount
of all fees, costs and expenses (including, without limitation, attorneys' fees
and court costs), if any, paid or incurred by Landlord each Fiscal Year in
seeking or obtaining any refund or reduction of Taxes or for contesting or
protesting any imposition of taxes, whether or not successful and whether or not
attributable to Taxes assessed, paid or incurred in such Fiscal Year.

                                       6
<PAGE>

                  2.7      (a) In addition to the Basic Annual Rent, Tenant
shall pay, with respect to each Fiscal Year, Tenant's Proportionate Share of all
Operating Expenses and Taxes. Tenant's Proportionate Share of Operating Expenses
shall be paid in monthly installments in advance on the first day of each
calendar month during such Fiscal Year in the Term in amounts sufficient to
satisfy payment of the Operating Expenses for such Fiscal Year as reasonably
estimated by Landlord from time to time prior to, or during, any Fiscal Year and
communicated to Tenant by written notice (the "Estimated Operating Expense
Adjustment"). If Landlord does not deliver such a notice (an "Estimate") prior
to the commencement of any Fiscal Year, Tenant shall continue to pay Estimated
Operating Expense Adjustment as provided in the most recently received Estimate
(or Updated Estimate, as defined below) until the Estimate for such Fiscal Year
is delivered to Tenant. If, from time to time during any Fiscal Year, Landlord
reasonably determines that Operating Expenses for such Fiscal Year have
increased or will increase, Landlord may deliver to Tenant an updated Estimate
("Updated Estimate") for such Fiscal Year, Monthly payments of Estimated
Operating Expense Adjustment paid subsequent to Tenant's receipt of the Estimate
or Updated Estimate for any Fiscal Year shall be in the amounts provided in such
Estimate or Updated Estimate, as the case may be. In addition, Tenant shall pay
to Landlord within thirty (30) days after receipt of such Estimate or Updated
Estimate, the amount, if any, by which the aggregate of the Estimated Operating
Expense Adjustment provided in such Estimate or Updated Estimate, as the case
may be, with respect to prior months in such Fiscal Year exceeds the aggregate
of the Estimated Operating Expense Adjustment paid by Tenant with respect to
such prior months.

         After the end of each Fiscal Year, Landlord shall send to Tenant a
statement (the "Final Operating Expense Adjustment Statement") showing (i) the
calculation of the Operating Expense Adjustment for such Fiscal Year, (ii) the
aggregate amount of the Estimated Operating Expense Adjustment previously paid
by Tenant for such Fiscal Year, and (iii) the amount, if any, by which the
aggregate amount of the installments of Estimated Operating Expense Adjustment
paid by Tenant with respect to such Fiscal Year exceeds or is less than the
Expense Adjustment for such Fiscal Year. Tenant shall pay the amount of any
deficiency to Landlord within thirty (30) days of the sending of such statement.
At Landlord's option, any excess shall either be credited against payments past
or next due hereunder or refunded by Landlord, provided Tenant is not then in
default hereunder.

         On reasonable advance written notice given by Tenant within thirty (30)
days following the receipt by Tenant of the Final Operating Expense Adjustment
Statement, Landlord shall make available to Tenant Landlord's books and records
maintained with respect to the Operating Expenses for such Fiscal Year. If
Tenant wishes to contest any item within any Final Operating Expense Adjustment
Statement, Tenant shall do so in a written notice (a "Contest Notice") received
by Landlord within thirty (30) days following Tenant's inspection of Landlord's
books and records, but in any event not later than sixty (60) days after
Landlord shall have made its books and records available to Tenant for
inspection. The Contest Notice shall specify in detail the item or items being
contested and the specific grounds therefor. However, the giving of such Contest
Notice shall not relieve Tenant from the obligation to pay any deficiency in
such statement or the Landlord from the obligation to pay (by refund or credit)
any excess in such statement in accordance with this Section. Notwithstanding
anything else in this Section to the contrary, if Tenant fails to give such
Contest Notice within said thirty (30) day period or fails to pay any deficiency
in such statement in accordance with this Section, whether or not contested,
Tenant shall have no further right to contest any item or items in such
statement and Tenant shall be deemed to accept such statement.

                                       7
<PAGE>

         For thirty (30) days after receipt of Tenant's Contest Notice, Landlord
and Tenant shall attempt to resolve such dispute. If such dispute shall not be
resolved within such thirty (30) day period (the resolution to be evidenced by a
writing signed by Landlord and Tenant), the dispute shall be resolved by
arbitration as follows: The party desiring arbitration (the "First Party") shall
give notice to that effect to the other party, and shall in such notice appoint
a person as arbitrator on its behalf. Within fifteen (15) days after its receipt
of such notice, the other party by notice to the First Party shall appoint an
arbitrator on its behalf, if the second arbitrator shall not be so appointed
within such fifteen (15) days, the First Party may give a second notice to the
other party demanding that the other party appoint an arbitrator within ten (10)
days of its receipt of such second notice and if the other party shall not do so
within such ten (10) day period, then the arbitrator appointed by the First
Party shall appoint the second arbitrator. The two arbitrators appointed
pursuant to the above shall try to appoint the third arbitrator. If, within
twenty (20) days after the appointment of the second arbitrator, they shall not
have agreed upon the appointment of the third arbitrator, either of the parties
upon notice to the other party may request such appointment by the Office of the
American Arbitration Association (the "AAA") closest to the Property, or in its
absence, refusal, failure or inability to act, may apply to the presiding judge
of the court of the State of Washington with Jurisdiction over the matters
covered by this Lease (the "Court") for the appointment of such third arbitrator
and the other party shall not raise any question as to the Court's power and
jurisdiction to entertain the application and make the appointment. Each
arbitrator shall be a qualified person who shall have at least ten (10) years
experience in a calling connected with the matter of the dispute. The
arbitration shall be conducted in accordance with the then prevailing, rules of
the AAA, under the auspices of the office of the AAA closest to the Property,
The arbitrators shall render their decision and award in writing upon
concurrence of at least two (2) of their members, within thirty (30) days after
the appointment of the third arbitrator. Such decision and award shall be
binding and conclusive on the parties, shall constitute an "award" of the
arbitrators within the meaning of the AAA rules and applicable law, and
counterpart copies thereof shall be delivered to each of the parties. In
rendering such decision and award, the arbitrators shall not add to, subtract
from, or otherwise modify the provisions of this Lease and shall apply
applicable federal and/or state law. Judgment may be had under the decision and
award of the arbitrators so rendered in any court of competent jurisdiction'.
Each party shall pay the fees and expenses of the arbitrator appointed by or for
it. The fees and expenses of the third arbitrator, and all other expenses of the
arbitration (other than the fees and disbursements of attorneys or witnesses for
each party), shall be borne by the parties equally.

                           (b)      Tenant's Proportionate Share of Taxes with
respect to each Fiscal Year shall be paid in monthly installments in advance on
the first day of each calendar month during such Fiscal Year in the Term in
amounts sufficient to satisfy payment of Tenant's Proportionate Share of Taxes
For such Fiscal Year as reasonably estimated by Landlord from time to time prior
to or during any Fiscal Year and communicated to Tenant by written notice (the
"Estimated Tax Payment," and the actual, final amount due from Tenant on account
of Taxes, the "Tax Payment")). If Landlord does not deliver such a notice (an
"Estimate") prior to the commencement of any Fiscal Year, Tenant shall continue
to pay Estimated Tax Payment as provided in the most recently received Estimate
(or Updated Estimate, as defined below) until the Estimate for such Fiscal Year
is delivered to Tenant. If, from time to time during any Fiscal Year, Landlord
reasonably determines that Taxes for such Fiscal Year have increased or will
increase, Landlord may deliver to Tenant an updated Estimate ("Updated
Estimate") for such Fiscal Year. Monthly payments of Estimated Tax Payment paid
subsequent to Tenant's receipt of

                                       8
<PAGE>

the Estimate or Updated Estimate for any Fiscal Year shall be in the amounts
provided in such Estimate or Updated Estimate, as the case may be. In addition,
Tenant shall pay to Landlord within thirty (30) days after receipt of such
Estimate or Updated Estimate, the amount, if any, by which the aggregate of the
Estimated Tax Payment provided in such Estimate or Updated Estimate, as the case
may be, with respect to prior months in such Fiscal Year exceeds the aggregate
of the Estimated Tax Payment paid by Tenant with respect to such prior months.

                           (c)      Within sixty (60) days after a final real
estate tax bill with respect to the Property is received by Landlord or any
other determination of Taxes with respect to a Fiscal Year occurs (whether due
to the receipt of a bill, the filing of a return, the settlement or adjudication
of disputed Taxes, or otherwise), or as soon thereafter as practicable, Landlord
shall send to Tenant a statement (the "Tax Adjustment Statement") showing (i)
the calculation (or recalculation) of the Tax Payment for such Fiscal Year, (ii)
the aggregate amount of the Estimated Tax Payment previously paid by Tenant for
such Fiscal Year, and (iii) the amount, if any, by which the aggregate amount of
the installments of Estimated Tax Payment paid by Tenant with respect to such
Fiscal Year exceeds or is less than the Tax Payment for such Fiscal Year. Tenant
shall pay the amount of any deficiency to Landlord within thirty (30) days after
the sending of such statement. At Landlord's option, any excess shall either be
credited against payments past or next due hereunder or refunded by Landlord,
provided Tenant is not then in default hereunder.

                  2.8      Tenant shall (i) pay (at the rates charged by the
utility providers to Landlord) 100% of all charges for electric current
(including, without limitation, for lighting the Demised Premises and supplying
HVAC to the Demised Premises), water, gas (if any), telephone, and other
utilities consumed relative to the Demised Premises, and (ii) be responsible (at
Tenant's expense) of providing, installing, repairing, maintaining and operating
all conduits, risers, cables, pipes and other electrical, mechanical and other
facilities and installations which are required in connection with the
consumption of such utilities at the Demised Premises.

                  2.9      Landlord shall provide the following services for the
Property: (i) city water from regular building outlets for drinking, lavatory
and toilet purposes, (ii) janitorial and maintenance service for the Property
(it being understood that should Landlord so elect then Tenant at its expense
shall provide janitorial service to the Demised Premises using contractors
reasonably acceptable to Landlord which shall provide insurance coverage
reasonably acceptable to Landlord), (iii) all utilities for the Common Area, and
(iv) periodic inspections of the drain valves, hydrants and fire pumps on the
Property. The cost of the services to be provided by Landlord described in this
Section 2.9 shall constitute Operating Expenses.

                  2.10     If Tenant shall fail to pay, within ten (10) days of
the date when the same is due and payable, any rent or other charge pursuant to
this Lease (including, without limitation, basic annual rent, or additional
rent), Tenant shall upon demand pay Landlord a late charge of five (5%) percent
of the amount past due, or, if such late charge shall exceed the maximum late
charge permitted by law, the Tenant shall pay the maximum late charge permitted
by law. Additionally, such amounts not paid shall accrue interest at the rate of
one and one-half percent (1.5%) (or the highest rate allowable by law if lower)
per month until paid. Such interest shall be cumulative.

                  2.11     If requested by Landlord, Tenant promptly, shall
install, at Tenant's expense, such electrical meters and other installations and
equipment as shall be required so that

                                       9
<PAGE>

the electrical current consumed in the Demised Premises may be separately
metered and paid by Tenant. In the event Landlord separately meters the Common
Areas, the cost of such current separately metered and consumed in connection
with the Common Areas shall be included in the Operating Expenses. In the event
the Demised Premises is separately metered, Tenant shall not be obligated to pay
any portion of the utilities consumed in any portion of the Buildings which is
leased or available for lease (other than the Demised Premises and the Common
Areas), but Tenant will in such event pay its proportionate share of utilities
consumed in connection with the Common Areas.

         3.   USE OF PREMISES: COMPLIANCE WITH LAWS

                  3.1      Subject to Section 3.2, the Demised Premises may be
used only for office use and the design, testing and demonstrating of medical
device equipment, subject to and in accordance with all Legal Requirements
(hereafter defined) and for no other purpose. Landlord shall not be deemed to
have made any representation, warranty or agreement that any such use by Tenant
or all or any of the Property shall be or remain lawful or otherwise permitted
under any Legal Requirements.

                  3.2      Tenant shall not use or occupy or permit anything to
be done in or on the Demised Premises or the Property, in whole or in part, in a
manner which would in any way violate any certificate of occupancy affecting the
Demised Premises or the Property, make void or voidable any insurance then in
force with respect thereto, or which may make it more costly or impossible to
obtain fire or other insurance thereon, cause or be apt to cause structural or
other material injury to the Buildings or any part thereof, constitute a public
or private nuisance, or which may violate any present or future, ordinary or
extraordinary, foreseen or unforeseen Legal Requirements or Insurance
Requirements, (hereinafter defined). In addition, Tenant shall not allow any
animals to be kept on the Premises or use or allow the Demised Premises to be
used for residential or dwelling purposes.

                           3.2.1    Tenant acknowledges that other tenants
require a clean environment to operate their business. Accordingly, Tenant
agrees not to bring live animals, dead animals, animal parts or animal refuse
and waste into any part of the Administration Building, including the Common
Areas and leased areas in the Administration Building; provided, however, that
such prohibition shall not include any food or clothing items whatsoever.

                  3.3      Tenant shall, at its expense, promptly comply or
cause compliance with, and not jeopardize or make more costly Landlord's
compliance with (but it being agreed that except as may otherwise be expressly
set forth to the contrary in this Lease, compliance with the following shall be
the obligation of Tenant at Tenant's expense):

                           3.3.1    the requirements of every statute, law,
ordinance, regulation, rule, requirement, order or directive, including but not
limited to the Americans with Disabilities Act of 1990, now or hereafter made by
any federal, state, city or county government or any department, political
subdivision, bureau, agency, office or officer thereof, or of any other
governmental authority having jurisdiction with respect to and applicable to (i)
the Demised Premises, (ii) the condition, equipment, maintenance, use or
occupation of the Demised Premises, including, without limitation, such of the
foregoing applicable to the making of any alteration or addition in or to any
structure appurtenant thereto and to pollution and

                                       10
<PAGE>

environmental control, and (iii) subtenants of Tenant (all of the foregoing
being herein referred to as "Legal Requirements"), and

                           3.3.2    the rules, regulations, orders and other
requirements of the National and any local Board of Fire Underwriters, or other
body having the same or similar functions and having jurisdiction of and which
are applicable to, the Demised Premises and of any liability, fire or other
insurance policy which Tenant or Landlord is required hereunder to maintain
(herein referred to as "Insurance Requirements"), whether or not such compliance
involves changes in the use of the Demised Premises or any part thereof, or be
required on account of any particular use to which the Demised Premises, or any
part thereof may be put, and whether or not any such Legal Requirements or
Insurance Requirements be of a kind not now within the contemplation of the
parties hereto.

         4.   REPRESENTATIONS BY TENANT AND LANDLORD

                  4.1      Except for the improvements listed in Exhibit H,
Tenant covenants and agrees that it will accept the Demised Premises in its
existing "as is" state or condition as of the Commencement Date and without any
representation or warranty, express or implied, in fact or by law, by Landlord
or its agents and without recourse to Landlord or its agents, as to the nature,
condition, or usability thereof, or the use or occupancy which may be made
thereof, except as may be otherwise specifically provided in this Lease.

                  4.2      Tenant agrees that it will not establish any new air
vents within twenty (20) feet of any other tenant's air intakes on the roof
without prior notice to, and approval of Landlord.

                  4.3      Nothing, in this Lease shall limit or restrict the
right of the Landlord, from time to time, and in the Landlord's sole discretion,
to execute, enter into, amend, modify, terminate and/or cancel any leases or
occupancy agreements respecting the Property (or any parts thereof), other than
this Lease, nor shall any such acts or actions by Landlord give rise to any
right or remedy in favor of Tenant.

         5.   INSURANCE

                  5.1      During the Term, Tenant, at Tenant's sole cost and
expense, shall carry and maintain:

                           5.1.1    Commercial general public liability
insurance, including property damage liability coverage, protecting and
indemnifying Tenant, Landlord (and naming Landlord, its managing agent and the
holder of any mortgage encumbering the Property as additional insured thereon)
and any designee of Landlord against any and all claims for damages to person or
property, or for loss of life or of property occurring in or about the Demised
Premises or arising out of the ownership, maintenance, use or occupancy thereof
or from any of the matters indicated in Section 12 or elsewhere in this Lease
against which Tenant is required to indemnify Landlord. The coverage limits of
the policy shall be those amounts reasonably requested by Landlord but at least
$2,000,000 Combined Single Limit.

                                       11
<PAGE>

                           5.1.2    All policies of insurance carried by Tenant
pursuant to this Lease shall name as insureds Landlord, and if required, any fee
mortgagee or other designee of Landlord, as their respective interests may
appear; provided, however, that rent insurance, if any, shall be carried solely
in favor of Landlord. To the extent Landlord receives and applies proceeds of
rent insurance, if any, Tenant shall receive a credit against fixed rental
payable hereunder. Subject to the rights of any fee mortgagee, all losses made
under the policy or policies shall be adjusted by Landlord and the proceeds
thereof shall be payable to the Landlord. The originals or duplicate originals
of such policies or certificates shall be delivered to Landlord except when such
originals or duplicate originals are required to be held by any fee mortgagee,
in which case certificates of insurance shall be delivered to Landlord. Policies
or certificates with respect to renewal policies shall be delivered to Landlord
by Tenant (i) initially not later than the Commencement Date and (ii) thereafter
not less than 30 days prior to the expiration of the original policies, or
succeeding renewals, as the case may be, in each case together with receipts or
other evidence that the premiums thereon have been paid for at least six months.
In the event the Tenant is not able to deliver the insurance policies or
certificates prior to the renewal date as aforesaid, the Tenant may deliver
binders in lieu of such policies or certificates to the Landlord; provided,
however, that the insurance policies or certificates shall be delivered within
sixty (60) days after the expiration of the original policies or succeeding
renewals but in no event later than fifteen (15) days prior to the expiration
date of the binder. Premiums on policies shall not be financed in any manner
whereby the lender, on default or otherwise, shall have the right or privilege
of surrendering or canceling the policies, provided, however, that Tenant may
pay premiums in quarter or semi-annual installments so long as such method of
payment does not constitute a default under any fee Mortgage. Each policy of
insurance required under this program shall have attached thereto an endorsement
that such policy shall not be canceled or modified without at least thirty (30)
days prior written notice to the Landlord, and, if required, to any fee
mortgagee. Each such policy shall contain a provision that no act or omission of
Tenant shall affect or limit the obligation of the insurance company to pay the
amount of any loss sustained and a provision waiving any right of the insured
against the Landlord. All insurance required to be carried by Tenant under this
Lease shall be effected under valid and enforceable policies issued by insurers
which are licensed to do business in the State of Washington and have been
approved in writing by Landlord (which approval Landlord agrees not to
unreasonably withhold).

                           5.1.3    Fire and extended coverage insurance
covering Tenant's personal property, improvements and alterations, against loss
or damage by fire and other risks now or hereafter embraced by "all risk"
coverage, with vandalism and malicious mischief endorsements, to the extent of
at least 90% of then full replacement values. The proceeds from any such policy
shall be used by Tenant for the replacement of personal property or the
restoration of Tenant's improvements or alterations.

                           5.1.4    Worker's compensation insurance as required
by Legal Requirements.

                  5.2      Landlord and Tenant hereby release each other and
each other's officers, directors, shareholders, principals, employees and
agents, from liability or responsibility for any loss or damage to property
covered by valid and collectible fire insurance with standard extended coverage
endorsement, whether such insurance is carried by Tenant or any other tenant or
occupant of the Property, or any part thereof. This release shall apply not only
to liability and responsibility of the parties to each other, but shall also
extend to liability and responsibility for

                                       12
<PAGE>

anyone claiming through or under the parties by way of subrogation or otherwise.
This release shall apply even if the fire or other casualty shall have been
caused by the fault or negligence of a party or anyone for whom a party may be
responsible. However, this release shall apply only with respect to loss or
damage actually recovered from an insurance company. This release shall not
apply to loss or damage of property of a party unless the loss or damage or
personal injury occurs during the times the fire or extended coverage insurance
policies of a party contain a clause or endorsement to the effect that any
release shall not adversely affect or impair the policies or prejudice the right
of the party to recover thereunder. Landlord and Tenant each agree that any fire
and extended coverage insurance policies covering the Property or contents shall
include this clause or endorsement as long as the same shall be obtainable
without extra cost, or if extra cost shall be charged therefor, so long as the
other party pays the extra cost. If extra cost shall be chargeable, the party
whose policy is subject to the extra cost shall advise the other thereof, and of
the amount of the extra cost. Tenant shall also obtain the agreement of its
worker's compensation insurance carrier to waive all right of subrogation
against Landlord.

                  5.3      No policy furnished by Tenant pursuant to Section 5.1
shall have a deductible or self-insured retainage amount in excess of $25,000,
except that public liability insurance may have a deductible of up to $50,000,
fire and extended coverage may have a deductible of up to $50,000, and
earthquake coverage may have a deductible of up to the greater of $100,000 or 5%
of the loss. Tenant will indemnify, defend and hold harmless Landlord for any
difference between a $10,000 deductible and a $25,000 deductible.

         6.   DAMAGE OR DESTRUCTION

                  6.1      Tenant shall immediately give notice to Landlord of
every case of fire, explosion, destruction or damage by the elements or other
casualty.

                  6.2      If at any time during the Term, the Demised Premises
shall be damaged in whole or in material part, or wholly or partially destroyed,
by fire or other casualty (including any casualty for which insurance coverage
was not obtained) of any kind or nature, regardless of whether said damage or
destruction resulted from an act of God, the fault of the Tenant, the Landlord,
or from any cause whatsoever, then, in that event neither party shall be
required to replace, repair or rebuild the damaged or destroyed improvements
(except that Tenant shall be required to turn over to Landlord the insurance
proceeds payable in connection with such damage or destruction); provided,
however, that if the damage or destruction results from the sole or partial
fault of Tenant and is not fully covered by insurance or the insurance proceeds
received by the Landlord are insufficient therefore, the Tenant shall be
required to replace, repair or rebuild the damaged or destroyed improvements to
substantially their condition prior to the casualty event.

                  6.3      Upon thirty (30) days written notice of the casualty
event, the Landlord shall have the option, to (i) replace, repair and rebuild
any and all damaged or destroyed improvements, or (ii) to terminate this Lease
as of a specified date, in which latter event all rent shall be apportioned as
of the date of such damage or destruction, and this Lease shall terminate as of
the specified date, but all insurance proceeds shall be paid to Landlord as
aforesaid, and Tenant shall remain obligated under Section 6.2 in the event the
insurance proceeds are insufficient to fully replace, repair or rebuild. In the
event Landlord proceeds to replace, repair and rebuild, this Lease shall not
terminate, Landlord shall cause the Demised Premises and the

                                       13
<PAGE>

Common Areas to be repaired or restored to the extent insurance proceeds are
available to the Landlord as speedily as its good faith efforts will allow, and
there shall be a proportional abatement of the basic and additional rent
reserved under this Lease during such period as the Demised Premises remain
untenantable based on the extent to which the Demised Premises are untenantable.
Tenant shall also have the option to terminate this Lease effective as of the
date of the damage or destruction, in the event: (a) a portion of the Demised
Premises which is material to Tenant's operations have been damaged or destroyed
and are untenantable, and Landlord shall not provide to Tenant within 120 days
after the date of damage or destruction substitute space of reasonably
equivalent size and functionality (either on a temporary or permanent basis),
and (b) (x) the damaged or destroyed portion of the Demised Premises cannot
reasonably be repaired within 120 days of such date as set forth in an opinion
to that effect of an architect or engineer retained by Tenant (at its expense)
and reasonably acceptable to Landlord, (y) Landlord shall not give written
notice of Landlord's election under clause (i) above within the specified thirty
(30) day period, or (z) Landlord, after having elected to repair, shall not
restore the Demised Premises substantially to its condition prior to the event
causing the damage or destruction. Tenant's options to terminate shall be
exercised by written notice to Landlord within 45 days of the casualty event,
with respect to clauses (x) and (y) and within 135 days after the date of such
damage or destruction with respect to clause (z).

