Document:

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                                                                   EXHIBIT 10.28

               COLLABORATIVE DEVELOPMENT AND MARKETING AGREEMENT

     This Collaborative Development and Marketing Agreement (this "Agreement")
                                                                   ---------
is made as of the Effective Date defined below by and between ZymoGenetics,
Inc., a Washington corporation having its principal place of business at 1201
Eastlake Avenue East, Seattle, Washington 98102 ("ZGI"), and Ares Trading S.A.,
                                                  ---
a Swiss corporation having offices at Chateau de Vaumarcus, 2028 Vaumarcus,
Switzerland ("Serono"), with respect to the following recitals:
              ------

     A.  ZGI is engaged generally in the research and development of
biopharmaceutical products and has developed and acquired certain intellectual
property relating to certain receptors that play a role in one or more
autoimmune and/or other diseases.

     B.  Serono is engaged generally in the research, development, manufacture,
marketing, distribution, and sales of biopharmaceutical products.

     C.  Serono and ZGI wish collaboratively to fund and conduct activities
focused primarily on discovery and development of one or more new products
related to such receptors, securing regulatory approval for marketing thereof,
and marketing and co-promotion thereof, in North America and elsewhere
worldwide.

     THEREFORE, the parties hereby agree as follows:

                                  ARTICLE ONE

                          Definitions and Terminology

     In addition to other terms defined elsewhere in this Agreement, the
following words and phrases shall have the following stated or referenced
meanings:

     1.1  "Affiliate" means any company, joint venture, partnership, or other
           ---------
business entity that controls, is controlled by, or is under common control with
a party hereto.  A business entity shall be deemed to control another business
entity if it possesses, directly or indirectly, the power to order or cause the
direction, management and policies of such other business entity through the
ownership of over fifty percent (50%) of the voting securities of that entity.

     1.2  "Allocated Net Sales" means the [ * ] invoiced by any of Serono or its
           -------------------
Affiliates or Sublicensees for the sale of [ * ], less [ * ] described in [ * ]
multiplied by the [ * ], where [ * ] is [ * ] of [ * ] of the [ * ] incorporated
into such [ * ] when sold [ * ] in the [ * ], and [ * ] is the [ * ] of the
[ * ]. If the [ * ] incorporated into such [ * ] is not [ * ] in [ * ] in the
[ * ], the [ * ] of the [ * ], for purposes of [ * ], shall be determined by
[ * ] the [ * ] by [ * ], [ * ], where [ * ] is the [ * ] of [ * ] of the [ * ]
when sold [ * ] in [ * ] in the [ * ] and [ * ] is the [ * ] of the [ * ]. If
the [ * ] of [ * ] the [ * ] the [ * ] when [ * ] in [ * ] in the [ * ] can be
determined, the [ * ] of the [ * ], for purposes of [ * ], shall be [ * ] by
[ * ]. The [ * ] that shall be used as [ * ] of the [ * ]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
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for a particular [ * ] as described in this section shall be determined [ * ],
during [ * ], and such [ * ] shall be used for such purpose during all
applicable [ * ] for that [ * ]. The [ * ] of a [ * ] shall be calculated using
data from sales made during the entire immediately preceding calendar year.

     1.3   "Alternative Ligand" means any [ * ] other than [ * ] that is or
            ------------------
becomes [ * ] (based on at least preliminary data) to act [ * ].

     1.4   "Alternative Receptor" means any [ * ] other than [ * ] that is or
            --------------------
becomes [ * ] (based on at least preliminary data) to act on [ * ] or [ * ].

     1.5   "Background Technology" means the Serono Background Technology and
            ---------------------
the ZGI Background Technology.

     1.6   "BCMA" means the receptor described in International Patent
            ----
Application [ * ].

     1.7   "Calendar Quarter" means each three (3) month period commencing
            ----------------
January 1, April 1, July 1, or October 1.

     1.8   "CEO" means the Chief Executive Officer of each party, except that in
            ---
the case of Serono it shall mean the Chief Executive Officer of S.A.

     1.9   "cGMP" means the legal and regulatory requirements established from
            ----
time to time by the FDA for current Good Manufacturing Practices for human
pharmaceutical products and such standards of good manufacturing practice as are
required by other Regulatory Authorities, to the extent such standards are not
less stringent than cGMP standards promulgated by the FDA.

     1.10  "Combination Product" means [ * ] that comprises a [ * ] that are not
            -------------------
Licensed Products.

     1.11  "Commercial Use" means use for a revenue-generating purpose,
            --------------
inclusive of samples intended for promotional purposes, and does not mean use
for purposes such as research, development or clinical testing conducted in
conjunction with obtaining Regulatory Approval.

     1.12  "Commercialization Contacts" means the persons appointed by each
            --------------------------
party to serve as contact persons between the parties from time to time in
relation to a Commercialization Team, if any.  Subject to Section 3.3, the
parties' initial Commercialization Contacts shall be designated, respectively,
by each party within thirty (30) days following Initiation of Phase III Clinical
Trials for a Licensed Product.  Each party shall promptly notify the other party
of any substitution of other personnel as its Commercialization Contact.

     1.13  "Commercialization Plan and Budget" means the detailed written
            ---------------------------------
description of approved promotional, co-promotional, marketing, and sales
activities with respect to a Licensed Product in North America, together with a
budget therefor, approved or to be approved by Steering Committee Action.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

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     1.14  "Commercialization Team" means a committee to be formed as provided
            ----------------------
in Section 3.3, two (2) members of which shall be the Commercialization
Contacts.  The number of members of the Commercialization Team may be increased
from time to time by Steering Committee Action.  While the parties need not be
equally represented in number of members on the Commercialization Team, the
Commercialization Team will be co-led by the two (2) Commercialization Contacts.

     1.15  "Contractor" means a Third Party or an Affiliate to which a party
            ----------
desires to subcontract any portion of its Development Tasks or North American
Co-Promotion Tasks, to the extent permitted pursuant to this Agreement.  For
purposes of this Agreement, payments to a Contractor that is an Affiliate of the
payor shall be limited to the applicable costs described in Exhibit 1.20 or
Exhibit 1.46.

     1.16  "Controls" and "Controlled" mean that the entity referenced has the
            --------       ----------
ability to exploit and to license or sublicense the right to exploit the
referenced technology or rights, as provided for in this Agreement, without
(assuming the timely payment of all applicable royalties) violating any
intellectual property rights of a Third Party or the terms of any agreement or
other arrangement with any Third Party.

     1.17  "Declined Product" means any Licensed Product, which, at the time of
            ----------------
the grant of a sublicense pursuant to Section 10.6, is not subject to a
Development Project.

     1.18  "Declined Product Sublicensing Revenues" means [ * ] of whatever type
            --------------------------------------
or character [ * ] including any and all [ * ] but excluding that portion of any
such consideration [ * ].  If and to the extent such [ * ] includes [ * ] shall
include [ * ].

     1.19  "Derivative" means a composition or material that is derived [ * ] in
            ----------
one or more steps from any compositions or materials that are part of the [ * ]
and that has or is intended to have [ * ].  Notwithstanding the above[ * ] will
not be considered Derivatives.

     1.20  "Development Costs" means those costs incurred or otherwise borne or
            -----------------
to be borne by the parties or their Affiliates or Contractors in accordance with
the Development Plan and Budget and in the course of the Development Project, as
more fully described in Exhibit 1.20.  The Development Costs shall be accounted
for by each party in accordance with the cost accounting principles described in
Exhibit 1.20.

     1.21  "Development Plan and Budget" means the detailed written description
            ---------------------------
of the parties' and their Contractors' respective Development Tasks, together
with a budget therefor, approved or to be approved by Steering Committee Action.

     1.22  "Development Project" means, as to any Licensed Product, the project
            -------------------
contemplated under this Agreement and directed at the development, manufacture,
testing and registration of such Licensed Product in the Territory excluding
Japan.  A Development Project for a particular Licensed Product shall end either
upon the Regulatory Approval for such Licensed Product, upon termination of the
post-launch clinical studies or market surveillance for such Licensed Product as
described in Section 1.24(g) or otherwise as provided in Section 1.23.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -3-
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     1.23  "Development Project Term" means the period from the Effective Date
            ------------------------
until the date when the last Development Project in effect for any Licensed
Product has terminated and the last of any development projects for the Licensed
Product in Japan has terminated; provided, however, that if no Licensed Product
has received Regulatory Approval on or before the fifteenth anniversary of the
Effective Date, the "Development Project Term" shall end at such anniversary;
provided, however, that:  (a) any Development Project, or development project
for the Licensed Product in Japan, then in effect shall continue until one or
more parties terminates its roles and responsibilities thereunder either
pursuant to Section 4.8 or otherwise, and the Development Project Term shall be
extended accordingly; and (b) the Development Project Term may, for purposes of
Section 2.l, be extended by approval of both the parties hereto in their
discretion.

     1.24  "Development Tasks" means those activities and responsibilities of
            -----------------
each party that will be part of the Development Project, as more fully described
from time to time in the Development Plan and Budget.  The Development Tasks
shall include with respect to a particular Licensed Product, as more fully
described in the Development Plan and Budget:

     (a)  preparation for [ * ];

     (b)  preclinical [ * ] performed in preparation for the [ * ] surveillance
          [ * ] all other applicable regulatory obligations [ * ] animal
          subjects;

     (c)  [ * ] of, and obtaining [ * ] including [ * ];

     (d)  [ * ] for activities under the [ * ];

     (e)  [ * ];

     (f)  preparation and [ * ];

     (g)  [ * ] as to specific indications, as required or agreed [ * ];

     (h)  [ * ] by one party hereunder to the other party [ * ] but not in any
          event less stringent than [ * ] and to the appropriate [ * ] with
          respect to [ * ] arising during the [ * ] for such [ * ] and
          associated with such [ * ] or any [ * ]; and

     (i)  such other activities, regardless of [ * ] that are [ * ] as
          determined by [ * ] in order to obtain [ * ].

Unless the parties agree otherwise, [ * ] shall have the primary responsibility
for the [ * ] described in [ * ] provided, however, that the parties hereto
shall [ * ] covered by any of the inventions or technologies [ * ] and shall
give [ * ] to such [ * ] provided it is able and willing [ * ] under terms and
conditions [ * ] to the parties hereto than the terms and conditions under which
[ * ] is able and willing to [ * ].

     1.25  "Discovered Antibody" means an antibody to a [ * ].
            -------------------

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -4-
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     1.26  "Distributor" means a person or entity, including any cooperative or
            -----------
group, involved in the acquisition of Licensed Products for distribution either
to other such persons or entities or to End Users, and who does not require, and
is not granted, any sublicense under any of the Project Technology or the
Background Technology (other than implied sublicenses to use and sell such
Licensed Products, by virtue of such Distributor's acquisition of the Licensed
Products from a person or entity authorized to sell them).

     1.27  "Effective Date" means August 30, 2001.
            --------------

     1.28  "Election Not to Co-Fund" means either (a) an election by ZGI made
            -----------------------
pursuant to Section 5.2 or Section 5.6 that ZGI will not, or will no longer,
fund and bear any of the North American Commercialization Costs with respect to
a particular Licensed Product or (b) an election by Serono made pursuant to
Section 5.6 following the end of the Product Term for a Licensed Product in
North America (determined under Section 1.60 without regard to Section 5.6) that
Serono will no longer fund and bear any of the North American Commercialization
Costs with respect to that Licensed Product.

     1.29  "Election Not to Co-Promote" means an election by ZGI made pursuant
            --------------------------
to Section 5.1 that ZGI will not participate in North American Co-Promotion
Tasks with respect to a particular Licensed Product.

     1.30  "End Use" means the retail sale, distribution or administration of a
            -------
Licensed Product by a pharmacy or other pharmaceutical dispensary or health
practitioner to a patient.  "End User" means such pharmacy, dispensary or
                             --------
practitioner.

     1.31  "Europe" means countries that are, at the relevant time, member
            ------
countries of the European Union, together with Switzerland and Norway; provided,
however, that for purposes of Section 7.2, an event that occurs in or with
respect to "Europe" shall mean any such event in or with respect to (a) [ * ],
or (b) [ * ].

     1.32  "Exclusivity Period" means, with respect to each Licensed Product:
            ------------------

     (a)   with respect to any country of the European Union (and any other
           country in the Territory in which applicable law would restrict the
           permissible duration of a period of exclusivity to the life of
           applicable patents), the period during the Product Term for such
           Licensed Product, until the Patent Expiration Date in such country
           with respect to the Patent Claims under Patent Rights in or to the
           ZGI IP or the Joint Project Technology applicable to such Licensed
           Product, or, if later, until all ZGI IP and Joint Project Technology
           applicable to such Licensed Product has been disclosed without
           restriction to the public (but, in this case, the Exclusivity Period
           will not last longer in such country than [ * ] years from the first
           Commercial Use of such Licensed Product in any country in the
           European Union unless and to the extent that European law or rules
           permit a longer such period of exclusivity); and

     (b)   with respect to any other country, the Product Term.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -5-
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     1.33  "Exhibit" means an exhibit explicitly referenced as such in this
            -------
Agreement.  All such Exhibits are by such references incorporated into this
Agreement as if fully set forth herein.

     1.34  "Existing Third Party Agreement" means any Third Party Agreement
            ------------------------------
existing on the Effective Date and listed in Exhibit 1.34.

     1.35  "FDA" means the United States Food and Drug Administration or any
            ---
successor agency vested with administrative and regulatory authority to approve
testing and marketing of human pharmaceutical or biological therapeutic or
diagnostic products in the United States.

     1.36  "Ig Fusion Technology" means the Patent Rights for the items listed
            --------------------
in Exhibit 1.36.

     1.37  "IND" means an Investigational New Drug application, or its non-U.S.
            ---
equivalent, filed with a Regulatory Agency.

     1.38  "Information" means:  (a) all unpublished scientific and technical
            -----------
information received by a party from the other party pursuant to this Agreement,
or so received prior to the Effective Date but in contemplation of this
Agreement; and (b) all trade secrets or information relating to the business
affairs or finances of the disclosing party or its Affiliates, or of their
suppliers, agents, distributors, licensees or customers, designated confidential
and disclosed in tangible form by the disclosing party to the other party
pursuant to this Agreement.

     1.39  "Initiation" of Phase I, Phase II or Phase III Clinical Trials means
            ----------
the first administration of a Licensed Product to a patient in any such trial.

     1.40  "Known Ligand" means [ * ] or [ * ].
            ------------

     1.41  "Licensed Product" means any product intended for use in humans that
            ----------------
(a) [ * ] and (b) either (i) the manufacture, use, sale, offer to sell or import
of which, in the absence of a license granted under this Agreement or ownership
thereof, would directly or indirectly infringe one or more Patent Claims under
any Patent Rights in or to any [ * ]; or (ii) the research, development,
formulation, composition or manufacture of which was performed with the use of
or incorporates the [ * ]; or (iii) the development of which was in part funded
by ZGI under this Agreement.  Unless and to the extent a [ * ] is made the
subject of an agreement pursuant to [ * ] in connection with a product intended
for use in [ * ] that incorporates [ * ] is outside the scope of [ * ] and any
such product shall [ * ].

     1.42  "Licensed Product Trademarks" means any trademark adopted or used by
            ---------------------------
Serono to designate a Licensed Product anywhere in the Territory, together with
all rights therein to the extent applicable to particular jurisdictions.

     1.43  "Marketing Region" means each of North America, Europe and Japan.
            ----------------

     1.44  "Net Sales" of a Licensed Product means the sum of:
            ---------

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -6-
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     (a)  the gross amount invoiced by [ * ] for the sale of [ * ]:

          (i)    any direct or indirect [ * ] including [ * ] on account of
                 [ * ] or on account of [ * ];

          (ii)   any [ * ] including those imposed by [ * ];

          (iii)  applicable [ * ] to the extent specifically included in [ * ];

          (iv)   any [ * ] and any [ * ] to the extent specifically included in
                 the [ * ]

          (v)    amounts [ * ] with respect to [ * ];

          provided, however, that

                 (A)  the transfer of [ * ] between [ * ] and another entity
                      [ * ] other than for [ * ] shall not be considered a [ * ]
                      in such cases, [ * ] hereunder shall be determined using
                      the [ * ] allowed under this Section; and

                 (B)  if a [ * ] is used or disposed of by [ * ] in the
                      provision of a commercial service, or is [ * ] or
                      otherwise [ * ] in a transaction that is [ * ] to a person
                      or entity who is [ * ] then for purposes of this
                      definition[ * ] in such transaction shall be deemed to
                      [ * ] or [ * ] in such transaction [ * ] by the seller to
                      persons or entities who are [ * ] during the then-current
                      [ * ] less the [ * ]

     (b)  the [ * ] into which such [ * ] is incorporated.

     1.45  "North America" means Canada and the United States of America.
            -------------

     1.46  "North American Commercialization Costs" means those costs incurred
            --------------------------------------
or otherwise borne or to be borne by [ * ] in connection with the [ * ] or in
accordance with the applicable [ * ] with respect to the [ * ] of a [ * ] as
more fully described in Exhibit 1.46.  The North American Commercialization
Costs shall be accounted for by each party in accordance with the cost
accounting principles described in Exhibit 1.46.

     1.47  "North American Co-Promotion Tasks" means those tasks with respect to
            ---------------------------------
the co-promotion of a Licensed Product in North America, as more fully described
from time to time in an applicable Commercialization Plan and Budget.  Unless
and until ZGI makes an Election Not to Co-Promote or an Election Not to Co-Fund,
the North American Co-Promotion Tasks will include, as more fully described in
the applicable Commercialization Plan and Budget:

     (a)  the preparation of [ * ] the dissemination of [ * ] and/or the
          engagement of [ * ] all of which [ * ] shall, to the extent not [ * ]
          and subject to [ * ] feature the [ * ] and the [ * ] which [ * ] shall
          be given [ * ] with [ * ] in such [ * ];

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

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     (b)   the deployment [ * ] in North America from [ * ] to be assigned and
           coordinated by [ * ] in a manner considered [ * ]; and

     (c)   designing and conducting one or more [ * ] for the parties' [ * ],
           and, subject to the terms and conditions set forth in [ * ] arrange
           for the [ * ] and [ * ] regarding the [ * ].

