Document:

Exhibit
      10.1

    

    

    

    

    

    

    

    

    

    SCHNITZER
      NORTH CREEK

    

    LEASE
      AGREEMENT

    

    

    S/I
      NORTH CREEK III, LLC

    (Landlord)

    

    

    

    and

    

    LUMERA
      CORPORATION

    

    (Tenant)

    

    

    

    

    Dated:
      July 11, 2005

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

    TABLE
      OF
      CONTENTS

    

    

      
        	
                ARTICLE
                  I: DEFINITIONS

              	
                4

              
	
                1.01

              	
                Defined
                  terms

              	
                4

              
	
                ARTICLE
                  II: PREMISES AND COMMON AREAS LEASED

              	
                6

              
	
                2.01

              	
                Premises

              	
                6

              
	
                2.02

              	
                Common
                  Areas

              	
                7

              
	
                ARTICLE
                  III: IMPROVEMENTS

              	
                7

              
	
                3.01

              	
                Premises
                  Accepted "AS IS"

              	
                7

              
	
                3.02

              	
                Tenant's
                  Right to Make Improvements to Premises

              	
                7

              
	
                ARTICLE
                  IV: TERM

              	
                8

              
	
                4.01

              	
                Term

              	
                8

              
	
                4.02

              	
                Notice
                  of Commencement Date

              	
                8

              
	
                4.03

              	
                Option
                  to Extend

              	
                9

              
	
                ARTICLE
                  V: RENT

              	
                10

              
	
                5.01

              	
                Base
                  Rent

              	
                10

              
	
                5.02

              	
                Additional
                  Rent

              	
                11

              
	
                5.03

              	
                Late
                  Payment

              	
                11

              
	
                5.04

              	
                Security
                  Deposit

              	
                11

              
	
                5.05

              	
                Credit
                  Enhancement/Letter of Credit

              	
                12

              
	
                ARTICLE
                  VI: ADDITIONAL RENT AND CHARGES

              	
                13

              
	
                6.01

              	
                Operating
                  Expenses

              	
                13

              
	
                6.02

              	
                Tenant's
                  Personal Property Taxes

              	
                17

              
	
                ARTICLE
                  VII: INSURANCE

              	
                17

              
	
                7.01

              	
                Landlord's
                  Insurance

              	
                17

              
	
                7.02

              	
                Tenant’s
                  Public Liability

              	
                18

              
	
                7.03

              	
                Tenant's
                  Property and Other Insurance

              	
                18

              
	
                7.04

              	
                Form
                  of Insurance/Certificates

              	
                18

              
	
                7.05

              	
                Tenant's
                  Failure

              	
                19

              
	
                7.06

              	
                Waiver
                  of Subrogation

              	
                19

              
	
                7.07

              	
                Tenant's
                  Properties and Fixtures

              	
                19

              
	
                7.08

              	
                Indemnification

              	
                20

              
	
                7.09

              	
                Damage
                  to Tenant's Property

              	
                21

              
	
                ARTICLE
                  VIII: REPAIRS AND MAINTENANCE

              	
                22

              
	
                8.01

              	
                Landlord
                  Repairs and Maintenance

              	
                22

              
	
                8.02

              	
                Utilities
                  and Services

              	
                22

              
	
                8.03

              	
                Tenant
                  Repairs and Maintenance

              	
                22

              
	
                8.04

              	
                Non-liability
                  of Landlord

              	
                23

              
	
                8.05

              	
                Inspection
                  of Premises

              	
                23

              

         

         

        
          
             

          

          
             

            
              

            

          

          
             

          

        

         

        
          	
                  ARTICLE
                    IX: FIXTURES, PERSONAL PROPERTY AND ALTERATIONS

                	
                  23

                
	
                  9.01

                	
                  Fixtures
                    and Personal Property

                	
                  23

                
	
                  9.02

                	
                  Alterations

                	
                  24

                
	
                  9.03

                	
                  Liens

                	
                  25

                
	
                  ARTICLE
                    X: USE AND COMPLIANCE WITH LAWS

                	
                  26

                
	
                  10.01

                	
                  General
                    Use and Compliance with Laws

                	
                  26

                
	
                  10.02

                	
                  Hazardous
                    Materials

                	
                  26

                
	
                  10.03

                	
                  Signs

                	
                  28

                
	
                  10.04

                	
                  Exterior
                    HVAC Unit

                	29
	
                  ARTICLE
                    XI: DAMAGE AND DESTRUCTION

                	
                  29

                
	
                  11.01

                	
                  Reconstruction

                	
                  29

                
	
                  11.02

                	
                  Rent
                    Abatement

                	
                  29

                
	
                  11.03

                	
                  Excessive
                    Damage or Destruction

                	
                  30

                
	
                  11.04

                	
                  Uninsured
                    Casualty

                	
                  30

                
	
                  11.05

                	
                  Waiver

                	
                  30

                
	
                  11.06

                	
                  Mortgagee's
                    Right

                	
                  30

                
	
                  11.07

                	
                  Damage
                    Near End of Term

                	
                  31

                
	
                  ARTICLE
                    XII: EMINENT DOMAIN

                	
                  31

                
	
                  12.01

                	
                  Eminent
                    Domain

                	
                  31

                
	
                  ARTICLE
                    XIII: DEFAULT

                	
                  31

                
	
                  13.01

                	
                  Events
                    of Default

                	
                  31

                
	
                  13.02

                	
                  Remedies

                	
                  32

                
	
                  13.03

                	
                  Landlord's
                    Default

                	
                  34

                
	
                  ARTICLE
                    XIV: FILING OF PETITION

                	
                  34

                
	
                  14.01

                	
                  Tenant's
                    Bankruptcy

                	
                  34

                
	
                  ARTICLE
                    XV: ASSIGNMENT AND SUBLETTING

                	
                  36

                
	
                  15.01

                	
                  Prohibition

                	
                  36

                
	
                  15.02

                	
                  Excess
                    Rental

                	
                  36

                
	
                  15.03

                	
                  Scope

                	
                  37

                
	
                  15.04

                	
                  Waiver

                	
                  37

                
	
                  15.05

                	
                  Change
                    in Control

                	
                  37

                
	
                  ARTICLE
                    XVI: ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION

                	
                  37

                
	
                  16.01

                	
                  Estoppel
                    Certificates

                	
                  37

                
	
                  16.02

                	
                  Attornment

                	
                  38

                
	
                  16.03

                	
                  Subordination

                	
                  38

                
	
                  16.04

                	
                  Recording

                	
                  38

                
	
                  ARTICLE
                    XVII: MISCELLANEOUS

                	
                  38

                
	
                  17.01

                	
                  Notices

                	
                  38

                
	
                  17.02

                	
                  Successors
                    Bound

                	
                  39

                
	
                  17.03

                	
                  Waiver

                	
                  39

                
	
                  17.04

                	
                  Subdivision
                    and Easements

                	
                  39

                

           

           

          
            
               

            

            
               

              
                

              

            

            
               

            

          

           

          
            	
                    17.05

                  	
                    Landlord's
                      Reserved Rights in Common Areas

                  	
                    39

                  
	
                    17.06

                  	
                    Accord
                      and Satisfaction

                  	
                    40

                  
	
                    17.07

                  	
                    Limitation
                      of Landlord's Liability

                  	
                    40

                  
	
                    17.08

                  	
                    Survival

                  	
                    40

                  
	
                    17.09

                  	
                    Attorneys'
                      Fees

                  	
                    40

                  
	
                    17.10

                  	
                    Captions
                      and Article Numbers

                  	
                    40

                  
	
                    17.11

                  	
                    Severability

                  	
                    40

                  
	
                    17.12

                  	
                    Applicable
                      Law

                  	
                    41

                  
	
                    17.13

                  	
                    Submission
                      of Lease

                  	
                    41

                  
	
                    17.14

                  	
                    Holding
                      Over

                  	
                    41

                  
	
                    17.15

                  	
                    Rules
                      and Regulations

                  	
                    41

                  
	
                    17.16

                  	
                    Parking

                  	
                    41

                  
	
                    17.17

                  	
                    No
                      Nuisance

                  	
                    42

                  
	
                    17.18

                  	
                    Broker;
                      Agency Disclosure

                  	
                    42

                  
	
                    17.19

                  	
                    Landlord's
                      Right to Perform

                  	
                    42

                  
	
                    17.20

                  	
                    Assignment
                      by Landlord

                  	
                    42

                  
	
                    17.21

                  	
                    Entire
                      Agreement

                  	
                    43

                  
	
                    17.22

                  	
                    Financial
                      Covenants

                  	
                    43

                  
	
                    17.23

                  	
                    Consents

                  	
                    43

                  
	
                    17.24

                  	
                    Conditions

                  	
                    43

                  
	
                    17.25

                  	
                    Exhibits

                  	
                    43

                  
	
                    17.26

                  	
                    Submission
                      of Lease

                  	
                    43

                  
	
                    17.27

                  	
                    Time

                  	
                    44

                  
	
                    17.28

                  	
                    Prior
                      Agreement or Amendment

                  	
                    44

                  
	
                    17.29

                  	
                    Independently
                      Provided Services

                  	
                    44

                  
	
                    17.30

                  	
                    Authority
                      to Bind Landlord

                  	
                    44

                  
	
                    17.31

                  	
                    Authority
                      to Bind Tenant

                  	
                    44

                  
	
                    17.32

                  	
                    No
                      Usury

                  	
                    44

                  
	
                    17.33

                  	
                    Interpretation

                  	
                    45

                  
	
                    17.34

                  	
                    Excused
                      Delays

                  	
                    45

                  
	
                    17.35

                  	
                    Roof
                      Rights

                  	
                    45

                  

          

        

      

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    THIS
      LEASE ("Lease") dated as of the 11th day of July, 2005, is made by and between
      S/I NORTH CREEK III, LLC, A WASHINGTON LIMITED LIABILITY COMPANY ("Landlord"),
      and LUMERA CORPORATION, a Delaware corporation ("Tenant”).

    

    

    ARTICLE
      I: DEFINITIONS

    

    1.01 Defined
      terms.
      The
      following terms shall have the meanings specified in this Section, unless
      otherwise specifically provided. Other terms may be defined in other parts
      of
      the Lease.

    

     

    
      
        
          	
                  (a)

                	
                  Landlord:

                	
                  S/I
                    NORTH CREEK III, LLC

                	 
	 	 	 	 
	
                  (b)

                	
                  Landlord's
                    Address:

                	
                  c/o
                    Schnitzer Northwest 

                	 
	 	 	
                  225
                    - 108th
                    Avenue NE, Suite 400

                	 
	 	 	
                  Bellevue,
                    Washington 98004

                	 
	 	 	
                  Telephone:
                    (425) 452-3700

                	 
	 	 	
                  Facsimile:
                    (425) 454-1505

                	 
	 	 	 	 
	 	
                  With
                    a Copy to:

                	
                  Jameson
                    Babbitt Stites &

                	 
	 	 	
                  Lombard,
                    P.L.L.C.

                	 
	 	 	
                  999
                    Third Avenue, Suite 1900

                	 
	 	 	
                  Seattle,
                    Washington 98104

                	 
	 	 	
                  Attn:
                    Jennifer Cobb

                	 
	 	 	
                  Telephone:
                    (206) 292-1994

                	 
	 	 	
                  Facsimile:
                    (206) 292-1995

                	 
	 	 	 	 
	
                  (c)

                	
                  Tenant:

                	
                  LUMERA
                    CORPORATION

                	 
	 	 	 	 
	
                  (d)

                	
                  Tenant's
                    Address:

                	
                  19910
                    North Creek Parkway

                	 
	 	 	
                  Bothell,
                    Washington 98011

                	 
	 	 	 	 
	
                  (e)

                	
                  Tenant's
                    Use:

                	
                  General
                    office, bio-tech facility and related uses consistent with a
                    Class A
                    office park and subject to compliance with Section 10.01. 

                	 
	 	 	 	 
	
                  (f)

                	
                  Project:

                	
                  Technology
                    Campus I, including all buildings and Common Areas thereon and
                    related
                    thereto as legally described in Exhibit “A” and depicted on the Project
                    Site Plan attached as Exhibit “B.”

                	 

        

         

        
          
            
            

          

          
            4

            
              

            

          

          
            
            

          

        

         

        
          	
                  (g)

                	
                  Property:

                	
                  The
                    real property described in Exhibit "A" and depicted on the Project
                    Site
                    Plan attached as Exhibit "B."

                	 
	 	 	 	 
	
                  (h)

                	
                  Building:

                	
                  That
                    certain building designated as Building F on the Project Site
                    Plan
                    attached hereto as Exhibit B.

                	 
	 	 	 	 
	
                  (i)

                	
                  Premises:

                	
                  Approximately
                    32,172 rentable square feet, consisting of the entire rentable
                    area of the
                    first floor of the Building, as depicted on the Floor Plan attached
                    as
                    Exhibit "C."

                	 
	 	 	 	 
	
                  (j)

                	
                  Term:

                	
                  Commencing
                    upon the Commencement Date (as defined in Section 4.01) and expiring
                    on
                    the date five (5) years (60 months) thereafter.

                	 
	 	 	 	 
	
                  (k)

                	
                  Commencement
                    Date

                	
                  April
                    7, 2006

                	 
	 	 	 	 
	
                  (l)

                	
                  Base
                    Rent:

                	 	 

        

      

    

     

    
      
        	 	Months 	 	Annual
                Rate(psf)	 	Monthly
                Rental*	 	 
	 	 	 	 	 	 	 	 
	 	
                1-3:

              	 	
                00.00

              	 	
                $0.00

              	 	 
	 	
                4-12:

              	 	
                $15.00

              	 	
                $40,215.00

              	 	 
	 	
                13-24:

              	 	
                $15.50

              	 	
                $41,555.50

              	 	 
	 	
                25-36:

              	 	
                $16.00

              	 	
                $42,896.00

              	 	 
	 	
                37-48:

              	 	
                $16,50

              	 	
                $44,236.50

              	 	 
	 	
                49-60:

              	 	
                $17.00

              	 	
                $45,577.00

              	 	 

      

    

     

    
      
        
          	
                  (m)

                	
                  Prepaid
                    Rent: 

                	
                  $40,215
                    applicable to Month 1

                	 
	 	 	 	 
	
                  (n)

                	
                  Security
                    Deposit:

                	
                  $45,577

                	 
	 	 	 	 
	
                  (o)

                	
                  Tenant's
                    Share of Building:

                	
                  48%*
                    (32,172 RSF  ̧67,333
                    RSF)*

                	 
	 	 	 	 
	
                  (p)

                	
                  Tenant’s
                    Share of Project:

                	
                  10%*
                    (32,172 RSF  ̧
                    325,850 RSF)*

                	 
	 	 	 	 
	
                  (q)

                	
                  Parking
                    Spaces:

                	
                  112
                    uncovered, unreserved surface parking spaces in the Project shall
                    be
                    provided for the non-exclusive use of Tenant, its employees and
                    visitors
                    during the Term and the Extended Term. 

                	 
	 	 	 	 
	
                  (r)

                	
                  Broker(s):

                	
                  CB
                    Richard Ellis/Tim O’Keefe, representing Tenant (“Tenant’s
                    Broker”)

                	 

        

         

         

        
          
            
            

          

          
            5

            
              

            

          

          
            
            

          

        

         

        
          	
                  (s)

                	
                  Guarantor(s)
                    and
                    Address(es):

                	
                  N/A

                	 
	 	 	 	 

        

      

    

    
      
        	
                (t)

              	
                Exhibits:

              	
                Exhibit
                  A:

              	
                Legal
                  Description of Project

              
	 	 	
                Exhibit
                  B:

              	
                Project
                  Site Plan

              
	 	 	
                Exhibit
                  C:

              	
                Floor
                  Plan Identifying Leased Premises

              
	 	 	
                Exhibit
                  D:

              	
                Form
                  of Letter of Credit

              
	 	 	
                Exhibit
                  E

              	
                Multi-Tenant
                  Lobby Plan

              
	 	 	
                Exhibit
                  F:

              	
                Lease
                  Confirmation

              
	 	 	
                Exhibit
                  G:

              	
                Estoppel
                  Certificate

              
	 	 	
                Exhibit
                  H:

              	
                Rules
                  and Regulations

              
	 	 	
                Exhibit
                  I:

              	
                Form
                  of SNDA

              

      

    

     

    *
      Subject
      to adjustment upon measurement pursuant to Section 2.01(b).

    

    ARTICLE
      II: PREMISES
      AND COMMON AREAS LEASED

    

    2.01 Premises.
      

    

    (a) Landlord
      hereby leases to Tenant, and Tenant hereby leases from Landlord, subject to
      the
      provisions of this Lease, certain premises described in Subsection 1.01(i)
      above
      ("Premises") located within the building described in Subsection 1.01(h) (the
      “Building") owned by Landlord, and which is a portion of the "Project"
      identified in Subsection 1.01(f). The Site Plan for the Project attached hereto
      as Exhibit
      B
      is
      attached for location reference purposes only and shall not constitute a
      representation or warranty by Landlord to be the final plan of the Project,
      or
      to require Landlord to build any improvements, or to otherwise comply with
      the
      site plan or require Landlord to lease space to a particular tenant or type
      of
      tenant.

    

    (b) Upon
      completion of the Tenant Improvements, the Rentable Area of the Premises shall
      be remeasured
      in
      accordance with BOMA publication ANSI Z65.1-1996 for a multi-tenant building
      without deduction of area associated with Tenant’s special purpose HVAC shaft
      requirements. Further, second floor area lost to specialty mechanical shafts
      serving the Premises will be added back into the Rentable Area of the Premises.
      Upon completion of such remeasurement, the Base Rent shall be adjusted to
      reflect the recalculated area of the Premises. Tenant acknowledges that, except
      as otherwise expressly set forth in this Lease, neither Landlord nor any agent,
      property manager or broker of Landlord has made any representation or warranty
      with respect to the Premises, the Building, the Common Areas or the Project
      or
      their suitability for the conduct of Tenant's business and, that except only
      for
      any improvements that Landlord has expressly agreed herein to construct and
      install, the Premises are leased in the “AS IS” condition existing at the time
      of execution of this Lease.

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    2.02 Common
      Areas.
      In
      addition to the Premises, Tenant shall have the non-exclusive right to use
      in
      common with other tenants and/or occupants of the Property and Project, the
      following areas appurtenant to the Building: parking areas and facilities,
      roadways, sidewalks, walkways, parkways, plazas, levees, driveways and
      landscaped areas and similar areas and facilities situated within the exterior
      areas of the Property and Project and not otherwise designated for the exclusive
      or restricted use by Landlord and/or individual tenants of other buildings
      located within the Project (collectively, "Common Areas"). Tenant acknowledges
      that, except as required by applicable law, Landlord shall have no obligation
      to
      construct or complete any additional buildings within the Project or
      improvements to the Common Areas. Tenant's right to utilize the Common Areas
      shall at all times be subject to Landlord's reserved rights therein as described
      in Section 17.05 hereof, the Rules and Regulations referred to in Section 17.15
      hereof and all encumbrances, easements, ground leases, and covenants, conditions
      and restrictions ("CC&Rs") now or hereafter affecting or encumbering the
      Project.

    

    

    ARTICLE
      III: PREMISES/IMPROVEMENTS

    

    

    3.01 Premises
      Accepted “AS IS”. Tenant
      agrees and acknowledges that it is currently in occupancy of a portion of the
      Premises and has inspected the Premises and agrees to lease and possess the
      same
      in their existing AS-IS, WHERE-IS condition and improvement, subject to its
      rights to make certain improvements and alterations pursuant to 3.02 below.
      Notwithstanding the above, Tenant acknowledges that Landlord will be required
      to
      alter and modify the first floor of the Building to contemplate a multi-tenant
      building lobby, which shall be completed in substantial accordance with the
      plan
      attached as Exhibit E. Tenant shall allow Landlord access to the Premises in
      order for Landlord to complete such alterations and waives any claims against
      Landlord for disruption of Tenant’s use of the Premises in connection
      therewith.

    

    3.02  Tenant’s
      Right to Make Improvements to Premises.
      Tenant
      may construct improvements to the Premises (“Tenant Improvements”) pursuant to
      the following procedures and conditions: 

    

    (a) Construction
      of the Tenant Improvements shall commence no later than the 

    date
      twelve (12) mont date
      twelve (12) months after the Commencement Date and shall be completed no later
      than December 31, 2007 (subject to Excused Delays as defined in Section 17.34
      below).

    

    (b) Tenant’s
      architect shall prepare preliminary and final working drawings and
      specifications for the Tenant Improvements and submit the same to Landlord
      for
      approval or comment, and such approval and/or consent will not be unreasonably
      denied, delayed or conditioned. Such plans, when approved by Landlord, are
      referred to herein as the “Tenant Improvement Plans”. 

    

    (c) Tenant
      shall use Pennon Construction, as its general contractor and SME Electric,
      Holaday Parks and Patriot Fire Protection as the design/build subcontractors,
      to
      complete the Tenant Improvements pursuant to the Tenant Improvement Plans.
      Prior
      to commencing construction of the Tenant Improvements, Tenant shall obtain
      all
      required permits and governmental improvements required for construction of
      the
      Tenant Improvements. 

    
 

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (d) Upon
      approval of the Tenant Improvement Plans, the execution by Tenant and its
      contractor of a construction contract (which contract shall be subject to
      Landlord’s approval, which approval shall not be unreasonably withheld), Tenant
      shall cause its contractor to diligently pursue construction of the Tenant
      Improvements pursuant to the Tenant Improvement Plans; provided, however,
      construction of such improvements will not commence until after the Commencement
      Date and shall be completed no later than December 31, 2007. Upon completion
      of
      the Tenant Improvements, Tenant shall provide Landlord with “as-built” plans for
      the Tenant Improvements. Except as otherwise required by this Section 3.02,
      Tenant shall comply with the provisions of Sections 9.02 and 9.03 in completion
      of the Tenant Improvements. 

    

    (e) Tenant
      shall pay all costs associated with the improvements to the Premises pursuant
      to
      the Tenant Improvement Plans, subject to reimbursement by Landlord of the
      allowance referred to below. Landlord will provide an allowance (the "Tenant
      Improvement Allowance") of $12.00 per rentable square foot of the Premises
      toward the cost of the Tenant Improvements as reflected in the construction
      contract and changes thereto. Any costs for the Tenant Improvements in excess
      of
      the Tenant Improvement Allowance, as reflected in the construction contract,
      shall be paid and expended by Tenant prior to Landlord’s payment of the Tenant
      Improvement Allowance (“Tenant Contribution”) and Tenant shall provide Landlord
      with evidence of such funds prior to commencement of construction. After Tenant
      has expended the full Tenant Contribution and provided Landlord with evidence
      of
      the same, then upon Tenant's written request, Landlord shall fund installments
      of the Tenant Improvements Allowance, for amounts expended by Tenant in
      construction of the Tenant Improvements, not more frequently than monthly within
      thirty (30) days of receipt by Landlord of invoices or receipts for Tenant
      Improvement work completed together with lien releases for such work to
      date. 