                  6.4      Tenant agrees that the foregoing provisions are in
lieu of any other rights or remedies that Tenant may have against Landlord
pursuant to the laws of the State of Washington in the event of any damage or
destruction to all or any part of the Demised Premises or any other portion of
the Property.

         7.   CONDEMNATION

                  7.1      If the whole of the Demised Premises shall be taken
under the power of eminent domain by any public or private authority or in the
event of sale to such authority in lieu of formal proceedings of eminent domain,
then this Lease shall cease and terminate as of the date of such taking or sale,
which date is defined, for all purposes of this Section 7, as the date the
public or private authority has the right to possession of the property being
taken or sold.

                  7.2      In the event of any taking or sale of all or any part
of the Demised Premises, the entire proceeds of the award or sale shall be paid
to Landlord, and Tenant shall have no right to any part thereof, provided,
however, that nothing contained herein shall be construed to prevent Tenant from
recovering any allowance for its personal property or for moving expenses which
the law permits to be made to tenants, so long as such allowance does not
diminish the award paid to Landlord.

                  7.3      If any public or private authority shall, under the
power of eminent domain, make a taking, or should a sale in lieu thereof occur
of less than the whole of the Demised Premises, then Landlord may, at its
election, terminate this Lease by giving Tenant written notice of the exercise
of its election within twenty (20) days after the nature and extent of the
taking or sale have been finally determined. In the event of termination by
Landlord under the provisions of this Section 7.3, this Lease shall cease and
terminate as of the date of such taking or sale. If Landlord does not so
terminate this Lease, subject to Section 7.5, this Lease shall continue in full
force and effect.

                                       14
<PAGE>

                  7.4      In the event of a partial taking or sale not
resulting in a termination of this Lease pursuant to Section 7.3, Landlord
shall, if Landlord's fee mortgagee consents thereto, effectuate all such repairs
and restoration as are necessary to restore the Demised Premises for the
operation of Tenant's business, to the extent net proceeds of the award or sale
are available, but nothing contained herein shall be construed so as to require
Landlord to pay any cost of repair in excess of the net proceeds of the award or
sale price received from the condemning authority and allocable to the Demised
Premises. In such case, as of the date of the taking, the basic and additional
rent reserved hereunder shall be reduced, but only until such time as Landlord
completes its repair or restoration in accordance herewith, by an amount that is
in the same ratio to the rental then in effect as the value of the portion of
the Demised Premises taken or sold bears to the total value of the Demised
Premises immediately before the date of taking or sale. If the net proceeds of
the award or sale are not sufficient to repair or restore the Demised Premises,
Tenant may, at its own expense, complete such repairs or restoration, in
accordance with the terms of this Lease.

                  7.5      Tenant shall have the option, to be exercised by
written notice to Landlord within fifteen (15) days after such taking or sale,
to terminate this Lease in the event (i) more than 10% of the square footage of
the Demised Premises is taken in condemnation, or (ii) the Lease continues
notwithstanding a partial condemnation of more than 10% of the square footage of
the Demised Premises and within 120 days after the condemnation, Landlord does
not restore the Demised Premises substantially to their condition prior to the
condemnation.

                  7.6      The taking of the Demised Premises or any part
thereof by military or other public authority shall constitute a taking of the
Demised Premises under the power of eminent domain only when the use and
occupancy by the taking authority has continued for longer than 90 consecutive
days. During the 90-day period all the provisions of this Lease shall remain in
full force and effect, except that rental reserved (but not the additional rent)
shall be abated during such period of taking based on the extent to which the
taking interferes with Tenant's use of the Demised Premises. Landlord shall be
entitled to whatever award may be paid for the use and occupation of the Demised
Premises for the period involved.

         8.   SUBORDINATION, ATTORNMENT, ESTOPPEL CERTIFICATE

                  8.1      This Lease is and shall be subject and subordinate in
all respects to all bona fide mortgages which may now or hereafter affect the
Property, to each and every advance made or hereafter to be made under such
mortgages, and to all renewals, modifications, consolidations, replacements, and
extensions of such mortgages irrespective of the date of the execution and/or
recording thereof (provided, however, that Landlord shall use its good faith
efforts to obtain from such mortgagee a non-disturbance agreement as described
in the last sentence of this Section 8.1). This Section 8.1 shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant agrees, without payment to Tenant of
any consideration therefor, to execute and deliver any instrument that Landlord
or the holder of any such mortgage or any of their respective successors in
interest may request to evidence such subordination within twenty (20) days of
request. Tenant may state in the subordination document any objections or issues
outstanding it has relative to the Lease or the Landlord's performance
thereunder. Tenant hereby irrevocably appoints Landlord its attorney in fact to
execute such instrument on behalf of Tenant, should Tenant refuse or fail to do
so promptly after request. The mortgages to which this Lease is, at the time
referred to, subject and subordinate shall sometimes be collectively called
"superior mortgage." Landlord shall, upon

                                       15
<PAGE>

the request of Tenant, use its good faith efforts to obtain a non-disturbance
agreement from the holder of any superior mortgage, to the effect that in the
event of the foreclosure of the superior mortgage Tenant's possession of the
Demised Premises shall not be disturbed provided that Tenant shall not be in
default under this Lease, provided, however, (1) Landlord (i) shall not be
required to incur any material costs or liabilities in connection therewith, and
(ii) shall not have any liability to Tenant if Landlord shall fail to procure
such agreement, and (2) this Lease and the obligations of Tenant shall not be
affected should Landlord fail to procure such agreement despite such good faith
efforts.

                  8.2      In the event of any act or omission of Landlord which
would give Tenant the right, immediately or after lapse of a period of time, to
cancel or terminate this Lease, or to claim a partial or total eviction, Tenant
shall not exercise such right: (i) until it has given written notice of such act
or omission to the holder of each superior mortgage whose name and address shall
previously have been furnished to Tenant in writing, and (ii) unless such act or
omission shall be one which is not capable of being remedied by Landlord or such
mortgage holder within thirty (30) days, until a thirty (30) day period for
remedying such act or omission shall have elapsed following the giving of such
notice, provided such holder shall with due diligence give Tenant written notice
of intention to, and commence and continue to, remedy such act or omission.

                  8.3      If the holder of a superior mortgage shall succeed to
the rights of Landlord, then at the request of such party so succeeding to
Landlord's rights ("Successor Landlord") and upon such Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to and
recognize Successor Landlord as Tenant's landlord under this Lease and shall
promptly, without payment to Tenant of any consideration therefor, execute and
deliver any instrument that such Successor Landlord may request to evidence such
attornment. Tenant hereby irrevocably appoints Landlord or Successor Landlord
the attorney-in-fact of Tenant to execute and deliver such instrument on behalf
of Tenant, should Tenant refuse or fail to do so promptly after request. Upon
such attornment, this Lease shall continue in full force and effect as, or as if
it were, a direct lease between Successor Landlord and Tenant upon all of the
terms, conditions, and covenants as are set forth in this Lease and shall be
applicable after such attornment, except that Successor Landlord shall not: (i)
be obligated to repair, restore, replace, or rebuild the Property, in case of
total or substantially total damage or destruction, beyond such repair,
restoration or rebuilding as can reasonably be accomplished with the net
proceeds of insurance actually received by, or made available to, Successor
Landlord; (ii) be liable for any previous act or omission of Landlord; (iii) be
subject to any prior defenses or offsets; (iv) be bound by any modification of
this Lease not expressly provided for in this Lease or by any previous
prepayment of more than one month's rent, unless such modification or prepayment
shall have been expressly approved in writing by the holder of the superior
mortgage through or by reason of which Successor Landlord shall have succeeded
to the rights of Landlord; or (v) be liable for the performance of Landlord's
covenants and agreements contained in this Lease to any extent other than to
Successor Landlord's ownership in the Property, and no other property of
Successor Landlord shall be subject to levy, attachment, execution or other
enforcement procedure for the satisfaction of Tenant's remedies.

                  8.4      In the event that a bona fide institutional lender
shall request reasonable modifications to this Lease, then Tenant shall not
unreasonably withhold, condition or delay its written consent to such
modifications provided that the same do not, in Tenant's reasonable judgment
(and Tenant shall not demand the payment to Tenant of any consideration for
consent

                                       16
<PAGE>

thereto), increase the obligations of Tenant hereunder or materially adversely
affect Tenant's operations or leasehold interest hereby.

                  8.5      Tenant agrees, at any time, (and without payment to
Tenant of any consideration therefor), upon not less than ten (10) days' prior
notice by Landlord, to execute, acknowledge and deliver to Landlord, (i) a
current certified income statement and balance sheet of Tenant and (ii) a
statement in writing addressed to Landlord (and/or Landlord's designee)
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent has
been paid, stating such other information concerning this Lease and Tenant's
tenancy as Landlord reasonably shall request, and stating whether or not there
exists any default in the performance by Landlord of any term, covenant or
condition contained in this Lease and, if so, specifying each such default, it
being intended that any financial reports and such statement delivered pursuant
to this Section 8.5 may be relied upon by Landlord and by any mortgagee or
prospective mortgagee of any mortgage affecting the Property or any purchaser or
prospective purchaser of the Property. When so requested by Landlord, such
statement shall be submitted in writing under oath by a person or persons having
knowledge of the statements made therein.

         9.   REPAIRS, MAINTENANCE, ALTERATIONS, ETC.

                           9.1.1    Except as otherwise expressly provided in
this Lease, Tenant at its cost shall maintain, repair and replace or improve as
needed, all portions of the Demised Premises (while Tenant is occupying same as
permitted hereunder), and the Landlord shall not be required to furnish any
services or facilities or to maintain or make any repairs, replacements,
improvements or alterations in or to the Demised Premises.

                           9.1.2    Landlord shall (subject to reimbursement by
Tenant of Operating Expenses) be responsible for maintenance, repairs or
replacement of the roof, HVAC systems (except any HVAC equipment installed by or
exclusively for Tenant), and elevator systems, unless the same is occasioned by
the acts or omissions of Tenant, its agents, employees, guests, licensee,
invitees, guests, subtenants (if any), subtenants, assignees, successors or
independent contractors, in which event Tenant shall be responsible for such
repairs, maintenance or replacement.

                  9.2      Landlord shall not be liable for any failure of water
supply, gas or electric current or of any utility or for any injury or damage to
person or property caused by or resulting from gasoline, oil, steam, gas,
electricity, or hurricane, tornado, flood, wind or similar storms or
disturbances, or water, rain or snow which may leak or flow from the street,
sewers, gas mains or any sub-surface area or from any part of the Property, or
leakage of gasoline or oil from pipes, appliances, sewer or plumbing works
therein, or from any other place, or for interference with light or other
incorporeal hereditaments by anyone, or caused by operations by or of any public
or quasi-public work.

                  9.3      Tenant shall have the right to make, at its sole cost
and expense, additions, alterations and changes (collectively, "Alterations") in
or to the Demised Premises, provided Tenant shall not then be in default in the
performance of any of the covenants in this Lease, subject to the following
conditions:

                                       17
<PAGE>

                           9.3.1    No Alterations shall be commenced except
after fifteen (15) days' prior written notice to Landlord, which shall include
reasonably detailed final plans and specifications and working drawings of the
proposed Alterations and the name of the contractor.

                           9.3.2    No Alterations costing in excess of $50,000
(and no Alterations which, when aggregated with all other Alterations, proposed
or performed during the Term shall exceed $100,000) and no structural or
Building system or exterior Alterations, or Alterations affecting any Common
Area, regardless of cost, shall be made without the prior written consent of
Landlord, which shall not be unreasonably withheld as to interior,
non-structural, non-Building system Alterations.

                           9.3.3    No Alterations shall be undertaken until
Tenant shall have procured and paid for, so far as the same may be required from
time to time, all permits and authorizations of all governmental authorities
having jurisdiction, and shall have provided to Landlord evidence substantiating
to Landlord's reasonable satisfaction that such permits and authorizations have
issued.

                           9.3.4    All Alterations shall be made promptly
(unavoidable delays excepted), in a good and workmanlike manner and in
compliance with all applicable permits, authorizations and all Legal
Requirements and all Insurance Requirements.

                           9.3.5    Anything in this Lease to the contrary
notwithstanding, no Alterations shall be made by Tenant if they reduce the value
or serviceability of the Property, increase the risk of casualty or the cost of
insurance or increase the risk of environmental pollution.

                           9.3.6    Before commencing the Alterations and at all
times during construction, Tenant's contractor shall maintain builder's risk
insurance coverage satisfactory to Landlord.

                           9.3.7    If the estimated cost of the Alterations
exceeds $100,000, Tenant at its cost shall furnish to Landlord a performance and
completion bond issued by an insurance company qualified to do business in
Washington and reasonably acceptable to Landlord, in a sum equal to the cost of
the Alterations (as determined by the construction contract between Tenant and
its contractor) guaranteeing the completion of the Alterations free and clear of
all liens and other charges, and in accordance with the plans and
specifications.

                  9.4      All Alterations, whether temporary or permanent in
character, which may be made upon the Demised Premises either by Landlord or
Tenant, except furniture, trade fixtures or equipment (other than HVAC
equipment) installed at the expense of Tenant, shall be the property of Landlord
and shall remain upon and be surrendered with the Demised Premises as a part
thereof at the expiration or any termination of this Lease, without compensation
to Tenant; provided, however, Landlord may elect within thirty (30) days before
the expiration of the Term, or within five (5) days after termination of the
Term, to require Tenant, at Tenant's cost, to remove any Alterations that Tenant
has made to the Demised Premises at any time before or during the Term. If
Landlord so elects, Tenant at its cost shall restore the Demised Premises to the
condition designated by Landlord in its election, and repair any damage caused
by the removal of Alterations, before the last day of the Term, or within thirty
(30) days after notice of

                                       18
<PAGE>

election is given, whichever is later. This Section shall survive the
expiration or termination of this Lease. Tenant Improvements in Exhibit H will
not need to be removed.

                  9.5 If Tenant is not then in default of any provisions of this
Lease, Tenant shall have the right to remove from the Demised Premises
immediately before the expiration of the Term, or within twenty (20) days after
the sooner termination of the Term, any trade equipment and other equipment (not
including any building equipment) and furniture, which has been affixed to the
Demised Premises by Tenant, as long as Tenant at its cost promptly restores any
damage caused by the removal, provided Tenant shall be responsible and pay for
the cost of repairing any damage caused by such removal.

         10. INTENTIONALLY OMITTED

         11. ASSIGNMENT, SUBLETTING AND MORTGAGING

                  11.1 Neither Tenant, nor Tenant's successors or assigns, shall
(unless expressly permitted to do so) assign, mortgage, pledge or encumber this
Lease, in whole or in part, or sublet the Demised Premises, in whole or in part,
or permit the same or any portion thereof to be used or occupied by others,
without the prior consent in writing of Landlord in each instance which consent
shall not be unreasonably withheld, conditioned or delayed. If this Lease be so
assigned or transferred, or if all or any part of the Demised Premises be sublet
or occupied by anybody other than Tenant, Landlord may collect rent from the
assignee, transferee, subtenant or occupant, and apply the net amount collected
to the rent reserved herein, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any agreement, term, covenant or
condition of this Lease, or the acceptance of the assignee, transferee,
subtenant or occupant as tenant, or a release of Tenant from the performance or
further performance by Tenant of the terms, covenants and conditions of this
Lease, and Tenant shall continue to be liable under this Lease. The consent by
Landlord to an assignment, mortgage, pledge, encumbrance, transfer, management
contract or subletting shall not be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment, mortgage,
pledge, encumbrance, transfer, management contract or subletting. Landlord shall
have the right to reasonably withhold its consent to an assignment or subletting
(except as provided in Section 11.5), mortgage, pledge or other encumbrance.
Notwithstanding anything to the contrary herein contained, an assignment of this
Lease shall include, without limitation the following: (a) if Tenant shall be a
corporation and fifty percent (50%) or more of its voting stock or all or
substantially all its assets shall be sold, mortgaged, assigned, pledged,
encumbered or otherwise transferred (other than as collateral security for a
bona fide loan to a bona fide lender) (and whether in one (1) single transaction
or in more than one (1) successive transaction); or (b) if Tenant shall be a
partnership, limited liability company, joint venture, syndicate or other group
and all or any portion of the interest of any partner, member or other equity
holder shall be sold or otherwise transferred (however this provision shall not,
as to a corporation or other entity whose stock or other equity interests are
publicly traded on a recognized stock exchange, be applicable to sales of stock
or other equity interests on such stock exchange).

                  11.2 If Tenant shall desire to assign this Lease or sublet all
or a portion of the Premises, Tenant shall submit to Landlord a written request
for Landlord's consent to such assignment or subletting, which request shall
include the following information: (a) the name and address of the proposed
assignee or subtenant; (b) in the case of a proposed subletting, a description
identifying the space to be sublet and the term of such subletting; (c) the
nature and

                                       19
<PAGE>

character of the business of the proposed assignee or subtenant; (d) in the case
of a proposed assignment, a current financial statement of the proposed
subtenant or assignee; and (e) the proposed assignment or sublease.

                  11.3 Tenant, within twenty (20) days of its receipt of
Landlord's request therefor, shall reimburse Landlord for all reasonable
out-of-pocket costs incurred by Landlord in considering whether or not to
consent, including reasonable attorney's fees and disbursements and the
reasonable costs of making investigations regarding the proposed subtenant or
assignee. In the event Landlord grants its consent, but before the subtenant or
assignee shall take possession, Tenant shall deliver to Landlord a
fully-executed counterpart of the sublease or instrument of assignment.

                  11.4 If Tenant shall sublease any portion of the Premises or
assign this Lease, Tenant shall pay to Landlord one hundred percent (100%) of
any consideration received by Tenant (net of reasonable costs incurred by Tenant
to effect any such assignment or sublet, such as advertising, brokerage, legal
and construction expenses) from the subtenant or assignee, as the case may be,
to the extent such consideration exceeds the Basic Annual Rent and Additional
Rent payable hereunder.

                  11.5 Notwithstanding the provisions of this Section to the
contrary:

                       (a) Tenant may assign this Lease in part or whole or
sublet all or any part of the Demised Premises at any time to (i) a subsidiary
of Tenant, (ii) the entity with which or into which Tenant has merged or
consolidated, whether or not Tenant is the survivor of such merger or
consolidation, provided that the net worth of the resulting entity is at least
equal to $10,000,000, and provided further, the resulting entity maintains at
least $2,000,000, in cash or other readily available funds (including borrowing
capacity under an established line of credit) following any such merger or
consolidation, (iii) any affiliate of Tenant, or (iv) the purchaser of
substantially all of the assets of the operating division of Tenant using the
Premises, without the need for Landlord's consent to such assignment or
subletting. As used herein, "affiliate" shall mean any corporation, limited
liability company, partnership, or person or group of persons (collectively, for
the limited purpose of this Subsection 11.5(a) and, referred to as a "Person")
that is directly or indirectly controlled by Tenant and any person that is
controlled by the same Person that controls Tenant. The terms "controls" and
"controlled by" shall mean the ownership of and the right to vote a majority of
the voting interest in the controlled Person.

                       (b) Any assignment pursuant to the provisions of this
Section 11.5 shall be conditioned upon: (i) not later than twenty (20) days
prior to the effective date of the assignment the delivery by Tenant to
Landlord, of (1) a notice to Landlord of such assignment, setting forth the name
and address of such assignee, and the facts which, pursuant to this Section
11.5, allow Tenant to assign this Lease without the consent of Landlord, and (2)
a fully executed counterpart of such assignment, which shall provide, among
other things, that the assignee fully assumes all liabilities and obligations of
Tenant in respect of the Lease from and after the effective date of such
assignment (without thereby releasing or relieving Tenant of or from any such
liabilities and obligations in any way), and which otherwise must be in form and
substance reasonably acceptable to Landlord, and (ii) the delivery by Tenant to
Landlord, not later than ten (10) days after request therefor by Landlord, and
in any event prior to the effective date of the assignment, of such other
documentation respecting the business and identity of the assignee as the
Landlord reasonably may request.

                                       20
<PAGE>

                       (c) Any subletting pursuant to the provisions of this
Section 11.5 shall be automatically subject to all of the terms and provisions
of this Lease (including, without limitation, the permitted use of the Demised
Premises under this Lease) and shall be conditioned upon, inter alia, (i) the
delivery by Tenant to Landlord, not later than twenty (20) days prior to the
effective date of the sublease, of a notice to Landlord requesting consent to
such sublease, setting forth the name and address of the subtenant, and the
nature of the business of the subtenant, and (ii) the delivery by Tenant to
Landlord, not later than ten (10) days after request therefor by Landlord, and
in any event prior to the effective date of the sublease, of such other
documentation respecting the business and identity of the subtenant as the
Landlord reasonably may request. No such subletting will in any way release or
relieve Tenant from any obligations or liabilities under this Lease.

                  11.6 Notwithstanding any assignment of this Lease or
subletting of all or any part of the Demised Premises, whether made with or
without Landlord's consent, the Tenant originally named herein, and each
successor Tenant, shall be and remain jointly and severally liable for all
obligations of Tenant hereunder.

         12. INDEMNITY

         Notwithstanding that joint or concurrent liability may be imposed upon
Landlord by statute, ordinance, rule, regulation, order, or court decision,
Tenant shall, notwithstanding any insurance furnished pursuant hereto or
otherwise, indemnify, protect, defend and hold harmless Landlord from and
against any and all liability, fines, suits, claims, obligations, damages,
losses, penalties, demands, actions and judgments, and costs and reasonable
expenses of any kind or nature (including reasonable attorneys' fees), by anyone
whomsoever, arising after or relating to or accruing during the period after the
date hereof and due to or arising out of:

                  12.1 any work or thing done in, on or about the Demised
Premises or the Common Area or any part thereof by Tenant or anyone claiming
through or under Tenant or the respective employees, agents, licensees,
contractors, servants or subtenants of Tenant or any such person;

                  12.2 any use, possession, occupation, operation, maintenance
or management of the Demised Premises or any part thereof, or the Common Area or
any part thereof by Tenant, including, without limitation, any air, land, water
or other pollution caused by Tenant;

                  12.3 any negligence or wrongful act or omission on the part of
Tenant or any person claiming through or under Tenant or the respective
employees, agents, licensees, invitees, guests, subtenants (if any),
contractors, servants or subtenants of Tenant or any such person;

                  12.4 any accident or injury to any person (including death) or
damage to property (including loss of property) occurring in or on the Demised
Premises or any part thereof or the Common Area or any part thereof and arising
from actions or omissions of Tenant or the employees, agents, licensees,
invitees, guests, subtenants (if any) contractors, servants or subtenants of
Tenant;

                  12.5 any failure on the part of Tenant to perform or comply
with any of the covenants, agreements, terms, provisions, conditions or
limitations contained in this Lease; and

                                       21
<PAGE>

                  12.6 any failure on the part of Tenant to perform or comply
with Legal Requirements or Insurance Requirements.