     1.48  "Patent Claim" means a claim of any unexpired granted Patent Rights
            ------------
that have not:  (a) lapsed, been disclaimed, withdrawn, canceled, or abandoned
or admitted to be invalid or unenforceable; (b) been finally rejected or held
invalid by a decision of a patent-granting authority beyond right of review or
appeal; or (c) been held invalid or unenforceable in an unappealable decision of
a court or competent body having jurisdiction (including a decision which was
appealable, but which was not timely appealed).

     1.49  "Patent Contacts" means the patent practitioners appointed by each
            ---------------
party to serve as contact persons between the parties from time to time in
relation to patent matters under this Agreement.  The parties' initial Patent
Contacts shall be designated, respectively, by each party within thirty (30)
days following the Effective Date.  Each party shall promptly notify the other
party of any substitution of other personnel as its Patent Contact(s).

     1.50  "Patent Country" means, with respect to particular Patent Rights, the
            --------------
country in which such Patent Rights are pending or granted.

     1.51  "Patent Defense and Enforcement Costs" means all internal and
            ------------------------------------
external costs associated with the enforcement of Patent Rights against actual
or suspected infringers, defense of Patent Rights against attacks on their
validity, or defense of a Licensed Product against Third Party claims of patent
infringement.

     1.52  "Patent Expiration Date" means, on a Patent Country-by-Patent Country
            ----------------------
basis, the first date on which no Patent Claims exist within such Patent
Country.

     1.53  "Patent Prosecution Costs" means all internal and external costs
            ------------------------
associated with the preparation (of applications and otherwise), filing,
prosecution, maintenance, conduct of opposition or interference proceedings
under or with respect to Patent Rights.

     1.54  "Patent Rights" means:  (a) patent applications; (b) all provisional,
            -------------
divisional, continuation (in whole or in part) or substitute applications with
respect to any of the applications described in (a); (c) all non-U.S.
applications based on the applications described in (a) or (b); (d) all issued
or granted patents resulting from any of the applications described above; and
(e) all issued or granted reissue, re-examination, renewal or extension patents,
supplementary protection certificates, and confirmation or registration patents
or patents of addition based on any of the patents described in (d).

     1.55  "Phase I Clinical Trials" means human clinical trials intended to
            -----------------------
obtain initial data regarding the safety of a Licensed Product, whether
constituting Phase I trials in the United States or similar trials in any other
part of the Territory.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

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     1.56  "Phase II Clinical Trials" means human clinical trials intended to
            ------------------------
study the safety, dose range and efficacy of a Licensed Product that do not
constitute Phase III Clinical Trials of such Licensed Product, whether
constituting Phase II trials in the United States or similar trials in any other
part of the Territory.

     1.57  "Phase III Clinical Trials" means human clinical trials intended to
            -------------------------
determine the statistical efficacy and safety of a Licensed Product and which
are intended to be the final stage of clinical testing prior to and in support
of the filing of a PLA, whether constituting Phase III trials in the United
States or similar trials in any other part of the Territory.

     1.58  "PLA" means a Product License Application, a Biologics License
            ---
Application or a non-U.S. equivalent of either filed with a Regulatory Agency.

     1.59  "Product Team" means the committee described in Section 3.2, two (2)
            ------------
members of which shall be the Project Contacts.  The Product Team may have any
number of other members as may be nominated from time to time by either or both
of ZGI and Serono and approved as Product Team members by Steering Committee
Action.  While the parties need not be equally represented in number of members
on the Product Team, the Product Team will be co-led by the two (2) Project
Contacts.

     1.60  "Product Term" except as is otherwise provided in Section 5.6, means
            ------------
with respect to each Licensed Product in each country in the Territory or the
ZGI Territory, if any, the period from the Effective Date until the later of:

     (a)   the last Patent Expiration Date in such country with respect to the
           Patent Claims under Patent Rights in or to the [ * ], as applicable
           to such Licensed Product; and

     (b)   the expiration of [ * ] years following the first Commercial Use of
           such Licensed Product in such country;

provided, however, that if as of the [ * ] anniversary of the Effective Date,
such Patent Expiration Date has occurred in such country, and there has been no
Commercial Use of such Licensed Product in such country, then the Product Term
as to such Licensed Product shall end on such [ * ] anniversary of the Effective
Date.

     1.61  "Project Contacts" means the persons appointed by each party to serve
            ----------------
as contact persons between the parties from time to time in relation to the
coordination of research and development efforts under this Agreement.  The
parties' initial Project Contacts shall be designated, respectively, by each
party within thirty (30) days following the Effective Date.  Each party shall
promptly notify the other party of any substitution of other personnel as its
Project Contact.

     1.62  "Project Technology" means all inventions, discoveries, know-how,
            ------------------
methods, processes, data, information, technology, research tools, compositions,
tangible materials (including nucleic acids, peptides, vectors, proteins,
assays, and the like) and formulas that are invented, discovered, developed or
otherwise generated by either party, their respective Affiliates

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -9-
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or both parties jointly during and in the course of a Development Project
conducted pursuant to this Agreement and co-funded pursuant to Article Four, and
all Patent Rights, trade secrets, and other intellectual property rights therein
and thereto anywhere in the world. Project Technology invented, discovered,
developed or otherwise generated by Serono and its Affiliates is the "Serono
                                                                      ------
Project Technology." Project Technology invented, discovered, developed or
------------------
otherwise generated by ZGI and its Affiliates is the "ZGI Project Technology."
                                                      ----------------------
Project Technology that is jointly invented, discovered, developed or otherwise
generated by Serono and ZGI or their respective Affiliates is the "Joint Project
                                                                   -------------
Technology." The parties shall follow the principles of inventorship under U.S.
----------
patent law in order to determine the party that invented, discovered, developed
or otherwise generated any item of Project Technology.

     1.63  "Reasonable Commercial Efforts" means the exertion on a substantially
            -----------------------------
continuous basis of efforts as would normally be devoted to the applicable task
by commercial parties with similar resources to those of the applicable party,
where such parties are highly motivated to accomplish such task to the maximum
extent practicable, taking into account, without limitation, consideration of
the anticipated safety and efficacy of a subject product, its likely
competition, the strength of its proprietary position, regulatory factors, and
other scientific, medical and commercial factors.  Reasonable Commercial Efforts
will not mean that a party commits that it will actually accomplish the
applicable task, or that it will devote thereto efforts or resources beyond
those that a prudent commercial enterprise would devote, even though remaining
motivated to do so as described above.

     1.64  "Regulatory Agency" means (a) the FDA or (b) any regulatory body with
            -----------------
similar regulatory authority in any other jurisdiction anywhere in the world.

     1.65  "Regulatory Approval" means the authorization by an appropriate
            -------------------
Regulatory Agency to market and sell a Licensed Product in a jurisdiction,
including, to the extent required, any governmental pricing approval for such
Licensed Product in such jurisdiction; provided, however, that with respect to
jurisdictions in which the government is the primary provider of insurance, or
otherwise pays, for prescription drugs to consumers, the authorization for
Regulatory Approval shall include approval of government price reimbursement
levels, unless the Licensed Product is distributed without such reimbursement
authorization.

     1.66  "Research Materials" means any tangible materials that are delivered
            ------------------
by one party to the other (or to the other's Contractors) either (a) as part of
the delivering party's Background Technology for use in the Development Project
or that are developed in the course of the Development Project and are provided
by either party to the other as part of the Project Technology or (b) for use in
connection with any Development Task, even though such materials are not
themselves part of the Background Technology or Project Technology, such as [ *
], and other reagents and materials to be used in comparative studies such as
toxicology studies.

     1.67  "Rest of World" means all countries of the world except those within
            -------------
North America.

     1.68  "S.A." means Serono S.A., a Swiss corporation having offices at Case
            ----
Postale 11, CH-1267 Vich-Coinsins, Switzerland.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -10-
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     1.69  "Senior Executives" means one or more executive officers of a party
            -----------------
or its Affiliates (other than members of the Steering Committee), who have
direct reporting responsibility to the CEO of that party, and who are appointed
from time to time by the CEO of that party, to conduct one or more of the
dispute resolution processes described in Section 18.1 hereof.

     1.70  "Serono Background Technology" means (a) any inventions, discoveries,
            ----------------------------
know-how, methods, processes, data, information, technology, research tools,
compositions, formulas and tangible materials Controlled by Serono or its
Affiliates that (i) as of the Effective Date, Serono knows or should know (based
on at least preliminary data) to be necessary, (ii) other than Project
Technology, are actually used by Serono or its Affiliates, during and in the
course of the Development Project, or (iii) are included in Serono Background
Technology by consent of the Controlling party pursuant to Section 4.2, in any
case for the development, manufacture or use of Licensed Products, including the
technology listed in Exhibit 1.70 hereto (the "Serono Technology"); (b) other
                                               -----------------
than Project Technology, any and all improvements to the Serono Technology, to
the extent invented, discovered, developed or otherwise generated by Serono or
its Affiliates during any Development Project Term and prior to the time, if
any, at which Serono has elected to terminate its roles and responsibilities
with respect to all Development Projects pursuant to Section 4.8; and (c) all
Patent Rights, trade secrets, and other intellectual property rights anywhere in
the world in and to any of the Serono Technology and improvements described in
(a) or (b) of this Section.

     1.71  "Serono IP" means the Serono Project Technology, the Serono
            ---------
Background Technology, and the Serono Production Technology.

     1.72  "Serono Production Technology" means the most current form of any and
            ----------------------------
all technology, know-how, biological materials, and reagents Controlled by
Serono that are actually applied by Serono or its Affiliates to the scale up or
manufacture of a Licensed Product under or in connection with this Agreement, to
the extent such technology is useful for the, manufacture of the Licensed
Product, and all Patent Rights, trade secrets, and other intellectual property
rights anywhere in the world therein and thereto.

     1.73  "Steering Committee" means a committee of six (6) members, three (3)
            ------------------
of whom will be designated in writing by each of ZGI and Serono.  The parties'
respective representatives on the initial Steering Committee shall be designated
by the parties within thirty (30) days following the Effective Date.  If at any
time a vacancy occurs (whether due to death, disability, resignation, removal by
a party of its designee by written notice to the other party, or otherwise), the
vacancy will be filled as soon as is reasonably practicable by designation by
the party that originally designated the prior incumbent.  In the meantime, the
Steering Committee shall continue to function with its remaining members,
provided that any Steering Committee Action described in subsection 1.74(a) will
continue to require the consent of at least four (4) members.

     1.74  "Steering Committee Action" means an official act, decision, or
            -------------------------
ruling of the Steering Committee, which shall require in each case that at least
one (1) of the following applies:

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -11-
<PAGE>

     (a)  a minimum of [ * ] of the Steering Committee have consented thereto,
          where such consent is given either in writing (including by email or
          facsimile) or by vote at a meeting of the Steering Committee and
          subsequently entered into the minutes of such meeting;

     (b)  at least [ * ] of the Steering Committee have consented thereto (in
          the manner described above), and have further put the matter before
          [ * ] as described in [ * ] and the act, decision, or ruling has
          received the [ * ];

     (c)  the parties' [ * ] have put the matter before the parties' [ * ] as
          described in [ * ] and the act, decision, or ruling has either (i)
          received the [ * ] of the [ * ] of [ * ] or (ii) with respect to (A)
          matters that relate solely to [ * ] of a [ * ], or (B) matters that
          relate solely to the [ * ] following an [ * ], has received the
          written approval [ * ]

     (d)  [ * ] pursuant to [ * ] results in the adoption of the act, decision,
          or ruling as constituting [ * ].

A Steering Committee Action may include the rescinding or amendment of any prior
Steering Committee Action.

     1.75  "St. Jude License Agreement" means that certain License Agreement
            --------------------------
with St. Jude Children's Research Hospital, as listed in Exhibit 1.34 as a Third
Party Agreement, as amended.

     1.76  "Sublicensee" means a Third Party to whom Serono or ZGI has extended
            -----------
a sublicense consistent with Article Ten.

     1.77  "TACI" means the receptor described in International Patent
            ----
Application [ * ].

     1.78  "Term" shall have the meaning set forth in Section 17.1.
            ----

     1.79  "Territory" means the world, unless and until any country or
            ---------
countries are removed from the Territory and made part of the ZGI Territory as
provided herein, in which case "Territory" means the remainder of the world
other than such country or countries.

     1.80  "Third Party" means any person or entity other than ZGI, Serono, or
            -----------
their respective Affiliates.

     1.81  "Third Party Agreement" means any agreement entered into with a Third
            ---------------------
Party by either ZGI, Serono, or their respective Affiliates, or any amendment
thereto, whereby royalties, fees or other payments are to be made to the Third
Party based on  (a) exploitation of intellectual property rights of the Third
Party or (b) the provision of products, materials or services sourced from the
Third Party, where (a) and/or (b) are used in the course of the research,
development or manufacturing, marketing, distribution or sales of a Licensed
Product, or whereby any other

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -12-
<PAGE>

restrictions, limitations or conditions are imposed on making, using, selling,
offering for sale, importing, or otherwise exploiting any Licensed Product.

     1.82  "Third Party Commercial Use Fees" means [ * ] paid or payable by
            -------------------------------
[ * ] or their respective [ * ] with respect to [ * ] pursuant to a [ * ].

     1.83  "Third Party Development Fees" means [ * ] paid or payable by [ * ]
            ----------------------------
or their respective [ * ] in connection with a [ * ] pursuant to a [ * ].

     1.84  "United States of America" or "United States" means the United States
            ------------------------      -------------
of America and its territories and possessions, including the Commonwealth of
Puerto Rico.

     1.85  "ZGI Background Technology" means (a) any inventions, discoveries,
            -------------------------
know-how, methods, processes, data, information, technology, research tools,
compositions, formulas and tangible materials Controlled by ZGI or its
Affiliates that (i) as of the Effective Date, ZGI knows or should know (based on
at least preliminary data) to be necessary, (ii) other than Project Technology,
are actually used by ZGI or its Affiliates, during and in the course of the
Development Project, or (iii) are included in ZGI Background Technology by
consent of the Controlling party pursuant to Section 4.2, in any case for the
development, manufacture or use of Licensed Products, including the technology
listed in Exhibit 1.85 hereto (the "ZGI Technology"); (b) other than Project
                                    --------------
Technology, any and all improvements to the ZGI Technology, to the extent
invented, discovered, developed or otherwise generated by ZGI or its Affiliates
during any Development Project Term and prior to the time, if any, at which ZGI
has elected to terminate its roles and responsibilities with respect to all
Development Projects pursuant to Section 4.8; and (c) all Patent Rights, trade
secrets, and other intellectual property rights anywhere in the world in and to
any of the ZGI Technology and improvements described in (a) or (b) of this
Section.  Notwithstanding the foregoing, the Ig Fusion Technology shall not be
deemed to fall within the term "ZGI Background Technology".

     1.86  "ZGI IP" means the ZGI Project Technology and the ZGI Background
            ------
Technology.

     1.87  "ZGI Territory" means such country or countries, if any, that is or
            -------------
are removed from the Territory and made part of the ZGI Territory as provided
herein.

     1.88  Certain Terminology.  Where words and phrases are used herein in the
           -------------------
singular, such usage is intended to include the plural forms where appropriate
to the context, and vice versa.  The words "including", "includes" and "such as"
                                            ---------    --------
are used in their non-limiting sense and have the same meaning as "including
without limitation" and "including but not limited to".  References to Articles,
Sections, subsections, and clauses are to the same with all their subparts as
they appear in this Agreement.  "Herein" means anywhere in this Agreement.
                                 ------
"Hereunder" and "hereto" means under or pursuant to any provision of this
----------       ------
Agreement.

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -13-
<PAGE>

                                  ARTICLE TWO
                   Scope and Exclusivity of the Collaboration

     2.1  Exclusivity.    Except as otherwise provided herein, ZGI and Serono
          -----------
agree to work exclusively with each other (and each other's Contractors, if any)
during the Development Project Term with respect to the discovery and
development of products [ * ] that incorporate either a [ * ] or a [ * ] or
both, whether alone or as part of a [ * ].

     2.2  First Negotiation and First Refusal Rights.
          ------------------------------------------

     (a) Unless and until an [ * ] is made the subject of an agreement pursuant
to this Section, the parties acknowledge and agree that [ * ] are not within the
scope of their collaboration or the Development Project.

     (b) ZGI hereby agrees, with respect to any known or suspected [ * ] any
known or suspected [ * ] and any known or suspected [ * ] known to or suspected
by it as of the Effective Date, or discovered by it during the Development
Project Term (or that is so known to, suspected by, or so discovered by its
Affiliates, to the extent ZGI Controls rights to such [ * ]), that it shall, on
or before the [ * ] after the Effective Date, the [ * ] after the identification
of a known or suspected [ * ], or the [ * ] after the expiration of any and all
prior rights of Novo Nordisk A/S or its Affiliates with respect to such [ * ],
whichever occurs last, notify Serono of such [ * ], and concurrently provide to
Serono ZGI's reasons for categorizing it as an [ * ] and all data and
information then available to ZGI with respect to such [ * ].