    

    ARTICLE
      IV: TERM

    

    4.01 Term.
      The
      Term shall commence on the Commencement Date set forth in Section 1.01(k) (the
      “Commencement Date”). If for any reason Landlord is unable to deliver possession
      of the Premises to Tenant by the Commencement Date in Section 1.01(k), Landlord
      shall not be liable to Tenant for any loss or damage resulting therefrom, but
      in
      that event Rent shall be abated until Landlord delivers possession of the
      Premises to Tenant. The Term shall expire upon the date set forth in Section
      1.01(j), unless sooner terminated as hereinafter provided. 

    

    4.02 Lease
      Confirmation.
      After
      the Commencement Date, Landlord may deliver to Tenant a written confirmation
      in
      the form attached hereto as Exhibit
      F
      ("Lease
      Confirmation") of the Commencement Date and Tenant shall promptly execute and
      return the same to Landlord. The Lease Confirmation shall be binding upon Tenant
      unless Tenant objects to the notice in writing delivered to Landlord within
      five
      (5) days of Tenant's receipt of said Lease Confirmation.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    4.03 Option
      to Extend.
      Subject
      to the terms and conditions set forth below, Landlord
      hereby grants Tenant the right to extend the term of the Lease for one
      additional period of five (5) years (such extended period is hereinafter
      referred to as the "Extended Term") on the same terms and conditions contained
      in the Lease, except that (i) Base Rent for the Extended Term shall be as set
      forth hereinbelow, and (ii) no additional options to extend shall apply
      following the expiration of the Extended Term. Written notice of Tenant's
      exercise of its option to extend ("Option to Extend") the Term of this Lease
      for
      the Extended Term must be given to Landlord no less than nine (9) months prior
      to the date the Term of the Lease would otherwise expire. If an Event of Default
      is then occurring under this Lease, Tenant shall have no right to extend the
      Term of this Lease until such default is cured; provided, that the period of
      time within which said Option to Extend may be exercised shall not be extended
      or enlarged by reason of Tenant's inability to exercise said Option to Extend
      because of a material default. In addition, Tenant’s right to exercise the
      Option to Extend shall be conditioned upon Landlord’s review and approval of
      Tenant’s credit at the time of exercise of said Option and, if required by
      Landlord, Tenant’s posting and maintaining of a Letter of Credit or other
      security satisfactory to Landlord during the Extended Term; provided, however,
      in the event Tenant satisfies the financial criteria set forth in the last
      paragraph of Section 5.05 at the time of exercise of Tenant’s Option to Extend,
      the Letter of Credit required to be posted for the Extended Term shall not
      exceed $700,000. Subject to the above conditions, in the event Tenant validly
      exercises its Option to Extend the Term of this Lease as herein provided, Base
      Rent shall be adjusted as of the commencement date of the Extended Term as
      follows:

    

    (a) Within
      thirty (30) days after exercise of its Option to Extend by Tenant, Landlord
      shall provide Tenant with Landlord's determination of the fair market Base
      Rent
      for the Extended Term, including periodic increases as dictated by the current
      market ("Landlord's Determination of Base Rent for Extended Term"). Tenant
      shall
      provide notice to Landlord within ten (10) days after receipt of such notice
      from Landlord as to whether Tenant accepts Landlord's Determination of Base
      Rent
      for Extended Term. In the event Tenant does not agree to Landlord's
      Determination of Base Rent for Extended Term, Landlord and Tenant shall attempt
      to agree upon Base Rent for the Premises for the Extended Term, such rent to
      be
      the fair market rental value of the Premises for the Extended Term, as defined
      in Subsection (c) below. If the parties are unable to agree upon the Base Rent
      for the Extended Term by the date six (6) months prior to the commencement
      of
      the Extended Term, then within ten (10) days thereafter each party, at its
      own
      cost and by giving notice to the other party, shall appoint a real estate
      appraiser with at least five (5) years full-time commercial real estate
      appraisal experience in the area in which the Premises are located to appraise
      and set Base Rent for the Extended Term. If a party does not appoint an
      appraiser within ten (10) days after the other party has given notice of the
      name of its appraiser, the single appraiser appointed shall be the sole
      appraiser and shall set Base Rent for the Extended Term. If each party shall
      have so appointed an appraiser, the two appraisers shall meet promptly and
      attempt to set the Base Rent for the Extended Term. If the two appraisers are
      unable to agree within thirty (30) days after the second appraiser has been
      appointed, they shall attempt to select a third appraiser meeting the
      qualifications herein stated within ten (10) days after the last day the two
      appraisers are given to set Base Rent. If the two appraisers are unable to
      agree
      on the third appraiser within such ten (10) day period, either of the parties
      to
      this Lease, by giving five (5) days notice to the other party, may apply to
      the
      then presiding judge of the Superior Court of King County for the selection
      of a
      third appraiser meeting the qualifications stated in this paragraph. Each of
      the
      parties shall bear one-half (1/2) of the cost of appointing the third appraiser
      and of paying the third appraiser's fee. The third appraiser, however selected,
      shall be a person who has not previously acted in any capacity for either
      party.

    

    
      
        
        

      

      
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    (b) Within
      thirty (30) days after the selection of the third appraiser, a majority of
      the
      appraisers shall set Base Rent for the Extended Term. If a majority of the
      appraisers are unable to set Base Rent within the stipulated period of time,
      the
      three appraisals shall be added together and their total divided by three (3).
      The resulting quotient shall be the Base Rent for the Premises during the
      Extended Term. If, however, the low appraisal and/or the high appraisal is/are
      more than ten percent (10%) lower and/or higher than the middle appraisal,
      the
      low appraisal and/or the high appraisal shall be disregarded. If only one (1)
      appraisal is disregarded, the remaining two (2) appraisals shall be added
      together and their total divided by two (2), and the resulting quotient shall
      be
      Base Rent for the Premises during the Extended Term. 

    

    (c) For
      purposes of the appraisal, the term "Fair Market Base Rent" shall mean the
      price
      that a ready and willing tenant would pay, as of the Extended Term commencement
      date, as a base rent to a ready and willing landlord of office/bio-tech premises
      of comparable to the Premises, in terms of size and quality in their
      then-improved state with new paint and carpet, for a comparable term, if such
      premises were exposed for lease for a reasonable period of time in the
      Bothell/Kirkland/Bellevue market; including any rent increases over the Extended
      Term as dictated by the current market. In no event shall there be deducted
      from
      such fair market rental the value of any concessions, including without
      limitation, tenant improvements, commissions, free rent and/or “down-time”.
      Notwithstanding anything above to the contrary, Base Rent for any applicable
      Extended Term shall not be less than the Base Rent in effect during the month
      immediately preceding the commencement of such Extended Term. 

     

    

    ARTICLE
      V: RENT

    

    5.01 Base
      Rent.
      The
      Base Rent ("Base Rent") shall be as set forth in Section 1.01(l). The Base
      Rent
      shall be paid in advance on the first day of each and every month during the
      Term to Landlord at the address set forth in Section 1.01(b) hereof or at such
      other place as Landlord may direct in writing, without any prior notice or
      demand therefor and without any abatement, deduction, offset or setoff
      whatsoever. If the Term commences on any day other than the first day of a
      calendar month and/or ends on any day other than the last day of a calendar
      month, Base Rent for the fraction(s) of a month at the commencement and/or
      upon
      the expiration of the Term shall be prorated based upon the actual number of
      days in such fractional month(s). On or before November 1, 2005, Tenant shall
      deposit with Landlord the Prepaid Rent identified in Section 1.01(m), which
      sum
      shall be applied by Landlord as indicated in said Section 1.01(m).

    

    
      
        
        

      

      
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    5.02 Additional
      Rent.
      In
      addition to Base Rent, Tenant shall pay to Landlord all sums of money or other
      charges required to be paid by the Tenant under this Lease (other than Base
      Rent
      and the Prepaid Rent), including but not limited to Tenant’s Share of Operating
      Expenses (as defined in Article VI hereof) (all such sums being herein deemed
      "Additional Rent"), and whether or not the same are designated "Additional
      Rent"
      the same shall be payable in lawful money of the United States of America
      without deduction, set-off or abatement whatsoever. Any Additional Rent provided
      for in this Lease shall become due with the next monthly installment of Base
      Rent unless otherwise provided. The term "Rent", as used in this Lease, shall
      refer collectively to "Base Rent" and "Additional Rent."

    

    5.03 Late
      Payment.
      If any
      payment of Rent is not received by Landlord within five (5) business days after
      the same is due, Tenant shall pay to Landlord a late payment charge equal to
      five percent (5%) of the amount of such delinquent payment of Rent in addition
      to the installment of Rent then owing, regardless of whether or not a notice
      of
      default has been given by Landlord. In addition, Tenant shall pay interest
      on
      such late payment and late charge from the due date of the late payment at
      a
      nominal annual interest rate equal to the higher of: (a) twelve percent (12%)
      or
      (b) the prevailing prime (reference) rate as published by Bank of America (or
      any successor bank) at its Seattle main branch office, or any successor rate
      of
      interest, plus three (3) percentage points, but in no event higher than the
      maximum rate permitted by applicable law (hereafter the "Default Rate"), until
      such amounts are paid. Landlord and Tenant recognize that the damages which
      Landlord will suffer as a result of Tenant's failure to timely pay Rent are
      difficult or impracticable to ascertain, and agree that said interest and late
      charge are a reasonable approximation of the damages which Landlord will suffer
      in the event of Tenant's late payment. This provision shall not relieve Tenant
      from payment of Rent at the time and in the manner herein specified. Acceptance
      by Landlord of any such interest and late charge shall not constitute a waiver
      of Tenant's default with respect to said overdue amount, nor shall it prevent
      Landlord from exercising any other rights or remedies available to
      Landlord.

    

    5.04 Security
      Deposit. Tenant
      will, on or before November 1, 2005, deposit with Landlord the sum specified
      in
      Section 1.01(n) of this Lease. This sum shall belong to Landlord and shall
      constitute partial consideration for the execution of this Lease. Landlord
      shall
      pay Tenant the remaining balance thereof, without any liability for interest
      thereon, within thirty (30) days after the expiration or prior termination
      of
      the Lease Term, or any extension thereof, if and only if Tenant has fully
      performed all of its financial obligations under the terms of this Lease.
      Landlord shall be entitled to withdraw from the deposit the amount of any unpaid
      Base Rent, Additional Rent or other charges not paid to Landlord when due,
      and
      Tenant shall immediately re-deposit an amount equal to that so withdrawn within
      five (5) business days of demand. 

    

    
      
        
        

      

      
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    5.05 Credit
      Enhancement/Letter of Credit. Not
      later
      than January 5, 2006, Tenant
      shall deliver to Landlord a site draft irrevocable letter of credit issued
      by a
      bank acceptable to Landlord in its sole discretion, in the amount of $700,000.00
      and in the form attached hereto as Exhibit
      D (the
      "LC"), as security for the full and faithful performance of every provision
      of
      this Lease to be performed by Tenant. The LC shall be (i) unconditional and
      irrevocable, (ii) permit partial draws by Landlord at any time upon written
      notice by Landlord that an Event of Default has occurred pursuant to Section
      13.01 of this Lease, and (iii) have a term of at least one year, which shall
      be
      renewable each year throughout the Lease Term, and the Extended Term if the
      Option to Extend is exercised. Not later than November 1, 2005, Tenant shall
      deliver to Landlord a letter from a bank reasonably acceptable to Landlord
      confirming that such bank is prepared to issue the LC as and when required
      above.

    

    If
      Tenant
      defaults with respect to any provision of this Lease, including but not limited
      to the provisions relating to the payment of Rent, the repair of damage to
      the
      Premises caused by Tenant and/or cleaning the Premises upon termination of
      this
      Lease, Landlord may draw on all or any part of the LC for the payment of any
      Rent or any other sum in default and any and all other amounts to which Landlord
      may be entitled under this Lease, including without limitation Landlord’s
      remedies pursuant to Section 13.02. Upon any draw upon the LC by Landlord,
      Tenant shall, upon demand by Landlord, restore the LC to its original amount.
      

     

    Tenant
      shall cause the LC to be renewed for each year of the Lease Term.
      If
      Tenant shall fail to provide such LC by January 5, 2006, or fails to replace
      it
      with an approved LC not less than thirty (30) days prior to the expiration
      date
      of any such LC, then the Tenant shall be considered to be in default under
      the
      terms of this Lease and Landlord shall have the right to exercise any of its
      available remedies pursuant to Section 13.02 of this Lease and shall, in
      addition, have the right to draw against the full amount of the LC and
      thereafter hold the same as security for Tenant’s obligations under this Lease
      for the entire Lease Term, which funds shall be refunded by Landlord to the
      LC
      issuer or Tenant, as appropriate, if and only if Tenant posts a new LC from
      a
      financial institution acceptable to Landlord and meeting the terms of this
      Section 5.05 prior to the expiration date of the expiring LC, and Tenant is
      not
      otherwise in default under the Lease. Landlord shall be entitled to withdraw
      from such sums the amount of any unpaid Base Rent, Additional Rent or other
      charges not paid to Landlord when due. Landlord shall pay Tenant the remaining
      balance thereof, if any, without any liability for interest thereon, within
      thirty (30) days after the expiration or prior termination of the Lease Term,
      if
      and only if Tenant has fully performed all of its obligations under the terms
      of
      this Lease.

     

    Notwithstanding
      the above, in the event that as of the commencement of the 25th month of the
      Lease Term, Tenant’s most recent 10Q financial statement shows that Tenant has
      (a) a tangible net worth equal to or greater than $20,000,000; (b) a current
      ratio (current assets divided by current liabilities) of 2.0 or greater, and
      (c)
      a debt-to-equity ratio equal to or less than 1.0, then the Letter of Credit
      amount may be reduced to $600,000. If the criteria set forth in (a)-(c) above
      has not been met, the Letter of Credit shall be renewed in the amount of
      $700,000.

    

    In
      the
      event that as of the commencement of the 49th month of the Lease Term, Tenant’s
      most recent 10Q financial statement shows that Tenant has (a) a tangible net
      worth equal to or greater than $20,000,000; (b) a current ratio of 2.0 or
      greater, and (b) a debt-to-equity ration equal to or less than 1.0, then the
      Letter of Credit amount may be reduced to $500,000. If the criteria set forth
      in
      (a)-(c) above has not been met, the Letter of Credit shall be renewed or
      replaced with a Letter of Credit in the amount of $700,000.

    

    
      
        
        

      

      
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    ARTICLE
      VI: ADDITIONAL
      RENT AND CHARGES

    

    6.01 Operating
      Expenses.
      In
      addition to Base Rent and other sums payable by Tenant under this Lease, Tenant
      shall pay to Landlord, as Additional Rent, Tenant's Share of the Operating
      Expenses (as such term is defined below).

    

    (a)  Estimated
      Expenses; Annual Reconciliation.
      

    

    (i) Upon
      the
      Commencement of the Lease Term, and thereafter prior to the commencement of
      each
      calendar year occurring wholly or partially within the Term or as soon
      thereafter as practical, Landlord shall estimate the annual Operating Expenses
      payable by Tenant pursuant to this provision, and Tenant shall pay to Landlord
      on the first day of each month in advance, one-twelfth (1/12th) of Tenant's
      Share of such estimated amount. In the event that during any calendar year
      of
      the Term, Landlord determines that the actual Operating Expenses for such year
      will exceed the estimated Operating Expenses, Landlord may revise such estimate
      by written notice to Tenant, and Tenant shall pay to Landlord, concurrently
      with
      the regular monthly rent payment next due following the receipt of the revised
      estimate, an amount equal to the difference between the initial monthly estimate
      and the revised monthly estimate multiplied by the number of months expired
      during such calendar year and shall also pay an amount equal to the revised
      monthly estimate for the month of such payment. Subsequent installments shall
      be
      payable concurrently with the regular monthly Base Rent due for the balance
      of
      the calendar year and shall continue until the next calendar year's estimate
      is
      rendered or Landlord next revises its estimate of Operating Expenses, whichever
      occurs sooner.

     

    
      (ii) Within
        one hundred twenty (120) days following the end of each year or a reasonable
        time thereafter, Landlord shall provide Tenant with a written statement of
        the
        actual total Operating Expenses for such year and there shall be an adjustment
        made to account for any difference between Tenant's Share of the actual and
        the
        estimated Operating Expenses for the previous year. If Tenant has overpaid
        the
        amount of Operating Expenses owing pursuant to this provision, Landlord shall,
        provided Tenant is not in default hereunder, credit such overpayment to Tenant's
        account. If Tenant has underpaid the amount of Operating Expenses owing pursuant
        to this provision, Tenant shall pay the total amount of such deficiency to
        Landlord as Additional Rent with the next payment of Base Rent due under
        this
        Lease following delivery of written notice of said deficiency from Landlord
        to
        Tenant. Notwithstanding anything in this section 6.01 to the contrary,
        commencing with the second calendar year of the Lease Term, Tenant’s Share of
        Controllable Operating Expenses, (defined as the cost of landscaping, parking
        lot sweeping and snow removal, maintenance and other controllable expenses
        associated with the physical upkeep of the Common Areas) shall not increase
        by
        more than 6% per calendar year on a cumulative basis. 

      
 

    

    
      
        
        

      

      
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    (iii) In
      the
      event the average occupancy level of the Building or Project, as the case may
      be, for any calendar year was or is not one hundred percent (100%) of full
      occupancy, then the estimated Operating Expenses and actual Operating Expenses
      for such year shall be proportionately adjusted by Landlord to reflect those
      costs which have occurred had the Building and/or Project, as the case may
      be,
      been one hundred percent (100%) occupied during such year.

    

    (iv) Landlord
      shall keep its books of account and records concerning Operating Expenses in
      compliance with generally accepted accounting principles and retain the same
      for
      one (1) years after the calendar year for which they were prepared; provided,
      however in the event Tenant has given written notice to Landlord of a specified
      dispute or objection regarding Operating Expenses charged by Landlord hereunder,
      Landlord will retain such books of account and records for the applicable period
      until final resolution of the dispute or objection. Unless Tenant objects in
      writing regarding specific discrepancies in the Operating Expense calculations
      for any calendar year within ninety (90) days after receipt of Landlord's final
      calculations for such calendar year, Tenant shall be deemed to have approved
      the
      same and to have waived the right to object to such calculations. 

    

    (b) Defined
      terms.

    

    (i) Operating
      Expenses Inclusions.
      For
      purposes of this Lease, "Operating Expenses" means an amount equivalent to
      the
      total of all expenses and costs incurred in connection with the ownership,
      operation, management, maintenance, repair and replacement of the Project,
      the
      Property, the Building, the Premises and the Common Areas, including, but in
      no
      way limited to, the following:

    

    A. The
      costs
      of operating, maintaining and repairing the Project, the Property, the Building,
      the Premises and the Common Areas, including but not limited to: janitorial
      services, gardening and landscaping; painting; lighting; sanitary control;
      personal property taxes; public liability insurance and property damage
      insurance; utilities for Common Areas; licenses and fees for Common Area
      facilities; sweeping; removal of snow and ice, trash, rubbish, garbage and
      other
      refuse; repairing, restriping and resurfacing of parking area; and maintenance
      of and property taxes on personal property, machinery and equipment used in
      Common Area maintenance.

    

    B. All
      Real
      Property Taxes (as defined below) assessed against the Project, the Building
      and/or the Common Areas, as applicable, including land, building(s) (including
      the Building) and improvements thereon or thereto.

    

    C. All
      premiums for liability, terrorism, fire, extended coverage and other insurance
      the Landlord reasonably deems necessary and keeps in force on or with respect
      to
      the Project, the Property, the Building of which the Premises are a part and/or
      the Common Areas, as the case may be, and commercially reasonable deductibles
      payable in connection therewith.

    

    
      
        
        

      

      
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    D. The
      cost
      of operating, maintaining and repairing any electrical, mechanical, automatic
      fire sprinkler and other utilities systems serving the Premises which serve
      the
      Premises in common with the entire Building. 

    

    E. The
      cost
      of maintenance and repairof the structural and non-structural portions of the
      roof, roof membrane, exterior walls, foundation, and other exterior portions
      of
      the Project and Building, and reasonable reserves for the same.

    

    F. Reasonable
      property management charges not to exceeed current market rates, together with
      the
      costs
      incurred in the operation of a management office relating to the Project,
      including, but not limited to the cost of rent and utilities with respect
      thereto.

    

    G. Costs
      of
      replacements and improvements which are necessary to adequately maintain or
      protect the Project, the Building and/or the Common Areas, as the case may
      be,
      and/or which are required by law or governmental regulation enacted after the
      date of this Lease, which are of a capital nature (as determined by GAAP
      accounting) to the extent amortization over the useful life thereof with
      interest at 11% per annum is applicable to the periods during the Lease Term,
      and reasonable reserves for the same.

    

    H. Any
      other
      costs levied, assessed or imposed by or at the direction of, or resulting from
      statutes or regulations or interpretations thereof promulgated by any federal
      or
      governmental authority in connection with the use or occupancy of the Project.
      

    

    I. Assessments
      made on or with respect to the Project made pursuant to any CC&Rs , Public
      Utility District conditions, Local Improvement District conditions and/or
      owner’s associations affecting the Project, or any portion thereof.

    

    J. Reasonable
      reserves for replacement of improvements located in, on or under the Project,
      Property or Common Areas.

    

    K. Compensation
      (including wages and employer paid benefits and taxes ) of employees and
      contractors engaged in the operation and maintenance of the Project, Property
      and/or Building.

    

    (ii) Operating
      Expense Exclusions.
      Notwithstanding the foregoing, Operating Expenses to be reimbursed by Tenant
      shall not include:

    

    A. Expenses
      which are separately metered or calculated for the Premises or other leased
      area
      of the Project or the Building, as the case may be, which expenses shall be
      billed separately to Tenant or such other tenant(s), as applicable.

    

    
      
        
        

      

      
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    B. Costs
      incurred in connection with the initial construction or design of the Building
      or to correct defects in the original construction or design of the
      Building.