         In case any claim, action or proceeding is raised or brought against
Landlord (and/or any of the other indemnified parties above described) by reason
of any of the foregoing, Landlord, shall promptly provide notice of such action
or proceeding to Tenant. No delay by Landlord in giving such notice to Tenant
shall in any way impair, waive or affect the obligations of Tenant to indemnify,
defend, and hold harmless Landlord except to the extent of actual prejudice to
Tenant arising solely and directly from such delay. Tenant, at Tenant's expense,
thereupon shall assume and, through competent counsel, diligently conduct the
defense of such claim, action or proceeding. Upon such assumption by Tenant,
Landlord, at the expense of Tenant, shall cooperate with Tenant in all
reasonable respects in the conduct of such defense. The duty of Landlord to
cooperate shall (to the extent reasonable) include, but not be limited to, at
the expense of Tenant, making available then present employees of Landlord
and/or its Affiliates to act as witnesses and consult with counsel, and assist
in the location and production of documents. Landlord shall, to the extent
reasonable, subject to such reasonable confidentiality requirements as Landlord
may impose, and at the cost of Tenant (including without limitation reproduction
costs), make available to Tenant the books and records of Landlord relevant to
the proceedings. The obligations of Tenant shall include but not be limited to,
taking all steps necessary or appropriate to the defense or settlement of such
claim, action, proceeding or litigation. Provided that Tenant has performed and
is performing its obligations pursuant to this Section 12, Landlord may
participate, through counsel of Landlord's choice, at Landlord's expense, in the
defense of any such claim, action, proceeding or litigation, but Tenant shall
direct and control the defense thereof Tenant or its counsel shall keep Landlord
apprised at all times of the status of the action or proceeding. The
establishment of limits of coverage for the insurance required by Section 5
shall not serve in any way to limit Tenant's obligations pursuant to this
Section 12. Anything herein to the contrary notwithstanding, (i) Tenant shall
not enter into or consent or agree to the settlement of any claim, litigation,
action, or suit respecting which for Tenant is obligated to indemnify, or defend
Landlord pursuant hereto, without the express prior written consent of Landlord,
in Landlord's sole discretion, unless, in each such case (as demonstrated to the
reasonable satisfaction of Landlord): (1) Tenant has and does fully and
completely indemnify and hold Landlord harmless from and against all liability,
fines, suits, claims, obligations, damages, losses, penalties, demands, actions
and judgments, and costs and reasonable expenses of any kind or nature
(including reasonable attorneys' fees), by anyone whomsoever, resulting from or
arising, out of such settlement: and (2) Landlord is fully released from all
liability, fines, suits, claims, obligations, damages, losses, penalties,
demands, actions and judgments, and costs and reasonable expenses of any kind or
nature respecting such claim, litigation, action, or suit, and (3) such
settlement shall not in any manner adversely affect the Property, or the use,
development, maintenance, repair or occupancy thereof, and (ii) Tenant shall not
issue, disseminate, distribute or publish, or agree to, consent to, or approve,
any statement or press release in connection with such settlement, without the
prior written consent of Landlord, which shall not be unreasonably withheld. The
provisions of this Section 12 shall survive the expiration or termination of
this Lease.

         13. DEFAULT PROVISIONS, LANDLORD'S REMEDIES

                  13.1 Any of the following events ("Events of Default") shall
constitute a default under this Lease:

                                       22
<PAGE>

                           13.1.1 Tenant's failure to pay any installment of
Basic Annual Rent or any Additional Rent within five (5) days of the date on
which the same was due and payable; or

                           13.1.2 Tenant's doing or permitting anything to be
done, whether by action or inaction, contrary to any of Tenant's obligations
pursuant to this Lease, or otherwise any breach of this Lease or failure by
Tenant to perform any of its obligations under this Lease (except as to the
payment of rent, additional rent and the matters set forth in Sections 13.1.3,
13.1.4 and 14), and such situation, breach or failure shall continue and shall
not be remedied by Tenant within thirty (30) days after Landlord shall have
given to Tenant notice specifying the same; or, if the default cannot with due
diligence be cured within a period of thirty (30) days and the continuance of
which will not subject Landlord (or any of its directors, officers,
shareholders, partners, agents or employees) to the risk of criminal or civil
liability or foreclosure of any superior mortgage or any other lien on the
Property, Tenant shall not promptly and diligently prosecute to completion all
steps necessary to remedy the same, or

                           13.1.3 The occurrence of any event whereby this
Lease, any interest in it, the estate thereby granted or, any portion thereof,
or the unexpired balance of the Term would by operation of law or otherwise pass
to any entity other than Tenant, except as expressly permitted by Section 11; or

                           13.1.4 Tenant vacates the Demised Premises (defined
as an absence for more than fifteen (15) consecutive days without prior notice
to Landlord), or Tenant abandons the Demised Premises (defined as an absence of
more than five (5) days or more while Tenant is in breach of some other term of
this Lease). The fact that Tenant is not in occupancy from the Commencement Date
to Tenant's actual occupancy of the Demised Premises following notice to Tenant
by Landlord that the Demised Premises are available for occupancy (but in no
event later than 30 days following such notice) shall not be considered vacation
or abandonment pursuant to this Section 3.1.4. Tenant's vacation or abandonment
of the Demised Premises shall not be subject to any notice or right to cure.

                           13.1.5 Tenant becomes insolvent, voluntarily or
involuntarily bankrupt or a receiver, assignee or other liquidating officer is
appointed for Tenant's business.

                           13.1.6 Tenant's interest in the Demised Premises, or
any part thereof, is taken by execution or other process of law directed against
Tenant, or is taken upon or subject to any attachment by any creditor of Tenant,
if such attachment is not discharged within fifteen (15) days after being
levied.

                  13.2 Upon the occurrence of any Event of Default, the Landlord
may exercise any one or more of the following remedies, in addition to all other
remedies provided in this Lease and by law or in equity:

                           13.2.1 Landlord may recover from Tenant: (i) the
worth at the time of award of the unpaid Basic Annual Rent and Additional Rent
which had been earned at the time of termination (including interest at a
default rate of eighteen percent (18%) per annum); (ii) the worth at the time of
award of the amount by which the unpaid Basic Annual Rent and additional rent
which would have been earned after termination until the time of award exceeds
the amount of such Basic Annual Rent and additional rent loss that Tenant proves
could have been

                                       23
<PAGE>

reasonably avoided (including interest at a default rate of eighteen percent
(18%) per annum); (iii) the worth at the time of award of the amount by which
the unpaid Basic Annual Rent and additional rent for the balance of the Term
after the time of award exceeds the amount of such Basic Annual Rent and
additional rent loss that Tenant proves could be reasonably avoided discounting
such amount by the discount rate of the Federal Reserve Bank of San Francisco at
the time of the award, plus one percent (1%), and (iv) any other amount
necessary to compensate Landlord for all the detriment caused by Tenant's
failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom.

         For purposes of computing unpaid Basic Annual Rent and additional rent
for the balance of the Term pursuant to clause (iii) above, unpaid Basic Annual
Rent and Additional Rent shall consist of the sum of (A) the total Basic Annual
Rent for the balance of the Term plus (B) Tenant's obligation to pay the
Operating Expenses and Taxes and such other items of additional rent specified
in this Lease to be paid in whole or in part by Tenant for the balance of the
Term. For purposes of computing Tenant's obligation to pay the Operating
Expenses and Taxes and such other items of additional rent for the Lease Year of
the Event of Default and each future Lease Year in the Term such amounts shall
be assumed to be equal to the amount of additional rent that was payable by
Tenant in respect of Operating Expenses and Taxes and such other items of
additional rent for the Lease Year prior to, the Lease Year in which the Event
of Default occurs compounded at a rate equal to the mean average rate of
inflation for the three (3) Lease Years preceding the Lease Year of the Event of
Default, as determined by using the United States Department of Labor, Bureau of
Labor Statistics Consumer Price Index (All Urban Consumers, all items, 1982-84
equals 100) (the "CPI") for the metropolitan area or region of which the
Property is a part. If such index is discontinued or revised during the Term,
such other government index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the index had not been discontinued or revised. if no replacement index exists
then Landlord shall select as a replacement index that index which, in
Landlord's opinion, is generally recognized as the successor index.

                           13.2.2 Landlord may sell at public or private sale
all or any part of the goods, chattels, fixtures and other personal property
belonging to Tenant which are or may be put into the Demised Premises during the
Term, except for Tenant's business records whether exempt or not from sale under
execution or attachment (it being agreed that said property shall at all times
be bound with a lien in favor of Landlord and shall be chargeable for all rent
and for the fulfillment of the other covenants and agreements herein contained)
and apply the proceeds of such sale, first, to the payment of costs and expenses
of conducting the sale or caring for or storing said property (including all
attorney's fees), second, toward the payment of any indebtedness, including
(without limitation) indebtedness for rental, which may be or may become due
from Tenant to Landlord, and third, to pay Tenant, on demand in writing, any
surplus remaining after all indebtedness of Tenant to Landlord has been fully
paid.

                           13.2.3 Landlord may perform, on behalf of Tenant, any
obligation of Tenant under this Lease which Tenant has failed to perform, the
cost of which performance by Landlord, together with interest thereon at the
Default Rate from the date of such expenditure, shall be deemed additional rent
and shall be payable by Tenant to Landlord upon demand.

                           13.2.4 The Landlord may give the Tenant a notice (the
"Termination Notice") of its intention to terminate this Lease specifying a day
not less than ten (10) days thereafter, and, upon the day specified in the
Termination Notice, this Lease and the term and

                                       24
<PAGE>

estate hereby granted shall expire and terminate and all rights of the Tenant
under this Lease shall expire and terminate, but the Tenant shall remain liable
for damages as hereinafter set forth. Notwithstanding the foregoing, the
Landlord may institute dispossess proceedings for non-payment of rent, distraint
or other proceedings to enforce the payment of rent without giving the
Termination Notice. No act by Landlord other than the giving of a Termination
Notice shall terminate this Lease.

                           13.2.5 The Landlord may exercise any and all other
legal and/or equitable rights or remedies which it may have.

                  13.3 Upon any such termination or expiration of this Lease, or
other termination of Tenant's possession under this Lease, the Tenant shall
peaceably quit and surrender the Demised Premises to the Landlord, and the
Landlord or Landlord's agents and employees may without further notice
immediately or at any time thereafter enter upon or re-enter the Demised
Premises or any part thereof, and possess or repossess itself or themselves
thereof either by summary dispossess proceedings, ejectment, any suitable action
or proceeding at law, agreement, force or otherwise (without thereby creating
any breach of the peace), and may dispossess and remove Tenant and all other
persons and property from the Demised Premises without being liable to
indictment, prosecution, or damages therefor, and may repossess the same, and
may remove any persons therefrom, to the end that Landlord may have, hold and
enjoy the Demised Premises again. The words "enter" or "reenter," "possess" or
"repossess" as used in this Lease are not restricted to their technical legal
meaning.

                  13.4 In the event of any breach or threatened breach by Tenant
of any of the agreements, terms, covenants or conditions contained in this
Lease, Landlord shall be entitled to enjoin such breach or threatened breach and
shall have the right to invoke any right and remedy allowed at law or in equity
or provided in this Lease.

                  13.5 Each right and remedy of the Landlord provided for in
this Lease shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise, and the exercise or beginning of the exercise
by the Landlord of any one or more of the rights or remedies provided for in
this Lease or now or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later exercise by Landlord of
any or all other rights or remedies provided for in this Lease or now or
hereafter existing at law or in equity or by statute or otherwise.

                  13.6 Suit or suits for the recovery of damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained in this Lease shall be deemed to require
Landlord to postpone suit until the date when the term of this Lease would have
expired if it had not been so terminated under the provisions of this Section 13
or under any provision of law, or had Landlord not re-entered the Demised
Premises. Nothing contained in this Lease shall be construed to limit or
preclude recovery by Landlord against Tenant of any sums or damages to which
Landlord may lawfully be entitled by reason of any default under this Lease or
otherwise on the part of Tenant. Nothing contained in this Lease shall be
construed to limit or prejudice the right of Landlord to prove and obtain as
liquidated damages by reason of the termination of this Lease or reentry on the
Demised Premises for the default of Tenant an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceeding in which, such damages are to be proved.

                                       25
<PAGE>

                  13.7 Upon the termination or expiration of this Lease, or
other termination of Tenant's possession under this Lease due to Tenant's
default, the Tenant hereby authorizes and empowers the Landlord, at the
Landlord's option (without imposing any duty upon the Landlord to do so), to
re-enter the Demised Premises as agent for the Tenant or any successor-occupant
of the Demised Premises under the Tenant, or for its own account or otherwise,
and to relet the same for any term expiring either prior to the original
expiration date hereof, or simultaneously therewith, or beyond such date, and to
receive rent and apply same to pay all fees and expenses incurred by the
Landlord as a result of such Event of Default, including without limitation any
legal fees and expenses arising therefrom, the cost of re-entry and re-letting
and to the payment of the rent and other charges due hereunder, and, at the
expense of Tenant, make such repairs or alterations and shall necessary or
appropriate, in the reasonable judgment of Landlord to facilitate such
reletting. No entry, re-entry or reletting by the Landlord, whether by summary
proceedings, termination or otherwise, shall discharge the Tenant from its
liability to the Landlord as set forth herein. If Landlord does relet the
Demised Premises, Landlord may relet the entirety thereof, or any part thereof,
alone or together with other premises, for such term(s) (which may be greater or
less than the period which otherwise would have constituted the balance of the
Term) and on such terms and conditions (which may include concessions or free
rent and alterations of the Demised Premises) as Landlord, in its sole
discretion, may determine, but Landlord shall not be liable for, nor shall
Tenant's obligations hereunder be diminished by reason of, any failure by
Landlord to relet the Demised Premises or any failure by Landlord to collect any
rent due upon such reletting.

                  13.8 The Tenant shall be liable for all costs, charges and
expenses, including reasonable attorney's fees and disbursements, incurred by
the Landlord by reason of the occurrence of any Event of Default.

                  13.9 The Tenant, and on behalf of any and all persons claiming
through or under the Tenant, including creditors of all kinds, does hereby waive
and surrender all rights and privileges which they or any of them might have
under or by reason of any present or future law, to redeem the Demised Premises
or to have a continuance of this Lease for the Term after being dispossessed or
ejected therefrom by the valid order of a court of competent jurisdiction.

                  13.10 The provisions of this Section 13 shall survive the
expiration or termination of this Lease.

         14. BANKRUPTCY AND INSOLVENCY

                  14.1 Neither Tenant's interest in this Lease, nor any estate
hereby created in Tenant nor any interest herein, shall pass to any trustee or
receiver or assignee for the benefit of creditors or otherwise by operation of
law.

                  14.2 In the event the interest or estate created in Tenant
hereby shall be taken in execution or by other process of law, or if Tenant is
adjudicated insolvent by a court of competent jurisdiction other than the United
States Bankruptcy Court, or if a receiver or trustee of the property of Tenant
shall be appointed by reason of the insolvency or inability of Tenant to pay its
debts, or if Tenant shall file a voluntary petition or proceeding under any
federal or state law dealing with bankruptcy, insolvency, reorganization or any
other adjustment of its debts, or if any assignment shall be made of the
property of Tenant for the benefit of creditors, then and in

                                       26
<PAGE>

any such event, this Lease and-all rights of Tenant hereunder shall
automatically cease and terminate with the same force and effect as though the
date of such event were the date originally set forth herein and fixed for the
expiration of the Term, and Tenant shall vacate and surrender the Premises but
shall remain liable as herein provided.

                  14.3 Tenant shall not cause or give cause for the appointment
of a trustee or receiver of the assets of Tenant and shall not make any
assignment for the benefit of creditors or become or be adjudicated insolvent,
or file any voluntary petition or commence any voluntary proceeding in respect
thereto. The allowance of any petition under any insolvency law except under the
Bankruptcy Code or the appointment of a trustee or receiver of Tenant or of its
assets, shall be conclusive evidence that Tenant caused, or gave cause therefor,
unless such allowance of the petition, or the appointment of a trustee or
receiver, is vacated within forty-five (45) days after such allowance or
appointment. Any act described in this Section 14.3 shall be deemed a material
breach of Tenant's obligations hereunder, and this Lease shall thereupon
automatically terminate. Landlord does, in addition, reserve any and all other
remedies provided in this Lease or by law or in equity.

                  14.4 In the event Section 14.1 shall be deemed unenforceable
by the United States Bankruptcy Court this Section 14.4 shall apply; otherwise
this Section 14.4 shall have not force or effect. Upon the filing of a petition
by or against Tenant under the United States Bankruptcy Code:

                           14.4.1 Tenant, as debtor and as debtor in possession,
and any trustee who may be appointed agree as follows: (a) to perform each and
every obligation of Tenant under this Lease, until such time as this Lease is
either rejected or assumed by order of the United States Bankruptcy Court; and
(b) to pay monthly in advance on the first day of each month as reasonable
compensation for use and occupancy on the Premises an amount equal to all rent,
additional rent and other charges otherwise due pursuant to this Lease; and (c)
to reject or assume this Lease within sixty (60) days of the filing of such
petition under Chapter 7 of the Bankruptcy Code or within 120 days (or such
shorter term as Landlord, in its sole discretion, may deem reasonable so long as
notice of such period is given) of the filing of a petition under any other
Chapter; and (d) to give Landlord at least forty-five (45) days' prior written
notice of any proceeding relating to any assumption of this Lease; and (e) to
give Landlord at least thirty (30) days' prior written notice of any abandonment
of the Premises; any such abandonment to be deemed a rejection of this Lease;
and (f) to do all other things of benefit to Landlord otherwise required under
the Bankruptcy Code; and (g) to be deemed to have rejected this Lease in the
event of the failure to comply with any of the above, and (h) to have consented
to the entry of an order by an appropriate United States Bankruptcy Court
providing all of the above, waiving notice and hearing of the entry of same.

                           14.4.2 No Event of Default or default of this Lease
by Tenant either prior to or subsequent to the filing of such a petition, shall
be deemed to have been waived unless expressly done so in writing by Landlord.

                           14.4.3 Included within and in addition to any other
conditions or obligations imposed upon Tenant or its successor in the event of
assumption and/or assignment are the following: (a) the cure of any monetary
defaults and the reimbursement of pecuniary loss within not more than thirty
(30) days of assumption and/or assignment; and (b) the deposit of an additional
sum equal to three months' rent to be held pursuant to the terms of Section 10
of this

                                       27
<PAGE>

Lease; and (c) the use of the Demised Premises as set forth in Section 3 of this
Lease, and (d) the prior written consent of any mortgagee to which this Lease
has been assigned as collateral security; and (e) the Demised Premises, at all
times, remains a single leasehold structure and no physical changes of any kind
may be made to the Demised Premises unless in compliance with the applicable
provisions of this Lease.

         15. ENTRY BY LANDLORD, ETC.

                  15.1 Except in the case of an emergency and upon 24 hour
notice, Tenant shall permit Landlord and its authorized representatives to enter
the Demised Premises, or any part thereof, at all reasonable times for the
purpose of (a) performing work in the Demised Premises if and to the extent
required to be performed by Landlord (including, without limitation, to perform
such work as shall be required to be performed by Legal Requirements (to the
extent not the obligation of Tenant under this Lease) in the event that portions
of the Property (other than the Demised Premises) shall be leased to persons
other than Tenant), provided, however, that (except in the event of an
emergency) Landlord shall give Tenant reasonable prior notice of such entry and
shall conduct such work so as not to unreasonably interfere with the normal
conduct of Tenant's business in the Demised Premises, or (b) curing defaults of
Tenant in accordance with, and (except in the event of an emergency) after such
notice (if any) as may be required by, the provisions of Section 13. In
addition, Tenant, after reasonable prior notice, shall permit Landlord and fee
mortgagees and their respective authorized representatives, to enter the Demised
Premises, or any part thereof, at all reasonable times during usual business
hours for the purpose of inspecting the same.

                  15.2 Landlord shall also have the right, after reasonable
prior notice, to enter the Demised Premises, or any part thereof, at all
reasonable times during usual business hours for the purpose of showing the same
to appraisers, prospective lenders and prospective purchasers or fee mortgagees
thereof and, at any time within six months prior to the expiration of this
Lease, for the purpose of showing the same to prospective tenants.

                  15.3 If, at any time during which Landlord or any fee
mortgagee shall have the right to enter the Demised Premises, admission to the
Demised Premises, for the purposes aforesaid cannot be obtained, they, or their
respective agents, servants, employees, contractors and representatives, may (on
such notice, if any, as may be reasonable under the circumstances, which notice
need not be in writing if an emergency exists in respect of the protection of
the Demised Premises) enter the Demised Premises and accomplish such purpose.
Any entry on the Demised Premises by Landlord or a fee mortgagee shall be at
such times and by such methods (other than in the event of such an emergency) as
will cause as little inconvenience, annoyance, disturbance, loss of business or
other damage to Tenant as may be reasonably practicable in the circumstances.

         16. COVENANT OF QUIET ENJOYMENT

                  16.1 Landlord covenants that Tenant, on paying the rents and
performing and observing all the covenants and conditions contained in this
Lease, shall and may peaceably and quietly have, hold and enjoy the Demised
Premises during the Term in accordance with the terms of this Lease, subject,
however, to the terms of this Lease.

                                       28
<PAGE>

         17.      EFFECT OF CONVEYANCE, LIMITS OF LIABILITY OF LANDLORD,
                  DEFINITION OF "LANDLORD"

                  17.1 The term "Landlord" as used in this Lease shall mean and
include only the owner or owners (and any mortgagee in possession) at the time
in question of the fee estate in the Property, so that in the event of any
transfer or transfers (by operation of law or otherwise) of the title to such
fee estate, Landlord herein named (and in case of any subsequent transfers or
conveyances, the then transferor) shall be and hereby is automatically freed and
relieved, from and after the date of such transfer or conveyance, of all
liability in respect of the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed, provided
that (a) any funds in which Tenant has an interest, in the hands of such
Landlord or the then transferor at the time of such transfer, shall then be
turned over to the transferee, and (b) any amount then due and payable to Tenant
by Landlord or the then transferor under any provision of this Lease shall then
be paid to Tenant and (c) the transferee shall be deemed to have assumed and
agreed to perform, subject to the limitations of this Section 17 (and without
further agreement between or among the parties or their successors in interest,
and/or the transferee) and only during and in respect of the transferee's period
of ownership, all of the terms, covenants and conditions in this Lease contained
on the part of Landlord thereafter to be performed, which terms, covenants and
conditions shall be deemed to "run with the land," it being intended hereby that
the terms, covenants and conditions contained in this Lease on the part of
Landlord shall, subject as aforesaid, be binding on Landlord, its successors and
assigns, only during and in respect of their respective successive periods of
ownership.

                  17.2 It is specifically understood and agreed that in the
event of a breach by Landlord of any of the terms, covenants or conditions of
this Lease to be performed by Landlord, the monetary liability of Landlord in
relation to any such breach shall be limited to the equity of Landlord in the
Property, including Landlord's interest in this Lease, the Property, moneys held
by any trustee for the benefit of Landlord and any sums at the time due or to
become due under this Lease. Tenant shall look only to Landlord's equity in the
Property for the performance and observance of the terms, covenants and
conditions of this Lease to be performed or observed by Landlord and for the
satisfaction of Tenant's remedies for the collection of any award, judgment or
other judicial process requiring the payment of money by Landlord in the event
of a default in the full and prompt payment and performance of any of Landlord's
obligations hereunder. No property or assets of Landlord, other than Landlord's
equity in the Property, shall be subject to lien, levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies in any matter
whatsoever arising out of or in any way connected with this Lease or any of its
provisions, any negotiations in connection therewith, the relationship of
Landlord and Tenant hereunder or the use and occupancy of the Property; and in
confirmation of the foregoing, if any such lien, levy, execution or other
enforcement procedure so arising shall be on or in respect of any property or
assets of Landlord, other than Landlord's equity in the Property, Tenant shall
promptly release any property or assets of Landlord, other than Landlord's
equity in the Property, from such lien, levy, execution or other enforcement
procedure by executing and delivering, at Tenant's expense and without charge to
Landlord, any instrument or instruments, in recordable form, to that effect
prepared by Landlord (but any such 'instrument of release shall not release any
such lien, levy, execution or other endorsement procedure on or in respect of
Landlord's equity in the Property). Tenant hereby appoints Landlord its
attorney-in-fact for the purposes of executing such instrument or instruments of
release if Tenant fails or refuses to do so promptly after request.