     (c) ZGI hereby agrees, with respect to any known or suspected [ * ], any
known or suspected [ * ] and any known or suspected [ * ] of which it is
required to give notice to Serono under subsection (b) above:

     (i)   ZGI will, during the [ * ] following its notice under subsection (b),
           if requested by Serono, make appropriate representatives available to
           meet with Serono's representatives to provide a fuller description of
           the data and information then available to ZGI with respect to such
           [ * ], and to answer Serono's questions in that regard;

     (ii)  ZGI shall engage in good faith negotiations with Serono over a period
           of at least [ * ] following the end of the [ * ] period described in
           clause (i) above, in an attempt to reach agreement with Serono
           (either in a definitive agreement or a mutually signed term sheet
           which both parties thereafter diligently work to memorialize in a
           definitive agreement) with respect to the development and
           commercialization by Serono of one or more products based on or
           incorporating that [ * ];

     (iii) if no agreement is reached pursuant to clause (ii) above, ZGI hereby
           agrees that it shall promptly notify Serono if at any time during the
           Term ZGI or any of its Affiliates desires to grant to any Third Party
           any right or license in or to such [ * ] anywhere in the Territory,
           or desires to develop or commercialize one or more

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -14-
<PAGE>

           products based on or incorporating such [ * ] anywhere in the
           Territory, and in that event ZGI shall again engage in good faith
           negotiations with Serono over a period of at least [ * ] following
           such notice under this clause, to reach agreement with Serono (either
           in a definitive agreement or a mutually signed term sheet which both
           parties thereafter diligently work to memorialize in a definitive
           agreement) with respect to the development and commercialization by
           Serono of one or more products based on or incorporating that [ * ];
           and

     (iv)  if no agreement is reached pursuant to clause (iii) above, ZGI shall
           give Serono at least [ * ] written notice prior to signing any
           agreement with any Third Party (either as a definitive agreement or a
           mutually signed term sheet) with respect to such [ * ] in which
           agreement ZGI is willing to extend to such Third Party terms that
           are, in any material respect, more favorable for the Third Party than
           the terms ZGI was willing to extend to Serono in the course of the
           negotiations pursuant to clause (iii) above, and it shall afford
           Serono the opportunity during such notice period to accept and agree
           to such agreement on such more favorable terms in lieu of such Third
           Party; provided, however, that if ZGI has not entered into an
           agreement (either in a definitive agreement or a mutually signed term
           sheet) with a Third Party pursuant to this clause [ * ], then clause
           (iii) above (and potentially this clause (iv)) shall again be
           applicable to any right or license in or to such [ * ] which ZGI or
           any of its Affiliates may thereafter desire to grant to any Third
           Party anywhere in the Territory.

     (d)   Serono hereby agrees, with respect to any known or suspected [ * ],
any known or suspected [ * ] or any known or suspected [ * ] known to, or
suspected by, it as of the Effective Date, or discovered by it during the
Development Project Term (or that is so known to, suspected by, or so discovered
by its Affiliates, to the extent Serono Controls rights to such [ * ]) that it
shall promptly notify ZGI if at any time during the Development Project Term
hereunder Serono or any of its Affiliates desires to grant to any Third Party
any right or license in or to such [ * ] in North America. Such notification
will include all data and information then available to Serono with respect to
such [ * ] and Serono's reasons for categorizing it as [ * ].

     (e)   Serono hereby agrees, with respect to any known or suspected [ * ],
any known or suspected [ * ] or any known or suspected [ * ] of which it is
required to give notice to ZGI under subsection (d) above:

     (i)   Serono will, during [ * ] following its notice under subsection (d),
           if requested by ZGI, make appropriate representatives available to
           meet with ZGI's representatives to provide a fuller description of
           the data and information then available to Serono with respect to
           such [ * ], and to answer ZGI's questions in that regard;

     (ii)  Serono shall engage in good faith negotiations with ZGI over a period
           of at least [ * ] described in clause (i) above, in an attempt to
           reach agreement with ZGI (either in a definitive agreement or a
           mutually signed term sheet which both parties thereafter diligently
           work to memorialize in a definitive agreement) with

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -15-
<PAGE>

           respect to the development and commercialization by ZGI of one or
           more products based on or incorporating that [ * ] for the North
           American market; and

     (iii) if no agreement is reached pursuant to clause (ii) above, Serono
           shall give ZGI at least [ * ] written notice prior to signing any
           agreement with any Third Party (either as a definitive agreement or a
           mutually signed term sheet) with respect to such [ * ] for the North
           American market in which agreement, Serono is willing to extend to
           such Third Party terms that are, in any material respect, more
           favorable for the Third Party than the terms Serono was willing to
           extend to ZGI in the course of the negotiations pursuant to clause
           (ii) above, and it shall afford ZGI the opportunity during such
           notice period to accept and agree to such agreement on such more
           favorable terms in lieu of such Third Party; provided, however, that
           if Serono has not entered into an agreement (either in a definitive
           agreement or a detailed and mutually signed term sheet) with a Third
           Party pursuant to this clause (iii) [ * ] then clause (ii) above (and
           potentially this clause (iii)) shall again be applicable to any right
           or license in or to such [ * ] which Serono or any of its Affiliates
           may thereafter desire to grant to any Third Party for North America.

                                 ARTICLE THREE
                       Coordination of the Collaboration

     3.1  Steering Committee Role and Responsibilities.
          --------------------------------------------

     (a)  The Steering Committee shall be responsible for the overall direction
of the parties' collaboration hereunder, including oversight of the Product
Team, if any, the Patent Contacts and the Commercialization Team, if any.  The
responsibilities of the Steering Committee shall include adoption and amendment
of the Development Plan and Budget, adoption and amendment of Commercialization
Plans and Budgets, if any, and resolution of disputes occurring at the Product
Team or Commercialization Team levels or between the parties' respective Patent
Contacts.  The Steering Committee may on its own initiative and at any time act,
or reverse action, within the scope of the Product Team's, Patent Contacts', or
Commercialization Team's responsibilities.  The Steering Committee shall be
guided by the general principle that Development Tasks and North American Co-
Promotion Tasks will be allotted to the respective parties, directly or working
through one or more Contractors, as shall appear most likely to expedite the
timely development and marketing, distribution and sales of Licensed Products
hereunder, taking into account as appropriate the parties' respective
capabilities, facilities, and personnel, and the timely availability thereof for
such purposes.  The Steering Committee shall have no oversight with respect to
the commercialization of any Licensed Product for which either party has made an
Election Not to Co-Fund and all matters relating to the commercialization of
such Licensed Product shall be determined by the party that continues to fund
such commercialization.

     (b)  The Steering Committee shall meet face-to-face at least semi-annually
at mutually agreed upon times and locations.  Unless otherwise agreed, the
location of such meetings will alternate between the parties' headquarters.
Either or both of the parties may bring other personnel employed by them or
their Contractors to meetings of the Steering Committee as

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -16-
<PAGE>

observers or to present data and information relative to the Development
Projects; provided that the attendance of employees of a Contractor shall be
subject to the consent of the other party, which consent shall not be
unreasonably withheld. The Steering Committee shall also address issues as they
arise in the interim via telephone conference, videoconference or electronic
mail. A written agenda for each face-to-face meeting shall be circulated in
advance of the meeting, and written minutes of each meeting shall be taken and
shall include the issues discussed and action items, if any, arising from the
meeting. Meeting minutes and written summaries of any action taken by way of
interim communications shall be promptly submitted (i) to the Project Contacts,
(ii) to all members of the Steering Committee, (iii) to the extent such minutes
or action involve Patent Rights, to the Patent Contacts, and (iv) to the extent
such minutes or action involve matters related to commercialization of a
Licensed Product, to the Commercialization Contacts. Each face-to-face meeting
of the Steering Committee shall include a review and approval (or amendment) by
Steering Committee Action of minutes from the prior meeting and of all actions
taken through interim communications.

     (c)  Among its other responsibilities[ * ] shall review and may, by [ * ]
approve one or more [ * ] that are proposed to be entered by [ * ] following the
[ * ].

     (d)  All formal actions of the Steering Committee must be taken by Steering
Committee Action as defined herein.

     3.2  Product Team and Project Contacts Roles and Responsibilities.
          ------------------------------------------------------------

     (a)  The Product Team, consisting of at least the two (2) Project Contacts,
shall be responsible for managing day-to-day research and development activities
relating to Licensed Products, in accordance with the Development Plan and
Budget.  The Product Team shall be responsible for the preparation and
submission to the Steering Committee, within [ * ] after the Effective Date, of
an initial Development Plan and Budget covering at least [ * ] following the
Effective Date.  The Product Team shall be disbanded following [ * ] of the
Effective Date unless the Steering Committee determines that it should continue
to function beyond that time.

     (b)  The Product Team shall meet as often as is deemed necessary by the
Project Contacts.  Such meetings shall take place in person, by videoconference
or by telephone conference as mutually agreed by the Project Contacts.  There
shall be an agenda for each meeting of the Product Team and minutes of each
meeting shall be taken and shall include the issues discussed and action items,
if any, arising from such meeting.  Meeting minutes shall be submitted to the
members of the Product Team and the Steering Committee.

     (c)  All formal actions of the Product Team must receive the approval of
the two (2) Project Contacts, either in writing (including by email or
facsimile) or by vote at a meeting of the Product Team, and all formal actions
shall subsequently be entered into the minutes of meetings of the Product Team.
In the absence of such mutual approval, either Project Contact may by formal
written notice to the Steering Committee declare the existence of a dispute at
the Project Team level, and thereby request that such dispute be resolved by the
Steering Committee.

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -17-
<PAGE>

     (d)  In addition to the formal activities of the Product Team, each party's
Project Contact will also be available throughout the Development Project Term
(including, following any disbanding of the Product Team) to answer any
reasonable questions from the other party's Project Contact.

     3.3  Commercialization Team and Commercialization Contacts Roles and
          ---------------------------------------------------------------
Responsibilities.
----------------

     (a)  A Commercialization Team shall be formed by the Commercialization
Contacts, with approval by Steering Committee Action, with respect to any
Licensed Product developed in whole or part in the Development Project.  Each
such Commercialization Team shall be formed within [ * ] following the
appointment of the Commercialization Contacts or prior to the [ * ] following
the Initiation of Phase III Clinical Trials of such Licensed Product, whichever
is later.

     (b)  The Commercialization Team shall be responsible for (i) the
preparation and submission to the Steering Committee of an initial
Commercialization Plan and Budget with respect to a Licensed Product, covering a
period of at least [ * ] years following the first Regulatory Approval of such
Licensed Product, and, as appropriate from time to time and not less often than
annually, for the preparation of proposed updates and amendments to the
Commercialization Plan and Budget, to cover a rolling, multi-year period of at
least [ * ] years, for submission to the Steering Committee and (ii) planning
and coordinating the North American Co-Promotion Tasks of the parties.

     (c)  If (i) ZGI makes an Election Not to Co-Promote or (ii) either party
makes an Election Not to Co-Fund, with respect to a Licensed Product, the
Commercialization Team with respect to that Licensed Product, if any such
Commercialization Team shall theretofore have been formed, shall be disbanded.
If either party makes an Election Not to Co-Fund with respect to a Licensed
Product, no further Commercialization Plans and Budgets need be prepared with
respect to that Licensed Product.  For so long as ZGI is co-funding the North
American Commercialization Costs for a Licensed Product and without regard to
the fact that the Commercialization Team with respect to such Licensed Product
has been disbanded because ZGI has made an Election Not to Co-Promote, Serono
shall continue to prepare and provide to ZGI a Commercialization Plan and Budget
and shall make appropriate employees reasonably available to ZGI to review and
answer questions regarding such Commercialization Plan and Budget; provided that
such Commercialization Plan and Budget shall not be subject to approval by
Steering Committee Action.

     (d)  The Commercialization Team shall monitor the parties' conduct of the
North American Co-Promotion Tasks, in relation to the planned timelines and
budgets, including details regarding external costs and internal costs incurred
against the budgeted costs.  The Commercialization Team shall report any actual
or anticipated cost overruns in excess of [ * ] in any budgeted category to the
Steering Committee.  Likewise, the Commercialization Team shall monitor progress
of the marketing, distribution and sales of Licensed Products versus plans and
report any actual or anticipated timeline delays to the Steering Committee.

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -18-
<PAGE>

     (e)  The Commercialization Team shall meet as often as is deemed necessary
by the Commercialization Contacts.  Such meetings shall take place in person, by
videoconference or by telephone conference as mutually agreed by the
Commercialization Contacts.  There shall be an agenda for each meeting of the
Commercialization Team and minutes of each meeting shall be taken and shall
include the issues discussed and action items, if any, arising from such
meeting.  Meeting minutes shall be submitted to the members of the
Commercialization Team and the Steering Committee.

     (f)  All formal actions of the Commercialization Team must receive the
approval of the two (2) Commercialization Contacts, either in writing (including
by email or facsimile) or by vote at a meeting of the Commercialization Team,
and all formal actions shall subsequently be entered into the minutes of
meetings of the Commercialization Team.  In the absence of such mutual approval,
either Commercialization Contact may by formal written notice to the Steering
Committee declare the existence of a dispute at the Commercialization Team
level, and thereby request that such dispute be resolved by the Steering
Committee.

     (g)  In addition to the formal activities of the Commercialization Team,
except to the extent that a party duly makes an Election Not to Co-Fund with
respect to a Licensed Product or ZGI duly makes an Election Not to Co-Promote,
each party's Commercialization Contact will also be available to answer any
reasonable questions from the other party's Commercialization Contact.

                                  ARTICLE FOUR
                 Discovery and Development of Licensed Products

     4.1  Research and Development Efforts. Each of the parties shall use its
          --------------------------------
respective Reasonable Commercial Efforts throughout the Development Project Term

     (a)  to perform the respective [ * ] allotted to it in the [ * ] and to do
          so in accordance with the [ * ]; and

     (b)  to assist and to cooperate as requested with the other party's [ * ]
          to do the same as to its own [ * ] under the [ * ].

Each party agrees that Development Tasks shall be established and assigned to
expedite the timely and efficient development of Licensed Products hereunder.
In the event ZGI has terminated its roles and responsibilities under a
Development Project for a Licensed Product pursuant to Section 4.8, Serono shall
use Reasonable Commercial Efforts to expedite the timely development of the
Licensed Product.

     4.2  Invention Disclosures; Provision of Information. ZGI shall provide
          -----------------------------------------------
Serono full and prompt disclosure of the ZGI Background Technology and Ig Fusion
Technology as required for the development of Licensed Products hereunder.  Each
party will provide to the other party full and prompt disclosure of any new
Project Technology and any new improvements described in subsection 1.84(b),
including any invention disclosures submitted to its patent department which
disclose such Project Technology or improvements.  Each party shall from time to
time in

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -19-
<PAGE>

the course of performing Development Tasks bring to the attention of the Product
Team any inventions, discoveries, know-how, methods, processes, data,
information, technology, research tools, compositions, formulas and tangible
materials Controlled by a party or its Affiliates that it reasonably believes
may be useful for development, manufacture or use of a Licensed Product and any
such items may be included in Serono Background Technology or ZGI Background
Technology, as appropriate, under reasonable conditions and upon written consent
of the Controlling party of each such item. Nothing herein or otherwise shall
require any party to disclose information with respect to which such party has
an obligation of confidentiality to a Third Party, but each party will exert its
Reasonable Commercial Efforts to bring to the attention of the Steering
Committee any such Third Party restrictions as may be relevant hereunder.

     4.3  Regulatory Matters.
          ------------------

     (a)  Serono shall have the sole right to obtain Regulatory Approvals and
approvals to manufacture Licensed Product in the Territory which shall be held
by and in the name of Serono or its designees, and Serono shall own all
submissions made in connection therewith.  All formulary, price, reimbursement
or other marketing approvals in the Territory shall also be obtained by and in
the name of Serono or its designees.

     (b)  Serono shall be the sole contact for and will otherwise take the lead
in all interactions with Regulatory Agencies concerning the Licensed Product.
ZGI at the request of Serono will supply representatives to meet with Regulatory
Agencies, if necessary in view of the Development Tasks assigned to ZGI to
obtain or maintain Regulatory Approvals.

     4.4  Selection and Supervision of Personnel. Each party shall be
          --------------------------------------
responsible for the selection and supervision of its personnel who are assigned
any Development Tasks pursuant to this Agreement.

     4.5  Development Costs Attributable to Japan. Serono shall fund and shall
          ---------------------------------------
bear one hundred percent (100%) of the costs of any and all tasks that are
attributable exclusively to the development, testing or registration of a
Licensed Product for Japan or the Japanese market or to seeking Regulatory
Approval in Japan, whether or not such tasks are performed wholly or partly
outside of Japan and whether or not they are performed by ZGI or Serono.

     4.6  Other Development Costs; Quarterly Accountings. [ * ] of all
          ----------------------------------------------
Development Costs incurred following the Effective Date and pursuant to the
Development Plan and Budget, other than those to be borne by Serono under
Section 4.5, shall be funded and borne by Serono, and [ * ] of such Development
Costs shall be funded and borne by ZGI, regardless of which party is allocated
or performs one or more of the relevant Development Tasks.  Each party shall
submit to the Product Team at least quarterly (or on such other schedule as may
be determined by Steering Committee Action) a written and itemized accounting of
the expenditures, costs, and other resources actually devoted by it to the
Development Tasks in accordance with the Development Plan and Budget since the
last such accounting.  Such accountings shall be considered to be Information
subject to protection under Article Thirteen.  The parties' quarterly
accountings will be reviewed and approved in whole or in part (and/or returned
in whole or in part to a party for correction or adjustment prior to
resubmission) by action of the Product Team.  The Product

[ * ]  designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -20-
<PAGE>

Team will notify each party on a quarterly basis of the results of such review
by it of the accountings of both parties. To the extent that both parties'
accountings for prior expenditures, costs and other resources for the
Development Plan and Budget have been so approved, the Product Team will direct
by a quarterly invoice (with copies to both parties) that the party which has
borne less than its share of the aggregate Development Costs (net of those to be
borne by Serono under Section 4.5), taking into account all prior reconciliation
invoices under this section, shall reconcile such disparity by paying to the
other party an amount sufficient to bring the respective amounts borne by each
party, as of the end of the period covered by such accountings, back to the
ratio of [ * ]. Any such invoice shall be payable by Serono or ZGI, as the case
may be, to the other party hereto in accordance with Article Nine and within
[ * ] after receipt of invoice.

     4.7  Third Party Development Fees. No amounts paid to [ * ] shall be
          ----------------------------
allowable as part of the [ * ] borne by a party hereto except to the extent that
the same are either paid to a [ * ], paid to [ * ] in the normal course of
clinical development (including payments to [ * ] or, except for amounts payable
by [ * ] pursuant to [ * ] paid pursuant to a [ * ] that is entered after the
[ * ] and with the approval of [ * ] in accordance with [ * ] . All other [ * ]
if any (including any such amounts payable by [ * ] under the [ * ] or an [ * ]
pursuant to [ * ] shall be borne solely by [ * ] that is party to the [ * ].