    

    C. Depreciation.

    

    D. Costs,
      fines or penalties incurred due to violation by Landlord of any applicable
      law.

    

    E. Expenses
      incurred by Landlord in respect of individual tenants and/or the improvement
      or
      renovation of tenants' leasehold improvements, including leasing commissions,
      attorneys' fees arising from lease disputes and other specific costs incurred
      for the account of, separately billed to and paid by specific
      tenants.

    

    F. Repairs
      or replacements to the extent that the cost of the same is recoverable by the
      Landlord pursuant to original construction warranties.

    

    G. Interest
      on debt or capital retirement of debt, and costs of capital improvements except
      as expressly provided above. 

    

    H. Legal
      fees and disbursements relating to legal matters other than such fees and costs
      directly relating to Operating Expense issues in connection with the Project,
      the Building, the Premises and/or the Common Areas. 

    

    I. Costs
      incurred due to the gross negligence of Landlord or breach by Landlord of its
      obligations under any lease.

    

    Additional
      Rent payable by Tenant which would not otherwise be due until after the date
      of
      the expiration or earlier termination of the Lease shall, if the exact amount
      is
      uncertain at the time this Lease expires or terminates, be paid by Tenant to
      Landlord upon such expiration or termination in an amount to be determined
      by
      Landlord, with an adjustment to be made once the exact amount is
      known.

    

    (iii) Tenant's
      Share.
      For
      purposes of this Lease, "Tenant's Share" means the percentage, as set forth
      in
      Section 1.01(o) or Section 1.01(p), as appropriate, and obtained by dividing
      the
      Rentable Area of the Premises by the aggregate Rentable Area of all premises
      available for lease, whether leased or not, in the Building or the Project,
      as
      applicable with respect to any specific Operating Expense, subject to adjustment
      in the event of changes in Rentable Area of the Project, Building and/or
      Premises. Notwithstanding the above, Landlord shall have the right, but not
      the
      obligation, to equitably adjust Tenant's Share of any specific Operating Expense
      so as to render such expense payable proportionately by those tenants benefited
      by the same or otherwise in order to appropriately allocate such Operating
      Expense to cover the area covered by such Operating Expense.

    

    
      
        
        

      

      
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    (iv) Real
      Property Taxes.
      For
      purposes of this Lease, "Real Property Taxes" shall consist of all real estate
      taxes and all other taxes relating to the Building, the Common Areas and/or
      the
      Project, as applicable, all other taxes which may be levied in lieu of real
      estate taxes, all assessments, local improvement districts, assessment bonds,
      levies, fees and other governmental charges, including, but not limited to,
      charges for traffic facilities and improvements, water service studies, and
      improvements or amounts necessary to be expended because of governmental orders,
      whether general or special, ordinary or extraordinary, unforeseen as well as
      foreseen, of any kind and nature for public improvements, services, benefits,
      or
      any other purpose, which are assessed, levied, confirmed, imposed or become
      a
      lien upon the Building or any portion of the Project, the Property and/or the
      Common Areas, or become payable during the Term (or which become payable after
      the expiration or earlier termination hereof and are attributable in whole
      or in
      part to any period during the Term hereof), together with all costs and expenses
      incurred by Landlord in successfully contesting, resisting or appealing any
      such
      taxes, rates, duties, levies or assessments. "Real Property Taxes" shall exclude
      any franchise, estate, inheritance or succession transfer tax of Landlord,
      or
      any federal or state income, profits or revenue tax or charge upon the net
      income of Landlord from all sources; provided, however, that if at any time
      during the Term there is levied or assessed against Landlord a federal, state
      or
      local tax or excise tax on rent, or any other tax however described on account
      of rent or gross receipts or any portion thereof, Tenant shall pay one hundred
      percent (100%) of the Tenant's Share of any said tax or excise applicable to
      Tenant's Rent as Additional Rent. 

    

    6.02 Tenant's
      Personal Property Taxes.
      Tenant
      shall pay or cause to be paid, prior to delinquency, any and all taxes and
      assessments levied upon all trade fixtures, inventories and other real or
      personal property placed or installed in and upon the Premises by Tenant. If
      any
      such taxes on Tenant's personal property or trade fixtures are levied against
      Landlord or Landlord's property or if the assessed value of the Building is
      increased by the inclusion therein of a value placed upon such real or personal
      property or trade fixtures of Tenant, and if Landlord pays the taxes based
      upon
      such increased assessment, Tenant shall, upon demand, repay to Landlord the
      taxes so levied or the portion of such taxes resulting from such increase in
      the
      assessment.

    

    

    ARTICLE
      VII: INSURANCE

    

    7.01 Landlord's
      Insurance.
      During
      the Term, Landlord shall procure and maintain in full force and effect with
      respect to the Building (i) a policy or policies of property insurance
      (including, to the extent required, sprinkler leakage, vandalism and malicious
      mischief coverage, and any other endorsements required by the holder of any
      fee
      or leasehold mortgage and earthquake, flood and terrorism insurance to the
      extent Landlord reasonably deems prudent and/or to the extent required by any
      mortgagee); and (ii) a policy of commercial liability insurance, in the form
      and
      content acceptable to Landlord, insuring Landlord’s activities with respect to
      the Premises, the Common Areas and the Project for loss, damage or liability
      for
      personal injury or death of any person or loss or damage to property occurring
      in, upon or about the Premises, Common Areas or Project in an amount of not
      less
      than Three Million Dollars ($3,000,000) combined single limit. If the annual
      premiums charged Landlord for such casualty and/or liability insurance exceed
      the standard premium rates because the nature of Tenant's operations results
      in
      increased exposure, then Tenant shall, upon receipt of appropriate premium
      invoices, reimburse Landlord for such increased amount. Landlord shall have
      the
      right, at its option, to keep and maintain in full force and effect during
      the
      Term such other insurance in such amounts and on such terms as Landlord and/or
      any mortgagees or the beneficiary of any trust deed against the Building, or
      all
      or a portion of the Project, may reasonably require from time to time in form,
      in amounts and for insurance risks against which a prudent Landlord would
      protect itself, including but not limited to rental abatement, rental
      interruption, earthquake, flood and terrorism insurance.

    

    
      
        
        

      

      
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    7.02 Tenant’s
      Public Liability.
      Tenant
      shall, at its own cost and expense, keep and maintain in full force during
      the
      Term and any other period of occupancy of the Premises by Tenant, a policy
      or
      policies of commercial liability insurance, written by a reputable insurance
      company authorized to do business in the State of Washington in form and content
      acceptable to Landlord insuring Tenant's activities with respect to the
      Premises, the Common Areas and the Project for loss, damage or liability for
      personal injury or death of any person or loss or damage to property occurring
      in, upon or about the Premises in an amount of not less than Three Million
      Dollars ($3,000,000) combined single limit or such larger amounts as may
      hereafter be reasonably requested by Landlord. The policy shall insure the
      hazards of the Premises and Tenant's operations therein, shall include
      independent contractor and contractual liability coverage (covering the
      indemnity contained in Section 7.08 hereof) and shall (a) name Landlord.
      Landlord’s managing agent and the Landlord’s mortgagee under a mortgage or
      beneficiary under a deed of trust either having a first lien against the
      Building or Project (the “Lender”) as an additional insured; (b) contain a
      cross-liability provision and; (c) contain a provision that the insurance
      provided hereunder shall be primary and non-contributing with any other
      insurance available to Landlord.

    

    7.03 Tenant's
      Property and Other Insurance.
      Tenant
      shall, at its own cost and expense, keep and maintain in full force during
      the
      Term and any other period of occupancy of the Premises, a policy or policies
      of
      standard form property insurance insuring against the perils of fire, extended
      coverage, vandalism, malicious mischief, special extended coverage and sprinkler
      leakage. This insurance policy shall be upon all property owned by Tenant,
      for
      which Tenant is legally liable or that was installed at Tenant's expense, and
      which is located in the Premises, including without limitation, furniture,
      fittings, installations, cabling, fixtures (other than the improvements
      installed by Landlord), and any other personal property, in the amount of not
      less than one hundred percent (100%) of the full replacement costs thereof.
      This
      insurance policy shall also insure direct or indirect loss of Tenant's earning
      attributable to Tenant's inability to use fully or obtain access to the
      Premises.

    

    7.04 Form
      of Insurance/Certificates.
      All
      policies shall be written in a form satisfactory to Landlord and shall be taken
      out with insurance companies licensed in the state in which the Building is
      located and holding a General Policy Holder's Rating of "A-" and a financial
      rating of "X" or better, as set forth in the most current issues of Best's
      Insurance Guide. Tenant shall furnish to Landlord, prior to Tenant's entry
      into
      the Premises and thereafter within ten (10) days prior to the expiration of
      each
      such policy, a certificate of insurance (or renewal thereof) issued by the
      insurance carrier of each policy of insurance carried by Tenant pursuant hereto
      and, upon request by Landlord, a copy of each such policy of insurance. Said
      certificates shall expressly provide that such policies shall not be cancelable
      or subject to reduction of coverage below the minimum amounts required by this
      Lease or required by any lender having an interest in the Building or otherwise
      be subject to modification except after thirty (30) days prior written notice
      to
      the parties named as insured in this Section 7.04.

    

    
      
        
        

      

      
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    7.05 Tenant's
      Failure.
      If
      Tenant fails to maintain any insurance required in the Lease, Tenant shall
      be
      liable for any loss or cost resulting from said failure, and Landlord shall
      have
      the right to obtain such insurance on Tenant's behalf and at Tenant's sole
      expense. This Section 7.05 shall not be deemed to be a waiver of any of
      Landlord's rights and remedies under any other Section of this Lease. If
      Landlord obtains any insurance which is the responsibility of Tenant to obtain
      under this Article VII, Landlord shall deliver to Tenant a written statement
      setting forth the cost of any such insurance and showing in reasonable detail
      the manner in which it has been computed and Tenant shall promptly remit said
      amount as Additional Rent to Landlord.

    

    7.06 Waiver
      of Subrogation.
      Any all
      risk policy or policies of fire, extended coverage or similar casualty insurance
      which either party obtains in connection with the Building, the Premises or
      Tenant's personal property therein shall include a clause or endorsement denying
      the insurer any rights of subrogation against the other party to the extent
      rights have been waived by the insured prior to the occurrence of injury or
      loss. Landlord and Tenant waive any rights of recovery against the other for
      liability, injury or loss due to hazards covered by insurance containing such
      a
      waiver of subrogation clause or endorsement to the extent of the liability,
      injury or loss covered thereby.

    

    7.07 Tenant's
      Properties and Fixtures.
      Tenant
      assumes the risk of damage to any furniture, equipment, machinery, goods,
      supplies or fixtures which are or remain the property of Tenant or as to which
      Tenant retains the right of removal from the Premises, except to the extent
      due
      to the negligent act or omission, or willful misconduct of Landlord. Tenant
      shall not do or keep anything in or about the Premises (except those things
      Tenant presently does and keeps in connection with the uses set forth in Section
      10.01) which will in any way tend to increase insurance rates paid by Landlord
      and maintained with respect to the Premises and/or the Project unless Tenant
      pays directly to Landlord the increase cost of the premiums. In no event shall
      Tenant carry on any activities which would invalidate any insurance coverage
      maintained by Landlord. If Tenant's occupancy or business in, or on, the
      Premises, whether or not Landlord has consented to the same, results in any
      increase in premiums for the insurance carried by Landlord with respect to
      the
      Building and/or the Project, Tenant shall pay any such increase in premiums
      as
      Additional Rent within ten (10) days after being billed therefore by Landlord.
      In determining whether increased premiums are a result of Tenant's use of the
      Building, a schedule issued by the organization computing the insurance rate
      on
      the Building and/or the Project showing the various components of such rate
      shall be conclusive evidence of the several items and charges which make up
      such
      rate. Tenant shall promptly comply with all reasonable requirements of the
      insurance underwriters and/or any governmental authority having jurisdiction
      thereover, necessary for the maintenance of reasonable fire and extended
      insurance for the Building and/or the Project.

    

    
      
        
        

      

      
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    7.08 Indemnification.

    

    (a) (i) Except
      and to the extent as may arise out of the negligence or willful misconduct
      of
      Landlord and/or its agents, employees or contractors, Tenant, as a material
      part
      of the consideration to be rendered to Landlord, hereby indemnifies and agrees
      to defend and hold Landlord, Landlord’s managing agent and Lender, the Premises
      and the Project harmless for, from and against (i) any and all liability,
      penalties, losses, damages, costs and expenses, demands, causes of action,
      claims, judgments or appeals arising from any injury to any person or persons
      or
      any damage to any property to the extent as a result of Tenant's or Tenants'
      officers, employees, agents, assignees, subtenants, concessionaires, licensees,
      contractors or invitees' use, maintenance, occupation, operation or control
      of
      the Premises during the Term, or resulting from any breach or default in the
      performance of any obligation to be performed by Tenant hereunder or for which
      Tenant is responsible under the terms of the Lease or pursuant to any
      governmental or insurance requirement, or to the extent arising from any act,
      neglect, fault or omission of Tenant or any of Tenant's officers, employees,
      agents, servants, subtenants, concessionaires, licensees, contractors or
      invitees, and (ii) from and against all reasonable legal costs and charges,
      including reasonable attorneys' and other reasonable professional fees, incurred
      in and about any of such matters and the defense of any action arising out
      of
      the same or in discharging the Project, the Property and/or Premises or any
      part
      thereof from any and all liens, charges or judgments which may accrue or be
      placed thereon by reason of any act or omission of the Tenant, 

    

    (ii) Landlord,
      as a material part of the consideration to be rendered to Tenant, hereby
      indemnifies and agrees to defend and hold Tenant and the Premises harmless
      from
      and against (i) any and all liability, penalties, losses, damages, costs and
      expenses, demands, causes of action, claims, judgments or appeals arising from
      any injury to any person or persons or any damage to any property to the extent
      as a result of Landlord's or Landlord's' officers, employees, agents,
      maintenance, occupation, operation or control of the Building, Common Areas
      or
      Project during the Term, or contractors, negligence or willful misconduct,
      or
      arising from any act, neglect, fault or omission of Landlord or any of
      Landlord's officers, employees, agents, servants, subtenants, concessionaires,
      licensees, contractors or invitees, and (ii) from and against all reasonable
      legal costs and charges, including reasonable attorneys' and other reasonable
      professional fees, incurred in and about any of such matters and the defense
      of
      any action arising out of the same or in discharging Tenant and/or Premises
      or
      any part thereof from any and all liens, charges or judgments which may accrue
      or be placed thereon by reason of any act or omission of the Landlord, except
      and to the extent as may arise out of the negligence or willful misconduct
      of
      Tenant and/or its officers, agents, employees, assignees, subtenants,
      concessionaires, licensees, contractors, or invitees.

    

    (b) In
      the
      event of the concurrent negligence of Tenant, its sublessees, assignees,
      invitees, agents, employees, contractors, or licensees on the one hand and
      the
      negligence of Landlord, its agents, employees or contractors on the other hand,
      which concurrent negligence results in injury or damage to persons or property
      of any nature and howsoever caused, and relates to the construction, alteration,
      repair, addition to, subtraction from, improvement to or maintenance of the
      Common Areas or Premises such that RCW 4.24.115 is applicable, then (i) Tenant's
      obligation to indemnify Landlord as set forth in this Section 7.08 shall be
      limited to the extent of Tenant's negligence and that of Tenant's officers,
      sublessees, assignees, invitees, agents, employees, contractors or licensees,
      including Tenant's proportional share of costs, reasonable attorneys' fees
      and
      expenses incurred in connection with any claim, action or proceeding brought
      with respect to such injury or damage; and (ii) Landlord’s obligation to
      indemnify Tenant as set forth in this Section 7.08 shall be limited to the
      extent of Landlord's negligence and that of Landlord’s officers, agents,
      employees, contractors or licensees, including Tenant's proportional share
      of
      costs, reasonable attorneys' fees and expenses incurred in connection with
      any
      claim, action or proceeding brought with respect to such injury or damage.
      

    

    
      
        
        

      

      
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    (c) LANDLORD
      AND TENANT HEREBY WAIVE AND AGREE THAT IT WILL NOT ASSERT ITS INDUSTRIAL
      INSURANCE IMMUNITY UNDER TITLE 51 RCW IF SUCH ASSERTION WOULD BE INCONSISTENT
      WITH THE RIGHT OF THE OTHER PARTY TO INDEMNIFICATION PURSUANT TO THIS ARTICLE
      7.
      THE PARTIES AGREE THAT THIS PROVISION WAS MUTUALLY NEGOTIATED AND RELATES ONLY
      TO A WAIVER OF IMMUNITY WITH RESPECT TO THE OTHER PARTY AND NO THIRD PARTY,
      INCLUDING BUT NOT LIMITED TO, ANY INJURED EMPLOYEE OF EITHER PARTY, SHALL BE
      A
      THIRD PARTY BENEFICIARY OF THIS PROVISION.

    

    (d) In
      no
      event shall Landlord, its agents, employees and/or contractors be liable for
      any
      personal injury or death or property damage caused by other lessees or persons
      unrelated to Landlord in or about the Premises, the Project and/or the Building,
      as the case may be, or caused by public or quasi-public work, or for
      consequential damages arising out of any loss of the use of the Premises or
      any
      equipment or facilities therein by Tenant or any person claiming through or
      under Tenant.

    

    7.09 Damage
      to Tenant's Property.
      Notwithstanding the provisions of Section 7.08 to the contrary, except to the
      extent due to the negligence or willful misconduct of Landlord, Landlord, its
      agents, employees and/or contractors shall not be liable for (i) any damage
      to
      property entrusted to employees or security officers of the Project, Building
      or
      the Property, (ii) loss or damage to any property by theft or otherwise, or
      (iii) any injury or damage to persons or property resulting from fire,
      explosion, falling substances or materials, steam, gas, electricity, water
      or
      rain which may leak from any part of the Building, the Common Areas, Project
      or
      the Property or from the pipes, appliances or plumbing work therein or from
      the
      roof, street, or subsurface or from any other place or resulting from dampness
      or any other cause, except to the extent Landlord receives consideration for
      such damage or injury from a third party. Neither Landlord nor its agents,
      employees or contractors shall be liable for interference with light. Tenant
      shall give prompt notice to Landlord and appropriate emergency response
      officials if Tenant is or becomes aware of fire or accidents in the Building,
      the Common Areas or any other portion of the Project or of defects therein
      in
      the fixtures or equipment.

    

    
      
        
        

      

      
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    ARTICLE
      VIII: REPAIRS
      AND MAINTENANCE

    

    8.01 Landlord
      Repairs and Maintenance.
      Subject
      to Landlord's right to reimbursement from Tenant pursuant to Sections 6.01
      and
      8.03, to the extent applicable, Landlord shall at its expense maintain in good
      condition and repair the structural portions of the Building including without
      limitation the foundation, roof and membrane and shall maintain in good
      condition the exterior of the Building, utilities to their point of connection
      to the Premises and the Common Areas of the Project. Landlord shall not be
      liable for any failure to make any repairs or to perform any maintenance unless
      such failure shall persist for an unreasonable time after written notice of
      the
      need for such repairs or maintenance is given to Landlord by Tenant. There
      shall
      be no abatement of Rent and, except for the gross negligence or willful
      misconduct of Landlord or its employees, no liability of Landlord by reason
      of
      any injury to or interference with Tenant's business arising from the making
      of
      any repairs, alterations or improvement in or to any portion of the Premises
      or
      in or to fixtures, appurtenances and equipment therein; provided, that Landlord,
      its employees, agents and contractors use reasonable efforts not to unreasonably
      interfere with Tenant's business in exercise of Landlord's rights or obligations
      hereunder. Except as may otherwise be expressly set forth herein, Tenant affirms
      that (a) neither Landlord nor any agent, employee or officer of Landlord has
      made any representation regarding the condition of the Premises, the Building,
      the Common Areas or the Project, and (b) Landlord shall not be obligated to
      undertake any repair, alteration, remodel, improvement, painting or
      decorating.

    

    8.02 Utilities
      and Services.
      Subject
      to reimbursement pursuant to Sections 6.01 and 8.03 hereof, to the extent
      applicable, Landlord shall furnish or cause to be furnished to the Premises
      lines for water, electricity, sewage and telephone. Tenant shall pay before
      delinquency, at its sole cost and expense, all charges for water, heat,
      electricity, power, telephone service, sewer service charges and other utilities
      or services charged or attributable to the Premises; provided, however, that
      if
      any such services or utilities shall be billed to Landlord and are not
      separately billed to the Premises, Tenant shall pay to Landlord as Additional
      Rent, an amount equal to that proportion of the total charges therefor which
      the
      Rentable Area of the Premises bears to the rentable area of leased area covered
      by such charges. Notwithstanding the above, in the event Tenant uses any such
      services during non-standard building hours, Tenant shall pay the actual cost
      of
      such after-hours services used by Tenant. 

    

    8.03 Tenant
      Repairs and Maintenance.
      Except
      as otherwise set forth in Sections 8.01 and 8.02 above, Tenant shall, at
      Tenant's sole cost and expense, keep, maintain and, to the extent reasonably
      required, replace the entire Premises, including but not by way of limitation,
      all interior walls, doors, ceiling, fixtures, furnishings, drapes, specialty
      lamps, light bulbs, starters and ballasts, subfloors, carpets and floor
      coverings, and heating, ventilation, air-conditioning and other utility and
      mechanical systems within the Premises to the extent serving the Premises
      exclusively, in good repair and in a clean and safe condition; provided that,
      upon five (5) days written notice to Tenant, Landlord shall have the right
      to
      perform such work on behalf of Tenant in which event Tenant shall reimburse
      Landlord for the cost thereof promptly upon demand therefor. In addition, if
      any
      repair or maintenance is necessary or prudent under Sections 8.01 or 8.02 as
      a
      result of an act or omission of Tenant or its agents, employees or contractors,
      Tenant shall reimburse Landlord for the entire cost of any such repair or
      maintenance immediately upon written demand therefor. Upon expiration or earlier
      termination of the Term, Tenant shall surrender the Premises to Landlord in
      the
      same condition as when leased, reasonable wear and tear, permanent improvements
      existing in the Premises as of the Commencement Date or thereafter approved
      by
      Landlord (except to the extent Landlord gives notice to Tenant at the time
      of
      approval of any such future improvements (including without limitation the
      improvements constructed by Tenant pursuant to Section 3.02 above) that Tenant
      will be required to remove and restore the same upon expiration or termination
      of this Lease), and damage by fire or other casualty not required to be repaired
      by Tenant pursuant to this Lease excepted. 