                                       29
<PAGE>

         18. SURRENDER, HOLDING OVER BY TENANT

                  18.1 On the expiration or termination of this Lease, Tenant
shall peaceably and quietly leave, surrender and deliver to Landlord the Demised
Premises, together with all Alterations which may have been made upon the
Demised Premises (except to the extent that Landlord may require Tenant under
Section 9.4 hereof to remove such Alterations and restore the Demised Premises),
all of the foregoing to be surrendered in good, substantial and sufficient
repair, order and condition, reasonable use, wear and tear excepted and free of
occupants. If as a result of or in the course of the removal of Tenant's
property any damage occurs to the Demised Premises, Tenant shall pay to Landlord
the reasonable cost of repairing such damage. If Tenant fails to quit and
surrender the Demised Premises upon the expiration or termination of this Lease,
it shall be liable to Landlord for the damages caused to Landlord by reason of
such holdover and it is agreed that such damages shall be liquidated in an
amount equal to the amount set forth below. The acceptance by Landlord of such
damages or rental after termination of this Lease shall not be construed as
consent to continued occupancy, nor shall such holding over constitute a renewal
or extension of this Lease. Landlord may, at its option, construe such holding
over as a tenancy from month to month, subject to all the terms, covenants and
conditions of this Lease, except as to duration thereof, and in that event the
Tenant shall pay Basic Annual Rent and Additional Rent in advance at the rate of
175% of the rate provided in this Lease as effective during the last month
thereof; provided however, if Landlord does not have a tenant committed to lease
all or a portion of the premises, the rate shall be one hundred twenty five
percent (125%) of the rate provided for in this lease effective during the last
month thereof ("Final Rate") for ninety (90) days immediately following the
Expiration Date; effective the 91st day following the Expiration Date the rate
shall be one hundred fifty percent (150%) of the Final Rate. Effective the 151st
day following Expiration Date the rate shall be one hundred seventy five percent
(175%) of the Final Rate. Tenant's obligation to observe or perform this
covenant shall survive the expiration or termination of this Lease.
Notwithstanding the foregoing, upon the expiration of the Lease for any reason
whatsoever, Tenant shall have the right and obligation to remove all of its
fixtures, furniture, machinery, and equipment from the Demised Premises,
provided Tenant promptly shall repair any damage caused by such removal.

         19. CURING DEFAULTS; FEES AND EXPENSES

                  19.1 If Tenant shall fail to pay any imposition or to make any
other payment required hereunder or shall otherwise default in the full and
prompt performance of any covenant contained herein and to be performed on
Tenant's part, Landlord, without being under any obligation to do so and without
thereby waiving such default, may, after fifteen (15) days' written notice to
Tenant, or such notice (which may be oral) as may be reasonable in the
circumstances if any emergency exists in respect of the protection of the
Demised Premises, make such payment or perform such covenant "for the account
and at the expense of Tenant and may enter upon the Demised Premises for any
such purpose and take all action thereon as may be necessary therefor in the
sole judgment of Landlord.

                  19.2 All sums so paid by Landlord in connection with the
payment or performance by it of any of the obligations of Tenant hereunder and
all actual and reasonable costs, expenses and disbursements paid in connection
therewith or enforcing or endeavoring to enforce any right under or in
connection with this Lease, or pursuant to law, together with interest thereon
at the rate of 18% per annum (or, if lower, the maximum rate permitted by law)
from the respective dates of the making of each such payment shall constitute
additional rent

                                       30
<PAGE>

payable by Tenant under this Lease and shall be paid by Tenant to Landlord
within fifteen (15) days after demand by Landlord. Landlord shall not be
limited, in the proof of any damages which Landlord may claim against Tenant
arising out of or by reason of Tenant's failure to provide and keep in force
insurance as required by Section 5 hereof, to the amount of the insurance
premium or premiums not paid or incurred by Tenant.

                  19.3 The provisions of this Section 19 shall serve the
expiration or termination of this Lease.

         20. MECHANICS AND OTHER LIENS

                  20.1 If any mechanic's, laborer's or materialman's lien shall
at any time be filed against the Property or any part thereof with respect to
any work done, or labor or materials furnished, or caused to be furnished, by
Tenant or anyone claiming through or under Tenant, or any judgment, attachment
or levy is filed or recorded against the Property or any part thereof by anyone
claiming through or under Tenant, Tenant, within thirty (30) days after notice
of the filing thereof, shall cause the same to be discharged of record by
payment, deposit, bond, order of a court of competent jurisdiction or otherwise.
If Tenant shall fail to cause such lien, judgment, attachment or levy to be
discharged within the period aforesaid, then, in addition to any other right or
remedy, Landlord may, but shall not be obligated to, discharge the same by
bonding proceedings, if permitted by law (and if not so permitted, by deposit in
court). Any amount so paid by Landlord, including all costs and expenses paid by
Landlord in connection therewith, together with interest thereon at the rate of
18% per annum (or, if lower, the maximum rate permitted by law) from the
respective dates of Landlord's so paying any such amount, cost or expense, shall
constitute additional rent payable by Tenant under this Lease and shall be paid
by Tenant to Landlord on demand.

                  20.2 Nothing contained in this Lease shall be deemed or
construed in any way as constituting the consent or request of Landlord, express
or implied, by inference or otherwise, to any contractor, subcontractor, laborer
or materialman for the performance of any labor or the furnishing of any
materials for any specific improvement, alteration to or repair of the Demised
Premises, or any part thereof, or as giving Tenant any right, power or authority
to contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any mechanic's liens against
Landlord's interest in the Demised Premises. Notice is hereby given that
Landlord shall not be liable for any labor or materials furnished or to be
furnished to Tenant upon credit, and that no mechanic's or other lien for any
such labor or materials shall attach to or affect the reversion or estate or
interest of Landlord in and to the Demised Premises.

         21. SIGNS, ADDRESS

                  21.1 Landlord shall have the right to change the name or
street address of the Property, to install, maintain, move, remove and reinstall
signs on and off the Property identifying the Property and advertising any or
all of the Property, including, the Demised Premises as for sale or for rent.
Tenant shall not place any signs (i) on the exterior of the Property, or (ii) in
the Common Areas. Landlord shall continue to provide existing or comparable
monument signage for Tenant. The size, design, construction and placement of all
such signs shall be subject to Landlord's prior written consent, which shall not
be unreasonably withheld, and shall be at Tenant's sole cost and expense.

                                       31
<PAGE>

         22.      WAIVERS AND SURRENDERS TO BE IN WRITING, RIGHT TO TERMINATE

                  22.1 The receipt, acceptance and/or deposit (including the
endorsement of any check) of full or partial rent by Landlord with knowledge of
any breach of this Lease by Tenant or of any default on the part of Tenant in
the observance or performance of any of the provisions or covenants of this
Lease shall not be deemed to be a waiver of any such provision, covenant or
breach of this Lease. No waiver or modification by Landlord, unless in writing
and signed by Landlord, shall discharge or invalidate any provision or covenant
or affect the right of Landlord to enforce the same in the event of any
subsequent breach or default. The failure on the part of Landlord to insist in
any one or more instances upon the strict performance of any of the provisions
or covenants of this Lease, or to enforce any covenant or provision herein
contained consequent upon a breach of any provision of this Lease shall not
affect or alter this Lease or be construed as a waiver or relinquishment of such
provisions or covenants or of the right to insist upon strict performance or to
exercise such right, remedy or election, but the same shall continue and remain
in full force and effect with respect to any then existing or subsequent breach,
act or omission whether of a similar nature or otherwise. The receipt,
acceptance and/or deposit (including the endorsement of any check) by Landlord
of any rent or any other sum of money or any other consideration hereunder paid
by Tenant after the termination, in any manner, of the Term, or after the giving
by Landlord of a termination notice, shall not reinstate, continue or extend the
Term, or destroy, or in any manner impair the efficacy of any such termination
notice as may have been given hereunder by Landlord to Tenant prior to the
receipt, acceptance and/or deposit (including the endorsement of any check) of
any such rent, or other sum of money or other consideration, unless so agreed to
in writing and signed by Landlord. Neither acceptance of the keys nor any other
act or thing done by Landlord or any agent or employee shall be deemed to be an
acceptance of a surrender of the Premises, or any part thereof, excepting only
an agreement in writing signed by Landlord. No payment by Tenant or receipt,
acceptance and/or deposit (including the endorsement of any check) by Landlord
of a lesser amount than the correct rent shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check be
deemed to effect or evidence an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance or pursue any other remedy in this Lease provided.

         23. COVENANTS BINDING ON SUCCESSORS AND ASSIGNS

                  23.1 All of the terms, covenants and conditions of this Lease
shall apply to and inure to the benefit of and be binding upon the respective
heirs, executors, administrators, successors and assigns of the parties, except
as expressly otherwise herein provided. If there shall be more than one Tenant,
they shall all be bound jointly and severally by the terms, covenants and
agreements herein contained. No rights, however, shall inure to the benefit of
any assignee or subtenant of Tenant unless the assignment or subletting, as the
case may be, has been made in accordance with the provisions set forth in
Section 11.

                                       32
<PAGE>

         24. RESOLUTION OF DISPUTES

                  24.1 THE PARTIES HERETO WAIVE A TRIAL BY JURY (TO THE EXTENT
PERMITTED BY LAW) ON ANY AND ALL ISSUES ARISING IN ANY ACTION OR PROCEEDING
BETWEEN THEM OR THEIR SUCCESSORS UNDER OR IN ANY WAY CONNECTED WITH THIS LEASE
OR ANY OF ITS PROVISIONS, ANY NEGOTIATIONS IN CONNECTION THEREWITH, THE
RELATIONSHIP OF LANDLORD AND TENANT, OR TENANT'S USE OR OCCUPATION OF THE
PREMISES, INCLUDING ANY CLAIM OF INJURY OR ANY EMERGENCY OR OTHER STATUTORY
REMEDY WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION SHALL SURVIVE THE
EXPIRATION OR TERMINATION OF THIS LEASE.

         25. NOTICES

                  25.1 Any statement, demand, election, request, notice,
approval, consent or other communication, (collectively, "notice") authorized or
required by this Lease must be in writing and shall be deemed given when
delivered by (a) hand, against receipt, (b) one (1) business day after sending
by reputable overnight courier which provides for acknowledgment of receipt, or
(c) three (3) business days after mailing by United States certified mail,
return receipt requested, addressed to the intended recipient at the following
address as:

If to Landlord:            Hibbs/Woodinville Associates, LLC
                           3301 Monte Villa Parkway, Suite 101
                           Bothell, WA  98021
                           Attention: Robert E. Hibbs

                           with a copy to:

                           Premier Advisors, LLC
                           Monte Villa Farms
                           3301 Monte Villa Parkway, Suite 101
                           Bothell, WA 98021

If to Tenant:              Quinton Instrument Company
                           3303 Monte Villa Parkway
                           Bothell, WA  98021
                           Attention: President

Payments due to Landlord under this Lease shall be made according to the
following:

         Electronic Payments:
                           Wells Fargo Bank, N.A.
                           Seattle Private Client Services,
                           999 Third Avenue, 14th Floor
                           Seattle, WA 98104

                           Routing #:       121000248
                           To Credit:       Hibbs Woodinville Associates LLC
                           Account #:       345-0112432
                           Notify Julie Wilkie, 206-343-8372

                                       33
<PAGE>

         Or mail to:
                           Hibbs/Woodinville Associates, LLC
                           P.O. Box 84532
                           Seattle, WA  98124-5832

Any notices by a party signed by counsel to such party shall be deemed a notice
signed by such party. Notice shall be deemed given on the date of delivery or
the date delivery is refused. Any party may change its address for notices, and
Landlord may change its address for payments, by providing to the other party
written notice in the manner required by this Section 25.

         26. DEFINITIONS; HEADINGS; CONSTRUCTION OF LEASE

                  26.1 For the purposes of this Lease, unless the context
otherwise requires:

                           26.1.1 The term "Landlord's agents" shall be deemed
to include agents, servants, employees and contractors of landlord.

                           26.1.2 The term "person" shall be deemed to include
individuals, corporations, partnerships, firms, associations and any other legal
or business entities.

                           26.1.3 The term "unavoidable delays" shall mean any
and all delays beyond the reasonable control of the party otherwise responsible,
including delays caused by the other party, governmental restrictions,
governmental preemption, strikes, labor disputes, lockouts, shortage of labor or
materials, acts of God, enemy action, civil commotion, riot or insurrection,
fire, holdover tenancies or other unavoidable casualty or any other cause beyond
the responsible party's control, but shall not include delays occasioned by lack
of money.

                           26.1.4 The terms "include," "including" and "such as"
shall be construed as if followed by the phrase "without being limited to". The
words "herein." "hereto" "hereby," "hereunder" and words of similar import shall
be construed to refer to this Lease as a whole and not to any particular Section
hereof unless expressly so stated.

                  26.2 The various terms which are defined in other Sections of
this Lease shall have the meanings specified in such other Sections for all
purposes of this Lease unless the context otherwise requires.

                  26.3 The Section headings in this Lease and the Table of
Contents prefixed to this Lease are inserted only as a matter of convenience and
reference and are not to be given any effect whatsoever in construing this
Lease.

                  26.4 All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the person or persons or entity or entities in question may require.

                                       34
<PAGE>

         27. FORCE MAJEURE

                  27.1 Whenever the performance of any obligation of either
party hereunder shall be delayed, hindered or prevented due to unavoidable
delays, the time for performance of such obligation, unless other provision is
expressly made therefor in this Lease, shall be extended, subject to and limited
by the following conditions:

                           27.1.1 The extension shall be for no longer a period
than the delay actually so occasioned;

                           27.1.2 The party delayed shall promptly notify the
other party of the cessation of such unavoidable delay and of the extent of the
delay which the party delayed claims was occasioned thereby;

                           27.1.3 No statement of fact contained in any such
notice shall be binding on the party receiving such notice; and

                           27.1.4 In no event shall lack of funds be deemed a
matter beyond either party's control.

                           27.1.5 Interruptions of any service to be provided by
Landlord under this Lease or of any utility or other service to the Demised
Premises or the Property, in whole or in part caused by any unavoidable delay,
inability of Landlord to obtain electricity, fuel, water, other utilities or
supplies, or by the act or default of Tenant or any person other than Landlord,
or otherwise by any other cause or causes beyond the reasonable control of
Landlord, shall not be deemed an eviction or disturbance of Tenant's use and
possession of the Demised Premises, the Common Area, or any part thereof, or
render Landlord liable for damages, or give rise to any offset, set off,
abatement, or reduction in any rent, additional rent, or other amount payable by
Tenant under this Lease, or otherwise or relieve Tenant from performance of
Tenant's obligations under this Lease.

         28. BROKERAGE

                  28.1 Landlord and Tenant each warrant and represent that other
than Flinn Ferguson, Tenant had no other brokerage involved in this Lease
transaction. Landlord shall pay to Flinn Ferguson upon Lease Commencement a fee
equivalent to 5% of the Basic Rent for the first five (5) years and 2.5% for the
next five (5) years.

         29. MISCELLANEOUS PROVISIONS

                  29.1 This Lease sets forth all the covenants, promises,
agreements, conditions and understandings between Landlord and Tenant concerning
the Premises. There are no oral agreements or understandings between the parties
hereto affecting this Lease and this Lease supersedes and cancels any and all
previous negotiations, arrangements, agreements and understandings, if any,
between the parties hereto with respect to the subject matters hereof, and none
thereof shall be used to interpret or construe this Lease. Except as otherwise
herein expressly provided, no subsequent alteration, amendment, change, waiver
or addition to or of any provision of this Lease, nor any surrender of the Term,
shall be binding upon Landlord or

                                       35
<PAGE>

Tenant unless reduced to writing and signed by the party against whom the same
is charged or such party's successors in interest.

                  29.2 This Lease shall not be recorded by either party without
the consent of the other.

                  29.3 This Lease shall be governed in all respects by the laws
of the State of Washington.

                  29.4 This Lease may be executed in several counterparts, each
of which shall be an original, but all of which shall constitute one and the
same instrument.

                  29.5 All obligations of Tenant which shall not have been
performed prior to the end of the Term or which by their nature involve
performance, in any particular, after the end of the Term, or which cannot be
ascertained to have been fully performed until after the end of the Term, shall
survive the expiration or termination of the Term.

                  29.6 If any term, covenant, condition, or provision of this
Lease or the application thereof to any person or circumstance shall, at any
time or to any extent, be invalid or unenforceable, the remainder of this Lease,
or the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant, condition, and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.

                  29.7 Anything in this Lease to the contrary notwithstanding,
in the event that (a) any act or omission of Tenant shall require the consent or
approval of Landlord pursuant to this Lease, and (b) this Lease provides that
Landlord shall not unreasonably withhold such consent or approval, and (c)
Tenant shall claim that Landlord has unreasonably withheld such consent or
approval, then the sole recourse of Tenant upon the inability of the parties to
agree shall be to bring an appropriate action in a court of competent
Jurisdiction against Landlord solely to issue a determination of whether the
withholding of such consent or approval by Landlord is "reasonable" or
"unreasonable", and Tenant shall not be entitled to any damages or other remedy
other than specific performance for the issuance by Landlord of such consent or
approval if such court of competent jurisdiction shall determine that such
withholding of consent was unreasonable, provided, however, Tenant shall be
entitled to pursue all remedies at law or in equity if it shall be determined by
a court of competent jurisdiction (beyond all right of appeal) that in
withholding its consent Landlord acted maliciously and in bad faith (for which
Tenant shall have the burden of proof).

                  29.8 To the maximum extent provided by law, Landlord shall
have a lien on all improvements, fixtures, materials and other personal property
of Tenant which at any time is located at or affixed to any part or portion of
the Property.

         30. COMPLIANCE WITH ENVIRONMENTAL LAWS

                  30.1 Tenant shall, at its sole cost and expense, comply with
the requirements of every federal, state, county, municipal or other
governmental law, ordinance, rule, regulation, requirement and/or directive
pertaining to the environment (an "Environmental Law" or

                                       36
<PAGE>

"Environmental Laws"), including, but not limited to, the Resource Conservation
and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), and the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 U.S. Section
9601 et seq.) affecting, binding upon, or respecting the Demised Premises and/or
the use and occupancy thereof. In this regard, Tenant shall, at its sole cost
and expense, make all submissions to, provide all information to, and comply
with all requirements of any governmental authority respecting the Demised
Premises, or the use or occupancy thereof. Should any governmental authority
determine that action is necessary to clean up, remove and/or eliminate any
spill or discharges by Tenant (or by any of Tenant's agents, servants,
employees, invitees, guests, subtenants (if any) licensees, or contractors) of
Hazardous Substances (hereinafter defined) in or about the Demised Premises or
the Common Area (except to the extent such discharge or spill in the Common Area
is caused by the particular act of any third party tenant of any other space at
the Property), or any other spill or discharges for which Tenant is responsible
pursuant to this Lease, and/or that a cleanup plan must be prepared and
submitted, then, in that event, Tenant shall, at its sole cost and expense, take
any and all action required and carry out any and all approved plans and
complete, at Tenant's sole cost and expense, all cleanup, removal and
remediation required. As used herein, "Hazardous Substances" means any substance
that is toxic, ignitable, reactive, or corrosive, or that is regulated by any
local government, the State of Washington or the United States Government, any
and all material or substances that are defined as "hazardous waste," "extremely
hazardous waste," or a "hazardous substance" pursuant to state, federal or local
governmental law, any asbestos, polychlorobiphinyls (PCBs) and petroleum
products or by-products. Tenant's obligations pursuant to this Section 30.1
shall arise whenever required by any appropriate governmental agency. At the
expiration or earlier termination of this Lease Tenant, at Tenant's expense,
immediately shall (i) remove or cause to be removed all Hazardous Substances
located at, in, on, under or about the Demised Premises (and/or any other
portions of the Property, except to the extent that such Hazardous Substances
have been discharged at, in, on, under or about portions of the Property other
than the Demised Premises by any other tenant, and (ii) clean up and remediate
all areas of the Demised Premises (and/or any other portions of the Property,
except to the extent that such Hazardous Substances have been discharged at, in,
on, under or about portions of the Property other than the Demised Premises by
any other tenant, as required under all Environmental Laws, and (iii) remove,
remediate and clean up all Hazardous Substances at, in, on, under or about the
Demised Premises (and/or at, in, on, under or about any other portions of the
Property, except to the extent that such Hazardous Substances have been
discharged at, in, on, under or about portions of the Property other than the
Demised Premises by any other tenant.

                  30.2 For purposes of this provision, the term "Environmental
Documents" shall mean all environmental documentation concerning the Demised
Premises, the Property or its environs in the possession or under the control of
Tenant, Including, without limitation, all drafts and final versions of all
sampling plans, cleanup plans, preliminary assessment plans and reports, site
investigation plans and reports, remedial investigation plans and reports,
remedial action plans and reports or the equivalent, sampling results, sampling
reports, data, diagrams, charts, maps, analyses, conclusions, quality
assurance/quality control documentation, correspondence to or from the
Washington Department of Ecology ("WDOE") or any other municipal, county, state
or federal governmental authority, submissions to the WDOE or any municipal,
county, state or federal governmental authority and directives, orders,
approvals and disapprovals issued by the WDOE or any other municipal, county,
state or federal governmental authority, During the term of the Lease and
subsequently promptly upon receipt by Tenant or Tenant's representatives, Tenant
shall deliver to Landlord all Environmental Documents concerning the Property,
or any

                                       37
<PAGE>

portion thereof, including the Demised Premises, or generated by or on behalf of
Tenant with respect to the Property or any portion thereof, whether currently or
hereafter existing.

                  30.3 Tenant shall notify Landlord in advance of all meetings
scheduled between Tenant or Tenant's representatives and the WDOE or any other
authority, and Landlord and Landlord's representatives shall have the right,
without the obligation, to attend and participate in all such meetings, at
Landlord's sole expense.

                  30.4 Tenant shall at all times indemnify, defend (with counsel
selected by Tenant and reasonably satisfactory to Landlord) and hold harmless
Landlord and Landlord's employees, officers, directors, shareholders,
affiliates, partners, agents, professionals and consultants (collectively, the
"Indemnitees") against and from any and all claims, suits, liabilities, actions,
debts, damages, costs, losses, obligations, judgments, charges and expenses,
including sums paid in settlement of claims, of any nature whatsoever suffered
or incurred by any of the Indemnitees whether based on Tenant's operation of the
Demised Premises, Tenant's negligence, Tenant's willful misconduct or on other
acts or omissions of Tenant after the Commencement Date, with respect to:

                           30.4.1 The actual or suspected presence or discharge
by Tenant (or by any of Tenant's agents, servants, employees, invitees, guests,
subtenants (if any) licensees, or contractors), on or after the Commencement
Date, of Hazardous Substances or the threat, on or after the Commencement Date,
of a discharge by Tenant (or by any of Tenant's agents, servants, employees,
invitees, guests, subtenants (if any) licensees, or contractors) of any
Hazardous Substances in, on, under, about, or affecting the Property, whether or
not the same originates or emanates from the Demised Premises;

                           30.4.2 The cost of removal or remedial action
incurred by any governmental authority, any response cost incurred by any other
person or damages from injury to, destruction of, or loss of natural resources,
including reasonable cost of assessing such injury, destruction or loss,
incurred pursuant to Environmental Laws;

                           30.4.3 Liability for personal injury or property
damage arising under any statutory or common law tort theory, including, without
limitation, damages assessed with the maintenance of a public or private
nuisance or for the carrying on of an abnormally dangerous activity; and/or

                           30.4.4 Any other environmental matter, occurring on
or after the Commencement Date, or otherwise relating to the period commencing
with the Commencement Date, and affecting (i) the Demised Premises or (ii)
otherwise affecting the Property (to the extent such environmental matter
affecting the Property other than the Demised Premises arises by the act or
wrongful omission of Tenant, or any of Tenant's agents, servants, employees,
invitees, guests, subtenants (if any) licensees, or contractors) within the
jurisdiction of any other federal agency, or any state or local agency or
political subdivision or any court, administrative panel or tribunal.

         Tenant's obligations under this Section 30 shall arise upon the
discovery of, or the threat or suspected presence of, any Hazardous Substance,
whether or not any other federal agency or state or local or agency or political
subdivision or any court, administrative panel or tribunal has

                                       38
<PAGE>

taken or contemplates taking action in connection with the presence of any
Hazardous Substances.