     4.8  Early Termination of Development Project Roles and Responsibilities.
          -------------------------------------------------------------------
Either ZGI or Serono may at its election terminate all (but not less than all)
of its own roles and responsibilities in and with respect to a Development
Project as to a Licensed Product at any time upon [ * ] prior written notice to
the other party; provided, however, that any such election by either party at
any time after the [ * ] will require prior written notice of [ * ] rather than
[ * ].  Any such elective early termination of a party's roles and
responsibilities in such Development Project shall have the effects provided in
Article Twelve below.

                                  ARTICLE FIVE
            Commercialization of Licensed Products in North America

     5.1  Co-Promotion in North America; Election Not to Co-Promote.
          ---------------------------------------------------------

     (a)  Since as a result of its co-promotion of a Licensed Product in North
America ZGI would be entitled to participate in decisions regarding promotion of
such Licensed Product, [ * ] shall only be entitled to [ * ] if, despite [ * ]
having a [ * ] has the ability and commits [ * ] to permit it fully to perform
the [ * ] assigned to it by the [ * ] including at a minimum at least [ * ] of
the anticipated [ * ] with respect to its primary indication(s).  The initial
Commercialization Plan and Budget shall set forth in detail the North American
Co-Promotion Tasks to be allocated to each of ZGI and Serono.  If it is
determined by [ * ] excluding for this [ * ] within [ * ] cannot fulfill the
[ * ] with respect to a [ * ] allocated to it in the [ * ] shall be deemed to
have made an [ * ] with respect to such [ * ]. Neither party shall assign or
delegate a [ * ] allocated to it in the [ * ] without [ * ] in favor of such
assignment or delegation.

     (b)  Subject to subsection (a) above, ZGI and Serono shall co-promote all
Licensed Products in North America, as more fully described in the applicable
Commercialization Plan

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -21-
<PAGE>

and Budget, unless and until ZGI elects, as to one or more Licensed Products,
that it will not do so, or that it will no longer do so (an "Election Not to Co-
                                                             -------------------
Promote"). An Election Not to Co-Promote, if any, as to a Licensed Product shall
-------
be made by ZGI by written notice to Serono. Once made, an Election Not to Co-
Promote [ * ] without [ * ]. If no Election Not to Co-Promote is made by ZGI
prior [ * ] of such Licensed Product, then no such Election Not to Co-Promote
may be made by ZGI [ * ] that would have effect prior to the [ * ] following the
date [ * ] is obtained in [ * ] for such Licensed Product (and in any event,
such an Election Not to Co-Promote must be made, if at all, prior [ * ].
Thereafter, ZGI shall be afforded an opportunity prior [ * ] to make an Election
Not to Co-Promote or else to be bound to co-promote pursuant to the applicable
[ * ] for the [ * ].

     5.2  North American Commercialization Costs; Election Not to Co-Fund.
          ---------------------------------------------------------------
Unless and until ZGI elects, as to one or more Licensed Products, that it will
not (or that it will no longer) bear any of the North American Commercialization
Costs with respect to such Licensed Product (an "Election Not to Co-Fund" by
                                                 -----------------------
ZGI), each of Serono and ZGI shall fund and bear fifty percent (50%) of such
North American Commercialization Costs, regardless of which party is allocated
or performs one or more of the relevant North American Co-Promotion Tasks.  An
Election Not to Co-Fund, if any, as to a [ * ] shall be made by ZGI by written
notice to Serono.  Once made, an Election Not to Co-Fund [ * ] as to a [ * ].
An Election Not to Co-Fund shall not be effective with respect to the [ * ]
which it is made, nor as to the immediately following [ * ] but shall become
effective with respect to the second full [ * ] following such Election Not to
Co-Fund.  Unless earlier terminated [ * ] shall terminate upon the date such
[ * ] becomes effective.

     5.3  Selection and Supervision of Personnel.  Each party shall be
          --------------------------------------
responsible for the selection and supervision of its personnel who are assigned
any North American Co-Promotion Tasks pursuant to this Agreement.

     5.4  Third Party Commercial Use Fees.  No amounts paid to [ * ] shall be
          -------------------------------
allowable as part of the [ * ] borne by a party hereto except to the extent that
the same are either paid to a [ * ] or, except for amounts payable by [ * ]
pursuant to Section 10.12, are [ * ] paid pursuant to a [ * ] that is entered
after the Effective Date and with the approval of the [ * ] in accordance with
[ * ]. All other [ * ] including any such amounts payable by [ * ] under the
[ * ] or an [ * ] pursuant to [ * ] if any, shall be borne solely by [ * ] that
is party to the applicable [ * ].

     5.5  Quarterly Accounting and Balancing Payments.  Unless and until ZGI
          -------------------------------------------
has made an Election Not to Co-Fund, the Commercialization Team shall develop
procedures for, and shall implement and coordinate, quarterly accountings and
balancing payments between ZGI and Serono within [ * ] following the end of each
Calendar Quarter, such that each of ZGI and Serono, after such balancing
payments, will on a net basis at least as current as quarterly, bear fifty
percent (50%) of all North American Commercialization Costs.

     5.6  North American Product Term Extension.  Notwithstanding Section 1.60,
          -------------------------------------
the "Product Term" for a Licensed Product in North America shall extend, if
     ------------
later than the end of the period that otherwise would be such term under Section
1.60, until either party makes an Election Not to Co-Fund with respect to that
Licensed Product. Upon any such Election Not to Co-Fund

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -22-
<PAGE>

by Serono, subsection 12.2(b) shall apply and upon any such Election Not to Co-
Fund by ZGI, subsection 12.1(b) shall apply. Any such Election Not to Co-Fund
must be made by either party, if at all, by written notice to the other party
prior to August 1 of the year prior to the calendar year as to which it shall
become effective.

                                  ARTICLE SIX
                       Diligence; Adjustment to Territory

     6.1  Responsibility for Commercialization.
          ------------------------------------

     (a)  Serono shall, prior to the effectiveness of an Election Not to Co-
Promote or an Election Not to Co-Fund, either directly or through one or more
Sublicensees or (subject to Section 5.1(a)) Contractors, exert its Reasonable
Commercial Efforts to accomplish the North American Co-Promotion Tasks allocated
to it under the applicable Commercialization Plan and Budget.  ZGI shall, prior
to the effectiveness of an Election Not to Co-Promote or an Election Not to Co-
Fund, either directly or (subject to Section 5.1(a)) through one or more
Contractors,  exert its Reasonable Commercial Efforts to accomplish the North
American Co-Promotion Tasks allocated to it under the applicable
Commercialization Plan and Budget.  Serono shall otherwise, from Regulatory
Approval until the end of the Product Term for each Licensed Product, either
directly or through one or more Sublicensees or Contractors, exert its
Reasonable Commercial Efforts to distribute, market, promote and sell such
Licensed Product in all Marketing Regions in the Territory, and shall exert its
Reasonable Commercial Efforts to maximize the sales of such Licensed Product in
each Marketing Region.

     (b)  As the manufacturer and seller of the Licensed Products, Serono shall
be responsible for making and booking all sales of the Licensed Product in the
Territory.  Serono shall also be responsible for making decisions as to the
pricing or other terms of sale of the Licensed Products, for handling returns or
recalls of the Licensed Product, for interaction with the appropriate Regulatory
Authorities with respect to the Licensed Product and for the maintenance and
provision to such Regulatory Authorities of records and reports with respect to
the Licensed Product as required by applicable law.  For North America, so long
as ZGI has not made an Election Not to Co-Promote or an Election Not to Co-Fund,
Serono shall make such decisions in consultation with the Commercialization Team
in accordance with the Commercialization Plan and Budget.

     (c)  Without limitation on its other responsibilities hereunder, Serono
specifically agrees (subject to Sections 6.3 and 12.2) that it shall, at all
times throughout the Product Term applicable to a Licensed Product, exert
Reasonable Commercial Efforts to have and maintain adequate and available
manufacturing, storage, and shipping facilities; supplies; qualified personnel;
regulatory approvals and registrations; and all other resources required to
manufacture and supply sufficient quantities of such Licensed Product to meet
the then-current and reasonably anticipated marketplace demands for such
Licensed Product in all countries in the Territory in which such Licensed
Product has received Regulatory Approval, and that Serono shall apply the same
to accomplish such manufacture and supply.

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -23-
<PAGE>

     6.2  Reports of Sales [ * ].  Following Regulatory Approval for a [ * ] and
          -----------------
unless and until [ * ] with respect to such Licensed Product [ * ] shall provide
the [ * ] reports of the sales of such [ * ] to be submitted on or before the
[ * ], with respect to [ * ] during the preceding [ * ].

     6.3  Early Termination of Commercialization Responsibilities.    Serono may
          -------------------------------------------------------
at its election terminate its roles and responsibilities with respect to the
marketing, distribution and sales of a Licensed Product at any time upon [ * ]
prior written notice to ZGI.  Any such elective termination of such Serono roles
and responsibilities shall have the effects provided in Section 12.2 below.
Serono may make such election to be effective in [ * ] and not otherwise in the
[ * ] provided, however, that if such election to terminate becomes effective in
all of the [ * ] it shall be deemed to be effective [ * ].  If Serono's election
to terminate its roles and responsibilities with respect to the marketing,
distribution and sales of a Licensed Product is effective in [ * ] then:

     (a)  [ * ] in which such elective termination by Serono is effective shall
          thereby be removed from the Territory for such Licensed Product and be
          added to the ZGI Territory;

     (b)  the provisions of subsections (i), (ii), (iii), (vi), and (viii) in
          Section 12.2(a) shall apply, but only to the extent they are
          applicable to such Licensed Product [ * ] in which such elective
          termination by Serono is effective; and

     (c)  Serono shall manufacture and supply such Licensed Product to ZGI [ * ]
          pursuant to subsection (xii) of Section 12.2(a).

                                 ARTICLE SEVEN
                          Initial Fee; Milestone Fees

     7.1  Initial Fee.  In consideration for ZGI's entering into this Agreement
          -----------
and making the license grants hereunder, Serono shall pay to ZGI an initial fee
of [ * ] which amount is non-creditable and payable in accordance with Article
Nine within [ * ] days after execution and delivery of this Agreement.

     7.2  Milestone Fees.  Serono shall in addition pay to ZGI the following
          --------------
amounts (the "Milestone Fees") with respect to the first Licensed Product that
              --------------
achieves the applicable events (the "Milestones") (such payments to be made only
                                     ----------
once with respect to each such Milestone Fee), which amounts are non-creditable,
regardless of whether such Milestone is achieved by Serono, its Affiliates,
Sublicensees or any other marketer authorized by Serono (other than where such a
Milestone is achieved pursuant to a sublicense granted under Section 10.6 and as
to which sublicense royalties are payable as described in Section 8.4):

--------------------------------------------------------------------------------
                Milestone                                Milestone Fee
                ---------                                -------------
--------------------------------------------------------------------------------

                                     [ * ]

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -24-
<PAGE>

     7.3  Reporting of Milestones; Payment of Milestone Fees.  Serono shall
          --------------------------------------------------
report to ZGI the occurrence of any Milestone within [ * ] following such
occurrence, and shall pay the applicable Milestone Fee to ZGI in accordance with
Article Nine within [ * ] following the occurrence of the Milestone.

                                 ARTICLE EIGHT
                        Royalty Calculation and Payment

     8.1  Payments to ZGI on North American Net Sales If Co-Fund.  Unless and
          ------------------------------------------------------
until an Election Not to Co-Fund becomes effective for a Licensed Product as
described in Section 5.2, Serono shall pay ZGI [ * ] in North America for such
Licensed Product during the applicable Product Term.

     8.2  Royalties on North American Net Sales If No Co-Fund.  With respect to
          ---------------------------------------------------
any Licensed Product for which an Election Not to Co-Fund by ZGI is effective,
in lieu of [ * ] called for under Section 8.1, Serono shall pay ZGI:

     (a)  [ * ] royalties equal to [ * ] during the applicable Product Term in
          the United States of America or Canada of a Licensed Product whose
          manufacture, use, sale, offer to sell or import would, without a
          license or ownership interest, directly or indirectly infringe one or
          more Patent Claims under any Patent Rights in or to the ZGI Background
          Technology in such country.

     (b)  [ * ] royalties equal to [ * ] during the applicable Product Term in
          the United States of America or Canada of a Licensed Product whose
          manufacture, use, sale, offer to sell or import would, without a
          license or ownership interest, directly or indirectly infringe one or
          more Patent Claims under any Patent Rights in or to any Project
          Technology in such country and would not directly or indirectly
          infringe any Patent Claims under any Patent Rights in or to the ZGI
          Background Technology in such country.

     (c)  Royalties at a rate equal to [ * ] of the rate determined in
          accordance with subsection (a) of the Net Sales during the applicable
          Product Term in the United States of America or Canada of a Licensed
          Product whose manufacture, use, sale, offer to sell or import would
          not infringe any Patent Claims under any Patent Rights in or to the
          ZGI Background Technology or any Project Technology in such country.

     (d)  Royalties equal to any [ * ] paid or payable by [ * ] with respect to
          a [ * ] in the United States of America or Canada during the
          applicable Product Term pursuant to a [ * ] described in [ * ] that is
          entered after the Effective Date and with the approval of [ * ] in
          accordance with [ * ] except for any payment made by [ * ] under [ * ]
          pursuant to [ * ].

Provided, however, that:

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -25-
<PAGE>

     (x)  The royalties due to ZGI from Serono pursuant to subsections (a) or
          (b) for each Calendar Quarter, for the United States of America or
          Canada, for Net Sales of each Licensed Product, shall be reduced, in
          the case of royalties payable pursuant to subsection (a), by [ * ]
          and, in the case of royalties payable pursuant to subsection (b), by
          [ * ] of the amount of [ * ] paid or payable by [ * ] (either directly
          or through [ * ] pursuant to subsection (d)) under [ * ] described in
          Section [ * ] for such Calendar Quarter, Licensed Product and country.

     (y)  In no event shall any such royalty payments due to ZGI from Serono
          pursuant to subsections (a) or (b) for a Licensed Product in a country
          be thereby reduced to be [ * ].

     (z)  The royalties in respect of [ * ] of a [ * ] set forth in subsection
          (b) shall be [ * ] to those payable pursuant to subsection (c) in the
          event there is [ * ] from a product, the making, using and selling of
          which does not [ * ] under any [ * ] in or to any [ * ] and which
          contains as its primary active component either [ * ] that is
          substantially the same as the primary active component in the [ * ] or
          the primary active component of which is derived from substantially
          the same [ * ] as the primary active component of the [ * ].  For the
          avoidance of doubt, [ * ] cannot be considered substantially the same
          primary active component as .  For the purpose of this subsection (z),
          competition from such a product shall be deemed to exist in a country
          if (i) the product has received [ * ] to be sold in the country and
          (ii) the product has been [ * ] in the country by a Third Party that
          is not a Sublicensee.

     8.3  Royalties on Rest of World Net Sales.
          ------------------------------------

     With respect to Net Sales of a Licensed Product in the Rest of World Serono
shall pay ZGI:

     (a)  Royalties at a rate determined in accordance with the table set forth
          below on Net Sales during the applicable Exclusivity Period in a
          country of a Licensed Product whose manufacture, use, sale, offer to
          sell or import would, without a license or ownership interest,
          directly or indirectly infringe one or more Patent Claims under any
          Patent Rights in or to the ZGI Background Technology in such country:

     ---------------------------------------------------------------------------
         Net Sales in a calendar year in              Royalty rate for such
         -------------------------------              ---------------------
               Rest of World                                Net Sales
               -------------                                ---------
     ---------------------------------------------------------------------------

                                     [ * ]

     (b)  [ * ] royalties at a rate determined in accordance with the table set
          forth below on Net Sales during the applicable Exclusivity Period in a
          country of a Licensed Product whose manufacture, use, sale, offer to
          sell or import would, without a license or ownership interest,
          directly or indirectly infringe one or more Patent Claims under any
          Patent Rights in or to any Project Technology in such country

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -26-
<PAGE>

          and would not directly or indirectly infringe any Patent Claims under
          any Patent Rights in or to the ZGI Background Technology in such
          country:

     ---------------------------------------------------------------------------
         Net Sales in a calendar year in              Royalty rate for such
         -------------------------------              ---------------------
               Rest of World                                Net Sales
               -------------                                ---------
     ---------------------------------------------------------------------------

                                     [ * ]

     (c)  Royalties at a rate equal to [ * ] of the rate determined in
          accordance with the table set forth in subsection (a) on Net Sales of
          a Licensed Product in a country during the applicable Exclusivity
          Period whose manufacture, use, sale, offer to sell or import would not
          directly or indirectly infringe any Patent Claims under any Patent
          Rights in or to the ZGI Background Technology or any Project
          Technology in such country, it being understood that if some of the
          Net Sales of a Licensed Product in the Rest of World would be covered
          by this subsection (c) and other Net Sales of that Licensed Product in
          the Rest of World would be covered by either subsection (a) or (b),
          all such Net Sales shall be aggregated for purposes of determining the
          royalty rates for such Licensed Product in each calendar year as
          described in subsections (a), (b) and (c).

     (d)  Royalties equal to any [ * ] paid or payable by ZGI with respect to a
          [ * ] during the applicable Exclusivity Period pursuant to a Third
          Party Agreement described in Section 1.81 (a) but not (b) that is
          entered after the [ * ] and with the approval of [ * ] in accordance
          with [ * ] except for any payment made by [ * ] under [ * ] pursuant
          to [ * ].

     (e)  The tables for determining royalty rates described in subsections (a),
          (b) and (c) are based on the [ * ] during [ * ] irrespective of
          whether the [ * ] is covered by a particular [ * ] or not (the
          cumulative, annual [ * ] in such tables at which the royalty rates
          change being hereafter referred to as "Breakpoints," i.e., [ * ].
                                                 ------------
          Therefore, for purposes of applying the different royalty rates in
          subsections (a), (b) and (c) in a quarter for a [ * ] sold in various
          countries when the cumulative, annual [ * ] during the quarter has
          passed through a Breakpoint, the [ * ] in a country for the quarter
          shall be apportioned below and above the Breakpoint (for purposes of
          applying the royalty rates) as follows:

          Net Sales below the Breakpoint = [ * ]

          Net Sales above the Breakpoint = [ * ]

          [ * ]

          [ * ].