    

    
      
        
        

      

      
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    8.04 Non-liability
      of Landlord.
      Notwithstanding anything to the contrary contained in Sections 8.01 or 8.02
      above or elsewhere in this Lease, Landlord shall not be in default hereunder
      or
      be liable for any damages directly or indirectly resulting from, nor shall
      the
      Rent herein reserved be abated or rebated by reason of (a) the interruption
      or
      curtailment of the use of the Premises as a result of the installation of any
      equipment in connection with the Building or Project; or (b) any failure to
      furnish or delay in furnishing any services required to be provided by Landlord,
      unless and to the extent such failure or delay is caused by accident or any
      condition created by Landlord's active gross negligence; or (c) the limitation,
      curtailment, rationing or restriction of the use of water or electricity, gas
      or
      any other form of energy or any other service or utility whatsoever serving
      the
      Premises or Project.

    

    8.05 Inspection
      of Premises.
      Landlord may enter the Premises to complete construction undertaken by Landlord
      on the Premises, to inspect, clean, improve or repair the same, to inspect
      the
      performance by Tenant of the terms and conditions hereof, show the Premises
      to
      prospective purchasers, tenants and lenders and for all other purposes as
      Landlord shall reasonably deem necessary or appropriate; provided, that Landlord
      shall use reasonable efforts not to interfere with Tenant's business in exercise
      of Landlord's rights hereunder and shall comply with any reasonable security
      procedures developed by Tenant and conveyed in writing to Landlord; and
      provided, further that Landlord shall give Tenant not less than 24-hours notice
      of its right to enter the Premises (except in the event of an emergency). Tenant
      hereby waives any claim for damages for any injury or inconvenience to or
      interference with Tenant's business, any loss of occupancy or quiet enjoyment
      of
      the Premises and any other loss in, upon or about the Premises, arising from
      exercise by Landlord of its rights hereunder except as otherwise provided in
      Article XI hereof.

    

    

    ARTICLE
      IX: FIXTURES,
      PERSONAL PROPERTY AND ALTERATIONS

    

    9.01 Fixtures
      and Personal Property.
      Tenant,
      at Tenant's expense, may install any necessary trade fixtures, equipment and
      furniture in the Premises, provided that such items are installed and are
      removable without damage to the structure of the Premises, including, but not
      limited to, damage to drywall, doors, door frames and floors. Landlord reserves
      the right to approve or disapprove of any interior improvements which are
      visible from outside the Premises or which violate the CC&R's on wholly
      aesthetic grounds. Such improvements must be submitted for Landlord's written
      approval prior to installation, or Landlord may remove or replace such items
      at
      Tenant's sole expense. Said trade fixtures, equipment, furniture, cabling and
      personal property shall remain Tenant's property and shall be maintained in
      good
      condition while on the Premises and removed by Tenant upon the expiration or
      earlier termination of the Lease except as otherwise agreed by Landlord and
      Tenant. As a covenant which shall survive the expiration or earlier termination
      of the Lease, Tenant shall repair, at Tenant's sole expense, or, if Tenant
      fails
      to complete such repairs prior to such expiration or termination date, then,
      at
      Landlord’s election, reimburse Landlord for the cost to repair all damage caused
      by the installation or removal of said trade fixtures, equipment, cabling,
      furniture, personal property or temporary improvements; provided that, except
      as
      otherwise expressly provided by this Lease, Tenant shall not be required to
      remove or restore any permanent improvements which have been approved by
      Landlord (except to the extent Landlord gives notice to Tenant at the time
      of
      approval that removal of any such improvements will be required to be removed
      upon termination or expiration of the Lease). If Tenant fails to remove the
      foregoing items prior to or upon the expiration or earlier termination of this
      Lease, Landlord, at its option and without liability to Tenant for loss thereof,
      may keep and use them or remove any or all of them and cause them to be stored
      or sold in accordance with applicable law, and Tenant shall, upon demand of
      Landlord, pay to Landlord as Additional Rent hereunder all costs and expenses
      incurred by Landlord in so storing and/or selling said items. In the event
      any
      such fixtures, equipment, and/or furniture of Tenant are sold by Landlord,
      the
      proceeds of such sale shall be applied, first, to all expenses of Landlord
      incurred in connection with storage and sale; second, to any amounts owed by
      Tenant to Landlord under this Lease or otherwise, and, third, the remainder,
      if
      any, shall be paid to Tenant. 

    

    
      
        
        

      

      
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    9.02 Alterations.
      Tenant
      shall not make or allow to be made any material alterations, additions or
      improvements to the Premises (defined as alterations, additions or improvements
      costing in excess of $10,000 individually or $25,000 in the aggregate with
      respect to separate items relating to the same improvement or alteration, or
      alterations, additions or improvements which affect the structure or exterior
      of
      the Building or any building, mechanical, electrical or life safety system),
      either at the inception of the Lease or subsequently during the Term, without
      obtaining the prior written consent of Landlord, that consent may be withheld
      in
      Landlord’s sole discretion with respect to any alteration, addition or
      improvement that affects the structure or exterior of the Building or any
      building, mechanical, electrical or life safety systems. Tenant shall deliver
      to
      Landlord the contractor's name, references and state license number, a
      certificate of liability insurance naming Landlord and Landlord’s manager and
      lender(s) as an additional insured, as well as full and complete plans and
      specifications of all such alterations, additions or improvements, and any
      subsequent modifications or additions to such plans and specifications, and
      no
      proposed work shall be commenced or continued by Tenant until Landlord has
      received and given its written approval of each of the foregoing. Landlord
      shall
      either approve or disapprove any proposed alteration, addition or improvement
      on
      or before twenty (20) days following receipt of all of the foregoing items.
      Landlord does not expressly or implicitly covenant or warrant that any plans
      or
      specifications submitted by Tenant are accurate, safe or sufficient or that
      the
      same comply with any applicable laws, ordinances, building codes, or the like.
      Further, Tenant shall indemnify, protect, defend and hold Landlord and
      Landlord’s agents, employees and contractors and the Building harmless for, from
      and against any loss, damage, liability, claims, cost or expense, including
      attorneys' fees and costs, incurred as a result of any defects in design,
      materials or workmanship resulting from Tenant's alterations, additions or
      improvements to the Premises. All alterations, telephone or telecommunications
      lines, cables, conduits and equipment and all other additions or improvements
      to
      the Premises made by Tenant shall remain the property of Tenant until
      termination of the Lease, at which time they shall, unless otherwise elected
      by
      Landlord by written notice to Tenant, be and become the property of Landlord.
      Landlord may, as a condition to approval of any such alterations, additions
      or
      improvements, require Tenant to remove any partitions, counters, railings,
      telephone and telecommunications lines, cables, conduits and equipment and/or
      other improvements installed by Tenant during the Term, and Tenant shall repair
      all damage resulting from such removal or, in the event Tenant fails to do
      so,
      at Landlord's option, shall pay to Landlord all costs arising from such removal.
      All repairs, alterations, additions and restorations by Tenant hereinafter
      required or permitted shall be done in a good and workmanlike manner and in
      compliance with the plans and specifications approved by Landlord and in
      compliance with all applicable laws and ordinances, building codes, bylaws,
      regulations and orders of any federal, state, county, municipal or other public
      authority and of the insurers of the Premises and as-built plans and
      specifications shall be provided to Landlord by Tenant upon completion of the
      work. If required by Landlord, Tenant shall secure at Tenant's own cost and
      expense a completion and lien indemnity bond or other adequate security,
      including without limitation an indemnity agreement from Tenant's parent in
      form
      and substance reasonably satisfactory to Landlord. Tenant shall reimburse
      Landlord for Landlord's reasonable charges (including any professional fees
      incurred by Landlord and a reasonable administrative fee as established by
      Landlord from time to time) for reviewing and approving or disapproving plans
      and specifications for any proposed alterations.

    

    
      
        
        

      

      
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    9.03 Liens.
      Tenant
      shall promptly file and/or record, as applicable, all notices of completion
      provided for by law, and shall pay and discharge all claims for work or labor
      done, supplies furnished or services rendered at the request of Tenant or at
      the
      request of Landlord on behalf of Tenant, and shall keep the Premises, the
      Property and the Project free and clear of all mechanics' and materialmen's
      liens in connection therewith. Landlord shall have the right, and shall be
      given
      ten (10) business days written notice by Tenant prior to commencement of the
      work, to post or keep posted on the Premises, or in the immediate vicinity
      thereof, any notices of non-responsibility for any construction, alteration,
      or
      repair of the Premises by Tenant. If any such lien is filed, Tenant shall cause
      same to be discharged of record within ten (10) days following written notice
      thereof, or if Tenant disputes the correctness or validity of any claim of
      lien,
      Landlord may, in its reasonable discretion, permit Tenant to post or provide
      security in a form and amount acceptable to Landlord to insure that title to
      the
      Project remains free from the lien claimed. If said lien is not timely
      discharged Landlord may, but shall not be required to, take such action or
      pay
      such amount as may be necessary to remove such lien and Tenant shall pay to
      Landlord as Additional Rent any such amounts expended by Landlord, together
      with
      interest thereon at the Default Rate (as defined in Section 5.03 hereof), within
      five (5) days after notice is received from Landlord of the amount expended
      by
      Landlord.

    

    
      
        
        

      

      
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    ARTICLE
      X: USE
      AND COMPLIANCE WITH LAWS

    

    10.01 General
      Use and Compliance with Laws.
      Tenant
      shall only use the Premises for offices related to Tenant's business described
      in Section 1.01(e) above, and uses customarily incidental thereto and which
      are
      consistent with a Class A office project, and for no other use without the
      prior
      written the consent of Landlord. Tenant shall, at Tenant's sole cost and
      expense, comply with applicable requirements of municipal, county, state,
      federal and other applicable governmental authorities now or hereafter in force
      pertaining to Tenant's business operations, alterations and/or specific use
      of
      the Premises and/or the Project, and shall secure any necessary permits
      therefore and shall faithfully observe in the use of the Premises and the
      Project, applicable municipal, county, state, federal and other applicable
      governmental entities' requirements which are now or which may hereafter be
      in
      force. Tenant, in Tenant's use and occupancy of the Premises, shall not subject
      or permit the Premises and/or the Project to be used in any manner which would
      tend to damage any portion thereof, or which would increase the cost of any
      insurance paid by Landlord with respect thereto, including without limitation
      exceeding maximum legal or customary occupancy and density ratios. Tenant shall
      not do or permit anything to be done in or about the Premises, the Common Areas
      and/or the Project which will in any way obstruct or interfere with the rights
      of other tenants or occupants of the Common Areas and/or the Project or use
      or
      allow the Premises or any portion of the Project to be used for any improper,
      immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain
      or
      permit a nuisance in, on or about the Premises, the Common Areas and/or the
      Project. Tenant shall comply with all covenants and obligations in the
      CC&R's which affect the use and operation of the Premises, the Common Areas
      and/or the Project.

    

    10.02 Hazardous
      Materials.

    

    (a) Defined
      terms.

    

    (i) “Hazardous
      Materials” means, among other things, any of the following, in any amount: (a)
      any petroleum or petroleum derived or derivative product, asbestos in any form,
      urea formaldehyde and polychlorinated biphenyls and medical wastes; (b) any
      radioactive substance; (c) any toxic, infectious, reactive, corrosive, ignitable
      or flammable chemical or chemical compound; and (d) any chemicals, materials
      or
      substances, whether solid, liquid or gas, defined as or included in the
      definitions of “hazardous substances,”“hazardous wastes,”“hazardous
      materials,”“extremely hazardous wastes,”“restricted hazardous wastes,”“toxic
      substances,”“toxic pollutants,”“solid waste,” or words of similar import in any
      federal, state or local statute, law, ordinance or regulation or court decisions
      now existing or hereafter existing as the same may be interpreted by government
      offices and agencies.

    

    (ii) “Hazardous
      Materials Laws” means any federal, state or local statutes, laws, ordinances or
      regulations or court decisions now existing or hereafter existing that control,
      classify, regulate, list or define Hazardous Materials or require remediation
      of
      Hazardous Materials contamination.

    

    
      
        
        

      

      
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    (b) Compliance
      with Hazardous Materials Laws.
      Tenant
      will not cause any Hazardous Material to be brought upon, kept, generated or
      used on the Project in a manner or for a purpose prohibited by or that could
      result in liability under any Hazardous Materials Law; provided, however, in
      no
      event shall Tenant allow any Hazardous Material to be brought upon, kept,
      generated or used on the Project other than those Hazardous Materials which
      are
      disclosed in the Summary
      Table (Maximum Quantity on Hand) Dated June 6, 2000
      and the
Hazardous
      Materials Inventory Statement Dated June 6, 2000
      or
      otherwise used by Tenant in the ordinary course of its business and of which
      Tenant has given Landlord prior written notice and received Landlord’s approval,
      all of which shall be used, kept, maintained and disposed of in compliance
      with
      all applicable laws and regulations (other than small quantities of cleaning
      or
      other/industrial supplies as are customarily used by a tenant in the ordinary
      course in a general office facility). Tenant, at its sole cost and expense,
      will
      comply with (and obtain all permits required under) all Hazardous Materials
      Laws, groundwater wellhead protection
      laws,
      storm water management laws, fire protection provisions, and prudent industry
      practice relating to the presence, storage, transportation, disposal, release
      or
      management of Hazardous Materials in, on, under or about the Project that Tenant
      brings upon, keeps, generates or uses on the Project (including, without
      limitation, but subject to this Section 10.2, immediate remediation of any
      Hazardous Materials in, on, under or about the Project that Tenant brings upon,
      keeps, generates or uses on the Project in compliance with Hazardous Materials
      Laws) and in no event shall Tenant allow any liens or encumbrances pertaining
      to
      Tenant’s use of Hazardous Materials to attach to any portion of the Project. On
      or before the expiration or earlier termination of this Lease, Tenant, at its
      sole cost and expense, will completely remove from the Project (regardless
      whether any Hazardous Materials Law requires removal), in compliance with all
      Hazardous Materials Laws, all Hazardous Materials Tenant causes to be present
      in, on, under or about the Project. Tenant will not take any remedial action
      in
      response to the presence of any Hazardous Materials in on, under or about the
      Project, nor enter into (or commence negotiations with respect to) any
      settlement agreement, consent decree or other compromise with respect to any
      claims relating to or in any way connected with Hazardous Materials in, on,
      under or about the Project, without first notifying Landlord of Tenant’s
      intention to do so and affording Landlord reasonable opportunity to investigate,
      appear, intervene and otherwise assert and protect Landlord’s interest in the
      Project. Landlord shall have the right from time to time to inspect the Premises
      to determine if Tenant is in compliance with this Section 10.2.

    

    (c) Notice
      of
      Actions.
      Tenant
      will notify Landlord of any of the following actions affecting Landlord, Tenant
      or the Project that result from or in any way relate to Tenant’s use of the
      Project immediately after receiving notice of the same: (a) any enforcement,
      clean-up, removal or other governmental or regulatory action instituted,
      completed or threatened under any Hazardous Materials Law; (b) any claim made
      or
      threatened by any person relating to damage, contribution, liability, cost
      recovery, compensation, loss or injury resulting from or claimed to result
      from
      any Hazardous Material; and (c) any reports made by any person, including
      Tenant, to any environmental agency relating to any Hazardous Material,
      including any complaints, notices, warnings or asserted violations. Tenant
      will
      also deliver to Landlord, as promptly as possible and in any event within five
      (5) business days after Tenant first receives or sends the same, copies of
      all
      claims, reports, complaints, notices, warnings or asserted violations relating
      in any way to the Project or Tenant’s use of the Project. Upon Landlord’s
      written request, Tenant will promptly deliver to Landlord documentation
      acceptable to Landlord reflecting the legal and proper disposal of all Hazardous
      Materials removed or to be removed from the Premises. All such documentation
      will list Tenant or its agent as a responsible party and the generator of such
      Hazardous Materials and will not attribute responsibility for any such Hazardous
      Materials to Landlord or Landlord’s property manager, except to the extent
      Landlord or Landlord’s property manager or any of their respective employees,
      agents or contractors were responsible for such Hazardous Materials on the
      Premises.

    

    
      
        
        

      

      
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    (d) Disclosure
      and Warning Obligations.
      Tenant
      acknowledges and agrees that all reporting and warning obligations required
      under Hazardous Materials Laws resulting from or in any way relating to Tenant’s
      use of the Premises or Project are Tenant’s sole responsibility, regardless
      whether the Hazardous Materials Laws permit or require Landlord to report or
      warn.

    

    (e) Indemnification.
      Tenant
      releases and will indemnify, defend (with counsel reasonably acceptable to
      Landlord), protect and hold harmless the Landlord and Landlord’s agents,
      employees and contractors for, from and against any and all claims, liabilities,
      damages, losses, costs and expenses whatsoever arising or resulting, in whole
      or
      in part, directly or indirectly, from the presence, treatment, storage,
      transportation, disposal, release or management of Hazardous Materials in,
      on,
      under, upon or from the Project (including
      water
      tables and atmosphere) that Tenant brings upon, keeps, generates or uses on
      the
      Premises or the Project. Tenant’s obligations under this Section include,
      without limitation and whether foreseeable or unforeseeable, (a) the costs
      of
      any required or necessary repair, clean-up, detoxification or decontamination
      of
      the Project; (b) the costs of implementing any closure, remediation
      or
      other required action in connection therewith as stated above; (c) the value
      of
      any loss of use and any diminution in value of the Project, and (d) consultants’
      fees, experts’ fees and response costs. The Tenant’s obligations under this
      Section survive the expiration or earlier termination of this
      Lease.

    

    (f) Hazardous
      Materials Representation by Landlord.
      Landlord represents to Tenant that, to its actual knowledge, Landlord has not
      caused the generation, storage or release of Hazardous Materials upon the
      Premises, except in accordance with Hazardous Materials Laws and prudent
      industry practices regarding construction of the Premises.

    

    (g) Environmental
      Site Assessments.
      Upon
      request by Landlord during the Term of this Lease, prior to the exercise of
      any
      renewal Term and/or prior to vacating the Premises, Tenant will obtain and
      submit to Landlord an environmental site assessment from an environmental
      consulting company reasonably acceptable to Landlord.

    

    10.03 Signs.
      The
      Tenant shall not paint, display, inscribe, place or affix any sign, picture,
      advertisement, notice, lettering, or direction on any part of the outside of
      the
      Building or the Project or visible from the outside of the Premises, the
      Building or the Project, except as first approved by Landlord or as may be
      set
      forth in the Tenant Improvement Plans. Landlord shall provide initial building
      standard identification of Tenant on the Building directory, elevator lobby
      and
      suite location. Tenant
      shall have a non-exclusive right to install a non-illuminated sign on the
      Building exterior in the same location as the existing “Microvision” sign and to
      place its identification on the Building monument sign. All signage shall be
      in
      compliance with North Creek Signage & Design Guidelines and shall be subject
      to approval by Landlord, the North Creek Owner’s Association and the City of
      Bothell.

    

    
      
        
        

      

      
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    10.04 Exterior
      HVAC Unit. Tenant
      shall have the right to install pad-mounted exterior HVAC equipment subject
      to
      the provisions of this Section 10.04. The equipment shall be located on the
      east
      side of Building. Review and approval shall be at the reasonable discretion
      of
      Landlord and Landlord may require that the mechanical equipment be screened
      and
      sound attenuated, consistent with other installations in the Project, that
      the
      landscaping be installed around the equipment to soften its mass and such other
      conditions as reasonably required by Landlord. Additionally, to the extent
      the
      mechanical improvements cause a reduction in the project’s parking count, the
      Tenant’s parking stall count shall be reduced by one stall for every stall
      displaced by the mechanical improvements. All costs associated with the
      mechanical equipment installation and maintenance shall be at the sole cost
      of
      Tenant. Tenant shall be liable for and shall indemnify Landlord with respect
      to,
      any contamination resulting from the location, installation, use, operation
      or
      maintenance of the proposed mechanical equipment. Tenant shall retain ownership
      to the additional pad mounted exterior HVAC equipment and shall have the right
      to remove the equipment at any time during the lease Term. Tenant shall provide
      Landlord written notice no later than twelve (12) months prior to expiration
      of
      the initial Term if tenant intends to so remove the equipment. If Tenant does
      not so elect to remove the equipment, then, at Landlord’s option, (a) the
      equipment shall become the property of the Landlord upon expiration of the
      Term,
      or (b) by written election to Tenant no later than six (6) months prior to
      lease
      expiration, Landlord may require Tenant to remove the mechanical equipment
      and
      restore the affected landscape and parking areas upon expiration of the lease
      Term. Tenant shall have the right to install a nitrogen tank, in a location
      approved by Landlord and Tenant, which will be maintained by Air Products,
      Byrne
      Specialty Gases or other professional in the industry approved by Landlord.
      Tenant shall obtain all required local, state and/or federal permits and
      installation of nitrogen tank shall be maintained in compliance with all
      applicable local, state and/or federal regulations.

    

    ARTICLE
      XI: DAMAGE
      AND DESTRUCTION

    

    11.01 Reconstruction.
      If the
      Building is damaged or destroyed during the Term, Landlord shall, except as
      hereinafter provided, diligently repair or rebuild it to substantially the
      condition in which it existed immediately prior to such damage or destruction.
      If Landlord is obligated or elects to repair or restore as herein provided,
      Landlord shall be obligated to make repair or restoration of only those portions
      of the Premises which were initially provided at Landlord's expense or as part
      of the original installation by Landlord for Tenant and the repair and/or
      restoration of other items within the Premises shall be the obligation of the
      Tenant.

    

    11.02 Rent
      Abatement.
      Rent
      due and payable hereunder shall be abated proportionately during any period
      in
      which, by reason of any such damage or destruction, there is substantial
      interference with the operation of Tenant's business in the Premises. Such
      abatement shall continue for the period commencing with such damage or
      destruction and ending with a substantial completion by Landlord of the work
      of
      repair or reconstruction which Landlord is obligated or undertakes to do. If
      it
      be determined that continuation of business is not practical pending
      reconstruction, and if Landlord does not elect to or is unable to provide
      alternative temporary space for continuation of such business, then Rent due
      and
      payable hereunder shall abate, until reconstruction is substantially completed
      or until business is totally or partially resumed, whichever is the earlier.
      Tenant shall not be entitled to any claim, compensation or damages for loss
      in
      the use in the whole or any part of the Premises (including loss of business)
      and/or any inconvenience or annoyance occasioned by such damage, repair,
      reconstruction or restoration.