                  30.5 Tenant shall not, directly or indirectly, make any use of
the Demised Premises, or the Property which may be prohibited by any
Environmental Laws, which may be dangerous to a person or property, or which may
constitute or create a nuisance, or which may fail or comply with or violate the
provisions or conditions of any permit held by Landlord or Tenant with respect
to the Demised Premises or the Property, including, without limitation, any such
permit governing the use, contamination, pollution or conservation of air, water
or land or the protection of the environment or of the use, storage, treatment
or disposal of toxic or hazardous substances ("Environmental Permits"), or which
may jeopardize the continuation or renewal of any such Environmental Permit, or
which may be deemed extra-hazardous in any respect, or which may jeopardize any
insurance coverage or require additional insurance coverage for Landlord or any
other tenant of the Property.

                  30.6 Tenant shall regularly monitor its compliance with all
applicable Environmental Laws, Environmental Permits and Environmental Plans;
such monitoring shall be in accordance with all applicable Environmental Laws,
Environmental Permits and Environmental Plans and with Tenant's established
policies for such monitoring. Tenant shall, when requested by Landlord at
reasonable intervals, provide to Landlord copies of the reports showing such
monitoring and compliance and such other information and documentation
respecting such monitoring and compliance as Landlord reasonably may request
from time to time.

                  30.7 Tenant shall promptly provide Landlord, as soon as
received by Tenant, with copies of all of Tenant's Environmental Permits and of
any official warnings, citations or charges that Tenant, the Demised Premises or
the Property has or may have failed to comply with or has or may have violated
any Environmental Law or any Environmental Permit. Tenant shall promptly supply
Landlord with any notices, correspondence and submissions made by Tenant to
WDOE, the United States Environmental Protection Agency, OSHA, or any other
local, state or federal authority which requires submission of any information
concerning Environmental Laws or Environmental Permits, or Hazardous Substances
or other environmental matters. Tenant shall also promptly supply Landlord with
all documentation, notices and correspondence delivered to Tenant by any such
authority with respect to Environmental Laws, Environmental Permits,
environmental matters or Hazardous Substances or other environmental matters.

                  30.8 This Section 30 shall survive the expiration or earlier
termination of this Lease. Tenant's failure to abide by the terms of this
Section 30 shall be restrainable by injunction, and shall constitute an Event of
Default under the Lease.

         31. SECURITY

                  31.1 Tenant, at Tenant's cost and expense, shall be obligated
to provide adequate and proper security to the Demised Premises, and to properly
regulate access to same without thereby adversely affecting the use and
enjoyment of the Property by Landlord or by other tenants or occupants. Tenant
shall have the right to participate in the use of the existing card key access
system in the Property or any replacement thereof.

                                       39
<PAGE>

         32. ACCESS

                  32.1 Tenant agrees that every other tenant or occupant of the
Buildings (as same may change from time to time), and their respective
employees, invitees, guests, contractors, subtenants (if any) and licensees, at
all times shall have reasonable, non-discriminatory access to and use of Common
Area, and in, upon, over, across and through the Common Area, in common with
Tenant, and to the same extent enjoyed by Tenant, for ingress to and egress from
the Buildings, and access to the premises demised by such tenant or occupant and
to the Common Area, and for use of the Common Area.

                  32.2 Tenant agrees that Landlord, from time to time, may
promulgate and/or amend reasonable, non-discriminatory rules and regulations for
the use of Common Areas, and/or for access as provided in Section 32. 1, and
that upon receiving copies of such rules and regulations (from time to time)
Tenant shall abide by same and cause its employees, invitees, guests,
contractors, subtenants (if any) and licensees to abide by same.

                  32.3 For so long as the existing cafeteria ("Cafeteria ")
located in the North Barn is operated (there being no obligation on the part of
Landlord or any other person to continue or cause the continued operation of the
Cafeteria), Tenant and its employees, invitees, and agents shall have access to
and the right to use the Cafeteria. Tenant acknowledges that Landlord and/or the
operator of the Cafeteria shall have the right to set or cause to be set all
prices for goods at the Cafeteria in its sole discretion and that Landlord or
the operator of the Cafeteria shall have the sole discretion to reduce services
or terminate operation of the Cafeteria at any time without liability to Tenant.
Landlord assumes no responsibility for and Tenant, on behalf of its employees,
guests, invitees or otherwise, waives any claim it may have now or in the future
for the action of the operator of the Cafeteria or its agents, employees,
invitees, guests or suppliers.

         33. NET LEASE

                  33.1 Landlord and Tenant agree that except as otherwise
expressly provided in this Lease, (i) this is a triple net Lease, (ii) Landlord
shall not be required to provide any services or take any action in connection
with the Demised Premises or the Property, and (iii) if, for any reason
whatsoever, Tenant's use or occupancy of enjoyment of the Demised Premises shall
be disturbed, prevented or interfered with for any reason whatsoever (other than
Landlord's willful and intentional violation of the terms and provisions of this
Lease) Tenant shall continue to pay the rent and additional rent without
abatement, suspension or reduction.

         34. CAFETERIA SPACE

                  34.1 Landlord shall make available the Cafeteria Space to
Tenant's employees on a nonexclusive basis for cafeteria style eating as
provided for herein.

                                       40
<PAGE>

                  34.2 Landlord shall have contracted with a food service
provider to provide food services for breakfast and lunch between the hours of
7:00 a.m. and 2:00 p.m. on Monday through Friday, excluding holidays.

                  34.3 The Annual Basic Rental as set forth on Exhibit D-3 of
the Lease shall be increased by the "Cafeteria Additional Rent" which is
Tenant's Proportionate Share (as defined in Section 2.6(a)) of the "Cost of
Cafeteria Space." The "Cost of Cafeteria Space" equals the agreed rentable
square footage of the Cafeteria Space (6,774 s.f.) multiplied by the sum of (i)
the fair market rent of space in the Administrative Building (currently agreed
to be $13.50 psf) (ii) the proportion of Operating Expenses and Taxes equal to
the number of square feet compromising the Cafeteria Space divided by the total
number of leasable square feet in the Buildings, and (iii) any costs and
expenses incurred by Landlord in contracting with the food service provider. In
no year shall the Cafeteria Additional Rent increase by more than five (5)
percent over the rate of the preceding Fiscal Year. The estimated Cafeteria
Additional Rent for 2004 is $.84 per square foot for the Demised Premises.

         Such amounts shall be increased at the beginning of each Fiscal Year
during the term of the Lease to reflect any increases in Fair Market Rent,
Operating Expenses or costs or expenses incurred by Landlord in dealing with the
food service provider.

                  34.4 The Cost of Cafeteria Space for each Fiscal Year as
reasonably estimated by Landlord from time to time prior to or during any Fiscal
Year shall be communicated to Tenant by written notice (the "Estimated Cost of
Cafeteria Space"). If Landlord does not deliver such a notice (an "Estimate")
prior to the commencement of any Fiscal Year, Tenant shall continue to pay
Estimated Cost of Cafeteria Space as provided in the most recently received
Estimate (or Updated Estimate, as defined below) until the Estimate for such
Fiscal Year is delivered to Tenant. If, from time to time during any Fiscal
Year, Landlord reasonably determines that Cost of Cafeteria Space for such
Fiscal Year have increased or will increase, Landlord may deliver to Tenant an
updated Estimate ("Updated Estimate") for such Fiscal Year.

         After the end of each Fiscal Year, Landlord shall send to Tenant a
statement (the "Final Cost of Cafeteria Space Statement") showing (i) the
calculation of the Cost of Cafeteria Space for such Fiscal Year, (ii) the
aggregate amount of the Estimated Cost of Cafeteria Space previously paid by
Tenant for such Fiscal Year, and (iii) the amount, if any, by which the
aggregate amount of the installments of Estimated Cost of Cafeteria Space paid
by Tenant with respect to such Fiscal Year exceeds or is less than the Final
Cost of Cafeteria Space for such Fiscal Year. Tenant shall pay the amount of any
deficiency to Landlord within thirty (30) days of the sending of such statement.
At Landlord's option, any excess shall either be credited against payments past
or next due hereunder or refunded by Landlord, provided Tenant is not then in
default hereunder.

         On reasonable advance written notice given by Tenant within thirty (30)
days following the receipt by Tenant of the Final Cost of Cafeteria Space
Statement, Landlord shall make available to Tenant Landlord's books and records
maintained with respect to the Cost of Cafeteria Space for such Fiscal Year. If
Tenant wishes to contest any item within any Final Cost of Cafeteria Space
Statement, Tenant shall do so in a written notice (a "Contest Notice") received
by Landlord within thirty (30) days following Tenant's inspection of Landlord's
books and

                                       41
<PAGE>

records, but in any event not later than sixty (60) days after Landlord shall
have made its books and records available to Tenant for inspection, which
Contest Notice shall specify in detail the item or items being contested and the
specific grounds therefor. However, the giving of such Contest Notice shall not
relieve Tenant from the obligation to pay any deficiency in such statement or
the Landlord from the obligation to pay (by refund or credit) any excess in such
statement in accordance with this Section. Notwithstanding anything else in this
Section to the contrary, if Tenant fails to give such Contest Notice within said
thirty (30) day period or fails to pay any deficiency in such statement in
accordance with this Section, whether or not contested, Tenant shall have no
further right to contest any item or items in such statement and Tenant shall be
deemed to accept such statement.

         Resolution of a Tenant's Contest notice shall be handled in the same
manner as said notice regarding Operating Expenses in Section 2.7(a) of the
Lease.

         35. SECURITY DEPOSIT

         35.1 Tenant will cause a Letter of Credit in the amount of $130,000.00
to be issued by the L/C Bank (as defined below) in favor of the Landlord, and
its successors, assigns and transferees to be deposited with Landlord as a
Security Deposit for Tenant's performance of every provision in this Lease. If
Tenant in its first or any subsequent calendar year of this Lease meets Five
Million Dollars ($5,000,000.00) in net profit, the Security Deposit and Letter
of Credit shall be reduced to $61,000.00. If Tenant defaults under any
provisions of this Lease, Landlord will have the unconditional right to draw on
the letter of credit in the full amount thereof or in any lesser amount or
amounts as Landlord may determine, in its sole and absolute discretion apply all
or any part of the Security Deposit to the payment of sums due, including
damages suffered by Landlord due to such default in addition to any other remedy
which Landlord may possess.

         (a) Deposit of Letter of Credit. Tenant will deliver the Letter of
Credit to Landlord prior to the Commencement Date. Tenant will cause the Letter
of Credit to remain in full force and effect until December 31, 2013 (subject to
the agreed upon reductions in value above).

         (b) Cash in Lieu of Letter of Credit. Tenant shall have the right at
any time, at its option, to provide a cash deposit in lieu of its obligation to
provide for a Letter of Credit. Landlord's rights to such cash deposit shall be
equivalent in all material respects to its rights to draw against the Letter of
Credit. Provided that Tenant is not otherwise in Default, Landlord shall
promptly return to Tenant any such cash deposit upon the expiration of this
Lease.

         (c) Payment and Holding of Draw Proceeds. Immediately upon the
occurrence of any one or more Draw Events (as defined below), Landlord will have
the unconditional right to draw on the Letter of Credit, in the full amount
thereof or in any lesser amount or amounts as the Landlord may determine, in its
sole and absolute discretion. Upon the payment to Landlord of the Draw Proceeds,
Landlord will hold the Draw Proceeds in its own name and for its own account,
without liability for interest, and as security for the performance by Tenant of
Tenant's covenants and obligations under the Lease, and will be entitled to use
and apply any of the Draw Proceeds to compensate Landlord in the same manner as
Landlord would be entitled to use and apply a cash security deposit. Immediately
upon the occurrence of any one or more Draw

                                       42
<PAGE>

Events, Landlord may, without prejudice to any other remedy, use the Draw
Proceeds (whether from contemporaneous or prior draw on the Letter of Credit) to
the extent necessary to make good any arrearages in payment of rent, to pay
Landlord any and all amounts to which Landlord is entitled in connection with
the pursuit of any one or more of its remedies under the Lease, and to
compensate Landlord for any and all damage, injury, expense or liability caused
to Landlord by any Event of Default. Any delays in Landlord's draw on the Letter
of Credit or in Landlord's use of the Draw Proceeds will not constitute a waiver
by Landlord of any of its rights with respect to the Letter of Credit or the
Draw Proceeds. Following any application of Draw Proceeds, Tenant will either
pay to Landlord on demand the cash amount so applied in order to restore the
Draw Proceeds to the full amount thereof prior to such application or cause the
Letter of Credit to be replenished in its required amount. Nothing in the Lease
or in the Letter of Credit will confer upon Tenant any property rights or
interests in the Draw Proceeds.

         (d) Transferability. If Landlord transfers or mortgages its interest in
the Property or any portion thereof during the Term, Landlord may transfer the
Letter of Credit and any and all Draw Proceeds then held by Landlord to the
transferee or mortgage and thereafter will have no further liability with
respect to the Letter or Credit or the Draw Proceeds. Tenant is responsible for
any and all fees and costs (whether payable to the L/C Bank or otherwise) in
order to affect such transfer of the Letter of Credit.

         35.2        Applicable definitions:

                  (a)      Draw Event means any of the following:

                           (1)      Tenant filing a petition under any chapter
of the Bankruptcy Code, or under any federal, state or foreign bankruptcy or
insolvency statute now existing or later enacted, or Tenant making a general
assignment or general assignment for the benefit of creditors;

                           (2)      the filing of an involuntary petition under
any chapter of the Bankruptcy Code, or under any federal, state or foreign
bankruptcy or insolvency statute now existing or later enacted, or the filing of
a petition for adjudication of bankruptcy or for reorganization or
rearrangement, by or against Tenant and such filing not being dismissed within
sixty (60) days;

                           (3)      the entry of an order for relief under any
chapter of the Bankruptcy Code, or under any federal, state or foreign
bankruptcy or insolvency statute now existing or later enacted;

                           (4)      the appointment of a "custodian" for Tenant
as such term is defined in Bankruptcy Code, or in any federal, state or foreign
bankruptcy or insolvency statute now existing or later enacted;

                                       43
<PAGE>

                           (5)      the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets located at the Property
or of Tenant's interest in the Lease and possession not being restored to Tenant
within sixty (60) days;

                           (6)      the subjection of all or substantially all
of Tenant's assets located at the Property or of Tenant's interest in the Lease
to attachment, execution or other judicial seizure and such subjection not being
discharged within sixty (60) days;

                           (7)      the failure of Tenant to make when due any
payment of rent or any other monetary obligation within ten (10) days after the
amount is due;

                           (8)      the breach by Tenant of any non-monetary
obligation under the Lease which is not cured within the applicable cure period,
if any.

                  (b)      "DRAW PROCEEDS" means the proceeds of any draw or
draws made by Landlord under the Letter of Credit, together with any interest
accruing thereon.

                  (c)      "L/C BANK" means Silicon Valley Bank or any United
States bank which is approved by Landlord in its reasonable discretion.

                  (d)      "LETTER OF CREDIT" means that certain 10 year
irrevocable letter of credit, in the amount set forth herein. The Letter of
Credit shall expire on December 31, 2013.

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

                                    LANDLORD
                                    HIBBS/WOODINVILLE ASSOCIATES, LLC
                                    a Washington limited liability company

                                             By:  Bothell Land Co.,
                                                  a Washington corporation
                                                  its managing member

                                                  ______________________________
                                                  By:  Robert E. Hibbs
                                                  its President

                                    TENANT
                                    QUINTON CARDIOLOGY SYSTEMS, INC.
                                    a Delaware corporation

                                    By:_______________________________

                                    Name:____________________________

                                       44
<PAGE>

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 said person
acknowledged that he signed this instrument, on oath stated that he/she was
authorized to execute this instrument and acknowledged it as the ____________ of
HIBBS/WOODINVILLE ASSOCIATES, LLC, a Washington limited liability company, to be
the free and voluntary act of such party for the uses and purposes mentioned in
this instrument.

         DATED: _________________________________, 2003.

---------------------------
                                    ______________________________________
                                    Print Name:___________________________
                                    NOTARY PUBLIC in and for the State of
                                    Washington, residing at_______________
                                    My Appointment expires:_______________

---------------------------

STATE OF WASHINGTON        )
                           )ss:
COUNTY OF                  )

         I certify that I know or have satisfactory evidence that
__________________ is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he/she was
authorized to execute this instrument and acknowledged it as the ____________ of
QUINTON CARDIOLOGY SYSTEMS, INC, a Delaware corporation, to be the free and
voluntary act of such party for the uses and purposes mentioned in this
instrument.

         DATED: _________________________________, 2003.

---------------------------
                                    ______________________________________
                                    Print Name:___________________________
                                    NOTARY PUBLIC in and for the State of
                                    Washington, residing at_______________
                                    My Appointment expires:_______________

---------------------------

                                       45
<PAGE>
                                    EXHIBIT A

              THE PROPERTY, BUILDINGS, PARKING LOT AND COMMON AREAS

                                     [MAP]

                                       46

<PAGE>

                                   EXHIBIT A-1

                                LEGAL DESCRIPTION

Lots 12, 13, 14, 15 and 16 of Quadrant Monte Villa Center, according to the plat
thereof, recorded in Volume 54 of Plats, pages 165 through 169, inclusive,
records of Snohomish County, Washington.

Situate in the City of Bothell, County of Snohomish, State of Washington.

                                       47
<PAGE>

                                   EXHIBIT D-3

                                BASIC ANNUAL RENT

         The initial Basic Annual Rent shall be $11.50 rental square foot per
year. Basic Annual Rent shall be increased annually during the term by two
percent (2%) per annum.

There shall be no Basic Annual Rent charged for the period beginning January 1,
2004 and ending December 31, 2005 on the second floor of the barn space (a total
of 2,598 square feet), unless Tenant shall actively occupy such space. "Actively
Occupy" shall be defined as anything other than dead storage.

Landlord has the right to create up to 50,000 sq ft of additional space on the
Property (the "Additional Space"). The creation of the Additional Space will
reduce the Operating Expenses for the Premises (the "Additional Space Expense
Reduction"). Tenant agrees that should Landlord create the Additional Space then
the Rent shall be increased (effective as of the date of the inclusion of the
Additional Space) by the amount of any Additional Space Expense Reduction. Such
a reduction shall be computed (within six months of the inclusion of Additional
Space) by subtracting (i) the Tenant's Proportionate Share of the Operating
Expenses and Taxes computed after the inclusion of the Additional Space in the
square footage calculations from (ii) Tenant's Proportionate Share of the
Operating Expenses and Taxes computed before the inclusion of the Additional
Space in the square footage calculations. Landlord shall provide Tenant with
such computations for Tenant's review.

                                       48
<PAGE>

                                    EXHIBIT F

                   DEMISED PREMISES IN ADMINISTRATION BUILDING

                                      [MAP]

                                       49
<PAGE>

                                    EXHIBIT F

                   DEMISED PREMISES IN ADMINISTRATION BUILDING

                                      [MAP]

                                       50
<PAGE>

                                    EXHIBIT G

                         DEMISED PREMISES IN SMALL BARN

                                      [MAP]

                                       51
<PAGE>

                                    EXHIBIT H

                               TENANT IMPROVEMENTS

Within twelve (12) months following the Commencement Date, Landlord, at its sole
cost and expense except as provided below, shall perform the improvements listed
on this Exhibit H to Tenant's Premises. If improvements and allowances are not
completed or spent within twelve (12) months of the Commencement Date, they
shall expire. Landlord and Tenant will cooperate in good faith to schedule and
complete these improvements in a manner which minimizes disruption to the
conduct of Tenant's business.

    -    Provide new carpet for office area in the first floor of the
         Administration Building--choice of J&J Commercial carpet styles:
         Statement (#2625), Confetti (#2615), or Jubilee (#3140)

    -    Paint Premises in the first floor Administration Building.

    -    Build a separate tenant entry off main lobby with upgraded carpet and
         double glass doors. Move the reception desk currently located in the
         main lobby to tenant entry. Upgraded carpet shall be a choice of J&J
         Commercial carpet: Form (#4640) or Function (#4670).

    -    Build Executive Conference Room with upgraded carpet where the Human
         Resources office currently is located (southwest corner of the first
         floor).

    -    Landlord shall provide an allowance of $30,000 to be used for the
         construction of private offices in the Premises or other improvements
         as Landlord and Tenant may mutually agree. Allowance shall be spent
         within 12 months of the Commencement Date, otherwise it shall expire.
         Any amounts incurred above the amount of said $30,000, shall be paid by
         Tenant upon completion of work. Landlord will work with Tenant in good
         faith to assure that such improvements are completed in a cost
         effective manner.

    -    Install air wall between the two training rooms in the first floor of
         the small barn.

    -    Connect Technical Service area to emergency power.

    -    Move north or south wall, and power wired within wall, adjacent to
         Technical Service, thereby expanding the square footage allotted to
         Technical Service. Carpet will be provided for the space not previously
         carpeted within Technical Service.

                                       52<PAGE>

                                                                   EXHIBIT 10.18

<<VerHdr>>

                                           ------------------------
DISTRIBUTOR Name:                          BSQUARE CORPORATION
                                           ------------------------
MS Agreement Number:                       5133790046
                                           ------------------------
Effective Date:                            OCTOBER 1, 2003
                                           ------------------------
Expiration Date:                           SEPTEMBER 30, 2004
                                           ------------------------
Distributor's MS ID Number:                0000051459
                                           ------------------------
Territory:                                 UNITED STATES OF AMERICA
                                           ------------------------

     MICROSOFT OEM DISTRIBUTION AGREEMENT FOR SOFTWARE PRODUCTS FOR EMBEDDED
                                     SYSTEMS

This MICROSOFT OEM DISTRIBUTION AGREEMENT FOR SOFTWARE PRODUCTS FOR EMBEDDED
SYSTEMS ("Agreement") is entered into between Microsoft Licensing, GP ("MS") and
the company identified below ("DISTRIBUTOR") as of the Effective Date.

This Agreement consists of the following:

-        this Signature Page

-        Addresses Schedule

-        General Terms and Conditions

-        Performance Rebate Program Schedule

By signing below, DISTRIBUTOR represents and warrants that the information
DISTRIBUTOR provides below and on each of the attached forms is accurate, and
that DISTRIBUTOR has read and understood, and will act in accordance with, all
of the terms set forth in the attached documents.

<TABLE>
<CAPTION>
MICROSOFT LICENSING, GP                                     BSQUARE CORPORATION
<S>                                                         <C>
A general partnership organized under the laws of:          A company organized under the laws of:
The State of Nevada, U.S.A.                                 WASHINGTON, USA

By:    /S/                                                  By:    /S/
       ------------------------------------------------            -----------------------------------------------------
       (signature)                                                 (signature)

Name:  LYNDIA FREY                                          Name:  BRIAN T. CROWLEY
       ------------------------------------------------            -----------------------------------------------------
       (printed)                                                   (printed)

Title: OEM ACCOUNTING MANAGER                               Title: CEO & PRESIDENT
       ------------------------------------------------            -----------------------------------------------------
       (printed)                                                   (printed)

Date: SEP 16 2003                                           Date:  9-11-03
</TABLE>

                                                    DISTRIBUTOR's seal or "chop"

                                                       Form 2.7.<<Tag: FormRev>>

<PAGE>

                               ADDRESSES SCHEDULE
                       SHIPPING, BILLING, REBATES, SUPPORT

DISTRIBUTOR "SHIP TO" ADDRESS                      DISTRIBUTOR BILLING ADDRESS

**                                                 **
BSQUARE CORPORATION                                BSQUARE CORPORATION
3150 139th Ave SE                                  3150 139th Ave SE
Suite 500                                          Suite 500
Bellevue, WA  98005                                Bellevue, WA  98005
UNITED STATES                                      UNITED STATES

Telephone: **                                      Telephone:  425-519-5900
Fax: **                                            Fax: **
Email: **                                          Email: **

DISTRIBUTOR "MS EMBEDDED ADMINISTRATOR CONTACT"
ADDRESS                                            DISTRIBUTOR TECHNICAL SUPPORT
                                                   NUMBER

**                                                 425-519-5900
BSQUARE CORPORATION
10525 Vista Sorrento Parkway
Suite 100
San Diego, CA  92121
UNITED STATES

Telephone: **
Fax: **
Email: **

                              PAYMENT AND REPORTING

SEND REPORTS TO:                                   SEND PAYMENTS VIA WIRE
                                                   TRANSFER ONLY TO:

Microsoft Licensing, GP                            Microsoft Licensing, GP
OEM Accounting Services                            c/o **
Fax: **
Fax (Alt): **

                                                   DISTRIBUTOR SHALL INCLUDE
                                                   APPLICABLE MS INVOICE NUMBER
                                                   (s) ON ALL PAYMENTS

Or to such other address or account as MS may specify from time to time.