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -27-
<PAGE>

     For ease of calculation, a Licensed Product that changes during a quarter
from being covered by one subsection (i.e., (a), (b) or (c)) to another
subsection shall be deemed to have made the change as of the end of the quarter.
Any [ * ] limitations pursuant to subsections (x) and (y) shall be applied to
the [ * ] and [ * ] Sales apportioned under this subsection (e).

     An example of the calculation pursuant to this subsection (e) for a country
is as follows, assuming [ * ] for the country is first covered by subsection (a)
and during the second quarter changes, and continues to be covered for the rest
of the year, by subsection (b):

                                     [ * ]

     (All figures represent US$ million.)

     The royalty rate in the above example for Q1 was [ * ] as specified in
subsection (a) and for Q3 was [ * ] as specified in subsection (b).  The
royalties due for Q2 and Q4 were calculated as follows:

     [ * ]

     [ * ]

Provided, however, that:

     (x)  The royalties due to ZGI from Serono pursuant to subsections (a) or
          (b) for each Calendar Quarter, for each country, for Net Sales of each
          Licensed Product, [ * ] of the amount of any [ * ] paid or payable by
          [ * ] (either directly or through ZGI pursuant to subsection (d))
          under [ * ] described in [ * ] for such Calendar Quarter, Licensed
          Product and country.

     (y)  In no event shall any such royalty payments due to ZGI from Serono
          pursuant to subsections (a) or (b) for a Licensed Product in a country
          be thereby reduced to be [ * ] those that would be determined by using
          rates equal to [ * ] of the royalty rates set forth in the table in
          subsection (a).

     (z)  The royalties in respect of [ * ] Product in a country set forth in
          subsection (b) shall be [ * ] to those payable pursuant to subsection
          (c) in the event there is [ * ] the making, using and selling of which
          does [ * ] and which contains as its primary active component [ * ].
          For the avoidance of doubt, [ * ] cannot be considered substantially
          the same primary active component as [ * ].  For the purpose of this
          subsection (z), [ * ] from such a product shall be deemed to exist
          [ * ] if (i) the product has received [ * ] to be sold in the country
          and (ii) the product has been [ * ].

     8.4  Royalties on Declined Product Sublicensing Revenues.    Serono shall
          ---------------------------------------------------
pay ZGI royalties equal to [ * ] of the difference obtained by subtracting B
from A, where

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -28-
<PAGE>

     A  equals [ * ]

     B  equals [ * ] in connection with the research, development and
        registration of such Declined Product under any Third Party Agreement
        [ * ]

in addition, Serono shall also pay ZGI a sum equal to [ * ] ZGI in connection
with the research, development and registration of such [ * ] paid or payable
[ * ] with respect to such [ * ] under any [ * ] including [ * ].

     8.5  Reporting and Payment.  All amounts and royalties payable under this
          ---------------------
Article Eight shall be due quarterly within [ * ] following the end of each
Calendar Quarter with respect to Net Sales and Declined Product Sublicensing
Revenues in such Calendar Quarter.  Each such payment shall be accompanied by a
statement of Net Sales and Declined Product Sublicensing Revenues for the
quarter on a per Licensed Product and country-by-country basis and the
calculation of the royalties payable hereunder.

                                  ARTICLE NINE
                     Records, Reporting, Payment and Audits

     9.1  Form of Payment; Currency Conversion.  All monies due to ZGI
          ------------------------------------
hereunder shall be paid by wire transfer or other method designated from time to
time by ZGI, in United States Dollars to ZGI in Seattle, WA, USA.  The rate of
exchange to be used shall be the average rate of exchange for the thirty (30)
days preceding the date of payment for the conversion of local currency to
United States Dollars as published by The Wall Street Journal (or if it ceases
to be published, a comparable publication to be agreed upon by the parties) or,
for those countries for which such average exchange rate is not published by The
Wall Street Journal, the exchange rate used by Serono for its own corporate
consolidation purposes.

     9.2  Late Payment.  Without limitation on other available rights or
          ------------
remedies, all amounts payable under this Agreement will bear interest at the
rate of [ * ] per month or the maximum legal rate, whichever is less, from the
date due through the date of payment.

     9.3  Records of Development Costs, North American Commercialization Costs,
          ---------------------------------------------------------------------
and Third Party Royalties.  Both Serono and ZGI shall keep true and accurate
-------------------------
records of revenues, deductions from revenue, expenditures and employees' time
devoted to the collaborative effort undertaken pursuant to this Agreement and
Development Plans and Budgets and Commercialization Plans and Budgets, such that
their Development Costs, North American Commercialization Costs, Third Party
Development Fees, Third Party Commercial Use Fees, Patent Prosecution Costs, and
Patent Defense and Enforcement Costs will be accurately accounted for and
determined hereunder.  Serono shall keep and shall cause its Affiliates and
Sublicensees to keep complete, true and accurate records for the purpose of
showing the derivation of all royalties payable to ZGI under this Agreement.
All such records shall be retained for a period of [ * ] following the end of
the calendar year to which they relate.

     9.4  Records and Audits.  At the other party's request, Serono and ZGI
          ------------------
shall permit such records kept and maintained pursuant hereto to be inspected at
any time during regular

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -29-
<PAGE>

business hours, but not more often than once per calendar year, by an
independent public accountant, appointed by the other party for this purpose and
reasonably acceptable to the audited party. The independent public accountant
shall report to the auditing party and the party under audit only its
conclusions regarding the amount of the allowed costs or deductions and/or the
payments due hereunder. The parties shall mutually determine a general strategy
for such audit in advance of its conduct. Any such audit shall be at the expense
of the party requesting the same, unless the audit concludes that, with respect
to the period under audit, the party under audit overstated or understated any
amounts to such an extent that a payment made or called for under this Agreement
(whether to balance the parties' shares of costs or of royalties) was more than
[ * ] in error and in the favor of the party under audit, in which event if such
conclusion is undisputed, the party under audit shall pay or reimburse the
auditing party for the reasonable expenses of such audit. ZGI and Serono agree
that unless covered by one or more exceptions described in Sections 13.2(a) -
(e), all information subject to audit under this Section is confidential and
that it shall cause its accounting firm to retain all such information subject
to the confidentiality restrictions of Article Thirteen hereof.

     9.5  Payments Based on Audit Results.  If the independent public
          -------------------------------
accountant makes an undisputed determination that any amounts to be paid
hereunder have been under-paid or over-paid, the party that benefited therefrom
shall promptly make a payment to the other party such that all amounts paid
hereunder shall conform to the amounts so determined to be payable.

     9.6  Withholding.  Other than with respect to those matters described in
          -----------
Section 9.7 hereof which are covered by the terms and conditions set forth
therein, if any amounts are required to be withheld or any taxes are required to
be paid on behalf of, or with respect to, any party hereto by reason of any
payment to such party by the other party, the payor may withhold such amounts
and make the tax payments so required.  All such tax payments made on behalf of
a party shall be considered to be paid to such party for purposes of this
Agreement.  The party withholding the same shall promptly secure and deliver to
the other party appropriate official receipts for the taxes withheld and other
documents necessary to enable such other party to claim appropriate foreign tax
credits for such taxes paid.

     [ * ]

     (a)  The parties intend that none of the activities contemplated under this
Agreement will create or constitute a [ * ] foreign (including the European
Union and comparable entities) or other [ * ].  However, if any such activities
are, pursuant to a [ * ], determined to constitute [ * ] for such purposes, ZGI
and Serono agree to cooperate in providing all consents, elections, signatures,
information, and documents as may be reasonably required in the circumstances,
including any action reasonably required to effectuate the rights of Serono (or
its successors or transferree) pursuant to paragraphs (c) or (d) below. [ * ]

     (b)  If any [ * ] initiates an [ * ] in which it is asserted that the
activities hereunder, or any subset of such activities, create a [ * ] shall
control the defense of such [ * ] (or portion thereof in the event the [ * ]
involves other issues and such deemed [ * ] may be severed), shall have the sole
right to settle such [ * ] with the consent of [ * ] (which consent shall not be
unreasonably withheld), and shall in its discretion make [ * ] with respect
thereto.  All such [ * ]

[*] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                     -30-
<PAGE>

made on behalf of a party or that reduce an underlying [ * ] of a party shall be
considered to be paid to such party for purposes of this Agreement. The burden
of any other [ * ] shall be allocated between the parties as appropriate by [ *
]. If Serono [ * ] on behalf of the [ * ] Serono shall promptly secure and
deliver to [ * ] customary documents that may be reasonably required for [ * ]
to [ * ] (if any) with respect to such [ * ].

     (c)   If, pursuant to a [ * ], it is determined that the activities
hereunder, or any subset of such activities, create a [ * ] for any [ * ] (or
its successor or transferee) shall have the sole right to prepare and file [ * ]
in any jurisdiction in which the [ * ] may be required to file a [ * ], and
shall have the sole right to make any [ * ] under applicable law for such [ * ]
provided that if the [ * ] would have a reasonably foreseeable material adverse
effect on [ * ] shall first obtain the consent of [ * ] or its successor or
transferee) shall, to the extent such election is available, elect under [ * ]
to cause the [ * ] to be subject to the provisions of [ * ] shall be the [ * ]
within the meaning of [ * ]), and shall have full power and authority to act as
such.

     (d)   If, pursuant to a [ * ], it is determined that the activities created
hereunder, or any subset of such activities, create a [ * ] for any [ * ], or if
[ * ] reasonably believes such a [ * ] is likely, [ * ] (or its successor or
transferee) shall, subject to the provisions of Section 19.6, have the right,
exercisable at any time[ * ] shall [ * ]; provided, however, that the rights
                                          --------  -------
responsibilities of [ * ] shall conform as nearly as possible, mutatis mutandis,
                                                               ----------------
to the rights and responsibilities of [ * ] respectively, [ * ].

     (e)   The parties shall indemnify and hold each other and their respective
representatives harmless from and against any liabilities with respect to any
failure to effect [ * ] pursuant to this Section 9.7[ * ]. If any penalties are
imposed upon either ZGI or Serono for [ * ], the burden thereof shall be
allocated between the parties as appropriate by [ * ]. The parties shall
cooperate to minimize any such [ * ] to the extent possible.

                                  ARTICLE TEN

                       Intellectual Properties; Licenses

     10.1    Ownership of Intellectual Properties.    ZGI shall own any and all
             ------------------------------------
intellectual property covering ZGI Project Technology, Serono shall own any and
all intellectual property covering Serono Project Technology, and ZGI and Serono
shall jointly own any and all intellectual property covering Joint Project
Technology, in each case subject to the licenses granted hereunder.  Serono
shall own the intellectual property covering the Licensed Product Trademarks.
Serono agrees to the extent practicable to select a single worldwide trademark
for each Licensed Product.  The parties agree that the laws and rights
applicable under U.S. law with respect to the joint ownership of patents and
inventions shall also be applied in other nations giving effect to this
Agreement, subject to the licenses granted hereunder.  Except for the rights
expressly granted under Section 2.2, in this Article Ten, or pursuant to Article
Twelve, no right, option or license is granted or implied to Serono or ZGI,
under any patent or other intellectual property or to any other product, in any
field, or in any geographic territory.  Neither party makes any grant of rights
by implication.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -31-
<PAGE>

     10.2    Development Project Licenses.    Serono hereby grants to ZGI a
             ----------------------------
worldwide, royalty-free license, with right to sublicense to Contractors, to
practice and use the Serono Project Technology for research and development
purposes within the scope of ZGI's Development Tasks during and in the course of
any Development Project.  In addition, Serono hereby irrevocably covenants to
refrain from and to cause its Affiliates to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or causing
to be commenced, any proceeding of any kind against ZGI, its Affiliates or
Contractors based upon any infringement or alleged infringement of Serono
Background Technology by such person in connection with their activities within
the scope of ZGI's Development Tasks during and in the course of any Development
Project.

     10.3    Co-Promotion Licenses.    Unless and until any Election Not to Co-
             ---------------------
Promote or Election Not to Co-Fund made by ZGI becomes effective, Serono hereby
grants to ZGI a nonexclusive, royalty-free license, with right to sublicense to
Contractors, to the Licensed Product Trademark and to practice and use the
Serono Project Technology in the performance of its North American Co-Promotion
Tasks.

     10.4    License to Serono in the Territory. ZGI hereby grants to Serono a
             ----------------------------------
royalty-bearing license under the ZGI IP, Ig Fusion Technology and ZGI's
interest in Joint Project Technology to make, have made, use, sell, offer to
sell, and import Licensed Products in the Territory during the Product Term
applicable to each such Licensed Product. Subject to:

     (a)     ZGI's retained rights to practice and use the ZGI IP, Ig Fusion
             Technology and ZGI's interest in the Joint Project Technology
             within the scope of ZGI's Development Tasks;

     (b)     ZGI's retained rights to practice and use the ZGI IP, Ig Fusion
             Technology and ZGI's interest in the Joint Project Technology to
             perform its North American Co-Promotion Tasks; and

     (c)     with respect to the Background Technology licensed under the St.
             Jude License Agreement, the rights retained by the U.S. government
             and the academic research and educational use rights retained by
             St. Jude Children's Research Hospital and other researchers, all as
             described in the St. Jude License Agreement,

such license shall be exclusive in a country during the Exclusivity Period
applicable to such country for such Licensed Product, and shall otherwise be
nonexclusive.

     10.5    Sublicenses as to Licensed Products.
             -----------------------------------

     (a)     Serono shall have the right to grant sublicenses under the license
granted in Section 10.4 as to Licensed Products (other than Declined Products)
in the Rest of World; provided, however, that any such sublicense:

     (i)     shall provide that it is subject to and shall be governed by this
             Agreement and that the Sublicensee shall conform to all of Serono's
             obligations hereunder;

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -32-
<PAGE>

     (ii)    shall be disclosed to ZGI in its entirety, subject to ZGI's
             obligations under Article Thirteen to the extent applicable
             thereto; and

     (iii)   shall provide that, upon any removal from the Territory pursuant
             hereto of any country covered by such sublicense, ZGI may at its
             option (but shall not be required to) continue such sublicense in
             effect in the ZGI Territory, with ZGI substituted thereunder in
             place of Serono.

     (b)     Serono shall have the right to grant sublicenses under the license
granted in Section 10.4 as to Licensed Products (other than Declined Products)
in North America; provided, however, that any such sublicense conforms to
clauses (i) - (iii) of subsection 10.5(a) and, unless an Election Not to Co-Fund
made by ZGI with respect to the applicable Licensed Product has become
effective, that Serono has obtained ZGI's prior written consent to such
sublicense, which consent shall not be unreasonably withheld or delayed.

     10.6    Declined Products Sublicenses.    Serono shall have the right to
             -----------------------------
grant anywhere in the Territory sublicenses under the license granted in Section
10.4 to make, have made, use, sell, offer to sell, and import Declined Products;
provided, however, that any such sublicense conforms to clauses (i) - (iii) of
subsection 10.5(a) and that Serono has obtained ZGI's prior written consent to
such sublicense, which consent shall not be unreasonably withheld or delayed.

     10.7    License to ZGI in ZGI Territory.    Serono hereby grants to ZGI a
             -------------------------------
royalty-bearing license under the Serono Project Technology and Serono's
interest in the Joint Project Technology and the Licensed Product Trademarks to
make, have made, use, sell, offer to sell, and import Licensed Products in the
ZGI Territory, if any, during the Product Term applicable to such Licensed
Product.  Such license shall be exclusive in a country during the Exclusivity
Period applicable to such country for such Licensed Product (treating, for this
purpose, references in Section 1.32 to ZGI IP as being references instead to
Serono Project Technology), and shall otherwise be nonexclusive.

     10.8    Sublicenses.    ZGI shall have the right to grant sublicenses under
             -----------
the license granted in Section 10.7; provided, however, that any such
sublicense:

     (a)     shall provide that it is subject to and shall be governed by this
             Agreement and that the Sublicensee shall conform to all of ZGI's
             obligations hereunder; and

     (b)     shall be disclosed to Serono in its entirety, subject to Serono's
             obligations under Article Thirteen to the extent applicable
             thereto.

     10.9    Patent Marking. Each party agrees to mark with notices of patent,
             --------------
and to have so marked by its Affiliates and Sublicensees, every marketed
Licensed Product, in accordance with the laws of the United States of America or
other applicable countries relating to the marking of patented articles.

     10.10   Trademark License Quality Controls.    Each party, as a licensee
             ----------------------------------
hereunder with respect to any trademark or service mark, agrees to abide by
reasonable quality control and

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -33-
<PAGE>

labeling and usage standards and procedures, such as periodic rights to inspect
goods, services, packaging, and advertising provided with or under such mark, as
may be requested by the licensor of such mark, subject to the approval of such
standards and procedures by Steering Committee Action.

     10.11   St. Jude License Agreement. Certain license rights granted to [ * ]
             --------------------------
include a [ * ] of [ * ] under the St. Jude License Agreement. Notwithstanding
the provisions of such [ * ] and any other provisions of this Agreement, [ * ]
shall, in exercising such [ * ] (a) comply with, perform in accordance with, and
be subject to Sections [ * ] relating to [ * ] and (b) at the request of [ * ]
provide information and other assistance to [ * ] ZGI to comply and perform in
accordance with Sections 3.1, 5.1 and 5.2 of the [ * ] relating to [ * ].

     10.12   Existing Third Party Agreements.    ZGI shall be responsible for
             -------------------------------
making and, in the event that in order to commercialize a Licensed Product
Serono requires a license to the technology that is licensed under the
agreements with [ * ] listed in Exhibit 1.34 and a Third Party Agreement as
described within Section 1.81(a) but not (b) is entered into with either of such
Third Parties with respect to such technology (an "Existing Third Party
                                                   --------------------
Agreement Replacement"), all payments under any such Existing Third Party
---------------------
Agreement Replacement; provided that [ * ] shall not be obliged to pay an amount
under any [ * ] that is [ * ] than the amount ZGI would be obliged to pay under
the relevant [ * ] as it is drafted as of the Effective Date.  ZGI shall not
commit any acts or omissions that would cause a breach of any Existing Third
Party Agreement such that the relevant Third Party would be entitled to
terminate the Existing Third Party Agreement and will not exercise any rights of
termination it may have with respect to any of the Existing Third Party
Agreements without the prior written consent of Serono, which consent shall not
be unreasonably withheld.