    

    
      
        
        

      

      
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    11.03 Excessive
      Damage or Destruction.
      If the
      Building or the Premises is damaged or destroyed to the extent that it cannot
      within Landlord’s reasonable discretion, with reasonable diligence, be fully
      repaired or restored by Landlord within the earlier of (i) one hundred twenty
      (120) days after the date of the damage or destruction, or (ii) the expiration
      of the Term hereof, Landlord may terminate this Lease by written notice to
      Tenant within thirty (30) days of the date of the damage or destruction. If
      Landlord does not terminate the Lease, this Lease shall remain in full force
      and
      effect and Landlord shall diligently repair and restore the damage as soon
      as
      reasonably possible.

    

    11.04 Uninsured
      Casualty.
      Notwithstanding anything contained herein to the contrary, in the event of
      damage to or destruction of all or any portion of the Building, which damage
      or
      destruction is not fully covered by the insurance proceeds received by Landlord
      under the insurance policies required under Article 7.01 hereinabove, Landlord
      may terminate this Lease by written notice to Tenant given within sixty (60)
      days after the date of notice to Landlord that said damage or destruction is
      not
      so covered. If Landlord does not elect to terminate this Lease, the Lease shall
      remain in full force and effect and the Building shall be repaired and rebuilt
      in accordance with the provisions for repair set forth in Section 11.01
      hereinabove.

    

    11.05 Waiver.
      With
      respect to any damage or destruction which Landlord is obligated to repair
      or
      may elect to repair under the terms of this Article XI, and to the extent
      permitted by law, Tenant hereby waives any rights to terminate this Lease
      pursuant to rights otherwise accorded by law to tenants, except as expressly
      otherwise provided herein.

    

    11.06 Mortgagee's
      Right.
      Notwithstanding anything herein to the contrary, if the holder of any
      indebtedness secured by a mortgage or deed of trust covering the Property,
      the
      Building and/or the Project requires that the insurance proceeds be applied
      to
      such indebtedness, then Landlord shall have the right to terminate this Lease
      by
      delivering written notice of termination to Tenant within fifteen (15) days
      after such requirement is made. Upon any termination of this Lease under the
      provisions hereof, the parties shall be released without further obligation
      to
      the other from date possession of the Premises is surrendered to Landlord,
      except for items which are theretofore accrued and are then unpaid.

    

    
      
        
        

      

      
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    11.07 Damage
      Near End of Term.
      Notwithstanding anything to the contrary contained in this Article XI, in the
      event the Premises or the Building are subject to excessive damage (as defined
      in Section 11.03) during the last twelve (12) months of the Term or any
      applicable extension periods, Landlord may elect to terminate this Lease by
      written notice to Tenant within thirty (30) days after the date of such
      damage.

    

    

    ARTICLE
      XII: EMINENT
      DOMAIN

    

    12.01 Eminent
      Domain.
      In the
      event the whole of the Premises, Building, Project and/or Common Areas, as
      the
      case may be, and/or such part thereof as shall substantially interfere with
      Tenant's use and occupation thereof, shall be taken for any public or
      quasi-public purpose by any lawful power or authority by exercise of the right
      of appropriation, condemnation or eminent domain, or is sold in lieu of or
      to
      prevent such taking, then Tenant shall have the right to terminate this Lease
      effective as of the date possession is required to be surrendered to said
      authority. In the event the whole of the Premises, Building, Project and/or
      Common Areas, as the case may be, or such part thereof as shall substantially
      interfere with Landlord’s use and occupation thereof, or if any access points to
      adjoining streets, shall be taken for any public or quasi-public purpose by
      any
      lawful power or authority by exercise of the right of appropriation,
      condemnation or eminent domain, or is sold in lieu of or to prevent such taking,
      then Landlord shall have the right to terminate this Lease effective as of
      the
      date possession is required to be surrendered to said authority. Except as
      provided below, Tenant shall not assert any claim against Landlord or the taking
      authority for any compensation because of such taking, and Landlord shall be
      entitled to receive the entire amount of any award without deduction for any
      estate or interest of Tenant in the Premises. Nothing contained in this Article
      12 shall be deemed to give Landlord any interest in any separate award made
      to
      Tenant for the taking of personal property and fixtures belonging to Tenant
      or
      for Tenant's moving expenses. In the event the amount of property or the type
      of
      estate taken shall not materially interfere with the conduct of Tenant's
      business, Landlord shall be entitled to the entire amount of the award without
      deduction for any estate or interest of Tenant, Landlord shall promptly proceed
      to restore the Building to substantially their same condition prior to such
      partial taking less the portion thereof lost in such condemnation, and the
      Base
      Rent shall be proportionately reduced by the time during which, and the portion
      of the Premises which, Tenant shall have been deprived of possession on account
      of said taking and restoration.

    

    

    ARTICLE
      XIII: DEFAULT

    

    13.01 Events
      of Default.
      The
      occurrence of any of the following events shall constitute an "Event of Default"
      on the part of the Tenant with or without notice from Landlord:

    

    (a) Tenant
      shall fail to pay on or before the due date any installment of Rent or other
      payment required pursuant to this Lease with three (3) days after receipt of
      written notice from Landlord (which notice shall be deemed to run simultaneously
      with any notice required under applicable eviction or unlawful detainer
      statutes);

    

    
      
        
        

      

      
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    (b) Tenant
      shall abandon the Premises, whether or not Tenant is in default of the Rent
      payments due under this Lease;

    

    (c) Tenant
      shall fail to comply with any Term, provision, or covenant of this Lease, other
      than the payment of Rent or other sums of money due hereunder, and such failure
      is not cured within twenty (20) days after written notice thereof to Tenant
      (said notice being in lieu of, and not in addition to, any notice required
      as a
      prerequisite to a forcible entry and detainer or similar action for possession
      of the Premises); provided that if the nature of such cure is such that a longer
      cure period is necessary, Tenant shall only be in default if Tenant shall have
      failed to commence such cure within said twenty (20) day period and thereafter
      to have diligently prosecuted such cure to completion;

    

    (d) Tenant
      shall file a petition or be adjudged a debtor or bankrupt or insolvent under
      the
      United States Bankruptcy Code, as amended, or any similar law or statute of
      the
      United States or any State; or a receiver or trustee shall be appointed for
      all
      or substantially all of the assets of Tenant and such appointment or petition,
      if involuntary, is not dismissed within sixty (60) days of filing;
      or

    

    
      	(e)  	
              Tenant
                shall make an assignment for the benefit of
                creditors.

            

    

    

    13.02 Remedies.

    

     

    (a)
      Upon
      the occurrence of any Event of Default set forth in this Lease, in addition
      to
      any other remedies available to Landlord at law or in equity, Landlord shall
      have the immediate option to terminate this Lease and all rights of Tenant
      hereunder. In the event that Landlord shall elect to so terminate this Lease,
      then Landlord may recover from Tenant: (i) any unpaid rent which as been earned
      at the time of such termination plus interest at the rates contemplated by
      this
      Lease; plus (ii) the amount by which the unpaid rent which would have been
      earned after termination until the time of award exceeds the amount of such
      rental loss that Tenant proves could have been reasonably avoided plus interest
      at the rates contemplated by this Lease; plus (iii) the worth at the time of
      award of the amount by which the unpaid rent for the balance of the Term after
      the time of award exceeds the amount of such rental loss that Tenant proves
      could be reasonably avoided; plus (iv) the unamortized balance of the value
      of
      any free Rent, tenant improvement costs, commissions and any other monetary
      concessions provided to Tenant pursuant to this Lease, as amortized over the
      initial Term of this Lease; plus (v) any other amount necessary to compensate
      Landlord for all the damage proximately caused by Tenant's failure to perform
      Tenant's obligation under this Lease or which in the ordinary course of things
      would be likely to result therefrom, including, but not limited to, costs to
      restore the Premises to good condition, costs to remodel, renovate or otherwise
      prepare the Premises, or portions thereof, for a new tenant, leasing
      commissions, marketing expenses, reasonable attorneys’ fees, and free rent,
      moving allowances and other types of leasing concessions (“Costs of Reletting”).
      As used in Subsections 13.02(a) (iii) above, the "worth at the time of award"
      is
      computed by discounting such amount at the discount rate of the Federal Reserve
      Bank of San Francisco at the time of award plus one percent (1%).
      Notwithstanding the above, if Landlord relets the Premises for a term (the
      "Relet Term") that extends past the expiration date of this Lease, the Costs
      of
      Reletting which may be included in Landlord’s damages under this Lease shall be
      limited to a prorated portion of the Costs of Reletting, based on the percentage
      that the length of the Term remaining on the date Landlord terminates this
      Lease
      or Tenant's right to possession bears to the length of the Relet Term.

    

    
      
        
        

      

      
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    (b) In
      the
      event of any such default by Tenant, Landlord shall also have the right with
      or
      without terminating this Lease, to re-enter the Premises and remove all persons
      and property from the Premises; such property may be removed and stored in
      a
      public warehouse or elsewhere at the cost of and for the account of the Tenant.
      No re-entry or taking possession of the Premises by Landlord pursuant to this
      Section 13.02(b) shall be construed as an acceptance of a surrender of the
      Premises or an election to terminate this Lease unless a written notice of
      such
      intention is given to Tenant or unless the termination thereof is decreed by
      a
      court of competent jurisdiction.

    

    (c) In
      the
      event of the vacation or abandonment of the Premises by Tenant or in the event
      that Landlord shall elect to re-enter as provided above or shall take possession
      of the Premises pursuant to legal proceedings or pursuant to any notice provided
      by law, then if Landlord does not elect to terminate this Lease as provided
      above, Landlord may from time to time, without terminating this Lease, either
      recover all Rent as it becomes due or relet the Premises or any part thereof
      for
      the Term of this Lease on terms and conditions as Landlord at its sole
      discretion may deem advisable with the right to make alterations and repairs
      to
      the Premises.

    

    (d) In
      the
      event that Landlord shall elect to so relet, the rents received by Landlord
      from
      such reletting shall be applied: first to the payment of any indebtedness other
      than Rent due hereunder from Tenant to Landlord; second to the payment of any
      costs of such reletting; third, to the payment of the cost of any alterations
      and repairs to the Premises; fourth, to the payment of Rent due and unpaid
      hereunder; and the residual, if any, shall be held by Landlord and applied
      to
      payment of future Rent as the same shall become due and payable hereunder.
      Should that portion of such rents received from such reletting during the month
      which is applied to the payment of Rent be less than the Rent payable during
      that month by Tenant hereunder, then Tenant shall pay any such deficiency to
      Landlord immediately upon demand therefor by Landlord. Such deficiency shall
      be
      calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
      is
      certain, any of the costs and expenses incurred by Landlord in such reletting
      or
      in making such alterations and repairs not covered by the rents received from
      such reletting.

    

    (e) All
      rights, options and remedies of Landlord contained in this Lease shall be
      construed and held to be cumulative, and no one of them shall be exclusive
      of
      the other, and Landlord shall have the right to pursue any one or all of such
      remedies or any other remedy or relief which may be provided by law, whether
      or
      not stated in this Lease. No waiver of any default of Tenant hereunder shall
      be
      implied from any acceptance by Landlord of any Rent or other payments due
      hereunder or any omission by Landlord to take any action on account of such
      default if such default persists or is repeated, and no express waiver shall
      affect defaults other than as specified in said waiver. The consent or approval
      of Landlord to or of any act by Tenant requiring Landlord's consent or approval
      shall not be deemed to waive or render unnecessary Landlord's consent or
      approval to or of any subsequent similar acts by Tenant.

     

    
 

    
      
        
        

      

      
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    (f) In
      the
      event that in any twelve (12) month period during the Term of this Lease, Tenant
      commits more than two (2) acts or omissions of default for which default notices
      are given by Landlord pursuant to this Article XIII (whether or not such
      defaults are cured by Tenant), Landlord may, at its option by written notice
      to
      Tenant within three (3) months of such second act of default, elect to terminate
      this Lease. Landlord’s election to exercise its early termination rights shall
      be effective only upon written notice delivered to Tenant specifying Landlord’s
      election to cause an early termination of this Lease. Such early termination
      shall be in effect when such written notice is provided to Tenant. Landlord’s
      right of early termination shall be in addition to all other rights and remedies
      available to Landlord at law or in equity.

     

    13.03 Landlord's
      Default.
      Landlord shall not be in default unless Landlord fails to perform its
      obliga-tions under this Lease within thirty (30) days after written notice
      by
      Tenant, or if such failure is not reasonably capable of being cured within
      such
      thirty (30) day period, Landlord shall not be in default unless Landlord has
      failed to commence the cure and diligently pursue the cure to completion. In
      no
      event shall Tenant have the remedy to terminate this Lease except upon final
      adjudication of competent jurisdiction authorizing such default. In no event
      shall Landlord be liable to Tenant or any person claiming through or under
      Tenant for consequential, exemplary or punitive damages.

    

    

    ARTICLE
      XIV: FILING
      OF PETITION

    

    14.01 Tenant's
      Bankruptcy.

    

    Landlord
      and Tenant (as either debtor or debtor-in-possession) agree that if a petition
      ("Petition") is filed by or against tenant under any chapter of Title 11 of
      the
      United States Code (the "Bankruptcy Code"), to the fullest extent permitted
      by
      law, the following provisions shall apply:

    

    (a) Adequate
      protection for Tenant's obligations accruing after filing of the Petition and
      before this Lease is rejected or assumed shall be provided within 15 days after
      filing in the form of a security deposit equal to three months' Base Rent and
      Additional Rent and other Lease charges, to be held by the court or an escrow
      agent approved by Landlord and the court.

    

    
      
        
        

      

      
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    (b) The
      sum
      of all amounts payable by Tenant to Landlord under this Lease constitutes
      reasonable compensation for the occupancy of the Premises by
      Tenant.

    

    (c) Tenant
      or
      Trustee shall give Landlord at least 30 days written notice of any abandonment
      of the Premises or any proceeding relating to administrative claims. If Tenant
      abandons without notice, Tenant or Trustee shall stipulate to entry of an order
      for relief from stay to permit Landlord to reenter and relet the
      Premises.

    

    (d) If
      Tenant
      failed to timely and fully perform any of its obligations under this Lease
      before the filing of the Petition, whether or not Landlord has given Tenant
      written notice of that failure and whether or not any time period for cure
      expired before the filing of the Petition, Tenant shall be deemed to have been
      in default on the date the Petition was filed for all purposes under the
      Bankruptcy Code.

    

    (e) For
      the
      purposes of Section 365(b)(1) of the Bankruptcy Code, prompt cure of defaults
      shall mean cure within 30 days after assumption.

    

    (f) For
      the
      purposes of Section 365(b)(1) and 365(f)(2) of the Bankruptcy Code, adequate
      assurance of future performance of this Lease by Tenant, Trustee or any proposed
      assignee will require that Tenant, Trustee or the proposed assignee deposit
      three months of Base Rent and Additional Rent into an escrow fund (to be held
      by
      the court or an escrow agent approved by Landlord and the court) as security
      for
      such future performance. In addition, if this Lease is to be assigned, adequate
      assurance of future performance by the proposed assignee shall require that:
      (i)
      the assignee have a tangible net worth not less than the net worth of Tenant
      as
      of the Commencement Date or that such assignee's performance be unconditionally
      guaranteed by a person or entity that has a tangible net worth not less than
      the
      net worth of Tenant as of the Commencement Date; (ii) the assignee demonstrate
      that it possesses a history of success in operating a business of similar size
      and complexity in a similar market as Tenant's business; and (iii) assignee
      assume in writing all of Tenant's obligations relating to the Premises or this
      Lease.

    

    (g) If
      Tenant
      or Trustee intends to assume and/or assign this Lease, Tenant or Trustee shall
      provide Landlord with 30 days written notice of the proposed action, separate
      from and in addition to any notice provided to all creditors. Notice of a
      proposed assumption shall state the assurance of prompt cure, compensation
      for
      loss and assurance of future performance to be provided to Landlord. Notice
      of a
      proposed assignment shall state: (i) the name, address, and federal tax
      identification and registration numbers of the proposed assignee; (ii) all
      of
      the terms and conditions of the proposed assignment, and (iii) the assignee's
      proposed adequate assurance of future performance to be provided to
      Landlord.

    

    (h) If
      Tenant
      is in default under this Lease when the Petition is filed, Landlord shall not
      be
      required to provide Tenant or Trustee with services or supplies under this
      Lease
      or otherwise before Tenant assumes this Lease, unless Tenant compensates
      Landlord for such services and supplies in advance.

    

    
      
        
        

      

      
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    ARTICLE
      XV: ASSIGNMENT
      AND SUBLETTING

    

    15.01 Prohibition.
      Tenant
      shall have the right to assign, mortgage, pledge or otherwise transfer or
      encumber this Lease, in whole or in part, and to sublet, assign, or permit
      occupancy by any party other than Tenant of all or any part of the Premises,
      only with the prior written consent of Landlord, which will not be unreasonably
      withheld or conditioned. Tenant shall at the time the Tenant requests the
      consent of Landlord, deliver to Landlord such information in writing as Landlord
      may reasonably require respecting the proposed assignee or subtenant including,
      without limitation, the name, address, nature of business, ownership, financial
      responsibility and standing of such proposed assignee or subtenant and Landlord
      shall have not less than ten (10) business days after receipt of all required
      information to elect one of the following: (a) consent to such proposed
      assignment, encumbrance or sublease, or (b) refuse such consent, or (c) elect
      to
      terminate this Lease, in the case of a proposed assignment, or, in the event
      of
      a cumulative sublease of more than 50% of the Premises, elect to terminate
      the
      Lease with respect to the portion of the Premises proposed to be subleased,
      as
      applicable. In addition, as a condition to Landlord's consent to any assignment,
      sublease or encumbrance of this Lease shall be the delivery to Landlord of
      a
      true copy of the fully executed instrument of assignment, transfer or
      encumbrance and an agreement executed by the assignee, sublessee or other
      transferee in form and substance satisfactory to Landlord and expressly
      enforceable by Landlord, whereby the assignee assumes and agrees to be bound
      by
      the terms and provisions of this Lease and perform all the obligations of Tenant
      hereunder with respect to the assigned or subleased portion of the Premises.
      No
      assignment or subletting by Tenant shall relieve Tenant of any obligation under
      this Lease, including Tenant's obligation to pay Base Rent and Additional Rent
      hereunder. Any purported assignment or subletting contrary to the provisions
      hereof without consent shall be void. The consent by Landlord to any assignment
      or subletting shall not constitute a waiver of the necessity for such consent
      to
      any subsequent assignment of subletting. Tenant
      shall pay Landlord’s reasonable processing costs and attorneys’ fees incurred in
      reviewing any proposed Assignment or sublease. Notwithstanding anything herein
      to the contrary, the
      parties agree that, in addition to other reasonable grounds for withholding
      consent, it shall be reasonable for Landlord to withhold its consent to any
      such
      assignment or sublease if in the event (a) Landlord or its affiliates has
      existing vacant space in Schnitzer Northcreek (“Master Project”) that could
      reasonably meet the needs of the proposed assignee or sublessee, and (b) the
      rent for the proposed assignment or sublease for which Tenant is requesting
      consent is under market rent by 10% or more, based on rates for recent lease
      transactions for comparable space in the Master Project and/or the
      Bothell/Kirkland/Bellevue submarket and/or current asking rates for vacant
      space
      in the Master Project and/or the Bothell/Kirkland/Bellevue market. In the event
      Landlord withholds consent based upon the rental rate being below market
      pursuant to the preceding sentence, Landlord shall, upon request by Tenant,
      provide Tenant with substantiation of such market rent
      determination.

    

    15.02 Excess
      Rental.
      If
      pursuant to any assignment or sublease, Tenant receives rent, either initially
      or over the Term of the assignment or sublease, in excess of the Rent called
      for
      hereunder, or in the case of this sublease of a portion of the Premises in
      excess of such Rent fairly allocable to such portion, after appropriate
      adjustments to assure that all other payments called for hereunder are
      appropriately taken into account, Tenant shall pay to Landlord, as Additional
      Rent hereunder, fifty percent (50%) of the excess of each such payment of rent
      received by Tenant after its receipt.

    

    
      
        
        

      

      
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    15.03 Scope.
      The
      prohibition against assigning or subletting contained in this Article XV shall
      be construed to include a prohibition against any assignment or subletting
      by
      operation of law. If this Lease be assigned, or if the underlying beneficial
      interest of Tenant is transferred, or if the Premises or any part thereof be
      sublet or occupied by anybody other than Tenant, Landlord may collect rent
      from
      the assignee, subtenant or occupant and apply the net amount collected to the
      Rent herein reserved and apportion any excess rent so collected in accordance
      with the terms of the immediately preceding paragraph, but no such assignment,
      subletting, occupancy or collection shall be deemed a waiver of this covenant,
      or the acceptance of the assignee, subtenant or occupant as tenant, or a release
      of Tenant from the further performance by Tenant of covenants on the part of
      Tenant herein contained. No assignment or subletting shall affect the continuing
      primary liability of Tenant (which, following assignment, shall be joint and
      several with the assignee), and Tenant shall not be released from performing
      any
      of the terms, covenants and conditions of this Lease.

    

    15.04 Waiver.
      Notwithstanding any assignment or sublease, or any indulgences, waivers or
      extensions of time granted by Landlord to any assignee or sublessee or failure
      of Landlord to take action against any assignee or sublease, Tenant hereby
      agrees that Landlord may, at its option, and upon not less than ten (10) days'
      notice to Tenant, proceed against Tenant without having taken action against
      or
      joined such assignee or sublessee, except that Tenant shall have the benefit
      of
      any indulgences, waivers and extensions of time granted to any such assignee
      or
      sublessee.

    

    15.05 Change
      in Control.
      If
      Tenant is a partnership or limited liability company, a withdrawal of or change
      in general partners or members, in one or more transfers, owning more than
      a
      fifty percent (50%) interest in the partnership, shall constitute a voluntary
      assignment and shall be subject to the provisions of this Article XV. If the
      Tenant is a corporation, a transfer of fifty percent (50%) or more of the
      corporation's stock or assets in one or more transfers to a single party and/or
      its affiliates, or a change in the control of such company pursuant to a merger,
      consolidation, sale of assets or otherwise, shall be deemed for the purposes
      hereof to be an assignment of this Lease, and shall be subject to the provisions
      of this Article XV.