                                        2

                                  CONFIDENTIAL

Microsoft OEM Distribution Agreement For Software Products For Embedded Systems
#5133790046-6 dated October 1, 2003 between MS and BSQUARE CORPORATION

                      ** Confidential Treatment Requested

<PAGE>

DISTRIBUTOR "MICROSOFT OEM ONLINE (MOO) CUSTOMER ADMINISTRATOR"

DISTRIBUTOR designates as its MOO Customer Administrator(s) the following
individual(s). If DISTRIBUTOR subsequently changes any information associated
with a MOO Customer Administrator, DISTRIBUTOR must provide MS notice of not
less than forty-eight (48) hours of the change to the MOOHELP@MICROSOFT.COM
email alias.

**                                                 **
BSQUARE CORPORATION                                BSQUARE CORPORATION
10525 Vista Sorrento Parkway                       10525 Vista Sorrento Parkway
Suite 100                                          Suite 100
San Diego, CA 92121                                San Diego, CA 92121
UNITED STATES UNITED STATES

Telephone: **                                      Telephone: **
Fax: **                                            Fax: **
EMAIL: **                                          EMAIL: **

                                     NOTICES

Any written notices related to this Agreement must be addressed to the contact
and locations outlined below, or such other addresses as either party may
hereafter specify in writing.

DISTRIBUTOR INFORMATION                            MS INFORMATION

**                                                 Microsoft Licensing, GP
BSQUARE CORPORATION                                6100 Neil Road
3150 139th Ave SE                                  Reno, NV 89511-1132
Suite 500                                          USA
Bellevue, WA 98005                                 Attention: OEM Contracts
UNITED STATES                                      Phone Number: **
                                                   Fax Number: **
Telephone: 425-519-5900
Fax: **
Email: **

                                        3

                                  CONFIDENTIAL

Microsoft OEM Distribution Agreement For Software Products For Embedded Systems
#5133790046-6 dated October 1, 2003 between MS and BSQUARE CORPORATION

                      ** Confidential Treatment Requested

<PAGE>

With a copy to:                             Copies of all DISTRIBUTOR
                                            NOTICES shall be sent to:
Attn: General Counsel
BSQUARE CORPORATION                         Microsoft Corporation
3150 139th Ave SE                           One Microsoft Way
Suite 500                                   Redmond, Washington USA 98052-6399
Bellevue, WA 98005                          Attention: Law and Corporate Affairs
UNITED STATES                               Re: Microsoft Licensing, GP -
                                            OEM Device Solution Sales

Telephone: 425-519-5900                     With an additional copy to:
Fax: **
Email: **                                   Microsoft Corporation
                                            One Microsoft Way
**                                          Redmond, Washington USA 98052
BSQUARE CORPORATION                         Attention: Vice President -
                                            OEM Device Solution Sales
3150 139th Ave SE
Suite 500
Bellevue, WA 98005
UNITED STATES

Telephone: 425-519-5900
Fax: **
Email: **

                                        4

                                  CONFIDENTIAL

Microsoft OEM Distribution Agreement For Software Products For Embedded Systems
#5133790046-6 dated October 1, 2003 between MS and BSQUARE CORPORATION

                      ** Confidential Treatment Requested

<PAGE>

                          GENERAL TERMS AND CONDITIONS

1.   DEFINITIONS.

(a) "Additional Licensing Provisions for MS Distributor" means licensing terms
and conditions for the Licensed Product as set forth by MS in the Royalty Rate
List.

(b) "Additional Licensing Provisions for OEM Customer" means licensing terms and
conditions for the Licensed Product as set forth by MS on the "Additional
Provisions for Licensing" label affixed to the Licensed Product package.
Courtesy copies of the Additional Licensing Provisions for OEM Customer may be
available on the Embedded Systems Web Site; however, in case of conflicting or
inconsistent terms between the Additional Licensing Provisions for OEM Customer
set forth on the Licensed Product packaging and the courtesy text on the
Embedded System Web Site, the former shall control.

(c) "Additional Rights Agreement" means a supplemental agreement that describes
such additional OEM Customer rights as MS may identify from time to time (for
example, use of third party brand names on its Embedded Systems).

(d) "Associated Product Materials" or "APM" means materials as MS shall
designate from time to time that are components of a Licensed Product as
acquired from an AR, such as the COA and any applicable external media.

(e) "Authorized Replicator" or "AR" means an MS-authorized supplier of Licensed
Products. A listing of ARs may be posted at the Embedded Systems Website, and
such listing may be updated by MS from time to time. MS will make commercially
reasonable efforts to provide prior notice to DISTRIBUTOR of the termination of
an AR's authorization to supply Licensed Products.

(f) "Certificate of Authenticity" or "COA" means a non-removable sticker
designated by MS which is specific to the Licensed Product.

(g) "Distributor Minimum Standards" means the minimum operational criteria for
DISTRIBUTOR to meet as an embedded distributor of Licensed Products. Distributor
Minimum Standards shall include criteria based on (i) annual royalties for
Licensed Products distributed by DISTRIBUTOR pursuant to this Agreement, (ii)
the proportion of annual units for particular categories or classifications of
Licensed Products as compared to total annual units for all Licensed Products
distributed by DISTRIBUTOR under this Agreement, and (iii) such other criteria
as communicated by MS to DISTRIBUTOR. For additional information on the
Distributor Minimum Standards, DISTRIBUTOR should contact its MS Account
Manager.

(h) "Embedded Application" means industry- or task-specific software programs
and/or functionality, not generally available to consumers, that (i) provide the
primary functionality of the Embedded System, (ii) are designed to meet the
functionality requirements of the specific industry into which the Embedded
System is being marketed, and (iii) offer significant functionality in addition
to the Licensed Product software.

(i) "Embedded Systems" means an OEM Customer's computer systems or computing
devices which (i) are based on the Licensed Product, (ii) utilize not more than
two (2) central processor units, (iii) are designed for use with an Embedded
Application, (iv) are not marketed as general purpose personal computing
devices, and (v) are not useable as a commercially viable substitute for general
purpose computing devices such as personal computers or multi-function servers.

(j) "Embedded Systems Web Site" means the web site located at ** or such other
URL as MS may designate from time to time. DISTRIBUTOR's user name and initial
password for the Embedded Systems Web Site will be sent to the email address
provided by DISTRIBUTOR in the Notices section of the Addresses Schedule.

(k) "Image" means the software image that includes Licensed Product software, as
installed by an OEM Customer on an Embedded System. An Image may include
Supplemental Code.

(l) "Licensed Product" means the Microsoft product(s) identified as licensed on
the Royalty Rate List and in the form as available from an AR and/or MS to
DISTRIBUTOR. A Licensed Product may include APM, software, related documentation
and/or other items identified by MS as components of the Licensed Product,
including any Supplemental Code.

(m) "Media Packaging Guidelines" means the instructions posted on the Embedded
Systems Website that describe how OEM Customer shall package and label certain
media containing the Licensed Product. DISTRIBUTOR shall refer each OEM Customer
to the Media Packaging Guidelines. MS reserves the right to modify the Media
Packaging Guidelines with sixty (60) days notice.

(n) "MS OEM Online" or "Site" means the Internet site located at ** which may be
accessed and used by DISTRIBUTOR in connection with certain aspects of its
performance under this Agreement.

(o) "MSCORP" means Microsoft Corporation, the parent company or a general
partner of MS, as applicable.

(p) "OEM Customer" means an original equipment manufacturer of one or more
Embedded Systems which (i) has signed a current OEM Customer Agreement provided
by DISTRIBUTOR or for which DISTRIBUTOR has received verification of current OEM
Customer status from MS, and (ii) is located within the Territory.

(q) "OEM Customer Agreement" means the pre-printed, serialized OEM Customer
License Agreement for Embedded Systems as made available by MS from time to
time. For additional information on the OEM Customer Agreement, DISTRIBUTOR
should contact its MS Account Manager.

(r) "Sales-Out and Royalty Reporting Guidelines" means the format and
instructions for electronic submission of royalty and sales out reports to MS
posted on the Embedded Systems Web Site. MS reserves the right to modify the
Sales-Out and Royalty Reporting Guidelines with thirty (30) days notice.

(s) "Royalty Rate List" means the list of Licensed Products, corresponding
royalty rates, Additional Licensing Provisions for MS Distributor and other
information that MS provides as part of the Royalty Rate List.

(t) "Recovery Image" means a copy of the Image originally installed on an
Embedded System, contained on separate media.

(u) "Suppliers" means MSCORP and other licensors or suppliers of Licensed
Products.

(v) "Supplemental Code" means additional or replacement code of any portion of a
Licensed Product as MS may provide to DISTRIBUTOR from time to time. Any
additional license rights or limitations related to the Supplemental Code will
be described in the Additional Licensing Provisions for MS Distributor provided
in the Royalty Rate List or in a Supplemental Code letter from MS.

                                        5

                                  CONFIDENTIAL

Microsoft OEM Distribution Agreement For Software Products For Embedded Systems
#5133790046-6 dated October 1, 2003 between MS and BSQUARE CORPORATION

                      ** Confidential Treatment Requested

<PAGE>

(w) "Territory" means the specific country(s) or region(s) of the world set
forth on the Signature Page into or within which DISTRIBUTOR may distribute the
Licensed Product.

(x) "Update Image" means an Image on media separate from an Embedded System
which contains the same version of the Licensed Product software as originally
shipped on the Embedded System, together with either an updated or originally
shipped version of other software included on the Image. An Update Image may
include Supplemental Code.

2.   LICENSE GRANT AND LIMITATIONS.

(a) Subject to all terms and conditions of this Agreement, MS grants to
DISTRIBUTOR a non-exclusive, limited license to distribute Licensed Product into
or within the Territory only to OEM Customers and other entities that MS may
authorize in writing to DISTRIBUTOR, provided that DISTRIBUTOR shall:

     (i) order and acquire from an AR only Licensed Products listed on the then
current Royalty Rate List;

     (ii) if MS has removed a Licensed Product from the then current Royalty
Rate List, only continue to distribute the Licensed Product until the earlier
of:

          (A) DISTRIBUTOR's inventory of the Licensed Product is exhausted;

          (B) a final shipment date advised by MS; or

          (C) cancellation or expiration of this Agreement (including any
     extensions or successor agreements);

     (iii) distribute the Licensed Product in the unopened form/packaging as
received from the AR and/or MS;

     (iv) not modify or delete the contents or packaging of the Licensed
Product;

     (v) track the COA serial numbers distributed to OEM Customers; and submit
such information to MS upon request;

     (vi) maintain a level of security sufficient to prevent loss or
unauthorized distribution of Licensed Product (including COAs and other APM). In
the event DISTRIBUTOR fails to account for distribution of Licensed Product
delivered to DISTRIBUTOR, DISTRIBUTOR shall pay MS for such missing Licensed
Product in accordance with the terms set forth in Section 4(k) below, less
undistributed Licensed Product which can be shown to the reasonable satisfaction
of MS to have been destroyed by DISTRIBUTOR or lost to fire, flood or
equivalent; and

     (vii) order and acquire from an AR on behalf of OEM Customers, and deliver
to such OEM Customer, Recovery Images and Update Images that are based on
Licensed Products listed on the then current Royalty Rate List.

(b) DISTRIBUTOR shall not provide to OEM Customer any document, information or
contractual provisions that contradict, conflict with or purport to supersede
the terms and conditions of the OEM Customer Agreement or the Additional
Licensing Provisions for OEM Customer.

(c) DISTRIBUTOR shall comply with the Additional Licensing Provisions for MS
Distributor set forth in the Royalty Rate List.

(d) DISTRIBUTOR shall perform the following steps for each potential OEM
Customer as a function of its role in the licensing process. DISTRIBUTOR shall:

     (i) ensure that it uses the most current forms of the OEM Customer
Agreement and any Additional Rights Agreement(s) made available by MS to provide
Additional Rights to the OEM Customer;

     (ii) advise each potential OEM Customer that only an authorized signatory
of the potential OEM Customer may execute the OEM Customer Agreement, or any
Additional Rights Agreement;

     (iii) at the OEM Customer's request, provide the OEM Customer a courtesy
copy of the Additional Licensing Provisions for OEM Customer for the Licensed
Product;

     (iv) provide the location of the Embedded Systems Web Site to an OEM
Customer;

     (v) verify that (A) the information provided by the potential OEM Customer
is complete and correct, (B) no changes or alterations have been made to the OEM
Customer Agreement or any Additional Rights Agreement, and (C) each such
agreement has been properly completed and executed by the potential OEM
Customer;

     (vi) comply with the instructions regarding Additional Rights Agreements on
the Embedded Systems Web Site if the OEM Customer requests Additional Rights
Agreements from DISTRIBUTOR;

     (vii) provide Recovery Images and Update Images to OEM Customers as
received from an AR and in accordance with the Media Packaging Guidelines

     (viii) provide Supplemental Code and any related Additional Licensing
Provisions for OEM Customer only in the manner set forth in the then current
Royalty Rate List and/or a Supplemental Code letter from MS;

     (ix) at the end of each business week, express mail to MS both signed
copies of the OEM Customer Agreement, and any Additional Rights Agreements
executed by each potential OEM Customer;

     (x) upon notice from MS that an OEM Customer Agreement executed by a
potential OEM Customer is unacceptable, immediately discontinue distribution of
Licensed Product to such potential OEM Customer and make reasonably commercial
efforts to retrieve any Licensed Product previously distributed to the potential
OEM Customer;

     (xi) notify MS within ten (10) days of any change regarding the OEM
Customer's information.

(e) MS agrees that between the time DISTRIBUTOR obtains the OEM Customer's
signature on the OEM Customer Agreement and such date as MS countersigns (i)
DISTRIBUTOR may ship Licensed Product to the OEM Customer and (ii) as between MS
and DISTRIBUTOR, the OEM Customer Agreement shall be deemed countersigned by MS.

(f) DISTRIBUTOR shall instruct each OEM Customer that the OEM Customer may only
distribute Licensed Product (including APM):

     (i) with the OEM Customer's Embedded Systems;

     (ii) which OEM Customer obtained directly from an MS- authorized
distributor; and

     (iii) in accordance with the OEM Customer Agreement.

(g) DISTRIBUTOR shall not remove or obscure any copyright, trademark or patent
notices that appear on the Licensed Product as delivered to DISTRIBUTOR.

(h) DISTRIBUTOR shall not use any name or trademark confusingly similar to or
undertake any other action that will interfere with or diminish MS or MSCORP
right, title or interest in, any Licensed Product trademark(s) or trade name(s),
and will comply with reasonable guidelines provided by MSCORP from time to time
for reference to, and use of, such Licensed Product mark(s) or name(s).

(i) (i) DISTRIBUTOR shall not use or display any logo of MS or its Suppliers
(including without limitation any stylized representation of the Microsoft name
used by MS or MSCORP) in

                                        6

                                  CONFIDENTIAL

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#5133790046-6 dated October 1, 2003 between MS and BSQUARE CORPORATION

<PAGE>

DISTRIBUTOR's materials or packaging unless authorized in a logo license between
DISTRIBUTOR and MS or its Suppliers.

     (ii) MSCORP may, from time to time, designate one or more logos for use
with the Licensed Product. Use of such logo(s) is optional. This Agreement does
not grant DISTRIBUTOR or an OEM Customer the right to use or display MS or
MSCORP logo(s); to obtain additional information regarding availability of
logo(s) and logo licenses, DISTRIBUTOR should contact its MS Account Manager.

(j) Upon notice from MS, DISTRIBUTOR shall promptly discontinue distribution of
Licensed Product to an OEM Customer. DISTRIBUTOR shall cooperate with MS in
investigating instances of distribution of Licensed Product in violation of this
Section 2.

(k) DISTRIBUTOR shall not reverse engineer, decompile or disassemble any
Licensed Product except as permitted by applicable law which cannot be waived by
this subsection 2(k). Solely in connection with the terms and conditions of
Article 6 of the European Community's Directive for the Legal Protection of
Computer Programs, OJL 122/42 (17 May 1991), and only with respect to
jurisdictions which have adopted the same terms and conditions by legislation
implementing the Directive, DISTRIBUTOR acknowledges that information on
interoperability of the Licensed Product with other products is readily
available.

(l) MS reserves all rights not expressly granted in this Agreement.

(m) DISTRIBUTOR shall make no representation, nor any express or implied
warranty to third parties (including, without limitation, to any OEM Customer or
end users), on behalf of MS. DISTRIBUTOR shall defend, indemnify and hold MS and
its Suppliers harmless against all damages and costs, including reasonable
attorneys' fees, that MS and its Suppliers incur in connection with any warranty
or representation by DISTRIBUTOR.

(n) This Agreement does not give DISTRIBUTOR title to any Licensed Product,
packaging, papers, materials, and/or other property of MS related to a Licensed
Product. In particular:

     (i) MS has and will retain title to all Licensed Product (and related
papers and materials) from the time that the Licensed Product is acquired by
DISTRIBUTOR from ARs until DISTRIBUTOR distributes the Licensed Products in
compliance with the Agreement.

     (ii) As MS owns all Licensed Product in the possession and control of
DISTRIBUTOR, MS may take possession of or destroy all Licensed Product inventory
(and related papers and materials) when this Agreement expires or is canceled,
or after the final shipment date as set forth in Section 2(a)(ii)(B), even if an
intervening bankruptcy or insolvency case is filed by or against DISTRIBUTOR or
a receiver or trustee is appointed to operate or liquidate DISTRIBUTOR.

     (iii) In no circumstances will any receiver or trustee of DISTRIBUTOR be
entitled to sell or distribute any Licensed Product obtained by DISTRIBUTOR
pursuant to the Agreement except in strict compliance with the terms of the
Agreement, and only with the express written consent of MS.

(o) (i) DISTRIBUTOR shall comply with the following Distributor Minimum
Standards:

          (A) DISTRIBUTOR's projected royalties for Licensed Products
distributed during the first twelve (12) months of this Agreement shall be not
less than One Million Dollars (US$1,000,000); AND

          (B) DISTRIBUTOR's total copies of the Licensed Products listed below
("Embedded Licensed Products") projected to be distributed during the first
twelve (12) months of this Agreement shall be at least forty percent (40%) of
DISTRIBUTOR's total copies of all Licensed Products projected to be distributed
during that period under this Agreement.

     (ii) As used in this section, "Embedded Licensed Products" shall mean (a)
the following Licensed Products: Windows CE, Windows NT Embedded, Windows XP
Embedded, Windows 2000 for Web Server Appliances, Windows 2000 for Network
Attached Storage Server Appliances, Windows 2000 Server for Embedded Systems
with the Server Appliance Software, Windows 2000 Advanced Server for Embedded
Systems with the Server Appliance Software, Microsoft(R) Windows(R) 2000 Server
for Telecommunications Systems with the Server Appliance Software, and (b)
successors to such Licensed Products and other Microsoft(R) software products
identified by MS, if and as licensed pursuant to this Agreement.

3.  ROYALTY RATE LIST.

(a) At least fifteen (15) days prior to the first day of each month, MS will
post on the Embedded Systems Web Site, or provide to DISTRIBUTOR by electronic
notice (email) or written notice, the Royalty Rate List for the upcoming month.

(b) MS may modify the Royalty Rate List upon notice to DISTRIBUTOR. Submission
of Licensed Product orders to AR(s) or distribution of Licensed Product after
the effective date of any modifications to the Royalty Rate List shall
constitute DISTRIBUTOR's acceptance of such modifications. New royalty rates
will be effective upon such notice or on the date specified on the Royalty Rate
List.

(c) The royalty rate and Additional Licensing Provisions for MS Distributor for
any Licensed Product removed from the Royalty Rate List shall be as stated on
the last Royalty Rate List that included the Licensed Product.

4.  REPORTS AND PAYMENTS.

(a) DISTRIBUTOR agrees that it will maintain a tracking system for a period of
three (3) years after the expiration or cancellation of this Agreement, which
allows for complete tracking of shipments by

     (i) Licensed Product - including quantity, COA sticker serial number, and
shipment date; and

     (ii) OEM Customer - including contact name, address, and telephone number,
and OEM Customer Agreement number.

(b) DISTRIBUTOR shall ensure that all reports submitted by DISTRIBUTOR to MS
under this Agreement are accurate and complete.

(c) Within fifteen (15) days after the end of each calendar month, and fifteen
(15) days after the termination, cancellation or expiration date of this
Agreement for the final full or partial month, DISTRIBUTOR shall complete and
electronically submit a sales-out and royalty report, in accordance with the
then current Sales-Out and Royalty Reporting Guidelines.

(d) (i)  For each calendar month, DISTRIBUTOR shall remit payment(s) to MS as
specified in the Payment and Reporting section of the Addresses Schedule.
Subject to applicable law, a one percent (1%) monthly charge will be assessed on
all amounts that are past due.

    (ii) If MS is required by any tax authority to collect value added tax or
other transactions tax on royalties, MS will include the tax on its invoice and
DISTRIBUTOR must pay the amount in full.

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<PAGE>

     (iii) All payments must be in U.S. dollars and amounts owed will not be
satisfied by a tender or any recovery pursuant to any judgment which is
expressed in or converted by MS to any currency other than the full amount of
U.S. dollars payable under this Agreement.

(e) For each unit of Licensed Product distributed by DISTRIBUTOR, DISTRIBUTOR
agrees to pay MS the royalty rates set forth in the Royalty Rate List in effect
during the month in which Licensed Product is shipped by DISTRIBUTOR.
DISTRIBUTOR shall pay royalties within forty-five (45) days after the end of
each calendar month in which Licensed Product was shipped, and within forty-five
(45) days after the cancellation or expiration date of this Agreement for the
final full or partial month.

(f) After review of DISTRIBUTOR's financial condition, payment history and
overall credit worthiness, MS may require any combination of the following
payment assurances:

     (i) an initial payment amount equal to the estimated Licensed Product
royalties for the first calendar quarter of the Agreement

 -   DISTRIBUTOR may not recoup such initial payment amount against royalties
     due to MS or apply it against payments to any AR.

 -   If DISTRIBUTOR has complied with all material terms of this Agreement when
     it expires, MS will refund the initial payment amount (net of amounts due
     MS) within forty-five (45) days of DISTRIBUTOR's final royalty report and
     payment for Licensed Products distributed during the term of this
     Agreement; or

     (ii) a third party guarantee, performance bond, letter of credit,
     prepayment of royalties, or other security; or

     (iii) periodic updated financial statements; or

     (iv) written assurances of due performance.

Until the payment assurances are received and acceptable to MS, MS may suspend
DISTRIBUTOR's license rights or require ARs to refuse to fill DISTRIBUTOR's
orders.

(g) DISTRIBUTOR's obligations to pay MS royalties and to pay charges from AR are
unconditional. If DISTRIBUTOR does not meet MS payment terms, MS may, without
limiting its remedies, do any of the following:

     (i) require the AR to hold all pending DISTRIBUTOR orders; or

     (ii) cancel this Agreement; or

     (iii) invoice DISTRIBUTOR for all Licensed Product previously acquired
based on reports submitted to MS by the AR(s) and charge DISTRIBUTOR an
additional royalty equal to thirty percent (30%) of the highest royalty for such
Licensed Product(s).

     -    For the first noncompliant payment, DISTRIBUTOR will have an
     additional five (5) days from MS' notice thereof to correct the problem.

     -    After the second noncompliant payment, MS may invoice DISTRIBUTOR
     monthly based on reports submitted to MS by the AR(s).