                                ARTICLE ELEVEN

               Patent and Trademark Prosecution and Enforcement

     11.1  Ig Fusion Technology.
           --------------------

     ZGI shall be solely responsible, as it shall determine and at its own
expense, for the filing and prosecution of the Ig Fusion Technology, for
opposition or interference proceedings with respect thereto, and for the
maintenance, enforcement and defense of any available patent protection with
respect thereto; provided that if ZGI files suit alleging infringement of a
patent included in the Ig Fusion Technology and the allegedly infringing product
includes [ * ] Serono shall have the right to join such suit.  If ZGI prevails
in an infringement action under the Patent Rights within the Ig Fusion
Technology against a Third Party in respect to a product that includes [ * ]
then any damages awarded to and recovered by ZGI shall be [ * ] as described in
[ * ] without reference to [ * ].

     11.2    St. Jude Patent Rights.
             ----------------------

     ZGI's rights to prosecute, maintain, enforce and defend the Patent Rights
included in the St. Jude License Agreement are stated in the St. Jude License
Agreement.  ZGI shall provide Serono's Patent Contact with the opportunity to
review and comment on prosecution and

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -34-
<PAGE>

maintenance of such Patent Rights to the extent that ZGI is actually provided
the opportunity to review and comment on prosecution and maintenance of such
Patent Rights. ZGI's and Serono's rights to enforce and defend such Patent
Rights shall be governed by Section 11.4 below. ZGI shall not elect to cease
reimbursing [ * ] expenses associated with obtaining or maintaining patent
protection for a Patent Right in a country (as contemplated by [ * ] without
first offering in writing to Serono the opportunity to make such reimbursement,
whether directly or indirectly through [ * ]. If, within [ * ] of its receipt of
an offer pursuant to the forgoing sentence, Serono does not indicate in writing
its desire to [ * ] in respect of the relevant Patent Right and country, [ * ]
shall be free to make the election contemplated by [ * ] with respect to that
Patent Right and country and, effective as of [ * ], such Patent Right shall be
deemed a Discontinued Patent (as described in Section 11.3(d)) with respect to
the relevant country.

     11.3    Prosecution and Maintenance.
             ---------------------------

     (a)     ZGI Background Technology (Other Than Under St. Jude License
             -------------------------
Agreement) and ZGI Project Technology. ZGI shall be solely responsible, as it
-------------------------------------
shall determine [ * ], for the filing and prosecution of any and all patent
applications with respect, in whole or in part, to any ZGI Background Technology
(other than Patent Rights included in the St. Jude License Agreement) and ZGI
Project Technology, for opposition or interference proceedings with respect
thereto, and for the maintenance of any available patent protection with respect
thereto. For purposes of this Article 11 and with respect to ZGI Background
Technology (other than Patent Rights included in the St. Jude License Agreement)
and ZGI Project Technology, ZGI shall be the "Patent Prosecution Party".

     (b)     Serono Project Technology. Serono shall be solely responsible, as
             -------------------------
it shall determine [ * ], for the filing and prosecution of any and all patent
applications with respect, in whole or in part, to any Serono Project
Technology, for opposition or interference proceedings with respect thereto, and
for the maintenance of any available patent protection with respect thereto. For
purposes of this Article 11 and with respect to Serono Project Technology,
Serono shall be the "Patent Prosecution Party".

     (c)     Joint Project Technology. ZGI and Serono shall share
             ------------------------
responsibilities with regard to patent matters relating to Joint Project
Technology, [ * ]. The Patent Contacts shall be responsible for assigning
specific tasks to each of the parties with respect to the filing and prosecution
of any and all patent applications with respect, in whole or in part, to any
such Joint Project Technology, for opposition or interference proceedings with
respect thereto, and for the maintenance of any available patent protection with
respect thereto. For each such patent application or proceeding, the Patent
Contacts shall designate whether ZGI or Serono is the "Patent Prosecution
Party".

     (d)     Patent Prosecution Party's Efforts.  For each patent application,
             ----------------------------------
patent and proceeding described in this Section 11.3, the Patent Prosecution
Party shall exert its Reasonable Commercial Efforts, consistent with its
customary practices, with respect to its activities, to the extent such
activities bear on Licensed Products. In particular, the Patent Prosecution
Party shall: deliver to the other party copies of communications between the
Patent Prosecution Party and relevant patent offices, promptly after receipt
from, or delivery to, such patent office; take the

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -35-
<PAGE>

other party's comments and suggestions into consideration when framing responses
and submissions to patent offices; provided that the Patent Prosecution Party
shall have no obligation to solicit comments or suggestions from the other
party, and provided that the Patent Prosecution Party shall have final authority
over the content of responses and submissions to patent offices. A Patent
Prosecution Party may, at any time, elect, by written notice to the other party,
to discontinue support for one or more patents or patent applications (a
"Discontinued Patent") and shall not be responsible for any costs relating to a
 -------------------
Discontinued Patent that are incurred more than sixty (60) days after receipt of
that notice by the other party. In such case, and so long as the other party is
not in default under this Agreement, the other party may elect, at its sole
discretion, to continue preparation, filing, prosecution and/or maintenance of
the Discontinued Patent at its sole expense. The party so continuing shall own
any such Discontinued Patent, and the party electing to discontinue support
shall execute such documents of transfer or assignment and perform such acts as
may be reasonably necessary to transfer sole ownership of the Discontinued
Patent to the other party and enable that party to file or to continue
prosecution or maintenance of the Discontinued Patent, if the other party elects
to do so. In the event that Serono continues a Discontinued Patent for which ZGI
is the Patent Prosecution Party, such Discontinued Patent shall not be
considered as included in Patent Rights in or to any ZGI Background Technology
or Project Technology for the purpose of calculating royalties under Sections
8.2(a) or (b) and 8.3(a) or (b).

     11.4    Defense and Enforcement Actions.
             -------------------------------

     (a)     Notification.  During the Product Term, each party shall notify the
             ------------
other party of any attack on the validity or enforceability of any Patent Rights
within the ZGI Background Technology or the Project Technology, or of any
infringement of any such Patent Rights, or of any certification filed under the
U.S. Drug Price Competition and Patent Term Restoration Act of 1984 claiming
that any patent within the ZGI Background Technology or Project Technology is
invalid or that infringement will not arise from the manufacture, use or sale of
any product by a Third Party, as soon as reasonably practicable after it becomes
aware of such attack, infringement or certification.  After [ * ] with each
other[ * ] Contacts shall make a recommendation to [ * ] may decide to pursue
the Third Party jointly under mutually agreeable conditions.  In the absence of
a [ * ] to do otherwise or in the event that [ * ] cannot decide on a course of
action (as to which the provisions of Article 18 shall not apply), the following
provisions shall control.

     (b)     Parties' Roles.  [ * ], and Serono in the case of Joint Project
             --------------
Technology, shall have the primary right, but not the obligation, to take action
with regard to a suspected infringer or party claiming invalidity, including
sending a cease and desist letter or filing a legal action.  If the patent owner
(or [ * ] in the case of Joint Project Technology) files such an action, it
shall have the right to control such lawsuit and be represented by counsel of
its choosing, at its own expense; and the other party shall have the right, at
its own expense, to be represented in such action by its own counsel.  If the
patent owner (or [ * ] in the case of Joint Project Technology) fails to take
such action within [ * ] after receiving notice of the infringement or
invalidity claim, or [ * ] after the filing date of such a certification under
the U.S. Drug Price Competition and Patent Term Restoration Act of 1984, and if
the other party is not in default under this Agreement, then [ * ] party shall
have the right to take such action, by counsel of its own choice

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -36-
<PAGE>

and at its own expense. In such case, if [ * ] is required to join the action as
a necessary party, [ * ] shall pay for the [ * ] and shall [ * ] from claims by
the other party to the lawsuit (e.g., the infringer). Each party shall provide [
* ] and shall execute [ * ] necessary for the prosecution of such suit as may be
[ * ] requested by the party bringing suit. No settlement or consent judgment or
other voluntary final disposition of a suit under this Section 11.4 may be
entered into without [ * ] which consent shall [ * ].

     (c)  Sharing of awards.  Any award of damages granted in a legal proceeding
          -----------------
covered by this Article 11 shall be used to reimburse [ * ] and [ * ] if it was
required to join as a necessary party, for [ * ].

     (i)  Except as provided in (ii) and (iii) below, the remainder of any such
          award of damages shall be shared as follows:

          (A)  damages attributable to the infringer's sales [ * ] America shall
               be [ * ] between ZGI and Serono, unless [ * ] in which case, the
               damages shall be [ * ];

          (B)  damages attributable to the infringer's sales [ * ] shall be
               [ * ].

    (ii)  If the damages were awarded in a suit where [ * ] as the patent owner,
          within the applicable prescribed time period, then [ * ] of the
          damages remaining after reimbursement of legal costs shall be [ * ].

    (iii) If the damages were awarded in a suit where [ * ] as the patent
          owner or with regard to [ * ] within the applicable prescribed time
          period, then [ * ] of the damages remaining after reimbursement of
          legal costs shall be [ * ].

    11.5  Patent Extensions.
          -----------------

    The parties shall cooperate in seeking any available extension of the term
of any Patent Rights in and to the ZGI IP, the Serono IP or the Joint Project
Technology. Such cooperation shall include: (a) advising each other in a timely
manner of any action by any Regulatory Agency that is pertinent to any such
extension; (b) reasonably supplying each other with all information in its
control pertaining to the extension of any such Patent Rights; and (c)
cooperating with each other to execute all supporting affidavits or documents
required in connection with the extension of any such Patent Rights.

    11.6  Protection of the Licensed Product Trademarks.
          ---------------------------------------------

    [ * ] shall at its expense be responsible for the registration, proper use,
defense and enforcement of the Licensed Product Trademarks, and [ * ] own the
rights to such Licensed Product Trademarks, subject to this Agreement.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -37-
<PAGE>

                                ARTICLE TWELVE

          Elective Termination of Certain Roles and Responsibilities

     12.1  Termination at Election of ZGI.
           ------------------------------

     (a)   If ZGI elects to terminate its roles and responsibilities under the
Development Project for a Licensed Product pursuant to Section 4.8, the
following will apply with respect to the Licensed Product involved:

     (i)   Article Three shall no longer apply with respect to the Licensed
           Product involved, and Serono shall take over all control and decision
           making roles with respect to further Development Project activities
           and marketing, distribution and sales activities with respect to any
           such Licensed Product;

     (ii)  notwithstanding any provision of Article Eleven to the contrary,
           Serono shall at its expense have control over the prosecution,
           maintenance, defense and enforcement of Patent Rights in and to
           Project Technology that covers only such Licensed Product; provided,
           however, that if Serono elects to abandon any patent or trademark
           application or not to defend or enforce (or not to continue to
           attempt to defend or enforce) any such Patent Rights or the Licensed
           Product Trademarks applicable only to such Licensed Product, it shall
           promptly so inform ZGI in sufficient time that ZGI may at its
           election continue to prosecute such application or bring (or
           continue) such enforcement action at ZGI's risk and expense;

     (iii) the trademark and service mark quality control and labeling and usage
           standards and procedures referred to in Section 10.10 with respect to
           any trademarks or service marks applicable only to such Licensed
           Product shall no longer be subject to approval by Steering Committee
           Action;

     (iv)  ZGI will have no further responsibility to conduct or to assist with
           any Development Tasks with respect to such Licensed Product, although
           it will cooperate reasonably with Serono at Serono's expense to
           transition any then on-going Development Tasks conducted by ZGI with
           respect to such Licensed Product to Serono for use within the scope
           of the Development Project;

     (v)   ZGI shall have [ * ] further obligation to [ * ] with respect to such
           [ * ] and Serono shall fund and bear [ * ] of the same to the extent
           incurred from the effectiveness of such termination by ZGI forward;
           provided, however, that [ * ] will continue to be responsible for
           making all payments under [ * ] pursuant to [ * ] and will, at
           Serono's request [ * ] any [ * ] to which it is a party and which
           were approved by [ * ] pursuant to [ * ] to the extent such [ * ] can
           be so [ * ];

     (vi)  the licenses granted by [ * ] with respect to such [ * ] shall [ * ]
           for the duration of [ * ] as stated in such Article for such
           licenses, respectively, and subject to [ * ] obligations under this
           Agreement with respect to such Licensed Product;

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission

                                      -38-
<PAGE>

     (vii)   Serono's obligation under Section 2.1 shall not continue with
             respect to the Licensed Product;

     (viii)  ZGI will be deemed to have made an Election Not to Co-Promote with
             respect to such Licensed Product;

     (ix)    ZGI will be deemed to have made an Election Not to Co-Fund with
             respect to such Licensed Product;

     (x)     Serono's obligations hereunder, including those with respect to
             Milestone Fees under Section 7.2, as to royalties on Declined
             Product Sublicensing Revenues under Section 8.4, and as to
             diligence under Sections 4.1 and 6.1 shall continue in effect
             hereunder as limitations upon and conditions to the licenses to it
             hereunder throughout the applicable Product Term;

     (xi)    Royalties under Section 8.2(a) shall be determined in accordance
             with the royalty rates set forth in the following tables and for
             the purpose of applying such royalty rates Net Sales shall be
             allocated in the same manner as set forth in Section 8.3(e):

             (A)  If the termination of ZGI's roles and responsibilities with
                  respect to a Licensed Product pursuant to Section 4.8 becomes
                  effective after the [ * ] of that Licensed Product and before
                  the submission of [ * ] then the following royalty rates shall
                  apply:

     ---------------------------------------------------------------------------
              Net Sales in a calendar year in            Royalty rate for such
              -------------------------------            ---------------------
                       North America                             Net Sales
                       -------------                             ---------
     ---------------------------------------------------------------------------

                                     [ * ]

          (B)  If the termination of ZGI's roles and responsibilities with
               respect to a Licensed Product pursuant to Section 4.8 becomes
               effective prior to [ * ] of that Licensed Product, then the
               following royalty rates shall apply:

      --------------------------------------------------------------------------
             Net Sales in a calendar year in              Royalty rate for such
             -------------------------------              ----------------------
                      North America                                  Net Sales
                      -------------                                  ---------
      --------------------------------------------------------------------------

                                           [ * ]

     (xii)  Royalties under Section 8.2(b) shall be determined in accordance the
            royalty rates set forth in the following tables and for the purpose
            of applying such royalty rates Net Sales shall be allocated in the
            same manner as set forth in Section 8.3(e):

            (A)  If the termination of ZGI's roles and responsibilities with
                 respect to a Licensed Product pursuant to Section 4.8 becomes
                 effective after the Initiation of [ * ] of that Licensed
                 Product and before the submission of [ * ] then the following
                 royalty rates shall apply:

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission.

                                      -39-
<PAGE>

               Initiation of [ * ] of that Licensed Product and before the
               submission of [ * ] then the following royalty rates shall apply:

      --------------------------------------------------------------------------
             Net Sales in a calendar year in              Royalty rate for such
             -------------------------------              ----------------------
                      North America                                  Net Sales
                      -------------                                  ---------
      --------------------------------------------------------------------------

                                     [ * ]

          (B)  If the termination of ZGI's roles and responsibilities with
               respect to a Licensed Product pursuant to Section 4.8 becomes
               effective prior to the Initiation of [ * ] of that Licensed
               Product, then the following royalty rates shall apply:

      --------------------------------------------------------------------------
             Net Sales in a calendar year in              Royalty rate for such
             -------------------------------              ----------------------
                      North America                                  Net Sales
                      -------------                                  ---------
      --------------------------------------------------------------------------

                                     [ * ]

     (xiii)  If the termination of ZGI's roles and responsibilities with respect
             to a Licensed Product pursuant to Section 4.8 becomes effective
             prior to the Initiation of [ * ] of that Licensed Product, then for
             the purpose of calculating royalties under Section 8.3(b) the table
             set forth in such Section shall be replaced with the table set
             forth below:

      --------------------------------------------------------------------------
             Net Sales in a calendar year in              Royalty rate for such
             -------------------------------              ----------------------
                     Rest of World                                   Net Sales
                     -------------                                   ---------
      --------------------------------------------------------------------------

                                     [ * ]

     (b) It is further agreed, for the avoidance of doubt, that if [ * ] does
not [ * ] its role and responsibilities under the Development Project for a
Licensed Product prior to the end of the Development Project Term for that
Licensed Product pursuant to [ * ] the provisions of subsection (a) above will
not apply.  Rather, any [ * ] of its roles and responsibilities made by [ * ]
from that point forward as to that Licensed Product will be deemed to be [ * ].
Furthermore, if [ * ] makes an [ * ] as to a Licensed Product in North America
following the end of the Product Term for such Licensed Product in North America
(determined under Section 1.60 without regard to Section 5.6), the provisions of
subsection (a) above will also not apply; rather, such [ * ] will terminate the
[ * ] for such Licensed Product in North America and the applicability of
Articles Three, Five, Six, Eight, Nine, and Eleven to such Licensed Product in
North America, and in lieu thereof, the provisions of [ * ] shall apply as to
that Licensed Product in North America.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed seperately with the Commission.