    

    ARTICLE
      XVI: ESTOPPEL
      CERTIFICATE, ATTORNMENT AND SUBORDINATION

    

    16.01 Estoppel
      Certificates.
      Within
      ten (10) business days after request therefor by Landlord, or if on any sale,
      assignment or hypothecation by Landlord of Landlord's interest in the Property,
      the Project and/or the Premises, or any part thereof, an estoppel certificate
      shall be required from Tenant, Tenant shall deliver a certificate in the form
      attached hereto as Exhibit
      G,
      or in
      such other form as requested by Landlord, to any proposed mortgagee or
      purchaser, and to Landlord, certifying (if such be the case) that this Lease
      is
      in full force and effect, the date of Tenant's most recent payment of Rent,
      and
      that Tenant has no defenses or offsets outstanding, or stating those claimed
      by
      Tenant, and any other information contained in such Exhibit
      G
      or
      reasonably requested by Landlord or such proposed mortgagee or purchaser.
      Tenant's failure to deliver said statement within said period shall, at
      Landlord's option be an Event of Default hereunder and shall in any event be
      conclusive upon Tenant that: (i) this Lease is in full force and effect, without
      modification except as may be represented by Landlord; (ii) there are no uncured
      defaults in Landlord's performance and Tenant has no right to offset,
      counterclaim or deduction against Rent hereunder; and (iii) no more than one
      period's Base Rent has been paid in advance.

    

    
      
        
        

      

      
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    16.02 Attornment.
      Tenant
      shall, in the event any proceedings are brought for the foreclosure of, or
      in
      the event of exercise of the power of sale under, any mortgage or deed of trust
      made by Landlord, its successors or assigns, encumbering the Building, or any
      part thereof or in the event of termination of a ground lease, if any, and
      if so
      requested, attorn to the purchaser upon such foreclosure or sale or upon any
      grant of a deed in lieu of foreclosure and recognize such purchaser as Landlord
      under this Lease; provided, that such purchaser recognizes Tenant's rights
      under
      this Lease and agrees not to disturb Tenant's quiet possession of the Premises
      for so long as Tenant is not in default hereunder.

    

    16.03 Subordination.
      The
      rights of Tenant hereunder are and shall be, at the election of any mortgagee
      or
      the beneficiary of a deed of trust encumbering the Project (or the portion
      thereof on which the Building is located) and/or Building, subject and
      subordinate to the lien of such mortgage or deed of trust, or the lien resulting
      from any other method of financing or refinancing, now or hereafter in force
      against the Project (or the portion thereof on which the Building is located)
      and/or the Building, and to all advances made or hereafter to be made upon
      the
      security thereof. If requested, Tenant agrees to execute such documentation
      as
      may be required by Landlord or its lender to further effect the provisions
      of
      this Article in the form attached hereto as Exhibit H or in such other form
      as
      reasonably requested by Landlord or its Lender. 

    

    16.04 Recording.
      Tenant
      covenants and agrees with Landlord that Tenant shall not record this Lease
      or
      any memorandum thereof without Landlord's prior written consent. Notwithstanding
      the provisions of Section 16.03, in the event that Landlord or its lender
      requires this Lease or a memorandum thereof to be recorded in priority to any
      mortgage, deed of trust or other encumbrance which may now or at any time
      hereafter affect in whole or in part the Building, the Project (or the portion
      thereof on which the Building is located), and whether or not any such mortgage,
      deed of trust or other encumbrance shall affect only the Building, the Project
      (or the portion thereof on which the Building is located), or shall be a blanket
      mortgage, deed of trust or encumbrance affecting other premises as well, the
      Tenant covenants and agrees with Landlord that the Tenant shall execute promptly
      upon request from Landlord any certificate, priority agreement or other
      instrument which may from time to time be requested to give effect
      thereto.

    

    

    ARTICLE
      XVII: MISCELLANEOUS

    

    17.01 Notices.
      All
      notices required to be given hereunder shall be in writing and mailed postage
      prepaid by certified or registered mail, return receipt requested, or by
      personal delivery or nationally recognized courier service, to the appropriate
      address indicated in Section 1.01(b) or Section 1.01(d), as appropriate, at
      such
      street address or street addresses (but not more than three such addresses)
      as
      either Landlord or Tenant may, from time to time, respectively, designate in
      a
      written notice given to the other. Notices shall be deemed sufficiently served
      upon the earlier of actual receipt or the expiration of three (3) days after
      the
      date of mailing thereof.

    

    
      
        
        

      

      
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    17.02 Successors
      Bound.
      This
      Lease and each of its covenants and conditions shall be binding upon and shall
      inure to the benefit of the parties hereto and their respective assignees,
      subject to the provisions hereof. Whenever in this Lease a reference is made
      to
      Landlord, such reference shall be deemed to refer to the person in whom the
      interest of Landlord shall be vested, and Landlord shall have no obligation
      hereunder as to any claim arising after the transfer of its interest in the
      Building. Any successor or assignee of the Tenant who accepts an assignment
      of
      the benefit of this Lease and enters into possession or enjoyment hereunder
      shall thereby assume and agree to perform and be bound by the covenants and
      conditions thereof. Nothing herein contained shall be deemed in any manner
      to
      give a right of assignment without the prior written consent of Landlord
      pursuant to, or otherwise as provided in, Article XV hereof.

    

    17.03 Waiver.
      No
      waiver of any default or breach of any covenant by either party hereunder shall
      be implied from any omission by either party to take action on account of such
      default if such default persists or is repeated, and no express waiver shall
      affect any default other than the default specified in the waiver and said
      waiver shall be operative only for the time and to the extent therein stated.
      Waivers of any covenant, term or condition contained herein by either party
      shall not be construed as a waiver of any subsequent breach of the same
      covenant, term or condition. The consent or approval by either party to or
      of
      any act by either party requiring further consent or approval shall not be
      deemed to waive or render unnecessary their consent or approval to or of any
      subsequent similar acts.

    

    17.04 Subdivision
      and Easements.
      Landlord reserves the right to: (a) subdivide the Project; (b) alter the
      boundaries of the Project; and (c) grant easements on the Project and dedicate
      for public use portions thereof; provided, however, that no such grant or
      dedication shall materially interfere with Tenant's use of the Premises. Tenant
      hereby consents to such subdivision, boundary revision, and/or grant or
      dedication of easements and agrees from time to time, at Landlord's request
      and
      expense, to execute, acknowledge and deliver to Landlord, in accordance with
      Landlord's instructions, any and all documents, instruments, maps or plats
      necessary to effectuate Tenant's consent thereto.

    

    17.05 Landlord's
      Reserved Rights in Common Areas.
      Landlord reserves the right from time to time, provided that Tenant's use and
      enjoyment of the Premises is not materially and adversely affected thereby,
      to:
      (a) install, use, maintain, repair and replace pipes, ducts, conduits, wires
      and
      appurtenant meters and equipment for service to other parts of the Building
      above the ceiling surfaces, below the floor surfaces, within the walls and
      in
      the central core areas, and to relocate any pipes, ducts, conduit, wires and
      appurtenant meters in the Building which are so located or located elsewhere
      outside the Building; (b) make changes to the Common Areas and/or the parking
      facilities located thereon, including, without limitation, changes in the
      location, size, shape and number of driveways, entrances, parking spaces,
      parking areas, loading and unloading areas, ingress, egress, direction of
      traffic, landscaped areas and walkways; (c) close temporarily all or any portion
      of the Common Areas and/or the Building in order to perform any of the foregoing
      or any of Landlord's obligations under this Lease, so long as reasonable access
      to the Building remains available during normal business hours; and (d) alter,
      relocate or expand, and/or to add additional structures and improvements to,
      or
      remove same from, all or any portion of the Common Areas or other portions
      of
      the Project. Landlord shall, to the extent possible, give Tenant at least five
      (5) business days prior advanced notice of any such alterations, closures,
      relocations or other work which would be reasonably anticipated to cause any
      interference with Tenant’s access to or use of the Premises. 

    

    
      
        
        

      

      
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    17.06 Accord
      and Satisfaction.
      No
      payment by Tenant or receipt by Landlord of a lesser amount than the Rent herein
      stipulated shall be deemed to be other than on account of the Rent, nor shall
      any endorsement or statement on any check or any letter accompanying any check
      or payment as Rent be deemed an accord and satisfaction, and Landlord may accept
      such check or payment without prejudice to Landlord's right to recover the
      balance of such Rent or pursue any other remedy provided in this
      Lease.

    

    17.07 Limitation
      of Landlord's Liability.
      The
      obligations of Landlord under this Lease do not constitute personal obligations
      of the individual partners, directors, officers, members, employees or
      shareholders of Landlord or its partners, and Tenant shall look solely to the
      Building, and the rents and profits therefrom, for satisfaction of any liability
      in respect of this Lease and will not seek recourse against the individual
      partners, directors, officers, members, employees or shareholders of Landlord
      or
      its partners or any of their personal assets for such satisfaction.

    

    17.08 Survival.
      The
      obligations and liabilities of each party which are incurred or accrue prior
      to
      the expiration of this Lease or the termination of this Lease or of Tenant’s
      right of possession shall survive such expiration or termination, as shall
      all
      provisions by which a party is to provide defense and indemnity to the other
      party, all provisions waiving or limiting the liability of Landlord, and all
      attorneys’ fees provisions.

    

    17.09 Attorneys'
      Fees.
      In the
      event either party requires the services of an attorney in connection with
      enforcing the terms of this Lease or in the event suit is brought for the
      recovery of any Rent due under this Lease or the breach of any covenant or
      condition of this Lease, or for the restitution of the Premises to Landlord
      and/or eviction of Tenant during the Term of this Lease, or after the expiration
      thereof, the substantially prevailing party will be entitled to a reasonable
      sum
      for attorneys' fees, witness fees and other court costs, both at trial and
      on
      appeal.

    

    17.10 Captions
      and Article Numbers.
      The
      captions, article, paragraph and Section numbers and table of contents appearing
      in this Lease are inserted only as a matter of convenience and in no way define,
      limit, construe or describe the scope or intent or such Sections or articles
      of
      this Lease nor in any way affect this Lease.

    

    17.11 Severability.
      If any
      Term, covenant, condition or provision of this Lease, or the application thereof
      to any person or circumstance, shall to any extent be held by a court of
      competent jurisdiction to be invalid, void or unenforceable, the remainder
      of
      the terms, covenants, conditions or provisions of this Lease, or the application
      thereof to any person or circumstance, shall remain in full force and effect
      and
      shall in no way be affected, impaired or invalidated.

    

    
      
        
        

      

      
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    17.12 Applicable
      Law.
      This
      Lease, and the rights and obligations of the parties hereto, shall be construed
      and enforced in accordance with the laws of the state in which the Building
      is
      located.

    

    17.13 Submission
      of Lease.
      The
      submission of this document for examination and negotiation does not constitute
      an offer to lease, or a reservation of or option for leasing the Premises.
      This
      document shall become effective and binding only upon execution and delivery
      hereof by Landlord and Tenant. No act or omission of any officer, employee
      or
      agent of Landlord or Tenant shall alter, change or modify any of the provisions
      hereof.

    

    17.14 Holding
      Over.
      Should
      Tenant, or any of its successors in interest, hold over the Premises or any
      part
      thereof after the expiration or earlier termination of this Lease without
      Landlord's prior written consent, such holding over shall constitute and be
      construed as tenancy at sufferance only, at a monthly rent equal to one hundred
      fifty percent (150%) of the Base Rent owed during the final month of the Term
      of
      this Lease and otherwise upon the terms and conditions in the Lease, so far
      as
      applicable. Should Tenant, or any of its successors in interest, hold over
      the
      Premises or any part thereof after the expiration or earlier termination of
      this
      Lease with
      Landlord's prior written consent, such holding over shall constitute and be
      construed as a tenancy from month to month only, at a fair market monthly rent
      as agreed by Landlord and Tenant and otherwise upon the terms and conditions
      of
      this Lease, so far as applicable. The acceptance by Landlord of Rent after
      such
      expiration or early termination shall not result in a renewal or extension
      of
      this Lease. The foregoing provisions of this Section 17.14 are in addition
      to
      and do not affect Landlord's right of re-entry or any other rights of Landlord
      hereunder or as otherwise provided by law. If Tenant fails to surrender the
      Premises on the expiration of this Lease and/or to remove all Tenant's fixture
      and/or personal property pursuant to Section 9.01 hereof, Tenant shall indemnify
      and hold Landlord harmless for, from and against all claims, damages, loss
      or
      liability, including without limitation, any claim made by any succeeding tenant
      resulting from such failure to surrender by Tenant and any attorneys' fees
      and
      costs incurred by Landlord with respect to any such claim.

    

    17.15 Rules
      and Regulations.
      At all
      times during the Term, Tenant shall comply with Rules and Regulations for the
      Building and the Project, as set forth in Exhibit H attached hereto, together
      with such amendments thereto as Landlord may from time to time reasonably adopt
      and enforce in a non-discriminatory fashion.

    

    17.16 Parking.
      Unless
      Tenant is in default hereunder, Tenant shall be entitled to the number of
      unreserved vehicle parking spaces designated in Section 1.01(q) hereof for
      the
      non-exclusive use of Tenant, its employees, visitors and customers. All parking
      spaces shall be available for the common use of the tenants, subtenants and
      invitees of the Project on a non-exclusive basis, subject to any reasonable
      restrictions from time to time imposed by Landlord. Tenant shall not use or
      permit its officers, employees or invitees to use more than the number of spaces
      designated in Section 1.01(q) or any spaces which have been specifically
      reserved by Landlord to other tenants or for such other uses as have been
      designated by appropriate governmental entities as being restricted to certain
      uses. Tenant shall at all times comply and cause its officers, employees and
      invitees to comply with any parking Rules and Regulations as Landlord may from
      time to time reasonably adopt.

    

    
      
        
        

      

      
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    17.17 No
      Nuisance.
      Tenant
      shall conduct its business and control its agents, employees, invitees and
      visitors in such a manner as not to create any nuisance, or interfere with,
      annoy or disrupt any other tenant or Landlord in its operation of the Building
      or Project.

    

    17.18 Broker;
      Agency Disclosure.
      

    

    (a) Each
      of
      Tenant and Landlord warrant that it has had no discussions, negotiations and/or
      other dealings with any real estate broker or agent in connection with the
      negotiation of this Lease other than the Broker(s) identified in Section 1.01(r)
      ("Brokers"), and that it knows of no other real estate broker or agent who
      is or
      may be entitled to any commission or finder's fee in connection with this Lease.
      Landlord shall pay Brokers a commission pursuant to separate agreements. Brokers
      shall be obligated to pay any co-brokers a portion of the commission received
      by
      such Broker. Each Tenant and Landlord agrees to indemnify the other and hold
      the
      other harmless from and against any and all claims, demands, losses,
      liabilities, lawsuits, judgments, costs and expenses (including without
      limitation, attorneys' fees and costs) with respect to any leasing commission
      or
      equivalent compensation alleged to be owing on account of such party's
      discussions, negotiations and/or dealings with any real estate broker or agent.
      This Section 17.18 is not intended to benefit any third parties and shall not
      be
      deemed to give any rights to brokers or finders. No commission(s) or finders
      fee(s) shall be paid to Tenant, employee(s) of Tenant or any unlicensed
      representative of Tenant. 

    

    17.19 Landlord's
      Right to Perform.
      Upon
      Tenant's failure to perform any obligation of Tenant hereunder after notice
      from
      Landlord pursuant to Section 13.01 above (if notice is required pursuant to
      Section 13.01 above), including without limitation, the Tenant’s failure to pay
      Tenant's insurance premiums, charges of contractors who have supplied materials
      or labor to the Premises, etc., Landlord shall have the right to perform such
      obligation of Tenant on behalf of Tenant and/or to make payment on behalf of
      Tenant to such parties. Tenant shall reimburse Landlord the reasonable cost
      of
      Landlord's performing such obligation on Tenant's behalf, including
      reimbursement of any amounts that may be expended by Landlord, plus interest
      at
      the Default Rate, as Additional Rent.

    

    17.20 Assignment
      by Landlord.
      In the
      event of a sale, conveyance, or other transfer by Landlord of the Building,
      the
      Project, or portion thereof on which the Building is located, or the Project
      or
      in the event of an assignment of this Lease by Landlord, the same shall operate
      to release Landlord from any further liability upon any of the covenants or
      conditions, express or implied, herein contained on the part of Landlord, and
      from any and all further liability, obligations, costs and expenses, demands,
      causes of action, claims or judgments arising out of this Lease from and after
      the effective date of said release. In such event, Tenant agrees to look solely
      to the successor in interest of transferor. If any Security Deposit is given
      by
      Tenant to secure performance of Tenant's covenants hereunder, Landlord may
      transfer such Security Deposit to any purchaser and thereupon Landlord shall
      be
      discharged from any further liability in reference thereto. Notwithstanding
      anything in this Lease to the contrary, however, (i) in no event shall
      Landlord’s lender, who may have succeeded to the interest of Landlord by
      foreclosure, deed in lieu of foreclosure, or any other means, have any liability
      for any obligation of Landlord to protect, defend, indemnify or hold harmless
      Tenant or any other person or entity except for those matters arising from
      the
      lender’s breach of the terms of this Lease after the date of such foreclosure,
      deed in lieu of foreclosure or any other means, and (ii) such succeeding
      lender shall have no liability for any representations or warranties of the
      Landlord contained herein except for those matters arising from the lender’s
      breach of the terms of this Lease after the date of such foreclosure, deed
      in
      lieu of foreclosure or any other means.

     

    
      
        
        

      

      
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    17.21 Entire
      Agreement.
      This
      Lease sets forth all covenants, promises, agreements, conditions and
      understandings between Landlord and Tenant concerning the Building and the
      Project, and there are no covenants, promises, agreements, conditions or
      understandings, either oral or written, between Landlord and Tenant other than
      as are herein set forth. No subsequent alteration, amendment, change or addition
      to the Lease shall be binding upon Landlord or Tenant unless reduced to writing
      and signed by Landlord and Tenant.

    

    17.22 Financial
      Covenants. At
      Landlord’s request, Tenant shall provide Landlord with current annual audited
      financial statements and quarterly unaudited financial statements (all such
      statements shall be prepared in compliance with GAAP standards) setting forth
      Tenant’s financial condition. Notwithstanding
      anything to the contrary set forth herein, Tenant shall not be obligated to
      comply with the foregoing sentence so long as, (a) Tenant is a publicly held
      entity and (b) Tenant’s financial information is readily available in the public
      domain.

    

    17.23 Consents.
      Whenever
      the approval or consent of Landlord or Tenant is required under the terms of
      this Lease, such consent shall not be unreasonably withheld or delayed unless
      a
      different standard of approval is specifically set forth in the particular
      Section containing that particular consent requirement.

    

    17.24 Conditions.
      Landlord’s obligations under this Lease are conditioned upon approval of this
      Lease by Landlord’s board of directors on or before August 1, 2005. In the event
      the above condition is not met or waived by the specified date, this Lease
      shall
      terminate at the election of Landlord, in which event neither party shall have
      any further rights or obligations hereunder.

    

    17.25 Exhibits.
      Exhibits
      A through I are attached to this Lease after the signatures and by this
      reference incorporated herein.

    

    17.26 Submission
      of Lease. Submission
      of this instrument for examination or signature by Tenant does not constitute
      a
      reservation of or option for lease, and it is not effective as a lease or
      otherwise until execution and delivery to both Landlord and Tenant.

    

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

    17.27 Time.
      Time
      is
      of the essence with respect to the performance of every provision of this Lease
      in which time of performance is a factor.

    

    17.28 Prior
      Agreement or Amendment. This
      Lease contains all of the agreements of the parties hereto with respect to
      any
      matter covered or mentioned in the Lease, and no prior agreement or
      understanding pertaining to any such matter shall be effective for any purpose.
      No provisions of this Lease may be amended or added to except by an agreement
      in
      writing signed by the parties hereto or their respective
      successors-in-interest.

    

    17.29 Independently
      Provided Services.

    

    (a) This
      Lease is entirely separate and distinct from and independent of any and all
      agreements that Tenant may at any time enter into with any third party for
      the
      provision of services, which include, but are not limited to,
      telecommunications, office automation, repair, maintenance services, computer,
      and photocopying (“Independent Services”). Tenant acknowledges that Landlord has
      no obligation of any type concerning the provision of Independent Services,
      and
      agrees that any cessation or interruption of Independent Services or any other
      act or neglect by the third party providing the Independent Services shall
      not
      constitute a default or constructive eviction by Landlord.

    

    (b) Tenant
      agrees, except to the extent of the negligence of Landlord, its partners,
      employees, agents and/or assigns, to hold harmless and defend Landlord, its
      partners, employees, agents and assigns from any claim Tenant may have arising
      in any way out of the provision (or lack thereof) of the Independent Services
      which Tenant has contracted to receive from the third parties.

    

    17.30 Authority
      to Bind Landlord. The
      individuals signing this Lease on behalf of Landlord hereby represent and
      warrant that they are empowered and duly authorized to bind Landlord to this
      Lease.

    

    17.31 Authority
      to Bind Tenant. The
      individuals signing this Lease on behalf of Tenant hereby represent and warrant
      that they are empowered and duly authorized to bind Tenant to this Lease. If
      Tenant is a corporation, limited liability company or limited or general
      partnership, each individual executing this Lease on behalf of Tenant represents
      and warrants that he or she is duly authorized to execute and deliver this
      Lease
      on behalf of Tenant, in accordance with a duly adopted resolution or consents
      of
      all appropriate persons or entities required therefor and in accordance with
      the
      formation documents of tenant, and that this Lease is binding upon Tenant in
      accordance with its terms. Simultaneously with execution of this Lease, Tenant
      shall deliver to Landlord a copy of the appropriate resolution or consent,
      certified by an appropriate officer, partner or manager of Tenant, authorizing
      or ratifying the execution of this Lease.

    

    17.32 No
      Usury.
      No
      interest charged, or chargeable by Landlord under this Lease (including but
      not
      limited to the interest chargeable under Section 5.03 and/or any late charge,
      fee or other sum charged or withheld by Landlord and which is deemed to be
      interest) shall exceed the maximum amount of interest permitted by any
      applicable law. If any such interest, fee or charge would exceed such maximum,
      then such interest, fee or charge shall be automatically reduced to the maximum
      amount allowed by law and any sums already collected in excess of such maximum
      amount shall be refunded by Landlord in cash or by granting Tenant a credit
      in
      the applicable amount which credit shall be applied against the next Base Rent
      coming due.