If MS chooses any of those options, DISTRIBUTOR shall continue to meet all other
terms of this Agreement.

(h) If DISTRIBUTOR discovers an over-reporting error, DISTRIBUTOR shall report
the error to MS in writing within thirty (30) days after the erroneous report
was first submitted to be eligible for an adjustment of the royalty amount owed
to MS.

(i) MS may require ARs to refuse or limit orders placed by DISTRIBUTOR which, in
MS' sole opinion, are in quantities greater than DISTRIBUTOR will be able to
distribute or make timely payment for in compliance with this Agreement.

(j) Royalties are separate from, and in addition to, any charges by the AR for
Licensed Products ordered by DISTRIBUTOR. Royalties also exclude any taxes,
duties, fees, excises or tariffs imposed on any of DISTRIBUTOR's activities in
connection with this Agreement. Such charges, taxes, duties, fees, excises or
tariffs, if any, shall be paid by DISTRIBUTOR.

(k) If DISTRIBUTOR distributes any Licensed Product in violation of this
Agreement or DISTRIBUTOR is unable to account for missing Licensed Product, then
MS, without limiting its remedies, may demand and DISTRIBUTOR agrees to pay MS
the full applicable royalty rate for the Licensed Product(s) plus an additional
royalty equal to thirty percent (30%) of the highest royalty rate for the
Licensed Product(s). In the event the applicable royalty rate has been paid,
DISTRIBUTOR shall pay an additional royalty equal to thirty percent (30%) of the
royalty rate for the applicable Licensed Product(s). DISTRIBUTOR shall pay such
additional royalty within thirty (30) days of receipt of MS' invoice.

(l) If DISTRIBUTOR is required by any non-U.S.A. government to withhold income
taxes on payments to MS, then DISTRIBUTOR may deduct such taxes from the amount
owed MS and shall pay them to the appropriate tax authority, provided that
within sixty (60) days of payment to MS, DISTRIBUTOR delivers to MS an official
receipt for any such taxes withheld or other documents necessary to enable MS to
claim a U.S.A. Foreign Tax Credit. DISTRIBUTOR shall make certain that any taxes
withheld are minimized to the extent permitted by applicable law. DISTRIBUTOR
agrees to pay MS a one percent (1%) monthly charge on tax amounts in receipts or
documents that are not delivered to MS within the sixty (60) days identified
above.

(m) If DISTRIBUTOR conducts business in the U.S.A. and qualifies for a state
resale tax exempt certificate, then DISTRIBUTOR shall provide MS with a copy of
its U.S.A. state resale tax exempt certificate, if applicable, with this
Agreement when it is returned for signature by MS.

(n) Upon request by MS, DISTRIBUTOR shall provide MS with DISTRIBUTOR's current
audited financial statements.

(o) (i) Pursuant to MS' instructions, DISTRIBUTOR shall enter data into the
Embedded Systems tracking tool made available by MS including, "design-win"
and/or "design-in" information as described in the instructions. Prior to
submitting such entries, DISTRIBUTOR shall confirm their accuracy.

(ii) Upon MS request, DISTRIBUTOR shall provide to MS further details on any of
the entries made by DISTRIBUTOR in accordance with subsection 4(o)(i) above.

5. USE OF MS OEM ONLINE. If DISTRIBUTOR has previously entered into an MS OEM
Online Site Agreement, such agreement shall not apply to DISTRIBUTOR's use of
the Site in connection with this Agreement. Rather, DISTRIBUTOR agrees to the
following terms and conditions, and shall cause its MOO Customer
Administrator(s) and Users (as defined below) to use the Site in compliance with
this Section 5 and the terms of use or other conditions or instructions posted
on the Site:

(a) As used in this Section 5, the term "User" means an officer, employee,
consultant or other person or agent of DISTRIBUTOR who has, or who creates the
appearance of having, been duly authorized by DISTRIBUTOR to use the Site on
behalf of DISTRIBUTOR. The term "MOO Customer Administrator(s)" means the
User(s) designated as such by DISTRIBUTOR in the Address Schedule of this
AGREEMENT until such time as MS

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has received not less than forty-eight (48) hours notice from DISTRIBUTOR
through the ** email alias that DISTRIBUTOR has made a change to any authority
previously established by DISTRIBUTOR in connection with such designation. The
term "Tool" means computer programs now or hereafter accessed at or through the
Site, which are intended to facilitate Site services, such as a program for
reporting royalties at or through the Site.

(b) MOO Customer Administrator(s) shall be solely responsible for establishing,
maintaining and terminating all access and authorities for Users, including
(without limitation) creating or arranging for all passwords, private encryption
keys or other identifiers utilized in connection with Site security or
DISTRIBUTOR security (collectively, "DISTRIBUTOR Password Information"), and
shall keep all DISTRIBUTOR Password Information secure from unauthorized access.
On behalf of DISTRIBUTOR, MOO Customer Administrator(s) shall, and shall cause
and instruct Users to: (i) protect DISTRIBUTOR Password Information as
confidential information and not disclose any part of it to any person or entity
outside of DISTRIBUTOR or to any person inside of DISTRIBUTOR without a need to
know; (ii) save their respective DISTRIBUTOR Password Information in an
appropriate, secure manner and place that will prevent unauthorized use; and
(iii) only take actions at the Site that the MOO Customer Administrator or User,
respectively, is authorized by DISTRIBUTOR to take.

(c) MS reserves the right to suspend or terminate authorities, or to suspend or
block access to all or any part of the Site or information, upon electronic
notice (indicating the reason for such action) to the MOO Customer
Administrator(s) email address; provided, however, that no notice shall be
required if MS has determined that there is possible harm or threat of harm to
MS, the Site or others. If prior notice is not provided, MS shall provide
DISTRIBUTOR with subsequent notice within a reasonable time unless the provision
thereof might continue a possible harm or threat of harm, or impede or
compromise any investigation into the same.

(d) The Site uses HTTPS (Secure Hypertext Transfer Protocol) with a **-bit key
size. DISTRIBUTOR agrees that this level of security is commercially reasonable.
Additionally, DISTRIBUTOR agrees that neither MS nor any MS Representative shall
have any liability for failure to provide a level of security greater than that
generally afforded by the use of client side digital certificates at 1024-bit
cipher strength for user workstation authentication.

(e) DISTRIBUTOR EXPRESSLY ACKNOWLEDGES AND AGREES THAT:

(i) THE SITE IS PROVIDED AS IS, AND THAT THE WARRANTY DISCLAIMERS, DAMAGE
EXCLUSIONS AND LIMITATIONS OF REMEDIES IN THIS AGREEMENT APPLY TO THE SITE AND
TO ITS INFORMATION, FUNCTIONALITY, SERVICES AND AVAILABILITY OR LACK THEREOF;
AND

(ii) DISTRIBUTOR WILL NOT RELY ON OR TREAT SITE INFORMATION AS AN EXPRESS OR
IMPLIED WARRANTY OF EITHER THE SITE OR LICENSED PRODUCT(S).

(f) MS reserves the right to change or discontinue all or any portion of the
Site at any time. Users may make a copy of Site information to document
DISTRIBUTOR transactions and/or contracts or to retain information MS is
required to provide. MS agrees to retain not less than two (2) years of
DISTRIBUTOR online transactional record availability through the standard
Microsoft OEM Online user interface, and not less than two (2) years of
retrievable offline transactional record archival (e.g., electronic media)
following expiration of online availability. Except for those records, MS has no
duty to retain or make available records for DISTRIBUTOR's later access.

It is understood that DISTRIBUTOR will not be required to use the Site if (1) MS
suspends or blocks access or otherwise disables all or any part of the Site or
any Tool; or (2) the Site or any Tool are not accessible or are not functioning
correctly, and such problems are not resolved by MS within seventy-two (72)
hours of DISTRIBUTOR providing notice to MS describing such problem. In the
event of the foregoing, MS will provide DISTRIBUTOR with a reasonable
alternative means for reporting transactions, and DISTRIBUTOR shall be deemed in
compliance with the Agreement (and will not be penalized for delays in
reporting) so long as DISTRIBUTOR complies with the alternative reporting
structure in a prompt manner.

(g) The Site is not open to the public and its functionality and all information
on it shall be treated as confidential information under the nondisclosure
provisions of Section 17.

(h) (i) DISTRIBUTOR agrees to access and use the Site for all transactions and
purposes contemplated by the Site until the date that is the earliest of the
date that: (A) MS ceases to provide the Site to similarly situated distributors
of Licensed Products, or (B) the date DISTRIBUTOR has satisfied all of its
rights and obligations under this Agreement.

(ii) Subject to applicable law, all actions taken by the MOO Customer
Administrator(s) or any other User at or in relation to the Site shall be
attributed to and legally bind DISTRIBUTOR if (A) MOO Customer Administrator(s)
or any other User(s) has supplied on the Site or otherwise in relation to a Site
session, DISTRIBUTOR Password Information; or (B) DISTRIBUTOR or Users have
failed to keep DISTRIBUTOR Password Information secure and the failure caused or
contributed to creation of an appearance that actions taken in connection with
the Site were being taken by, or on behalf of DISTRIBUTOR; or (C) DISTRIBUTOR
has otherwise approved, allowed or accepted benefits or use of the Site by a
person purporting to be its agent. Notwithstanding the foregoing, if DISTRIBUTOR
Password Information is used to cause harm or damage to DISTRIBUTOR or MS by a
person who obtained it by means that could not have been precluded by
DISTRIBUTOR after complying with Section 5(b), then acts taken with DISTRIBUTOR
Password Information so obtained will not be attributed to DISTRIBUTOR because
of this Section 5(h)(ii), but may be attributed to MS, DISTRIBUTOR or others
under principles of equity or law pertinent to the act in question.

6.  LICENSED PRODUCT RECALLS, WITHDRAWALS, AND SUSPENSIONS.

(a) DISTRIBUTOR shall immediately stop distributing a Licensed Product if MS or
its Suppliers notify DISTRIBUTOR that the Licensed Product is recalled,
withdrawn or suspended.

(b) DISTRIBUTOR shall accept returns of Licensed Product from OEM Customers if
MS or its Suppliers notify DISTRIBUTOR that the Licensed Product is recalled,
withdrawn or suspended.

     (i) DISTRIBUTOR shall accept returned Licensed Product only in unopened
packages.

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<PAGE>

     (ii) DISTRIBUTOR shall, at MS' option, issue a credit to the OEM Customer's
account or replace the returned Licensed Product.

     (iii) DISTRIBUTOR shall, at MS' option, destroy the returned Licensed
Product or ship the returned Licensed Product to MS or a third party designated
by MS. DISTRIBUTOR shall certify to MS that the returned Licensed Product was
destroyed or shipped to MS or MS' designated third party.

     (iv) If the Licensed Product recall, withdrawal or suspension was caused by
reasons outside of DISTRIBUTOR's control, MS will pay for DISTRIBUTOR's
reasonable shipping and destruction costs.

     (v) DISTRIBUTOR shall promptly arrange for replacement units of Licensed
Product from the AR.

(c) DISTRIBUTOR shall accept returns if

     (i) an OEM Customer refuses to accept Additional Licensing Provisions for
OEM Customer and returns the unopened Licensed Product package within a
reasonable time after receipt; or

     (ii) a Licensed Product is incomplete or defective in Licensed Product
media and/or Licensed Product materials.

(d) DISTRIBUTOR will not pay MS for Licensed Product that DISTRIBUTOR ships to
replace Licensed Product returned because of recalls, withdrawals, suspensions
or defects (Sections 6(b) and 6(c)(ii)).

(e) If DISTRIBUTOR issues a credit to OEM Customers for Licensed Product
returned because of recalls, withdrawals, suspensions or defects or for Licensed
Product returned in an unopened package (Sections 6(b) and 6(c)), DISTRIBUTOR
may claim a royalty offset based on the royalty rate originally reported by
DISTRIBUTOR for the returned Licensed Product.

(f) Except for returns that DISTRIBUTOR is expressly authorized or directed to
make to MS, MS will not accept any returns of Licensed Product.

(g) DISTRIBUTOR shall defend, indemnify, and hold MS and its Suppliers harmless
from and against all damages, costs and expenses, including reasonable
attorneys' fees, incurred due to DISTRIBUTOR's continued distribution of
Licensed Product after MS has notified DISTRIBUTOR to stop distributing the
Licensed Product.

7.  DELIVERY.

Neither MS nor its Suppliers shall have any liability for failure to deliver
Licensed Product by any particular date.

8.  NO WARRANTIES.

LICENSED PRODUCT IS PROVIDED "AS IS" AND WITH ALL FAULTS. THE ENTIRE RISK AS TO
SATISFACTORY QUALITY, PERFORMANCE, ACCURACY, AND EFFORT IS WITH OEM CUSTOMER. MS
AND ITS SUPPLIERS DISCLAIM ALL REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS,
IMPLIED, OR STATUTORY, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE AND ANY IMPLIED WARRANTY ARISING FROM COURSE OF
DEALING OR USAGE OF TRADE. MS AND ITS SUPPLIERS ALSO DISCLAIM ANY COMMON-LAW
DUTIES RELATING TO ACCURACY OR LACK OF NEGLIGENCE. THERE IS NO WARRANTY AGAINST
INTERFERENCE WITH DISTRIBUTOR'S OR OEM CUSTOMER'S ENJOYMENT OF THE LICENSED
PRODUCT OR AGAINST INFRINGEMENT.

9.  DAMAGE EXCLUSIONS / LIMITATION OF LIABILITY / EXCLUSIVE REMEDY.

LIMITATION OF AMOUNTS OF LIABILITY; EXCLUSIVE REMEDY. For each Licensed Product,
DISTRIBUTOR agrees that in no event will MS, its Suppliers, and/or their
respective officers, employees, and agents (collectively, "MS Representatives")
be liable to DISTRIBUTOR, whether in contract (including any provision of this
Agreement), tort, or otherwise, in any amount that exceeds one hundred percent
(100%) of the amount paid by DISTRIBUTOR to MS for that Licensed Product during
the term of this Agreement. DISTRIBUTOR's exclusive remedy for any breach of
this Agreement by MS or by MS Representatives will be the recovery of
DISTRIBUTOR's direct damages incurred in reasonable reliance, limited to the
foregoing amount.

(a) EXCLUSION OF CERTAIN DAMAGES AND LIMITATION OF TYPES OF LIABILITY. EXCEPT AS
PROHIBITED BY LAW, IN NO EVENT WILL MS OR ANY MS REPRESENTATIVES BE LIABLE TO
DISTRIBUTOR OR TO ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL,
INDIRECT, OR ECONOMIC DAMAGES, REGARDLESS OF THE THEORY OF LIABILITY (INCLUDING
WITHOUT LIMITATION PRODUCT LIABILITY OR NEGLIGENCE), OR FOR ANY LOST REVENUE,
PROFIT, DATA, PRIVACY OR SECURITY, OR FOR ANY PUNITIVE DAMAGES, ARISING OUT OF
OR RELATED TO THE USE OF OR INABILITY TO USE LICENSED PRODUCT, EVEN IF MS OR MS
REPRESENTATIVES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. This
exclusion and limitation shall apply even if any remedy fails of its essential
purpose.

(b) RELEASE. DISTRIBUTOR releases MS and MS Representatives from all liability
in excess of the limitations set forth above.

10.  PROHIBITED USES OF LICENSED PRODUCT / CONSPICUOUS NOTICE TO OEM CUSTOMERS.

OEM CUSTOMERS ARE EXPRESSLY PROHIBITED FROM MANUFACTURING OR MARKETING EMBEDDED
SYSTEMS THAT ARE DESIGNED TO USE LICENSED PRODUCT IN OPERATION OF NUCLEAR
FACILITIES, IN AIRCRAFT NAVIGATION, IN AIRCRAFT COMMUNICATION, IN AIRCRAFT
FLIGHT CONTROL, IN AIRCRAFT AIR TRAFFIC CONTROL SYSTEMS, OR IN OTHER DEVICES OR
SYSTEMS IN WHICH SERIOUS INJURY OR DEATH TO THE OPERATOR OF THE DEVICE OR
SYSTEM, OR TO OTHERS DUE TO A MALFUNCTION (INCLUDING, WITHOUT LIMITATION,
SOFTWARE RELATED DELAY OR FAILURE) COULD REASONABLY BE FORESEEN. DISTRIBUTOR
SHALL PROVIDE CONSPICUOUS WRITTEN NOTICE TO ALL OEM CUSTOMERS OF THIS LIMITATION
ON PROHIBITED USES OF LICENSED PRODUCT.

11.  INTELLECTUAL PROPERTY INFRINGEMENT.

(a) MS agrees to defend DISTRIBUTOR in a lawsuit or other judicial action, and
pay the amount of any adverse final judgment (or settlement to which MS
consents) from such lawsuit or judicial action, for any third party claim(s)
that the Licensed Product(s) infringe any copyright or trademark rights
enforceable in any Included Jurisdictions (defined in Section 11(e) below)
("Claim").

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With regard to any Claim, MS' obligations are subject to the following
conditions:

     (i) DISTRIBUTOR must promptly notify MS in writing of the Claim;

     (ii) MS shall have sole control over defense and/or settlement of the
Claim; and

     (iii) DISTRIBUTOR shall provide MS with reasonable assistance in the
defense of the Claim and shall not take a position adverse to MS.

(b) In the event that MS is required to defend a lawsuit or other judicial
action pursuant to Section 11(a) above and such lawsuit or other judicial action
includes allegations (other than a Claim) with respect to non-MS products, then
DISTRIBUTOR shall retain, at its sole expense, separate counsel to defend
against such allegations, and agrees to reimburse MS for any and all attorneys'
fees and costs incurred by MS with respect to defending against such
allegations. Moreover, MS and its Suppliers shall have no liability for any
intellectual property infringement claim (including a Claim) based on
DISTRIBUTOR's manufacture, use, sale, offer for sale, importation or other
disposition or promotion of the Licensed Product or trademark after MS' notice
that DISTRIBUTOR should cease manufacture, use, sale, offer for sale,
importation or other disposition or promotion of such Licensed Product or
trademark due to such claim. DISTRIBUTOR shall defend, indemnify and hold MS and
its Suppliers harmless from and against all damages, costs and expenses,
including reasonable attorneys' fees incurred due to DISTRIBUTOR's continued
distribution of the allegedly infringing Licensed Product after MS provides such
notice.

(c) In addition to the obligations set forth in Section 11(a) above, if MS
receives information concerning a Claim, MS may at its expense, but without
obligation to do so, undertake such further actions such as:

     (i) procuring for DISTRIBUTOR such copyright or trademark right(s) or
license(s) as may be necessary to address the Claim; or

     (ii) replacing or modifying the Licensed Product or trademark to make it
non-infringing (in which case DISTRIBUTOR shall immediately cease distribution
of the allegedly infringing Licensed Product or use of the allegedly infringing
trademark).

(d) With regard to any claim (other than a Claim) that the Licensed Product
infringes any third party intellectual property rights, DISTRIBUTOR shall
promptly notify MS in writing of such claim. MS shall have no obligation to
defend DISTRIBUTOR or pay damages arising out of such claim. Notwithstanding the
absence of any such obligation(s), MS reserves the option, in its sole
discretion and at its expense, to assume at any time defense of any such claim.
In the event that MS assumes defense of any such claim,

     (i) MS shall notify DISTRIBUTOR in writing of that election;

     (ii) MS shall have sole control over defense and/or settlement of the
claim;

     (iii) DISTRIBUTOR shall provide MS with reasonable assistance in the
defense of the claim and shall not take a position adverse to MS;

     (iv) MS shall thereafter defend DISTRIBUTOR against that claim; and

     (v) MS shall pay any adverse final judgment (or settlement to which MS
consents) resulting from such claim (or in the case of a claim based on an
allegation of patent infringement, MS shall pay up to an amount not to exceed a
reasonable royalty based on the per copy price paid by DISTRIBUTOR for copies of
the Licensed Products subject to the claim).

(e) Neither MS nor its Suppliers shall have any obligation to DISTRIBUTOR for
any Claims that arise outside the geographical boundaries of the Included
Jurisdictions. "Included Jurisdictions" means Australia, Canada, the European
Union, Japan, Norway, and the United States.

12.  LICENSED PRODUCT SUPPORT.

(a) This Agreement does not include technical support by MS to DISTRIBUTOR, OEM
Customers or end users.

(b) DISTRIBUTOR shall provide commercially reasonable support for the Licensed
Products to OEM Customers and shall advise OEM Customers accordingly.

(c) For the term of this Agreement, DISTRIBUTOR shall either (i) enter into and
maintain a technical support services contract for the Licensed Product(s) with
MSCORP for a minimum of two hundred (200) hours through Microsoft Services for
Embedded Partners or with a third party for an equivalent level of service, or
(ii) MS verifies that DISTRIBUTOR has and maintains a competency and level
equivalent to those services. If the DISTRIBUTOR chooses to acquire support
through MSCORP, DISTRIBUTOR acknowledges that MSCORP may charge applicable
support fees under such contract.

(d) DISTRIBUTOR shall provide MS with ninety (90) days prior written notice of
any substantive change in DISTRIBUTOR's support policy for the Licensed Product.

13. NON-ASSERTION OF PATENTS.

(a) The following definitions apply with regard to this Section 13 only:

     (i) "Affiliates" means persons or entities directly or indirectly (A)
controlling DISTRIBUTOR or MS, (B) controlled by DISTRIBUTOR or MS, or (C) under
common control with DISTRIBUTOR or MS, where control is defined as direct or
indirect majority ownership.

     (ii) "DISTRIBUTOR Patents" means only those patents throughout the world
that (A) are infringed on account of the manufacture, use, sale, offer for sale,
importation or other disposition or promotion of the Covered Product, and (B)
DISTRIBUTOR or its Affiliates (1) now owns or later acquires or controls prior
to the cancellation or expiration of the Agreement, or (2) now has, or hereafter
obtains, prior to the cancellation or expiration of the Agreement, the ability
or right to grant licenses or covenants without the requirement of a bona fide
payment to an unaffiliated third party.

     (iii) "Covered Product" means the Licensed Product deliverable(s) licensed
by MS to DISTRIBUTOR including any Supplemental Code distributed by DISTRIBUTOR.
To the extent that the features and functionality presently contained in the
Covered Product licensed to DISTRIBUTOR under the Agreement are also contained
in future, replacement, or successor product(s) to the Covered Product, such
specific features and functionality in such future, replacement, or successor
product(s) shall also be considered part of the Covered Product only for the
purposes of this Section 13.

     (iv) "MS Licensee" means any third party that is directly or indirectly
licensed by MS or MSCORP to exercise any legal rights with respect to the
Covered Product, including (without limitation) OEM customers, all other
authorized distributors of the Covered Product, and end users of the Covered
Product.

(b) As partial, material consideration for the rights granted to DISTRIBUTOR
under the terms of the Agreement,

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DISTRIBUTOR and its Affiliates covenant not to (A) sue, or (B) bring, prosecute,
assist or participate in any judicial, administrative or other proceedings of
any kind against MS, MS Affiliates, and MS Licensees for infringement of
DISTRIBUTOR Patents on account of the making, use, sale, offer for sale,
importation or other disposition or promotion of the Covered Product.

(c) With respect to infringement claims based on a third party product in
combination with the Covered Product, the covenant in this Section 13 does not
extend to such combinations unless, for any given claim of a DISTRIBUTOR Patent,
the manufacture, use, sale, offer for sale, importation, or other disposition or
promotion of the Covered Product constitutes direct or contributory infringement
of such patent claim.

(d) DISTRIBUTOR's Section 13 covenant as to MS, MS Affiliates, and MS Licensees
shall terminate as to all infringements occurring more than three (3) years
after DISTRIBUTOR stops distributing the Covered Product, except that such
covenant shall survive for end user activities licensed under an applicable end
user license agreement.