                                      -40-
<PAGE>

     12.2   Termination at Election of Serono.
            ---------------------------------

     (a)    If Serono elects to terminate its roles and responsibilities under
the Development Project for a Licensed Product pursuant to Section 4.8, or if
Serono elects to terminate its roles and responsibilities with respect the
marketing, distribution and sales of a Licensed Product pursuant to Section 6.3,
the following will apply with respect to the Licensed Product involved:

     (i)    Article Three shall no longer apply with respect to the Licensed
            Product involved, and ZGI shall take over all control and decision
            making roles with respect to further Development Project activities
            and marketing, distribution and sales activities with respect to any
            such Licensed Product;

     (ii)   notwithstanding any provision of Article Eleven to the contrary, ZGI
            shall at its expense have control over the prosecution, maintenance,
            defense and enforcement of Patent Rights in and to Project
            Technology covering only such Licensed Product and over the use,
            registration and protection of the Licensed Product Trademarks
            applicable only to such Licensed Product; provided, however, that if
            ZGI elects to abandon any patent or trademark application or not to
            defend or enforce (or not to continue to attempt to defend or
            enforce) any such Patent Rights or Licensed Product Trademarks, it
            shall promptly so inform Serono in sufficient time that Serono may
            at its election continue to prosecute such application or bring (or
            continue) such enforcement action at Serono's risk and expense;

     (iii)  the trademark and service mark quality control and labeling and
            usage standards and procedures referred to in Section 10.10 with
            respect to any trademarks or service marks applicable only to such
            Licensed Product shall no longer be subject to approval by Steering
            Committee Action, but nevertheless, to the extent applicable to such
            Serono trademarks and service marks licensed to ZGI, shall be only
            such as are commercially reasonable and necessary to preserve
            Serono's rights as licensor of any such mark;

     (iv)   with respect to such a termination under Section 4.8 regarding a
            Licensed Product, Serono will have no further responsibility to
            conduct or to assist with any Development Tasks with respect to such
            Licensed Product, although it will cooperate reasonably with ZGI at
            ZGI's expense to transition any then on-going Development Tasks
            conducted by or on behalf of Serono with respect to such Licensed
            Product to ZGI for use within the scope of the Development Project;

     (v)    with respect to such a termination under Section 4.8 regarding a
            Licensed Product, Serono shall [ * ] with respect to [ * ], and ZGI
            shall fund and bear [ * ] of the same to the extent incurred from
            the effectiveness of such termination by Serono forward; provided,
            however, that Serono will, at ZGI's request, [ * ] any [ * ] to
            which it is a party and which were approved by [ * ] pursuant to
            [ * ] to the extent such [ * ] can be so transferred;

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -41-
<PAGE>

     (vi)    with respect to such a termination under [ * ] regarding a [ * ]
             shall have no further role or responsibility for the marketing,
             distribution or sales of that [ * ] nor any obligation to [ * ]
             with respect thereto; provided, however, that Serono will, at ZGI's
             request, [ * ] any [ * ] to which it is a party and which were
             approved by [ * ] pursuant to [ * ] to the extent [ * ] can be so
             [ * ];

     (vii)   all countries in the world shall automatically thereby be removed
             from the Territory and shall become part of the ZGI Territory with
             respect to that Licensed Product;

     (viii)  Serono shall have no further obligation to pay Milestone Fees with
             respect to that Licensed Product pursuant to Section 7.2 hereof;

     (ix)    the licenses granted by Serono to ZGI under Article Ten with
             respect to such Licensed Product shall continue in effect for the
             duration of the Development Project Term or the Product Term, as
             stated in such Article for such licenses, respectively, and subject
             to ZGI's obligations under this Agreement with respect to such
             Licensed Product; provided, however, that the license to ZGI under
             Section 10.7 shall be expanded to include [ * ] and shall be on
             financial terms and conditions that are [ * ] (which terms and
             conditions shall either be [ * ] or shall be [ * ];

     (x)     ZGI's obligation under Section 2.1 shall not continue with respect
             to the Licensed Product;

     (xi)    if the termination of Serono's Development Project roles and
             responsibilities pursuant to Section 4.8 with respect to a Licensed
             Product first becomes effective prior to the Initiation of [ * ] of
             such Licensed Product, then the following shall apply with respect
             to such Licensed Product:

             (A)  if and to the extent that any [ * ] in existence on the
                  effective date of such termination that is applicable to such
                  [ * ] is not already covered by [ * ] under [ * ], the same
                  shall hereby be deemed to be included in such [ * ] on a [ * ]
                  and

             (B)  [ * ] shall promptly provide to [ * ] a full disclosure of all
                  [ * ], if any, that shall not have prior thereto been provided
                  to [ * ] to the extent the same is reasonably necessary to
                  enable [ * ] for use in the [ * ]; and

     (xii)   if the termination of Serono's Development Project roles and
             responsibilities pursuant to Section 4.8 with respect to a Licensed
             Product or if the termination of Serono's roles and
             responsibilities with respect to the marketing, distribution and
             sales of a Licensed Product pursuant to Section 6.3 first becomes
             effective at any time after [ * ] then the following shall apply
             with respect to such Licensed Product:

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -42-
<PAGE>

          (A)  Serono shall transfer to ZGI all then-existing clinical and
               commercial stocks of the Licensed Product, and shall also
               complete any on-going manufacturing runs and supply the Licensed
               Product made in such runs to ZGI, in each such case [ * ] except
               with respect to stocks or manufacturing runs the costs of which
               were or are to be included in the quarterly accountings and
               balancing payments called for under either Section 4.6 or Section
               5.5 (which stocks and manufacturing runs shall be provided by
               Serono under this clause without any further charge to ZGI,
               except as provided for in Section 4.6 or Section 5.5);

          (B)  to the extent supplies in addition to those to be provided under
               clause (A) above are required, Serono shall, at all times between
               the effectiveness of its termination of such roles and
               responsibilities pursuant to Section 4.8 or 6.3 and [ * ]
               manufacture and supply to ZGI all of ZGI's and its Affiliates'
               and Sublicensees' worldwide requirements for the Licensed
               Product, provided such requirements do not exceed [ * ] of the
               requirements for the Licensed Product for that period described
               in the Development Plan and Budget.  ZGI shall [ * ] to find and
               qualify an alternative manufacturing source for such Licensed
               Product as promptly as possible, and, unless ZGI terminates this
               supply arrangement earlier at its option, ZGI [ * ], shall
               purchase all of such requirements from Serono, which Licensed
               Products will be supplied pursuant to a supply agreement that is
               [ * ] (which shall either be [ * ], or shall be determined [ * ]
               and at a price equal to [ * ] costs (determined consistently with
               [ * ], as if they were [ * ];

          (C)  if and to the extent that any Serono Production Technology in
               existence on the effective date of such termination that is
               applicable to such Licensed Product is not already covered by
               Serono's licenses to ZGI under Sections 10.2 and 10.7, the same
               shall hereby be deemed to be included in such licenses, but on a
               nonexclusive basis; and

          (D)  Serono shall promptly provide to ZGI a full disclosure of all
               Serono Production Technology, if any, that shall not have prior
               thereto been provided to ZGI to the extent the same is reasonably
               necessary to enable an experienced cGMP manufacturer to
               manufacture the applicable Licensed Product.  Serono further
               agrees to cooperate in the transfer of manufacturing operations
               for such Licensed Product to ZGI or its designated Sublicensee or
               contract manufacturer and agrees to provide all information,
               data, and copies of documents constituting Serono Production
               Technology reasonably necessary or useful for regulatory filings
               (including authorization to use such information, data and copies
               of documents in later regulatory filings) for such Licensed
               Product and to allow ZGI or such Sublicensee or contract
               manufacturer to manufacture such Licensed Product throughout the
               Product Term.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -43-
<PAGE>

     (b)  It is further agreed, for the avoidance of doubt, that if [ * ] makes
an [ * ] as to a [ * ] which it may only do following the end of the [ * ] for
such Licensed Product [ * ] (determined under [ * ] without regard to [ * ] the
provisions of subsection (a) above will not apply; rather such [ * ] will
terminate the [ * ] Term for such Licensed Product [ * ] and the applicability
of Articles Three, Five, Six, Eight, Nine, and Eleven to such Licensed Product [
* ], and in lieu thereof, the provisions of [ * ] shall apply as to that
Licensed Product [ * ].

                                ARTICLE THIRTEEN
                 Confidentiality; Research Materials; Publicity

     13.1 Confidentiality and Non-Use.  During all Product Terms under this
          ---------------------------
Agreement, and for a period of [ * ] thereafter, each party shall maintain the
other party's Information as confidential, using the same degree of care it uses
to protect its own confidential information.  During the Term of this Agreement
and at all times thereafter, neither party shall use the other party's
Information, except for the activities contemplated by this Agreement.

     13.2 Exceptions.  The obligations of Section 13.1 shall not apply to
          ----------
Information that:

     (a)  was known by the receiving party or its Affiliates prior to disclosure
          by the disclosing party, as evidenced by prior written records;

     (b)  becomes part of the public domain through no fault of the receiving
          party or its Affiliates;

     (c)  was obtained, on a non-confidential basis, by the receiving party or
          its Affiliates from a third party having no direct or indirect
          obligation of confidentiality to the disclosing party or its
          Affiliates;

     (d)  was disclosed by the disclosing party to a third party on a non-
          confidential basis; or

     (e)  is developed by the receiving party or its Affiliates independently of
          disclosures made hereunder.

     13.3 Permitted Disclosures.  Notwithstanding Section 13.1, Serono and ZGI
          ---------------------
shall each be permitted to disclose the other party's Information:  (a) to its
Affiliates, Contractors and Sublicensees, or prospective Affiliates, Contractors
or Sublicensees, and its licensors under Third Party Agreements, who are subject
to confidentiality requirements at least as stringent as those contained herein;
(b) to its employees, and its Affiliates', Contractors' or Sublicensee's
employees who require the same for the purposes contemplated by this Agreement
and who are subject to confidentiality requirements at least as stringent as
those contained herein; (c) to its patent attorney or agent or any patent
authority in any country as shall be reasonably required for filing or
prosecuting any patent application with respect to any Patent Rights in
accordance with Article Eleven (subject to Article Twelve); (d) in support of or
in connection with any actions to defend or enforce any Patent Rights in
accordance with Article Eleven (subject to Article Twelve); (e) to Regulatory
Agencies in connection with obtaining and maintaining Regulatory

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -44-
<PAGE>

Approval and approval for the manufacture of the Licensed Product and (f) if
such disclosure is required to meet the requirements of any stock exchange or
securities laws or regulations to which either party may be subject, or by any
court or other governmental authorities of competent jurisdiction, but only
after having provided the other party written notice within a period
sufficiently prior to such disclosure to permit the other party to apply for a
protective order or take other appropriate action to restrict such disclosure
and, if disclosure is still required, so far as reasonably practicable, having
minimized the degree of such disclosure and provided such disclosure under
conditions of confidentiality.

     13.4 Research Materials; Permitted Uses.  Any Research Materials
          ----------------------------------
transferred by one party to the other pursuant to this Agreement shall be used
by the receiving party and its Contractors solely for the purposes contemplated
by this Agreement and pursuant to the Development Plan and Budget.  Any
Contractor shall be bound by terms at least as stringent as the confidentiality
and non-use obligations hereunder with respect to such Research Materials.  Any
person using Research Material on behalf of the receiving party will be advised
of, and is subject to, the terms of this Section.

     13.5 Press Releases.  The parties hereby each approve the form of joint
          --------------
press release set forth in Exhibit 13.5 hereto, and will cooperate in the
release thereof as soon as practicable after the signature of this Agreement by
the parties.  No other public announcement or other disclosure to Third Parties
(other than Sublicensees and Contractors) concerning the existence or terms of
this Agreement shall be made, either directly or indirectly, by either party
hereto, without first obtaining the written approval of the other party, which
shall include agreement upon the nature and text of such announcement or
disclosure.  The party desiring to make any such public announcement or other
disclosure shall inform the other party of the proposed announcement or
disclosure by providing the other party with a written copy thereof, and
allowing reasonably sufficient time prior to public release to permit such other
party to comment upon such announcement or disclosure.  Once any such public
announcement or disclosure has been approved in accordance with this Section,
then either party may appropriately communicate information contained in such
permitted announcement or disclosure.  Each party agrees that it shall
reasonably cooperate with the other with respect to all disclosures regarding
this Agreement to the Securities Exchange Commission and any other governmental
or regulatory agencies, including requests for confidential treatment of
proprietary information of either party included in any such disclosure.

     13.6 Publications.  Each party agrees that the parties' personnel involved
          ------------
in the Development Project, separately, together or with other authors, shall be
permitted to present at symposia, national, or regional professional meetings
and to publish in journals, theses, or dissertations, or otherwise the research
conducted pursuant to the Development Project. The foregoing permission is
subject to each party's right to receive copies of any proposed publication or
presentation in advance of the submission of such proposed publication or
presentation to a journal, editor, or other third party. Each party shall have
forty-five (45) days after receipt of said copies to object to such proposed
presentation or proposed publication either: (a) because there is subject matter
which either party desires to maintain in secrecy to maximize the commercial
value of this Agreement; or (b) because there is patentable subject matter which

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -45-
<PAGE>

needs protection. If either party makes an objection under (a) above, such
subject matter shall remain subject to Article 13 and shall not be published or
otherwise disclosed without the written consent of both parties. If either party
makes an objection under (b) above, the parties shall negotiate a mutually-
acceptable version, and both parties and such other authors (if any) shall
withhold such subject matter from such publication or presentation for a maximum
of six (6) months from the date of receipt of such objection from either party.

                                ARTICLE FOURTEEN
                         Representations and Warranties

     14.1 Representations, Warranties and Covenants of Serono.  Serono
          ---------------------------------------------------
represents and warrants to and covenants with ZGI that:

     (a)  Serono is a corporation duly organized, validly existing and in
          corporate good standing under the laws of Switzerland and has the
          corporate and legal right, title, authority and power to enter into
          and to perform this Agreement;

     (b)  This Agreement is a legal and valid obligation binding upon Serono and
          enforceable in accordance with its terms, except as enforceability may
          be limited by bankruptcy, fraudulent conveyance, insolvency,
          reorganization, moratorium and other laws relating to or affecting
          creditors' rights generally and by general equitable principles.
          Serono has taken all necessary action to authorize the execution,
          delivery and performance of this Agreement. The execution, delivery
          and performance of Serono's obligations under this Agreement will not
          conflict with or result in a breach of or a default under any
          agreements, contracts, commitments or other arrangements to which
          Serono is a party or by which it or its properties are bound or
          violate any order, law or regulation of any court, governmental
          authority or administrative or other agency having authority over it;

     (c)  Serono has in place with all of its officers and employees who will
          perform this Agreement written agreements in proper form and substance
          requiring the assignment to Serono of all inventions made during the
          course of their employment by Serono and requiring such individuals to
          maintain the confidentiality of Serono's own information and
          information that is entrusted to Serono in confidence by others;

     (d)  Serono will not during the Term of this Agreement enter into any
          agreements, contracts, commitments or other arrangements that would
          prevent Serono from meeting its obligations hereunder;

     (e)  Serono will comply and will cause its Contractors to comply with all
          applicable laws and regulations in connection with the performance of
          Serono's obligations and other activities pursuant to this Agreement,
          including all applicable product safety, product testing, product
          labeling, package marking, and product promotion and advertising laws;
          all applicable rules and regulations relating to the use of Research
          Materials, including those relating to research involving the use of

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -46-
<PAGE>

          human and animal subjects or recombinant DNA; and all laws and
          regulations of the United States and any other relevant country
          concerning any export or other transfer of technology, services or
          products;

     (f)  There are, as of the Effective Date, no Third Party Agreements to
          which Serono or any of its Affiliates are a party;

     (g)  Serono has the right, power and authority to grant the licenses
          granted by Serono herein; and

     (h)  To the best of Serono's knowledge after due inquiry, as of the
          Effective Date, Serono has not [ * ] and has no present plans [ * ]
          and it is not independently possessed of [ * ] on which it could [ * ]
          any of which [ * ] do or may [ * ] the same [ * ] in any of the [ * ]
          within the [ * ] (as described on [ * ] hereto) or that otherwise may
          be a basis for [ * ] in the [ * ] between any such [ * ] and any [ * ]
          within the ZGI Background Technology (as described on Exhibit 1.85).

     14.2 Representations, Warranties and Covenants of ZGI.  ZG1 represents and
          ------------------------------------------------
warrants to and covenants with Serono that:

     (a)  ZGI is a corporation duly organized, validly existing and in corporate
          good standing under the laws of the State of Washington and has the
          corporate and legal right, title, authority and power to enter into
          and to perform this Agreement;

     (b)  This Agreement is a legal and valid obligation binding upon ZGI and
          enforceable in accordance with its terms, except as enforceability may
          be limited by bankruptcy, fraudulent conveyance, insolvency,
          reorganization, moratorium and other laws relating to or affecting
          creditors' rights generally and by general equitable principles.  ZGI
          has taken all necessary action to authorize the execution, delivery
          and performance of this Agreement.  The execution, delivery and
          performance of ZGI's obligations under this Agreement will not
          conflict with or result in a breach of or a default under any
          agreements, contracts, commitments or other arrangements to which ZGI
          is a party or by which it or its properties are bound or violate any
          order, law or regulation of any court, governmental authority or
          administrative or other agency having authority over it;

     (c)  ZGI has in place with all of its officers and employees who will
          perform this Agreement written agreements in proper form and substance
          requiring the assignment to ZGI of all inventions made during the
          course of their employment by ZGI and requiring such individuals to
          maintain the confidentiality of ZGI's own information or information
          that is entrusted to ZGI in confidence by others;

     (d)  ZGI will not during the Term of this Agreement enter into any
          agreements, contracts, commitments or other arrangements that would
          prevent ZGI from meeting its obligations hereunder;

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -47-
<PAGE>

     (e)  ZGI will comply and will cause its Contractors to comply with all
          applicable laws, regulations in connection with the performance of
          ZGI's obligations and other activities pursuant to this Agreement,
          including all applicable product safety, product testing, product
          labeling, package marking, and product promotion and advertising laws;
          all applicable rules and regulations relating to the use of Research
          Materials, including those relating to research involving the use of
          human and animal subjects or recombinant DNA; and all laws and
          regulations of the United States and any other relevant country
          concerning any export or other transfer of technology, services or
          products;

     (f)  There are, as of the Effective Date, no Third Party Agreements to
          which ZGI or any of its Affiliates are a party, other than as listed
          in Exhibit 1.34, true and complete copies of which have been provided
          to Serono;

     (g)  ZGI has the right, power and authority to grant the licenses granted
          by ZGI herein;

     (h)  As of the Effective Date, ZGI has not [ * ] communications from any
          [ * ] that any [ * ] within the [ * ] is [ * ] or [ * ] and no [ * ]
          identified or described in this Agreement is subject to [ * ];
          provided however that nothing in this Agreement shall be construed as
          a representation or warranty as to the scope or validity of any patent
          application or patent identified or described in this Agreement;

     (i)  As of the Effective Date, ZGI has notified Serono in writing of all
          patents and patent applications, of which the ZGI intellectual
          property department is aware, that are issued to or filed by [ * ]
          that include [ * ] as an element of a claim and that may cover the
          development, manufacture, importation, sale or use of a product [ * ];

     (j)  As of the Effective Date, ZGI has notified Serono in writing of all
          patents and patent applications, of which the ZGI intellectual
          property department is aware, that are issued to or filed by [ * ]
          that may cover the use or incorporation of those materials described
          in [ * ] in connection with the development, manufacture, importation,
          sale or use of a [ * ]; and

     (k)  Novo Nordisk A/S is not an Affiliate as defined in Section 1.1.