    

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    17.33 Interpretation.
      The
      parties hereto specifically acknowledge and agree that the terms of this Lease
      have been mutually negotiated and the parties hereby specifically waive the
      rule
      or principle of contract construction which provides that any ambiguity in
      any
      term or provision of a contract will be interpreted or resolved against the
      party which drafted such term or provision.

    

    17.34 Excused
      Delays.
      Except
      as otherwise set forth in this Section 17.34, neither party shall have liability
      to the other on account of the following acts (each of which is an “Excused
      Delay” and jointly all of which are “Excused Delays”)” which shall include: (a)
      the inability to fulfill, or delay in fulfilling, any obligations under this
      Lease by reason of strike, lockout, other labor trouble, dispute or disturbance;
      (b) governmental regulation, moratorium, action, preemption or priorities
      or other controls; (c) shortages of fuel, supplies or labor; (d) any
      failure or defect in the supply, quantity or character of electricity or water
      furnished to the Premises by reason of any requirement, act or omission of
      the
      public utility or others furnishing the Building with electricity or water;
      or
      (e) for any other reason, whether similar or dissimilar to the above, or for
      act
      of God beyond a party’s reasonable control. If this Lease specifies a time
      period for performance of an obligation of a party, that time period shall
      be
      extended by the period of any delay in the party’s performance caused by any of
      the events of Excused Delay described herein; provided, that notwithstanding
      anything to the contrary above, no payment of money (whether as Base Rent,
      Tenant’s Share of Operating Expenses, or any other payment due under this Lease)
      shall be postponed, delayed or forgiven by reason of any of the foregoing events
      of Excused Delay.

    

    17.35 Roof
      Rights.

    

    (a) General.
      Tenant
      shall have the right, at Tenant’s sole cost, to use a portion of the roof of the
      Building for the installation, maintenance, repair and replacement of one or
      more satellite dish(s) or antenna(e) and related equipment, including but not
      limited to computer wires, cables and related devices (collectively, the
      "Antenna Equipment") which is used in or serving the Premises. The size,
      quantity, location, design, screening and weight of such Antenna Equipment
      shall
      be approved by Landlord, which approval shall not be unreasonably withheld
      and
      as required by the any governmental authority having jurisdiction thereof.
      Any
      request for consent hereunder shall contain detailed plans, drawings and
      specifications identifying all work to be performed, the time schedule for
      completion of the work, the identity of the entity that will provide service
      to
      the Antenna Equipment and the identity of the entity that will perform the
      proposed work (which entity shall be subject to Landlord's reasonable approval,
      and such approval shall be deemed granted if not denied within ten (10) business
      days following written request). Landlord shall have ten (10) business days
      in
      which to evaluate the request after it is submitted by Tenant, and failure
      to
      deny such request with such ten (10) day business period shall be deemed
      consent. The Landlord shall have the right to grant others the right to use
      the
      roof of the Building so long as such use does not materially and adversely
      affect the rights of the Tenant.

     

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

    (b) No
      Warranty.
      Landlord's approval of, or requirements concerning, the Antenna Equipment or
      any
      equipment related thereto, the plans, specifications or designs related thereto,
      the contractor or subcontractor, or the work performed hereunder, shall not
      be
      deemed a warranty as to the adequacy thereof, and Landlord hereby disclaims
      any
      responsibility or liability for the same. Landlord disclaims all responsibility
      for the condition or utility of the intra-building network cabling ("INC"),
      if
      any, and makes no representation regarding the suitability of the INC for
      Tenant's intended use.

    

    (c) Tenant’s
      Obligations.
      If
      Landlord consents to Tenant's proposal, Tenant shall (i) pay all costs in
      connection therewith (including all costs related to new Antenna Equipment);
      (ii) undertake and all work related to the particular proposal, and the
      installation, maintenance, repair and replacement of the Antenna Equipment
      throughout the Lease Term, and the removal of the Antenna Equipment at the
      expiration, or earlier termination, of the Lease in a good and workmanlike
      manner at Tenant’s sole cost and expense without liens; (iii) use, maintain and
      operate the Antenna Equipment and related equipment in accordance with and
      subject to all laws governing the Antenna Equipment; (iv) repair and restore
      the
      roof (including structural and non-structural portions thereof) and the roof
      membrane which are damaged or penetrated in the installation, maintenance,
      repair, replacement or removal of the Antenna Equipment; and (v) not use or
      operate any Antenna Equipment which unreasonably interferes with the satellite
      dish or antenna reception of any other party using the roof of the Building.
      Tenant shall be responsible to cause (I) Tenant's contractor to comply with
      the
      provisions of this Section and Landlord's reasonable requirements governing
      any
      work performed; (II) Tenant's contractor to provide all reasonable insurance
      required by Landlord; (III) any work performed to comply with all applicable
      statutes, ordinances and governmental rules and regulation; and (IV) "as-built"
      drawings to be delivered to the Landlord promptly upon completion of any work.
      The Tenant shall contract with, and use, the Landlord’s roof contractor (or a
      roof contactor approved by Landlord if Landlord has no roof contractor) with
      respect to all work relating to the roof, including but not limited to roof
      penetrations. All contractors used for the installation, maintenance, repair,
      replacement and/or removal of the Antenna Equipment must be approved by Landlord
      in advance.

    

    (d) No
      Landlord Liability.
      Except
      to the extent arising from causes within the reasonable control of Landlord
      or
      Landlord's agents, contractors or employees, Landlord shall have no liability
      for damages arising from, and Landlord does not warrant that the Tenant's use
      of
      any Antenna Equipment will be free from the following (collectively called
      "Line
      Problems"): (A) any shortages, failures, variations, interruptions,
      disconnections, loss or damage caused by the installation, maintenance, or
      replacement, use or removal of communications equipment by or for other tenants
      or occupants at the Shopping Center and/or Building, by any failure of the
      environmental conditions or the power supply for the Shopping Center and/or
      Building to conform to any requirement of the Antenna Equipment or any
      associated equipment, or any other problems associated with any Antenna
      Equipment by any other cause; (B) any failure of any Antenna Equipment to
      satisfy Tenant's requirements; or (C) any eavesdropping or wire-tapping by
      unauthorized parties. Landlord in no event shall be liable for damages by reason
      of loss of profits, business interruption or other consequential damage arising
      from any Line Problems. Under no circumstances shall any Line Problems be deemed
      an actual or constructive eviction of Tenant, render Landlord liable to Tenant
      for abatement of Rent, or relieve Tenant from performance of Tenant's
      obligations under this Lease.

    

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    

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

     

    
      	"Landlord"	 	"Tenant"
	 	 	 
	S/I NORTH CREEK III, LLC	 	LUMERA
              CORPORATION
	 	 	 
	By:	 /s/ Michael
              C. Nelson	 	By:	 /s/
              Thomas D. Mino
	Its:
              	Senior
              Investment Director    	 	Its:
              	Chief
              Executive Officer  

    

     

     

    
      
        
        

      

      
        47EXHIBIT
        4.1

       

      NEITHER
        THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
        HAVE
        BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
        COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
        THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
        MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
        FROM,
        OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
        SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
        EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
        THE
        SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
        AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED
        IN
        CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
        SECURITIES.

      

      COMMON
        STOCK PURCHASE WARRANT

      

      To
        Purchase __________ Shares of Common Stock of

       

      NEW
        DRAGON ASIA CORP.

       

      THIS
        COMMON STOCK PURCHASE WARRANT (the “Warrant”)
        certifies that, for value received, _____________ (the “Holder”),
        is
        entitled, upon the terms and subject to the limitations on exercise and the
        conditions hereinafter set forth, at any time on or after the date hereof
        (the
“Initial
        Exercise Date”)
        and on
        or prior to the close of business on the six (6) year anniversary of the
        Initial
        Exercise Date (the “Termination
        Date”)
        but
        not thereafter, to subscribe for and purchase from New Dragon Asia Corp.,
        a
        Florida corporation (the “Company”),
        up to
        ______ shares (the “Warrant
        Shares”)
        of
        Class A Common Stock, par value $0.0001 per share, of the Company (the
“Common
        Stock”).
        The
        purchase price of one share of Common Stock under this Warrant shall be equal
        to
        the Exercise Price, as defined in Section 2(b). 

       

      Section
        1. Definitions.
        Capitalized terms used and not otherwise defined herein shall have the meanings
        set forth in that certain Securities Purchase Agreement (the “Purchase
        Agreement”),
        dated
        July 11, 2005, among the Company and the purchasers signatory
        thereto.

       

      Section
        2. Exercise.

       

      a)    Exercise
        of Warrant.
        Exercise of the purchase rights represented by this Warrant may be made,
        in
        whole or in part, at any time or times on or after the Initial Exercise Date
        and
        on or before the Termination Date by delivery to the Company of a duly executed
        facsimile copy of the Notice of Exercise Form annexed hereto (or such other
        office or agency of the Company as it may designate by notice in writing
        to the
        registered Holder at the address of such Holder appearing on the books of
        the
        Company); provided,
        however,
        within
        5 Trading Days of the date said Notice of Exercise is delivered to the Company,
        the Holder shall have surrendered this Warrant to the Company and the Company
        shall have received payment of the aggregate Exercise Price of the shares
        thereby purchased by wire transfer or cashier’s check drawn on a United States
        bank.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      b)    Exercise
        Price.
        The
        exercise price of the Common Stock under this Warrant shall be $1.04,
        subject
        to adjustment hereunder (the “Exercise
        Price”).

       

      c)    Cashless
        Exercise.
        If at
        any time after one year from the date of issuance of this Warrant there is
        no
        effective Registration Statement registering, or no current prospectus available
        for, the resale of the Warrant Shares by the Holder, then this Warrant may
        also
        be exercised at such time by means of a “cashless exercise” in which the Holder
        shall be entitled to receive a certificate for the number of Warrant Shares
        equal to the quotient obtained by dividing [(A-B) (X)] by (A),
        where:

       

      (A)
        = the
        VWAP on the Trading Day immediately preceding the date of such
        election;

       

      (B)
        = the
        Exercise Price of this Warrant, as adjusted; and 

       

      (X)
        = the
        number of Warrant Shares issuable upon exercise of this Warrant in accordance
        with the terms of this Warrant by means of a cash exercise rather than a
        cashless exercise.

      

      Notwithstanding
        anything herein to the contrary, on the Termination Date, this Warrant shall
        be
        automatically exercised via cashless exercise pursuant to this Section
        2(c).

      

      d)    Exercise
        Limitations.

       

      i.  Holder’s
        Restrictions.
        A
        Holder shall not have the right to exercise any portion of this Warrant,
        pursuant to Section 2(c) or otherwise, to the extent that after giving effect
        to
        such issuance after exercise, such Holder (together with such Holder’s
        affiliates), as set forth on the applicable Notice of Exercise, would
        beneficially own in excess of 4.99% of the number of shares of the Common
        Stock
        outstanding immediately after giving effect to such issuance.  For
        purposes
        of the foregoing sentence, the number of shares of Common Stock beneficially
        owned by such Holder and its affiliates shall include the number of shares
        of
        Common Stock issuable upon exercise of this Warrant with respect to which
        the
        determination of such sentence is being made, but shall exclude the number
        of
        shares of Common Stock which would be issuable upon (A) exercise of the
        remaining, nonexercised portion of this Warrant beneficially owned by such
        Holder or any of its affiliates and (B) exercise or conversion of the
        unexercised or nonconverted portion of any other securities of the Company
        (including, without limitation, any other shares of Preferred Stock or Warrants)
        subject to a limitation on conversion or exercise analogous to the limitation
        contained herein beneficially owned by such Holder or any of its
        affiliates.  Except as set forth in the preceding sentence, for

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

      purposes
        of this Section 2(d)(i), beneficial ownership shall be calculated in accordance
        with Section 13(d) of the Exchange Act, it being acknowledged by a Holder
        that
        the Company is not representing to such Holder that such calculation is in
        compliance with Section 13(d) of the Exchange Act and such Holder is solely
        responsible for any schedules required to be filed in accordance therewith.
        To
        the extent that the limitation contained in this Section 2(d) applies, the
        determination of whether this Warrant is exercisable (in relation to other
        securities owned by such Holder) and of which a portion of this Warrant is
        exercisable shall be in the sole discretion of a Holder, and the submission
        of a
        Notice of Exercise shall be deemed to be each Holder’s determination of whether
        this Warrant is exercisable (in relation to other securities owned by such
        Holder) and of which portion of this Warrant is exercisable, in each case
        subject to such aggregate percentage limitation, and the Company shall have
        no
        obligation to verify or confirm the accuracy of such determination. For purposes
        of this Section 2(d), in determining the number of outstanding shares of
        Common
        Stock, a Holder may rely on the number of outstanding shares of Common Stock
        as
        reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case
        may be, (y) a more recent public announcement by the Company or (z) any other
        notice by the Company or the Company’s Transfer Agent setting forth the number
        of shares of Common Stock outstanding.  Upon the written or oral request
        of
        a Holder, the Company shall within two Trading Days confirm orally and in
        writing to such Holder the number of shares of Common Stock then
        outstanding.  In any case, the number of outstanding shares of Common
        Stock
        shall be determined after giving effect to the conversion or exercise of
        securities of the Company, including this Warrant, by such Holder or its
        affiliates since the date as of which such number of outstanding shares of
        Common Stock was reported. The provisions of this Section 2(d) may be waived
        by
        such Holder, at the election of such Holder, upon not less than 61 days’ prior
        notice to the Company, and the provisions of this Section 2(d) shall continue
        to
        apply until such 61st
        day (or
        such later date, as determined by such Holder, as may be specified in such
        notice of waiver).

       

      ii.  Trading
        Market Restrictions.
        If the
        Conversion Price on the date of the Purchase Agreement is less than the closing
        bid price of the Common Stock on the Trading Market on the Trading Day
        immediately prior to the Closing Date, then, prior to the 20th
        day
        following the mailing by the Corporation to its shareholders of an Information
        Statement on Schedule 14C relating to Shareholder Approval), if required
        by the
        applicable rules and regulations of the Trading Market (or any successor
        entity), then the Company may not issue upon exercise of this Warrant, a
        number
        of shares of Common Stock, which, when aggregated with any shares of Common
        Stock issued (A) upon conversion of or as payment of dividends on the Preferred
        Stock issued pursuant to the Purchase 

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

      Agreement
        and (B) upon prior exercise of this or any other Warrant issued pursuant
        to the
        Purchase Agreement, would exceed 19.999% of the number of shares of Common
        Stock
        outstanding on the Trading Day immediately preceding the Closing Date (such
        number of shares, the “Issuable
        Maximum”).
        If on
        any attempted exercise of this Warrant, the issuance of Warrant Shares would
        exceed the Issuable Maximum and the Company shall not have previously obtained
        the vote of shareholders (the “Shareholder
        Approval”),
        as
        may be required by the applicable rules and regulations of the Trading Market
        (or any successor entity) to approve the issuance of shares of Common Stock
        in
        excess of the Issuable Maximum pursuant to the terms hereof, then the Company
        shall issue to the Holder requesting a exercise of this Warrant such number
        of
        Warrant Shares as may be issued below the Issuable Maximum and, with respect
        to
        the remainder of the aggregate number of Warrant Shares, this Warrant shall
        not
        be exercisable until 20th
        day
        following the mailing by the Corporation to its shareholders of an Information
        Statement on Schedule 14C relating to Shareholder Approval.

       

      e)    Mechanics
        of Exercise.
        

       

      i.  Authorization
        of Warrant Shares.
        The
        Company covenants that all Warrant Shares which may be issued upon the exercise
        of the purchase rights represented by this Warrant will, upon exercise of
        the
        purchase rights represented by this Warrant, be duly authorized, validly
        issued,
        fully paid and nonassessable and free from all taxes, liens and charges in
        respect of the issue thereof (other than taxes in respect of any transfer
        occurring contemporaneously with such issue). 

       

      ii.  Delivery
        of Certificates Upon Exercise.
        Certificates for shares purchased hereunder shall be transmitted by the transfer
        agent of the Company to the Holder by crediting the account of the Holder’s
        prime broker with the Depository Trust Company through its Deposit Withdrawal
        Agent Commission (“DWAC”)
        system
        if the Company is a participant in such system, and otherwise by physical
        delivery to the address specified by the Holder in the Notice of Exercise
        within
        three (3) Trading Days from the delivery to the Company of the Notice of
        Exercise Form, surrender of this Warrant and payment of the aggregate Exercise
        Price as set forth above (“Warrant
        Share Delivery Date”).
        This
        Warrant shall be deemed to have been exercised on the date the Exercise Price
        is
        received by the Company. The Warrant Shares shall be deemed to have been
        issued,
        and Holder or any other person so designated to be named therein shall be
        deemed
        to have become a holder of record of such shares for all purposes, as of
        the
        date the Warrant has been exercised by payment to the Company of the Exercise
        Price and all taxes required to be paid by the Holder, if any, pursuant to
        Section 2(e)(vii) prior to the issuance of such shares, have been paid.

       

      
        
          
          

        

        
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      iii.  Delivery
        of New Warrants Upon Exercise.
        If this
        Warrant shall have been exercised in part, the Company shall, at the time
        of
        delivery of the certificate or certificates representing Warrant Shares,
        deliver
        to Holder a new Warrant evidencing the rights of Holder to purchase the
        unpurchased Warrant Shares called for by this Warrant, which new Warrant
        shall
        in all other respects be identical with this Warrant.

       

      iv.  Rescission
        Rights.
        If the
        Company fails to cause its transfer agent to transmit to the Holder a
        certificate or certificates representing the Warrant Shares pursuant to this
        Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will
        have
        the right to rescind such exercise.

       

      v.  Compensation
        for Buy-In on Failure to Timely Deliver Certificates Upon
        Exercise.
        In
        addition to any other rights available to the Holder, if the Company fails
        to
        cause its transfer agent to transmit to the Holder a certificate or certificates
        representing the Warrant Shares pursuant to an exercise on or before the
        Warrant
        Share Delivery Date, and if after such date the Holder is required by its
        broker
        to purchase (in an open market transaction or otherwise) shares of Common
        Stock
        to deliver in satisfaction of a sale by the Holder of the Warrant Shares
        which
        the Holder anticipated receiving upon such exercise (a “Buy-In”),
        then
        the Company shall (1) pay in cash to the Holder the amount by which (x) the
        Holder’s total purchase price (including brokerage commissions, if any) for the
        shares of Common Stock so purchased exceeds (y) the amount obtained by
        multiplying (A) the number of Warrant Shares that the Company was required
        to
        deliver to the Holder in connection with the exercise at issue times (B)
        the
        price at which the sell order giving rise to such purchase obligation was
        executed, and (2) at the option of the Holder, either reinstate the portion
        of
        the Warrant and equivalent number of Warrant Shares for which such exercise
        was
        not honored or deliver to the Holder the number of shares of Common Stock
        that
        would have been issued had the Company timely complied with its exercise
        and
        delivery obligations hereunder. For example, if the Holder purchases Common
        Stock having a total purchase price of $11,000 to cover a Buy-In with respect
        to
        an attempted exercise of shares of Common Stock with an aggregate sale price
        giving rise to such purchase obligation of $10,000, under clause (1) of the
        immediately preceding sentence the Company shall be required to pay the Holder
        $1,000. The Holder shall provide the Company written notice indicating the
        amounts payable to the Holder in respect of the Buy-In, together with applicable
        confirmations and other evidence reasonably requested by the Company. Nothing
        herein shall limit a Holder’s right to pursue any other remedies available to it
        hereunder, at law or in equity including, without limitation, a decree of
        specific performance and/or injunctive relief with respect to the Company’s
        failure to timely deliver certificates representing shares of Common Stock
        upon
        exercise of the Warrant as required pursuant to the terms hereof.

       

      
        
          
          

        

        
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      vi.  No
        Fractional Shares or Scrip.
        No
        fractional shares or scrip representing fractional shares shall be issued
        upon
        the exercise of this Warrant. As to any fraction of a share which Holder
        would
        otherwise be entitled to purchase upon such exercise, the Company shall pay
        a
        cash adjustment in respect of such final fraction in an amount equal to such
        fraction multiplied by the Exercise Price.

       

      vii.  Charges,
        Taxes and Expenses.
        Issuance of certificates for Warrant Shares shall be made without charge
        to the
        Holder for any issue or transfer tax or other incidental expense in respect
        of
        the issuance of such certificate, all of which taxes and expenses shall be
        paid
        by the Company, and such certificates shall be issued in the name of the
        Holder
        or in such name or names as may be directed by the Holder; provided,
        however,
        that in
        the event certificates for Warrant Shares are to be issued in a name other
        than
        the name of the Holder, this Warrant when surrendered for exercise shall
        be
        accompanied by the Assignment Form attached hereto duly executed by the Holder;
        and the Company may require, as a condition thereto, the payment of a sum
        sufficient to reimburse it for any transfer tax incidental thereto.

       

      viii.  Closing
        of Books.
        The
        Company will not close its stockholder books or records in any manner which
        prevents the timely exercise of this Warrant, pursuant to the terms
        hereof.

       

      Section
        3. Certain Adjustments.

       

      a)    Stock
        Dividends and Splits.
        If the
        Company, at any time while this Warrant is outstanding: (A) pays a stock
        dividend or otherwise make a distribution or distributions on shares of its
        Common Stock or any other equity or equity equivalent securities payable
        in
        shares of Common Stock (which, for avoidance of doubt, shall not include
        any
        shares of Common Stock issued by the Company pursuant to this Warrant), (B)
        subdivides outstanding shares of Common Stock into a larger number of shares,
        (C) combines (including by way of reverse stock split) outstanding shares
        of
        Common Stock into a smaller number of shares, or (D) issues by reclassification
        of shares of the Common Stock any shares of capital stock of the Company,
        then
        in each case the Exercise Price shall be multiplied by a fraction of which
        the
        numerator shall be the number of shares of Common Stock (excluding treasury
        shares, if any) outstanding immediately before such event and of which the
        denominator shall be the number of shares of Common Stock outstanding
        immediately after such event and the number of shares issuable upon exercise
        of
        this Warrant shall be proportionately adjusted. Any adjustment made pursuant
        to
        this Section 3(a) shall become effective immediately after the record date
        for
        the determination of stockholders entitled to receive such dividend or
        distribution and shall become effective immediately after the effective date
        in
        the case of a subdivision, combination or re-classification.