(e) If DISTRIBUTOR or its Affiliates are first sued for patent infringement by a
third party on account of DISTRIBUTOR's or its Affiliates' manufacture, use,
sale, offer for sale, importation or other disposition or promotion of the
Covered Product, then this Section 13 covenant may, at DISTRIBUTOR's discretion,
be temporarily suspended as to that third party. Any such temporary suspension
shall only be applicable against such third party and for the sole purpose of
DISTRIBUTOR's defense in such patent infringement action.

(f) If DISTRIBUTOR or its Affiliates assign DISTRIBUTOR Patents or rights to
enforce DISTRIBUTOR Patents, DISTRIBUTOR or its Affiliates, as the case may be,
shall require as a condition of any such assignment that the assignee agree to
be bound by the provisions of this Section 13 as to such DISTRIBUTOR Patents.

14.  ASSIGNMENT.

(a) This Agreement shall not be assigned or sublicensed by DISTRIBUTOR in whole
or in part (by contract, merger, operation of law, or otherwise). A change of
majority ownership or control of DISTRIBUTOR shall constitute an assignment in
violation of this Section. Any assignment or sublicense in violation of this
provision shall be void and of no effect, and shall constitute a material breach
of the terms of this Agreement.

(b) On or after August 1, 2004, the Agreement and any related agreement(s) to
which MS is a party or by which MS is benefited, including all rights and
obligations thereunder, may be assigned by MS to a direct or indirect wholly
owned subsidiary of MSCORP. MS shall provide DISTRIBUTOR with notice of such
assignment, provided, however, that failure to provide notice shall not affect
the effectiveness of any such assignment. From and after such assignment, all
references to "MS" contained in the Agreement or any related documents or items
shall refer to the assignee identified in the applicable assignment notice to
DISTRIBUTOR, and all references to "Suppliers" shall include Microsoft
Licensing, GP.

15.  TERM.

(a) This Agreement runs from the Effective Date through the Expiration Date
specified on the Signature Page of this Agreement. MS may extend the term of
this Agreement upon written or electronic notice to DISTRIBUTOR. DISTRIBUTOR's
acquisition or distribution of Licensed Product during an extension signifies
DISTRIBUTOR's agreement to the terms of the extension. Both parties agree to be
bound by the terms of any extension notification, if accepted by DISTRIBUTOR.

(b) This Agreement will automatically extend for thirty (30) days for the
limited purpose of allowing DISTRIBUTOR to distribute inventory of Licensed
Product ("Limited Purpose Extension") if:

     (i) MS has not canceled this Agreement,

     (ii) MS has not suspended DISTRIBUTOR's distribution rights, and (iii)
DISTRIBUTOR and MS do not enter into a successor agreement to this Agreement.

During the Limited Purpose Extension, DISTRIBUTOR may distribute Licensed
Product, but DISTRIBUTOR may not acquire Licensed Product from an AR.
DISTRIBUTOR must comply with all payment and reporting requirements of the
Agreement for Licensed Product distributed during the Limited Purpose Extension.

(c) (i) This Agreement does not create any express or implied obligation to
renew or extend the Agreement or to continue the parties' relationship on the
same terms. Regardless of the number of renewals, this Agreement will always be
a fixed term agreement and not an indefinite term agreement.

     (ii) Without limiting the foregoing, MS may elect not to enter into a
successor agreement to the Agreement if DISTRIBUTOR has not complied with the
Distributor Minimum Standards during the term of the Agreement. Any exception to
or waiver of any portion of the Distributor Minimum Standards shall not be
effective unless made in writing by MS.

16.  NONCOMPLIANCE AND CANCELLATION.

(a) (i) MS may suspend any rights granted to DISTRIBUTOR under this Agreement,
and/or require ARs to refuse to fulfill or to limit orders placed by
DISTRIBUTOR, and/or cancel this Agreement in its entirety or as to any
individual Licensed Product(s), in MS' sole discretion. Without limiting the
foregoing, MS may cancel this Agreement if DISTRIBUTOR submits "zero dollar"
royalty reports for at least three calendar months.

     (ii) DISTRIBUTOR hereby waives any right it may have under applicable law
or regulation to require MS to seek the approval, order, decision or judgment of
any court or government agency before MS may suspend or cancel this Agreement or
any rights granted to DISTRIBUTOR under this Agreement.

(b) (i)   If, subject to applicable law, DISTRIBUTOR becomes insolvent, enters
bankruptcy, reorganization, composition or other similar proceedings under
applicable laws, whether voluntary or involuntary, or admits in writing its
inability to pay its debts, or makes or attempts to make an assignment for the
benefit of creditors, any cancellation shall be effective upon notice to
DISTRIBUTOR or as soon thereafter as is permitted by applicable law;

     (ii) To the extent allowed by applicable law, DISTRIBUTOR's license rights
herein shall be suspended as of the date DISTRIBUTOR becomes insolvent, enters
reorganization, composition or other similar proceedings under applicable laws,
whether voluntary or involuntary, or admits in writing its inability to pay its
debts, or makes or attempts to make an assignment for the benefit of creditors.

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(c) Upon cancellation or expiration of this Agreement, all DISTRIBUTOR's license
rights shall immediately cease and DISTRIBUTOR shall

     (i) immediately cease distribution of all Licensed Product;

     (ii) immediately stop using all MS and its Suppliers names, trade names,
trademarks, and logos; and

     (iii) return to MS or, at MS's direction, destroy all Licensed Product
inventory and property of MS or its Suppliers that DISTRIBUTOR possesses. MS,
its Suppliers and ARs are not required to refund, credit, or adjust amounts paid
for the Licensed Product(s) returned to MS or destroyed by DISTRIBUTOR. Each
party must assist the other to terminate this Agreement in an orderly manner.

(d) When this Agreement terminates or if MS suspends DISTRIBUTOR's distribution
rights, MS may take any actions that may be advisable to prevent unauthorized
distribution of Licensed Product(s) then in inventory and to ensure timely
return or destruction of such Licensed Product(s).

(e) DISTRIBUTOR expressly agrees that, except as otherwise set forth in this
Agreement, the cancellation or expiration of this Agreement in accordance with
its terms shall not cause MS or any of its Suppliers to pay any indemnification,
severance or termination payment or benefit to DISTRIBUTOR, or any of
DISTRIBUTOR's suppliers. If MS or any of its Suppliers is required by law, court
order or otherwise to pay to DISTRIBUTOR or any of its subsidiaries or
affiliates, or a third party, any compensation, severance pay or benefit other
than as set forth in this Agreement ("Benefits"), DISTRIBUTOR shall indemnify MS
and/or the relevant Supplier from the payment as well as from any reasonable
costs and expenses (including, but not limited to, attorneys' fees and expenses)
incurred by them in connection with their involvement in any judicial or
administrative proceeding in connection thereto in any foreign jurisdiction (the
Benefits, together with any costs and expenses indemnifiable by DISTRIBUTOR
pursuant to this paragraph referred to collectively as the ("Indemnifiable
Payments"). DISTRIBUTOR irrevocably authorizes MS

     (i) to set off against the payment of the obligations of MS under this
     Agreement, the amount of any and all Indemnifiable Payments, and

     (ii) to hold, pending final determination of the amount of the
     Indemnifiable Payments, the payment of the obligations of MS under this
     Agreement as security for the payment of all Indemnifiable Payments by
     DISTRIBUTOR to MS, if MS, in its sole discretion, determines that there are
     reasonable grounds to believe that MS is or shall be required to pay any
     Indemnifiable Payments.

(f) The remedies available to MS under this Agreement for DISTRIBUTOR's breach
are not exclusive. In addition to such remedies, MS may exercise any and all
legal, equitable or other remedies available to it.

(g) Sections 2(m), 5, 8, 9, 11(d), 13, 14, 16(e-f), 17, 18, 19, 20, and 21(b) of
this Agreement shall survive cancellation or expiration of this Agreement.

17.  NONDISCLOSURE.

(a) DISTRIBUTOR shall keep confidential:

     (i) the terms of this Agreement, including, without limitation, the Royalty
Rate List(s),

     (ii) information on the Embedded Systems Web Site, information concerning
current and potential OEM Customers, MS and its Suppliers royalty rate
information, the terms of agreements concerning MS and its Suppliers products,
license negotiations, any information relating to released or unreleased MS and
its Suppliers software products, the marketing or promotion of any MS and its
Suppliers product, and MS and its Suppliers business policies or practices that
MS or its Suppliers disclosed to DISTRIBUTOR and is non-public information, and

     (iii) any other information that, in the circumstances surrounding the
disclosure or in the nature of the information, ought in good faith to be
treated as confidential.

(b) DISTRIBUTOR may disclose the terms of the Agreement in confidence to its
immediate legal and financial consultants as required in the ordinary course of
DISTRIBUTOR's business.

18. AUDITS.

(a) During the term of this Agreement and for three (3) years thereafter,
DISTRIBUTOR shall keep at a single, readily accessible location all accounting,
purchase, inventory, sales and other records relating to the acquisition and
distribution, or destruction of each Licensed Product ("Records").

(b) In order to verify DISTRIBUTOR's compliance with this Agreement, MS may
cause (i) an audit to be made of DISTRIBUTOR's Records and/or (ii) an inspection
to be made of DISTRIBUTOR's facilities and procedures, either with or without
prior notice to DISTRIBUTOR. Audits shall be conducted by an independent
certified public accountant selected by MS (other than on a contingent fee
basis).

(c) DISTRIBUTOR agrees to provide any audit or inspection team designated by MS
access to all relevant DISTRIBUTOR Records and facilities.

(d) MS shall pay the costs of any audit or inspection unless the review
discovers discrepancies that exceed the lesser of Ten Thousand US Dollars
(US$10,000.00) or two percent (2%) of royalties originally reported by
DISTRIBUTOR during the time frame that was audited, or an intentional and
material breach of any DISTRIBUTOR obligations under this Agreement ("Material
Discrepancy"). In the event of a Material Discrepancy, DISTRIBUTOR shall pay MS,
in addition to unpaid amounts due, the costs of the audit, plus an additional
royalty of twenty-five percent (25%) of the applicable product royalty for each
underreported copy of Licensed Product.

19.  NOTICES.

(a) MS, through an authorized MS representative, may give DISTRIBUTOR notices,
authorizations and requests

     (i) by posting them to the Embedded Systems Web Site,

     (ii) by electronic mail (email) at the email address listed in the
Addresses Schedule,

     (iii) by facsimile transmission at the fax number listed in the Addresses
Schedule or

     (iv) in writing at the address(es) indicated in Addresses Schedule.

(b) DISTRIBUTOR may give MS notices, authorizations and requests

     (i) by facsimile transmission at the fax number listed in the Addresses
Schedule or

     (ii) in writing at the address(es) indicated in the Addresses Schedule.

(c) Communications are deemed given:

                                       13

                                  CONFIDENTIAL

Microsoft OEM Distribution Agreement For Software Products For Embedded Systems
#5133790046-6 dated October 1, 2003 between MS and BSQUARE CORPORATION

<PAGE>

     (i) if by posting by MS on the Embedded Systems Web Site, on the first day
of the calendar month following posting of such communication;

     (ii) if by facsimile transmission or email, on the day the facsimile or
email was transmitted; or

    (iii) if in writing, on the day (A) deposited in the U.S.A. mail, postage
prepaid, certified or registered, return receipt requested, or (B) sent by air
express courier, charges prepaid.

(d) DISTRIBUTOR shall keep all information required in the Addresses Schedule
complete and current. Within ten (10) days of any change of any individual,
address or other information required in the Addresses Schedule, DISTRIBUTOR
shall notify MS of such change as set forth in Section 19(b).

(e) DISTRIBUTOR must check the Embedded Systems Web Site for updated information
at least twice each month, on or after 12:01 a.m. Pacific Time zone, U.S.A., on
the 15th (fifteenth) and on the last calendar day of each month.

(f) Information posted on the Embedded Systems Web Site may change without
additional notice until the effective date of such information. MS may correct
errors in information posted on the Embedded Systems Web Site or update posted
documents after the beginning of a month by sending notice to DISTRIBUTOR.

20.  CHOICE OF LAW; JURISDICTION AND VENUE; ATTORNEYS' FEES.

(a) This Agreement shall not be governed by the 1980 United Nations Convention
on Contracts for the International Sale of Goods and its related instruments.
This Agreement and all related matters shall be interpreted under and controlled
by the laws of the State of Washington, and DISTRIBUTOR consents to exclusive
jurisdiction and venue in the state and federal courts sitting in King County in
the State of Washington. Process may be served on either party as authorized by
applicable law or court rule.

(b) If either party employs attorneys to enforce any rights arising out of or
relating to this Agreement, the primarily prevailing party shall be entitled to
recover its reasonable attorneys' fees, costs and other expenses.

21. GOVERNMENT REGULATIONS.

(a) DISTRIBUTOR acknowledges that Licensed Product is subject to U.S. export
jurisdiction. DISTRIBUTOR agrees to comply with all applicable international and
national laws that apply to these Licensed Products, including the U.S. Export
Administration Regulations, as well as end-user, end-use, and destination
restrictions issued by U.S. and other governments. For additional information,
see **.

(b) All Licensed Product provided to the U.S. Government pursuant to
solicitations issued on or after December 1, 1995 is provided with the
commercial license rights and restrictions described elsewhere herein. All
Licensed Product provided to the U.S. Government pursuant to solicitations
issued prior to December 1, 1995 is provided with "Restricted Rights" as
provided in FAR, 48 CFR 52.227-14 (JUNE 1987) or DFAR, 48 CFR 252.227-7013 (OCT
1988), as applicable. The reseller is responsible for ensuring Licensed Product
is marked with the "Restricted Rights Notice" or "Restricted Rights Legend," as
required. All rights not expressly granted are reserved.

22. GENERAL.

(a) This Agreement does not constitute an offer by MS and it shall not be
effective until signed by both DISTRIBUTOR and MS. Upon execution by both
DISTRIBUTOR and MS, this Agreement, together with its schedules, shall
constitute the entire agreement between them and merges all prior and
contemporaneous communications. Except as otherwise expressly provided herein,
this Agreement shall not be modified except by a written agreement signed on
behalf of DISTRIBUTOR and MS by their respective duly authorized
representatives. Any statement appearing as a restrictive endorsement on a check
or other document which purports to modify a right, obligation or liability of
either party shall be of no force and effect.

(b) Neither the existence nor the terms of this Agreement shall be construed as
creating a partnership, joint venture or agency relationship or as granting a
franchise.

(c) If any provision of this Agreement shall be held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, the remaining provisions
and license for remaining Licensed Product(s), as applicable, shall remain in
full force and effect.

(d) No waiver of any breach of any provision of this Agreement shall constitute
a waiver of any prior, concurrent or subsequent, and no waiver shall be
effective unless made in a writing signed by an authorized representative of the
waiving party.

23. TERMINATION OF PRIOR AGREEMENT RIGHTS.

If DISTRIBUTOR is currently licensed to distribute the Licensed Product under a
valid agreement with MS ("Prior Agreement"), then as of the Effective Date of
this Agreement:

(a) DISTRIBUTOR's license to order and distribute the Licensed Product under the
Prior Agreement shall cease; and

(b) DISTRIBUTOR shall report and pay for the Licensed Product under the terms
and conditions of this Agreement.

                                       14

                                  CONFIDENTIAL

Microsoft OEM Distribution Agreement For Software Products For Embedded Systems
#5133790046-6 dated October 1, 2003 between MS and BSQUARE CORPORATION

                      ** Confidential Treatment Requested
<PAGE>

                       PERFORMANCE REBATE PROGRAM SCHEDULE

MS may offer a performance rebate program ("Rebate Program") to encourage its
distributors to promote and expand sales of Licensed Product(s). To accomplish
this objective, MS may periodically offer DISTRIBUTOR the opportunity to earn
rebates by successfully achieving certain objectives described below.

1. ADDITIONAL DEFINITIONS

(a)  "Eligible Licensed Products" means those Licensed Products designated by MS
     in the RPA for a Period.

(b)  "Period" means a calendar quarter, or such other duration as MS may provide
     in the RPA.

(c)  "RPA" means a Rebate Program Attachment applicable to a Period as may be
     revised from time to time by MS. A sample RPA is attached to this Schedule.

All other terms shall have the meanings set forth in the Agreement.

2. OBJECTIVES

(a)  In one or more Periods, MS may offer DISTRIBUTOR the opportunity to earn
     rebate amounts by successfully achieving certain objectives ("Objectives")
     described in this Schedule. MS is not obligated to offer a rebate in any
     Period during the term of the Agreement.

(b)  MS may select Objectives like the ones listed below. Objectives will be for
     one (1) Period and will be determined based upon MS business considerations
     and communicated via an RPA.

          -    Licensed Product sales support

          -    Field Application Engineer/ System Engineer support

          -    Provision of additional sales-out data (e.g., optional fields,
               previous periods)

          -    Increase in the unit sales of Eligible Licensed Product(s)

          -    Training and certification activities

3. REBATE AMOUNT

     MS will designate in the applicable RPA a rebate amount ("Rebate Amount")
     for applicable Objectives selected for a Period in which a rebate is
     offered.

4. COMMUNICATION OF OBJECTIVES AND REBATE AMOUNTS

     Objectives and Rebate Amounts for a Period, if any, will be communicated by
     MS via e-mail or the Embedded Systems Web Site by the first business day
     following the fifteenth (15th) day of the first calendar month of the
     applicable Period. Objectives and Rebate Amounts shall be communicated in
     an RPA as attached to this Schedule, which may be revised from time to time
     by MS. An RPA will be communicated only for Periods in which a rebate is
     offered.

5. QUALIFICATION FOR REBATE AMOUNT

(a)  Subject to the eligibility requirements described below, MS shall pay the
     Rebate Amount to DISTRIBUTOR for successful achievement of the Objectives
     for the applicable Period. Rebate attainment shall be based on information
     from DISTRIBUTOR's monthly royalty report and/or sales-out reports or other
     proof of compliance as specified by MS. MS shall make the final binding
     determination whether DISTRIBUTOR has satisfactorily accomplished the
     Objectives for the applicable Period after receipt of all compliant
     reporting. MS shall give notice to DISTRIBUTOR of the Rebate Amount earned
     in the applicable Period, if any, not later than sixty (60) days after the
     end of the Period.

(b)  DISTRIBUTOR shall be eligible to receive the Rebate Amounts only if (i)
     DISTRIBUTOR is in strict compliance with the Agreement during the
     applicable Period, including without limitation timely reporting and
     payment of royalties and timely and compliant reporting of sales-out
     data,(ii) DISTRIBUTOR has an Agreement in effect for the entire Period, and
     (iii) DISTRIBUTOR meets the rebate pre-requisites, if any, set forth in the
     applicable RPA.

(c)  Reporting compliance is based on either the Sales-Out and Royalty Reporting
     Guidelines and template in the Sales Out and Royalty Reporting Guidelines
     and/or other guidelines as specified by MS.

     All criteria must be met each reporting Period for reporting to be
     considered compliant. If all reports meet all current compliance
     requirements as defined above, DISTRIBUTOR will receive payment of the
     Rebate Amount earned. If DISTRIBUTOR has complied during a portion of the
     reporting Period, a payment ratio may be applied to the Rebate Amount as
     described in the RPA. However, if DISTRIBUTOR is partially compliant in any
     given month, that month will be treated as non-compliant.

                                       15

                              CONFIDENTIAL<<VERFT>>

Microsoft OEM <<Agr Type>> dated <<Agr Eff Date>> between Microsoft Licensing,
Inc. and <<COMPANY NAME>>.

                                        07/28/00 Form 2.5.<<CurrentTemplateRev>>

<PAGE>

6. PAYMENT OF REBATE AMOUNT(s)

(a)  The Rebate Amount(s) earned by DISTRIBUTOR shall be awarded at MS' option
     as (i) credits that may be used to offset then-current or future royalties
     which accrue pursuant to the Agreement (or a successor agreement to the
     Agreement) or (ii) in the form of a check sent to DISTRIBUTOR in care of
     the MS Embedded Administrator Contact name and address indicated on the
     Addresses Schedule to the Agreement. Such amounts shall be awarded not
     later than sixty (60) days after the end of the Period in which the Rebate
     Amount was earned. If the Agreement is terminated or expires after
     completion of a full Period in which a rebate was offered, and no successor
     agreement is entered into between DISTRIBUTOR and MS, then MS shall refund
     to DISTRIBUTOR the Rebate Amount earned, less deductions for any
     outstanding amounts or obligations due to MS under the Agreement.

(b)  DISTRIBUTOR shall be solely responsible for payment of taxes, duties, fees,
     excises or tariffs imposed on any discounts, credits or payments made by MS
     to DISTRIBUTOR pursuant to this Rebate Program, provided however, MS may
     withhold and pay to tax authorities such amounts as may be required under
     applicable state or federal law on discounts, credits or payments made by
     MS to DISTRIBUTOR.

                                       16

                              CONFIDENTIAL<<VERFT>>

Microsoft OEM <<Agr Type>> dated <<Agr Eff Date>> between Microsoft Licensing,
Inc. and <<COMPANY NAME>>.

                                        07/28/00 Form 2.5.<<CurrentTemplateRev>>

<PAGE>

                                    [SAMPLE]

              ATTACHMENT TO THE PERFORMANCE REBATE PROGRAM SCHEDULE
         FOR (FILL IN NUMBER BY CALENDAR YEAR AND QUARTER: e.g. 2003 Q1)
                           PERFORMANCE REBATE PROGRAM

DISTRIBUTOR:
AGREEMENT NUMBER: 5133790046-6
PERIOD:

MS will pay Rebate Amounts based on the percentages below per the Performance
Rebate Program Schedule for DISTRIBUTOR's attainment of the following
Objective(s). All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.

OBJECTIVE 1: Provide compliant reporting of required sales-out data (as
identified in the Sales-Out and Royalty Reporting Guidelines) for the Period
(i.e., on-time, accurate, and in accordance with the Sales-Out and Royalty
Reporting Guidelines).

         Rebate Amount: up to _____ of the total amount of royalties paid by
         DISTRIBUTOR to MS for all Licensed Products distributed under the
         Agreement during the Period.

OBJECTIVE 2: During the Period, hold ______ seminars for OEM Customers designed
to provide technical education regarding, and/or create demand for, Licensed
Products.

         Rebate Amount: up to _____ of the total amount of royalties paid by
         DISTRIBUTOR to MS for (i) runtimes and toolkits collectively, "Embedded
         Licensed Products" distributed under the Agreement during the Period.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Number of Qualifying Awareness Seminars Held by
                 DISTRIBUTOR                                  Rebate if achieved
--------------------------------------------------------------------------------
<S>                                                           <C>
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
</TABLE>

OBJECTIVE 3: During the Period, hold ______ technical, hands-on product training
sessions for Licensed Products.

         Rebate Amount: up to _________ of the total amount of royalties paid by
         DISTRIBUTOR to MS for (i) runtimes and toolkits collectively, "Embedded
         Licensed Products" distributed under the Agreement during the Period.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Number of Qualifying Awareness Seminars Held by
                 DISTRIBUTOR                                  Rebate if achieved
--------------------------------------------------------------------------------
<S>                                                           <C>
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
</TABLE>

OBJECTIVE 4: Provide compliant reporting (i.e., on-time, accurate, and in
accordance with the Sales-Out and Royalty Reporting Guidelines) for all three
(3) optional sales-out data fields (i.e., Project Type, Status and Processor)
for all Embedded Licensed Products runtimes distributed during the Period.

         Rebate Amount: up to ____ of the total amount of royalties paid by
         DISTRIBUTOR to MS for Embedded Licensed Products distributed under the
         Agreement during the Period.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Percentage of Embedded Licensed Products runtimes for which       Rebate if achieved
DISTRIBUTOR provided compliant reporting for all three (3)
            optional sales-out data fields
------------------------------------------------------------------------------------
<S>                                                               <C>
------------------------------------------------------------------------------------

------------------------------------------------------------------------------------
</TABLE>

                                       17

                              CONFIDENTIAL<<VERFT>>

Microsoft OEM <<Agr Type>> dated <<Agr Eff Date>> between Microsoft Licensing,
Inc. and <<COMPANY NAME>>.

                                        07/28/00 Form 2.5.<<CurrentTemplateRev>>

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