       

      
        
          
          

        

        
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      b)    Subsequent
        Equity Sales.
        If the
        Company or any Subsidiary thereof, as applicable, at any time while this
        Warrant
        is outstanding, shall offer, sell, grant any option to purchase or offer,
        sell
        or grant any right to reprice its securities, or otherwise dispose of or
        issue
        any Common Stock or Common Stock Equivalents entitling any Person to acquire
        shares of Common Stock, at an effective price per share less than the then
        Exercise Price (such lower price, the “Base
        Share Price”
        and
        such issuances collectively, a “Dilutive
        Issuance”),
        as
        adjusted hereunder (if the holder of the Common Stock or Common Stock
        Equivalents so issued shall at any time, whether by operation of purchase
        price
        adjustments, reset provisions, floating conversion, exercise or exchange
        prices
        or otherwise, or due to warrants, options or rights per share which is issued
        in
        connection with such issuance, be entitled to receive shares of Common Stock
        at
        an effective price per share which is less than the Exercise Price, such
        issuance shall be deemed to have occurred for less than the Exercise Price
        on
        such date of the adjustment of the Dilutive Issuance), then, the Exercise
        Price
        shall be reduced and only reduced to equal the Base Share Price and the number
        of Warrant Shares issuable hereunder shall be increased such that the aggregate
        Exercise Price payable hereunder, after taking into account the decrease
        in the
        Exercise Price, shall be equal to the aggregate Exercise Price prior to such
        adjustment; provided,
        however,
        until
        the date that Shareholder Approval has been obtained and deemed effective,
        in no
        event shall the Exercise Price be adjusted to less than $1.03, subject to
        adjustment for reverse and forward stock splits, stock dividends, stock
        combinations and other similar transactions of the Common Stock that occur
        after
        the date of this Agreement. Such adjustment shall be made whenever such Common
        Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing,
        no
        adjustments shall be made, paid or issued under this Section 3(b) in respect
        of
        an Exempt Issuance. The Company shall notify the Holder in writing, no later
        than the Trading Day following the issuance of any Common Stock or Common
        Stock
        Equivalents subject to this section, indicating therein the applicable issuance
        price, or of applicable reset price, exchange price, conversion price and
        other
        pricing terms (such notice the “Dilutive
        Issuance Notice”).
        For
        purposes of clarification, whether or not the Company provides a Dilutive
        Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
        Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
        entitled to receive a number of Warrant Shares based upon the Base Share
        Price
        regardless of whether the Holder accurately refers to the Base Share Price
        in
        the Notice of Exercise. 

       

      c)  Pro
        Rata Distributions.
        If the
        Company, at any time prior to the Termination Date, shall distribute to all
        holders of Common Stock (and not to Holders of the Warrants) evidences of
        its
        indebtedness or assets (including cash and cash dividends) or rights or warrants
        to subscribe for or purchase any security other than the Common Stock (which
        shall be subject to Section 3(b)), then in each such case the Exercise Price
        shall be adjusted by multiplying the Exercise Price in effect immediately
        prior
        to the record date fixed for determination of stockholders entitled to receive
        such distribution by a fraction of which the denominator shall be the VWAP
        determined as of the record date mentioned above, and of which the numerator
        shall be such VWAP on such record date less the then per share fair market
        value
        at such record date of the portion of such assets or evidence of indebtedness
        so
        distributed applicable to one outstanding share of the Common Stock as
        determined by the Board of Directors in good faith. In either case the
        adjustments shall be described in a statement provided to the Holder of the
        portion of assets or evidences of indebtedness so distributed or such
        subscription rights applicable to one share of Common Stock. Such adjustment
        shall be made whenever any such distribution is made and shall become effective
        immediately after the record date mentioned above.

       

      
        
          
          

        

        
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      d)    Fundamental
        Transaction.
        If, at
        any time while this Warrant is outstanding, (A) the Company effects any merger
        or consolidation of the Company with or into another Person, (B) the Company
        effects any sale of all or substantially all of its assets in one or a series
        of
        related transactions, (C) any tender offer or exchange offer (whether by
        the
        Company or another Person) is completed pursuant to which holders of Common
        Stock are permitted to tender or exchange their shares for other securities,
        cash or property, or (D) the Company effects any reclassification of the
        Common
        Stock or any compulsory share exchange pursuant to which the Common Stock
        is
        effectively converted into or exchanged for other securities, cash or property
        (in any such case, a “Fundamental
        Transaction”),
        then,
        upon any subsequent exercise of this Warrant, the Holder shall have the right
        to
        receive, for each Warrant Share that would have been issuable upon such exercise
        immediately prior to the occurrence of such Fundamental Transaction, at the
        option of the Holder, (a) upon exercise of this Warrant, the number of shares
        of
        Common Stock of the successor or acquiring corporation or of the Company,
        if it
        is the surviving corporation, and any additional consideration (the
“Alternate
        Consideration”)
        receivable upon or as a result of such reorganization, reclassification,
        merger,
        consolidation or disposition of assets by a Holder of the number of shares
        of
        Common Stock for which this Warrant is exercisable immediately prior to such
        event or (b) if the Company is acquired in an all cash transaction, cash
        equal
        to the value of this Warrant as determined in accordance with the Black-Scholes
        option pricing formula. For purposes of any such exercise, the determination
        of
        the Exercise Price shall be appropriately adjusted to apply to such Alternate
        Consideration based on the amount of Alternate Consideration issuable in
        respect
        of one share of Common Stock in such Fundamental Transaction, and the Company
        shall apportion the Exercise Price among the Alternate Consideration in a
        reasonable manner reflecting the relative value of any different components
        of
        the Alternate Consideration. If holders of Common Stock are given any choice
        as
        to the securities, cash or property to be received in a Fundamental Transaction,
        then the Holder shall be given the same choice as to the Alternate Consideration
        it receives upon any exercise of this Warrant following such Fundamental
        Transaction. To the extent necessary to effectuate the foregoing provisions,
        any
        successor to the Company or surviving entity in such Fundamental Transaction
        shall issue to the Holder a new warrant consistent with the foregoing provisions
        and evidencing the Holder’s right to exercise such warrant into Alternate
        Consideration. The terms of any agreement pursuant to which a Fundamental
        Transaction is effected shall include terms requiring any such successor
        or
        surviving entity to comply with the provisions of this Section 3(d) and insuring
        that this Warrant (or any such replacement security) will be similarly adjusted
        upon any subsequent transaction analogous to a Fundamental
        Transaction.

       

      e)    Calculations.
        All
        calculations under this Section 3 shall be made to the nearest cent or the
        nearest 1/100th of a share, as the case may be. For purposes of this Section
        3,
        the number of shares of Common Stock deemed to be issued and outstanding
        as of a
        given date shall be the sum of the number of shares of Common Stock (excluding
        treasury shares, if any) issued and outstanding.

       

      
        
          
          

        

        
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      f)    Voluntary
        Adjustment By Company.
        The
        Company may at any time during the term of this Warrant reduce the then current
        Exercise Price to any amount and for any period of time deemed appropriate
        by
        the Board of Directors of the Company.

       

      g)    Notice
        to Holders.
        

       

      i.  Adjustment
        to Exercise Price.
        Whenever the Exercise Price is adjusted pursuant to this Section 3, the Company
        shall promptly mail to each Holder a notice setting forth the Exercise Price
        after such adjustment and setting forth a brief statement of the facts requiring
        such adjustment. If the Company issues a variable rate security, despite
        the
        prohibition thereon in the Purchase Agreement, the Company shall be deemed
        to
        have issued Common Stock or Common Stock Equivalents at the lowest possible
        conversion or exercise price at which such securities may be converted or
        exercised in the case of a Variable Rate Transaction (as defined in the Purchase
        Agreement), to the extent ascertainable at the time of issuance. 

       

      ii.  Notice
        to Allow Exercise by Holder.
        If (A)
        the Company shall declare a dividend (or any other distribution) on the Common
        Stock; (B) the Company shall declare a special nonrecurring cash dividend
        on or
        a redemption of the Common Stock; (C) the Company shall authorize the granting
        to all holders of the Common Stock rights or warrants to subscribe for or
        purchase any shares of capital stock of any class or of any rights; (D) the
        approval of any stockholders of the Company shall be required in connection
        with
        any reclassification of the Common Stock, any consolidation or merger to
        which
        the Company is a party, any sale or transfer of all or substantially all
        of the
        assets of the Company, of any compulsory share exchange whereby the Common
        Stock
        is converted into other securities, cash or property; (E) the Company shall
        authorize the voluntary or involuntary dissolution, liquidation or winding
        up of
        the affairs of the Company; then, in each case, the Company shall cause to
        be
        mailed to the Holder at its last address as it shall appear upon the Warrant
        Register of the Company, at least 20 calendar days prior to the applicable
        record or effective date hereinafter specified, a notice stating (x) the
        date on
        which a record is to be taken for the purpose of such dividend, distribution,
        redemption, rights or warrants, or if a record is not to be taken, the date
        as
        of which the holders of the Common Stock of record to be entitled to such
        dividend, distributions, redemption, rights or warrants are to be determined
        or
        (y) the date on which such reclassification, consolidation, merger, sale,
        transfer or share exchange is expected to become effective or close, and
        the
        date as of which it is expected that holders of the Common Stock of record
        shall
        be entitled to exchange their shares of the Common Stock for securities,
        cash or
        other property deliverable upon such reclassification, consolidation, merger,
        sale, transfer or share exchange; provided,
        that
        the failure to mail such notice or any defect therein or in the mailing thereof
        shall not affect the validity of the corporate action required to be specified
        in such notice. The Holder is entitled to exercise this Warrant during the
        20-day period commencing on the date of such notice to the effective date
        of the
        event triggering such notice.

       

      
        
          
          

        

        
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      Section
        4. Transfer
        of Warrant.

       

      a)    Transferability.
        Subject
        to compliance with any applicable securities laws and the conditions set
        forth
        in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1 of
        the
        Purchase Agreement, this Warrant and all rights hereunder are transferable,
        in
        whole or in part, upon surrender of this Warrant at the principal office
        of the
        Company, together with a written assignment of this Warrant substantially
        in the
        form attached hereto duly executed by the Holder or its agent or attorney
        and
        funds sufficient to pay any transfer taxes payable upon the making of such
        transfer. Upon such surrender and, if required, such payment, the Company
        shall
        execute and deliver a new Warrant or Warrants in the name of the assignee
        or
        assignees and in the denomination or denominations specified in such instrument
        of assignment, and shall issue to the assignor a new Warrant evidencing the
        portion of this Warrant not so assigned, and this Warrant shall promptly
        be
        cancelled. A Warrant, if properly assigned, may be exercised by a new holder
        for
        the purchase of Warrant Shares without having a new Warrant issued.

       

      b)    New
        Warrants.
        This
        Warrant may be divided or combined with other Warrants upon presentation
        hereof
        at the aforesaid office of the Company, together with a written notice
        specifying the names and denominations in which new Warrants are to be issued,
        signed by the Holder or its agent or attorney. Subject to compliance with
        Section 4(a), as to any transfer which may be involved in such division or
        combination, the Company shall execute and deliver a new Warrant or Warrants
        in
        exchange for the Warrant or Warrants to be divided or combined in accordance
        with such notice.

       

      c)    Warrant
        Register.
        The
        Company shall register this Warrant, upon records to be maintained by the
        Company for that purpose (the “Warrant
        Register”),
        in
        the name of the record Holder hereof from time to time. The Company may deem
        and
        treat the registered Holder of this Warrant as the absolute owner hereof
        for the
        purpose of any exercise hereof or any distribution to the Holder, and for
        all
        other purposes, absent actual notice to the contrary.

       

      d)    Transfer
        Restrictions.
        If,
        at the
time
        of
        the surrender of this Warrant in connection with any transfer of this Warrant,
        the transfer of this Warrant shall not be registered pursuant to an effective
        registration
        statement under the Securities Act
        and
under
        applicable state securities or blue sky laws, the Company may require, as
        a
        condition of allowing such transfer (i) that the Holder or transferee of
        this
        Warrant, as the case may be, furnish to the Company a written opinion of
        counsel
        (which opinion shall be in form, substance and scope customary for opinions
        of
        counsel in comparable transactions) to the effect that such transfer may
        be made
        without
        registration under
        the
        Securities Act and under applicable state securities or blue sky laws, (ii)
        that
        the holder or transferee execute and deliver to the Company an investment
        letter
        in form and substance acceptable to the Company and (iii) that the transferee
        be
        an “accredited
        investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
        promulgated under the Securities Act or a qualified institutional buyer as
        defined in Rule 144A(a) under the Securities Act.

       

      
        
          
          

        

        
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      Section
        5. Miscellaneous.

       

      a)    Title
        to Warrant.
        Prior
        to the Termination Date and subject to compliance with applicable laws and
        Section 4 of this Warrant, this Warrant and all rights hereunder are
        transferable, in whole or in part, at the office or agency of the Company
        by the
        Holder in person or by duly authorized attorney, upon surrender of this Warrant
        together with the Assignment Form annexed hereto properly endorsed. The
        transferee shall sign an investment letter in form and substance reasonably
        satisfactory to the Company.

       

      b)    No
        Rights as Shareholder Until Exercise.
        This
        Warrant does not entitle the Holder to any voting rights or other rights
        as a
        shareholder of the Company prior to the exercise hereof. Upon the surrender
        of
        this Warrant and the payment of the aggregate Exercise Price (or by means
        of a
        cashless exercise), the Warrant Shares so purchased shall be and be deemed
        to be
        issued to such Holder as the record owner of such shares as of the close
        of
        business on the later of the date of such surrender or payment.

       

      c)    Loss,
        Theft, Destruction or Mutilation of Warrant.
        The
        Company covenants that upon receipt by the Company of evidence reasonably
        satisfactory to it of the loss, theft, destruction or mutilation of this
        Warrant
        or any stock certificate relating to the Warrant Shares, and in case of loss,
        theft or destruction, of indemnity or security reasonably satisfactory to
        it
        (which, in the case of the Warrant, shall not include the posting of any
        bond),
        and upon surrender and cancellation of such Warrant or stock certificate,
        if
        mutilated, the Company will make and deliver a new Warrant or stock certificate
        of like tenor and dated as of such cancellation, in lieu of such Warrant
        or
        stock certificate.

       

      d)    Saturdays,
        Sundays, Holidays, etc.
        If the
        last or appointed day for the taking of any action or the expiration of any
        right required or granted herein shall be a Saturday, Sunday or a legal holiday,
        then such action may be taken or such right may be exercised on the next
        succeeding day not a Saturday, Sunday or legal holiday.

       

      e)    Authorized
        Shares.
        

       

      The
        Company covenants that during the period the Warrant is outstanding, it will
        reserve from its authorized and unissued Common Stock a sufficient number
        of
        shares to provide for the issuance of the Warrant Shares upon the exercise
        of
        any purchase rights under this Warrant. The Company further covenants that
        its
        issuance of this Warrant shall constitute full authority to its officers
        who are
        charged with the duty of executing stock certificates to execute and issue
        the
        necessary certificates for the Warrant Shares upon the exercise of the purchase
        rights under this Warrant. The Company will take all such reasonable action
        as
        may be necessary to assure that such Warrant Shares may be issued as provided
        herein without violation of any applicable law or regulation, or of any
        requirements of the Trading Market upon which the Common Stock may be listed.
        

       

      
        
          
          

        

        
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      Except
        and to the extent as waived or consented to by the Holder, the Company shall
        not
        by any action, including, without limitation, amending its certificate of
        incorporation or through any reorganization, transfer of assets, consolidation,
        merger, dissolution, issue or sale of securities or any other voluntary action,
        avoid or seek to avoid the observance or performance of any of the terms
        of this
        Warrant, but will at all times in good faith assist in the carrying out of
        all
        such terms and in the taking of all such actions as may be necessary or
        appropriate to protect the rights of Holder as set forth in this Warrant
        against
        impairment. Without limiting the generality of the foregoing, the Company
        will
        (a) not increase the par value of any Warrant Shares above the amount payable
        therefor upon such exercise immediately prior to such increase in par value,
        (b)
        take all such action as may be necessary or appropriate in order that the
        Company may validly and legally issue fully paid and nonassessable Warrant
        Shares upon the exercise of this Warrant, and (c) use commercially reasonable
        efforts to obtain all such authorizations, exemptions or consents from any
        public regulatory body having jurisdiction thereof as may be necessary to
        enable
        the Company to perform its obligations under this Warrant.

       

      Before
        taking any action which would result in an adjustment in the number of Warrant
        Shares for which this Warrant is exercisable or in the Exercise Price, the
        Company shall obtain all such authorizations or exemptions thereof, or consents
        thereto, as may be necessary from any public regulatory body or bodies having
        jurisdiction thereof.

       

      f)    Jurisdiction.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Warrant shall be determined in accordance with the provisions of
        the
        Purchase Agreement.

       

      g)    Restrictions.
        The
        Holder acknowledges that the Warrant Shares acquired upon the exercise of
        this
        Warrant, if not registered, will have restrictions upon resale imposed by
        state
        and federal securities laws.

       

      h)    Nonwaiver
        and Expenses.
        No
        course of dealing or any delay or failure to exercise any right hereunder
        on the
        part of Holder shall operate as a waiver of such right or otherwise prejudice
        Holder’s rights, powers or remedies, notwithstanding the fact that all rights
        hereunder terminate on the Termination Date. If the Company willfully and
        knowingly fails to comply with any provision of this Warrant, which results
        in
        any material damages to the Holder, the Company shall pay to Holder such
        amounts
        as shall be sufficient to cover any costs and expenses including, but not
        limited to, reasonable attorneys’ fees, including those of appellate
        proceedings, incurred by Holder in collecting any amounts due pursuant hereto
        or
        in otherwise enforcing any of its rights, powers or remedies
        hereunder.

       

      
        
          
          

        

        
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      i)    Notices.
        Any
        notice, request or other document required or permitted to be given or delivered
        to the Holder by the Company shall be delivered in accordance with the notice
        provisions of the Purchase Agreement.

       

      j)    Limitation
        of Liability.
        No
        provision hereof, in the absence of any affirmative action by Holder to exercise
        this Warrant or purchase Warrant Shares, and no enumeration herein of the
        rights
        or privileges of Holder, shall give rise to any liability of Holder for the
        purchase price of any Common Stock or as a stockholder of the Company, whether
        such liability is asserted by the Company or by creditors of the
        Company.

       

      k)    Remedies.
        Holder,
        in addition to being entitled to exercise all rights granted by law, including
        recovery of damages, will be entitled to specific performance of its rights
        under this Warrant. The Company agrees that monetary damages would not be
        adequate compensation for any loss incurred by reason of a breach by it of
        the
        provisions of this Warrant and hereby agrees to waive the defense in any
        action
        for specific performance that a remedy at law would be adequate.

       

      l)    Successors
        and Assigns.
        Subject
        to applicable securities laws, this Warrant and the rights and obligations
        evidenced hereby shall inure to the benefit of and be binding upon the
        successors of the Company and the successors and permitted assigns of Holder.
        The provisions of this Warrant are intended to be for the benefit of all
        Holders
        from time to time of this Warrant and shall be enforceable by any such Holder
        or
        holder of Warrant Shares.

       

      m)    Amendment.
        This
        Warrant may be modified or amended or the provisions hereof waived with the
        written consent of the Company and the Holder.

       

      n)    Severability.
        Wherever possible, each provision of this Warrant shall be interpreted in
        such
        manner as to be effective and valid under applicable law, but if any provision
        of this Warrant shall be prohibited by or invalid under applicable law, such
        provision shall be ineffective to the extent of such prohibition or invalidity,
        without invalidating the remainder of such provisions or the remaining
        provisions of this Warrant.

       

      o)    Headings.
        The
        headings used in this Warrant are for the convenience of reference only and
        shall not, for any purpose, be deemed a part of this Warrant.

       

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

       

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
        officer thereunto duly authorized.

       

      
        	 	 	 
	 	NEW
                DRAGON ASIA CORP.
	 
 	 
 	 
 
	Date: July
                11, 2005	By:  	/s/ Peter
                Mak
	 	
                
Name:
                Peter Mak
	 	
                Title: Chief Financial
                  Officer

              

      

       

       

      

      

      
        
          
          

          
          

        

        
          -14-

          
            

          

        

        
          
          

          
          

        

      

      NOTICE
        OF EXERCISE

      

      TO: NEW
        DRAGON ASIA CORP.

      

      (1)    The
        undersigned hereby elects to purchase ________ Warrant Shares of the Company
        pursuant to the terms of the attached Warrant (only if exercised in full),
        and
        tenders herewith payment of the exercise price in full, together with all
        applicable transfer taxes, if any.

       

      (2)    Payment
        shall take the form of (check applicable box):

       

      [
        ] in
        lawful money of the United States; or

       

      [
        ] the
        cancellation of such number of Warrant Shares as is necessary, in accordance
        with the formula set forth in subsection 2(c), to exercise this Warrant with
        respect to the maximum number of Warrant Shares purchasable pursuant to the
        cashless exercise procedure set forth in subsection 2(c).

       

      (3)    Please
        issue a certificate or certificates representing said Warrant Shares in the
        name
        of the undersigned or in such other name as is specified below:

       

      _______________________________

      

      The
        Warrant Shares shall be delivered to the following:

      

      _______________________________

      _______________________________

      _______________________________

      

      (4)    Accredited
        Investor.
        The
        undersigned is an “accredited investor” as defined in Regulation D promulgated
        under the Securities Act of 1933, as amended.

      

      [SIGNATURE
        OF HOLDER]

       

      Name
        of
        Investing Entity:
        ________________________________________________________________________

      Signature
        of Authorized Signatory of Investing Entity:
        _________________________________________________

      Name
        of
        Authorized Signatory:
        ___________________________________________________________________

      Title
        of
        Authorized Signatory:
        ____________________________________________________________________

      Date:
        ________________________________________________________________________________________

      

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      ASSIGNMENT
        FORM

      

      (To
        assign the foregoing warrant, execute

      this
        form
        and supply required information.

      Do
        not
        use this form to exercise the warrant.)

      

 

      FOR
        VALUE
        RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
        assigned to

       

      _______________________________________________
        whose address is

      

      _______________________________________________________________.

      

      

      

      _______________________________________________________________

      

      Dated:
        ______________, _______

      

      

      Holder’s
        Signature:  _____________________________

      

      Holder’s
        Address:   _____________________________

       

      _____________________________

      

      

      

      Signature
        Guaranteed: ___________________________________________

      

      

      NOTE:
        The
        signature to this Assignment Form must correspond with the name as it appears
        on
        the face of the Warrant, without alteration or enlargement or any change
        whatsoever, and must be guaranteed by a bank or trust company. Officers of
        corporations and those acting in a fiduciary or other representative capacity
        should file proper evidence of authority to assign the foregoing
        Warrant.

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