     14.3 Research Materials.  ANY RESEARCH MATERIALS PROVIDED OR TO BE PROVIDED
          ------------------
HEREUNDER ARE EXPERIMENTAL IN NATURE AND ARE TRANSFERRED BETWEEN THE PARTIES "AS
IS" AND WITH ALL FAULTS. NEITHER SERONO NOR ZGI MAKES ANY WARRANTY OR
REPRESENTATION WITH RESPECT TO THE UTILITY, EFFICACY, NONTOXICITY, SAFETY OR
APPROPRIATENESS OF USING THE RESEARCH MATERIALS. NEITHER PARTY SHALL BE LIABLE
TO THE OTHER FOR ANY USE OF RESEARCH MATERIALS, OR ANY LOSS THAT MAY ARISE FROM
SUCH USE.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -48-
<PAGE>

     14.4  Warranty Disclaimer.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
           -------------------
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO THE ZGI IP, SERONO
IP, JOINT PROJECT TECHNOLOGY, GOODS, SERVICES OR OTHER SUBJECT MATTER OF THIS
AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE
FOREGOING.

                                ARTICLE FIFTEEN
                           Indemnification; Insurance

     15.1  Serono Indemnification.  Serono (as the "Indemnifying Party" under
           ----------------------                   ------------------
this Section) shall defend, indemnify and hold ZGI and its Affiliates,
Contractors, Sublicensees and their respective employees and agents (the
"Indemnified Parties" under this Section) harmless from and against any and all
 -------------------
claims, actions, judgments, costs, awards, expenses (including reasonable
attorneys' fees, experts' fees, and other costs of defense at any stage of
proceedings) or liability of any kind to the extent arising out of:

     (a)   Third Party claims or actions for [ * ] caused or alleged to be
           caused by [ * ] to the extent [ * ] is attributable to matters within
           the scope of [ * ] hereunder;

     (b)   Third Party claims or actions arising from [ * ] of any [ * ] or any
           activities related to [ * ] by or for [ * ];

     (c)   Third Party claims or actions arising in connection with any breach
           of any warranties, representations or covenants made by Serono or
           with its authorization hereunder; or

     (d)   [ * ] to the extent arising from or related to matters within the
           scope of Serono's responsibilities or allocated tasks hereunder or
           arising from the conduct of any Development Tasks or any activities
           related to the manufacturing, marketing, distribution, sale or
           promotion of Licensed Products by or for Serono.

provided, however, that Serono will not be required to defend, indemnify or hold
any Indemnified Party harmless from any claims, actions, judgments, costs,
awards, expenses or other liabilities to the extent resulting from:

     (i)   the negligence or willful malfeasance of any Indemnified Party;

     (ii)  any breach of ZGI's warranties, representations or covenants under
           Article Fourteen or other breach by ZGI of this Agreement; or

     (iii) any settlement or admission of liability made or purported to be
           made by any Indemnified Party without Serono's prior written
           approval.

     15.2  ZGI Indemnification.  ZGI (as the "Indemnifying Party" under this
           -------------------                ------------------
Section) shall defend, indemnify and hold Serono and its Affiliates,
Contractors, Sublicensees and their

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -49-
<PAGE>

respective employees and agents (the "Indemnified Parties" under this Section)
                                      -------------------
harmless from and against any and all claims, actions, judgments, costs, awards,
expenses (including reasonable attorneys' fees, experts' fees, and other costs
of defense at any stage of proceedings) or liability of any kind to the extent
arising out of:

     (a)   Third Party claims or actions for [ * ] damage caused or alleged to
           be caused by [ * ], to the extent [ * ] or damage is attributable to
           matters within the scope of [ * ] hereunder;

     (b)   Third Party claims or actions arising from [ * ] of any [ * ] or any
           activities related to [ * ] by or for [ * ]

     (c)   Third Party claims or actions arising in connection with any breach
           of any warranties, representations or covenants made by ZGI or with
           its authorization hereunder;

provided, however, that ZGI will not be required to defend, indemnify or hold
any Indemnified Party harmless from any claims, actions, judgments, costs,
awards, expenses or other liabilities to the extent resulting from:

     (i)   the negligence or willful malfeasance of any Indemnified Party;

     (ii)  any breach of Serono's warranties, representations or covenants under
           Article Fourteen or other breach by Serono of this Agreement; or

     (iii) any settlement or admission of liability made or purported to be
           made by any Indemnified Party without ZGI's prior written approval.

     15.3  Notice and Defense of Claims.  Serono agrees, at its own expense, to
           ----------------------------
provide attorneys to defend against any claims or actions brought or filed
against the Indemnified Parties with respect to the subject of the indemnity
contained in Section 15.1, whether or not such claims or actions are rightfully
brought or filed.  ZGI agrees, at its own expense, to provide attorneys to
defend against any claims or actions brought or filed against the Indemnified
Parties with respect to the subject of the indemnity contained in Section 15.2,
whether or not such claims or actions are rightfully brought or filed.  An
Indemnified Party seeking indemnification hereunder shall

     (a)   notify the Indemnifying Party in writing promptly after the assertion
           of any claim within the scope of the Indemnifying Party's indemnity
           agreement hereunder; provided, however, that the failure or delay so
           to notify the Indemnifying Party shall not relieve it of any
           obligation hereunder except to the extent that it demonstrates that
           such failure or delay adversely affected its ability to defend or
           resolve such claim; and

     (b)   tender to the Indemnifying Party the right to control the defense of
           any such claims or actions, including any decisions regarding the
           settlement or disposition thereof; provided, however, that

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -50-
<PAGE>

         (i)   the Indemnifying Party shall not settle any such claim or action
               in a way that prejudices or adversely impacts an Indemnified
               Party without the prior approval of such Indemnified Party, which
               approval shall not be unreasonably withheld or delayed;

         (ii)  if the defendants in any such claims or action include both the
               Indemnifying Party and such Indemnified Party, and either of them
               concludes that there may be legal defenses available to it which
               are different from, additional to, or inconsistent with those
               available to the other party, that party shall have the right to
               select separate counsel to participate in the defense of such
               claim or action on its behalf, and such party shall bear the cost
               and expense of such separate defense, unless and to the extent
               the parties otherwise agree, or it is determined pursuant to
               Article Eighteen hereunder that such costs and expense are or
               were required to be indemnified by the Indemnifying Party
               hereunder and are or were required to be incurred separately due
               to such different, additional, or inconsistent defenses; and

         (iii) if the Indemnifying Party determines not to defend such claim
               or action, or otherwise fails to do so diligently, the
               Indemnified Party shall have the right to maintain the defense of
               such claim or action and the Indemnifying Party shall provide
               reasonable assistance to it in the defense of such claim or
               action and shall bear the reasonable cost and expense of such
               defense (including reasonable attorneys' fees, experts' fees, and
               other costs of defense at any stage of proceedings).

     Either Serono or ZGI, as applicable, shall provide, and shall cause the
Indemnified Party to provide, reasonable assistance to the Indemnifying Party in
the defense, settlement or other disposition of such claim or action, including
by making available all pertinent information and personnel under its control to
the Indemnifying Party

     15.4 Insurance.
          ---------

     (a)  From and after the Initiation of Phase I Clinical Trials for any
Licensed Product, each of ZGI and Serono shall obtain and keep in force, in form
and with insurers reasonably acceptable to the other party hereto, insurance
covering its indemnification obligations hereunder in amounts of not less than [
* ].  It is understood that such insurance shall not be construed to limit a
party's liability with respect to such indemnification obligations.

     (b)  From and after the first Regulatory Approval for a Licensed Product to
be manufactured by or on behalf of Serono hereunder and/or otherwise to be
marketed, distributed or sold by it or its Affiliates or Sublicensees, and until
three years after the end Product Term with respect thereto, Serono shall obtain
and keep in force, in form and with insurers reasonably acceptable to ZGI,
insurance covering its indemnification obligations hereunder in amounts of not
less than [ * ] provided, however, that ZGI shall, by notice to Serono from time
to time during such Product Term, but not more often than bi-annually, have the
right reasonably to

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -51-
<PAGE>

increase the foregoing coverage amounts such that they remain commensurate with
the insurance coverage levels generally maintained by entities manufacturing or
marketing products for human use in the pharmaceutical industry. It is
understood that such insurance shall not be construed to limit a party's
liability with respect to such indemnification obligations.

     (c)  From and after the first Regulatory Approval for a Licensed Product to
be manufactured by or on behalf of ZGI hereunder and/or otherwise to be
marketed, distributed or sold by it or its Affiliates or Sublicensees, and until
three years after the end Product Term with respect thereto, ZGI shall obtain
and keep in force, in form and with insurers reasonably acceptable to Serono,
insurance covering its indemnification obligations hereunder in amounts of not
less than [ * ] provided, however, that Serono shall, by notice to ZGI from time
to time during such Product Term, but not more often than bi-annually, have the
right reasonably to increase the foregoing coverage amounts such that they
remain commensurate with the insurance coverage levels generally maintained by
entities manufacturing or marketing products for human use in the pharmaceutical
industry.  It is understood that such insurance shall not be construed to limit
a party's liability with respect to such indemnification obligations.

     (d)  Each party shall provide to the other party upon request a certificate
evidencing the insurance such party is required to obtain and keep in force
under this Article.  Such certificate shall provide that such insurance shall
not expire or be cancelled or modified without at least thirty (30) days' prior
notice to the other party.

                                ARTICLE SIXTEEN
                               Change of Control

     16.1 Loss of Co-Promotion Right for a Licensed Product.  Serono shall
          -------------------------------------------------
have the right to terminate ZGI's right to co-promote a Licensed Product
pursuant to Article Five if:

     (a)  There has been [ * ] of [ * ] (as defined below) and not [ * ] of
[ * ] (as defined below);

     (b)  The Acquiring Company (as defined below) of ZGI [ * ] for a product
for which the [ * ] are substantially similar to those set forth in a [ * ]
under this Agreement for the [ * ] and

     (c)  Serono elects to terminate such co-promotion right within [ * ] after
the later of (i) the effective date of [ * ] and (ii) the last to be filed of
such [ * ] for the [ * ] and such [ * ] for the [ * ].  Such election of Serono
pursuant to this Section 16.1 shall be deemed to be [ * ] made by [ * ].

     For purposes hereof, "Change of Control of ZGI" means that ZGI has been
                           ------------------------
acquired by a [ * ] (the "Acquiring Company") that has immediately after the
                          -----------------
acquisition together with its Affiliates and ZGI [ * ] Affiliates on a worldwide
basis; [ * ] in North America [ * ] most recently ended; or [ * ].

     For purposes hereof, [ * ] means any acquisition, reorganization, merger or
consolidation of Serono or its direct or indirect parent corporation with or
into another corporation (a "Control
                             -------

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -52-
<PAGE>

Event"), other than a Control Event in which [ * ] or its successors, either
-----
directly or indirectly, (A) will have [ * ] of the ownership of voting capital
stock of the acquiring or surviving corporation in such Control Event
immediately after the Control Event, (B) will be [ * ] stock of such acquiring
or surviving corporation immediately after the Control Event, [ * ] (C) will be
able to [ * ] of such acquiring or surviving corporation immediately after the
Control Event.

     16.2 Decisions Regarding Commercialization Budget.  In the event there is a
          --------------------------------------------
Change of Control of [ * ] and so long as there has not been a Change of Control
of [ * ] shall be entitled to break any deadlocks [ * ] regarding [ * ].

                               ARTICLE SEVENTEEN
                              Term and Termination

     17.1 Term.  This Agreement shall become effective as of the Effective
          ----
Date and shall continue in full force and effect until the later of (i) the
expiration of the Development Project Term or (ii) the expiration of the last
Product Term for any Licensed Product hereunder (such period hereinafter the
"Term").  Upon expiration of the Product Term of a Licensed Product in
Commercial Use in a country, all rights licensed hereunder as to such Licensed
Product and country shall become irrevocable and fully-paid upon payment of any
amounts due that have accrued hereunder prior to expiration, and thereafter
Serono shall have exclusive rights to all Licensed Product Trademarks and
Regulatory Approvals and, except in such countries where restricted by
applicable law, shall have an exclusive license, with the right to sublicense,
to ZGI IP, Ig Fusion Technology and ZGI's interest in Joint Project Technology
to make, have made, use, sell, offer to sell, and import such Licensed Product
in such country.

     17.2 Termination for Material Breach.  Serono and ZGI shall have the right
          -------------------------------
to terminate this Agreement, including the licenses granted herein, in the event
that any material term or condition of this Agreement is breached by the other
party, and such breach is not remedied within a period of [ * ] days after the
other party's receipt of written notice of such breach; provided, however, that
if the party claimed to be in breach disputes in good faith that the claimed
breach exists, such [ * ]-day period will not start to run until such dispute
has been resolved, provided that:

     (a)  the party claimed to be in breach shall, within [ * ] days after the
          notice to it of breach under this Section, remedy any breach to the
          extent its existence is not the subject of such good faith dispute;
          and

     (b)  either of the parties has, within [ * ] days after the notice of
          breach under this Section, initiated the escalation procedures of
          Article Eighteen in order to resolve such good faith dispute.

If such material breach is corrected within the [ * ]-day period, this Agreement
and the rights granted hereunder shall continue in full force and effect.

     17.3 Termination Upon Serono's Bankruptcy.  This Agreement will
          ------------------------------------
automatically terminate if Serono becomes insolvent, makes an assignment for the
benefit of its creditors,

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -53-
<PAGE>

appoints or suffers appointment of a receiver or trustee over its property,
files a petition under any bankruptcy or insolvency act or has such a petition
filed against it and any such event shall have continued for [ * ] days
undismissed or undischarged.

     17.4 No Termination Upon ZGI's Bankruptcy.  All rights and licenses
          ------------------------------------
granted under or pursuant to this Agreement by ZGI to Serono are, and shall
otherwise be deemed to be, for purposes of Section 365(n) of the United States
Bankruptcy Code, as amended from time to time (the "Bankruptcy Code"), licenses
of rights to "intellectual property" as defined under Section 101(35A) of the
Bankruptcy Code.  The parties agree that Serono, as a licensee of such rights
under this Agreement, shall retain and may fully exercise all of its rights and
elections under the Bankruptcy Code.  The parties further agree that, in the
event of the commencement of a bankruptcy proceeding by or against ZGI under the
Bankruptcy Code that is not dismissed within sixty (60) days after it is filed,
Serono shall be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, and the same, if not already in its possession, shall be
promptly delivered to Serono (i) upon any such commencement of a bankruptcy
proceeding upon written request therefor by Serono, unless ZGI elects to
continue to perform all of its obligations under this Agreement, or (ii) if not
delivered under (i) above, upon the rejection of this Agreement by or on behalf
of ZGI, upon written request therefor by Serono.  Following the commencement of
such a bankruptcy proceeding and so long as such proceeding continues, ZGI will
not, without Serono's prior written consent, sell, transfer, assign or otherwise
dispose of, or purport to sell, transfer, assign or otherwise dispose of, any
right, title or interest in, to or under the ZGI IP or the Joint Project
Technology that has been licensed to Serono under this Agreement.

     17.5 Termination of License With Respect to Contested Patent Rights.
          --------------------------------------------------------------
Either ZGI [ * ] under this Agreement, or Serono [ * ] under this Agreement, may
at its option terminate [ * ] to the other party under this Agreement to the
extent covering [ * ] as to which the other party hereto commences any action or
asserts any formal position in any forum (including a court, a patent office, or
an arbital tribunal, and whether in the form of petitions for declaratory
relief, claims, counterclaims, defenses, interferences, petitions for re-
examination, oppositions, or otherwise) [ * ].

     17.6 Accrued Rights and Surviving Provisions.    Expiration or termination
          ---------------------------------------
of this Agreement shall not affect the parties' rights and obligations that have
accrued as of the expiration or termination date, including the parties'
obligations to bear Development Costs or North American Commercialization Costs
incurred prior to the effectiveness of the expiration or termination and their
obligations with respect to royalties or Milestone Fees hereunder that have
accrued prior to the effectiveness of the expiration or termination.  Upon any
termination of this Agreement, Serono shall have the right to sell its inventory
of Licensed Products for a period of six (6) months from the date of
termination, provided Serono complies with the provisions of Articles Eight,
Nine and Twelve hereof.  The parties' rights and obligations under Sections 4.6
and 5.5 and those provisions of Articles Nine, Twelve, Thirteen, Fifteen, and
Seventeen through Nineteen that by their context are intended to survive, shall
so survive.  Any right to terminate this Agreement shall be in addition to and
not in lieu of all other rights or remedies that the party

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -54-
<PAGE>

giving notice of termination may have at law, in equity or otherwise, including
rights under the United States Bankruptcy Code.

                                ARTICLE EIGHTEEN
                               Dispute Resolution

     18.1 Cooperative Decision Making; Senior Executives. The parties intend
          ----------------------------------------------
that, to the maximum extent practicable, they shall reach decisions hereunder
cooperatively through the deliberations of the Steering Committee and by consent
of its members as described in subsection 1.74(a). In situations in which that
does not occur, [ * ] may as described in subsection 1.74(b) institute the
procedure described in this Article. In such circumstances, a summary of the
proposed Steering Committee Action and the unresolved dispute will be provided
in writing to [ * ]. If either party has not then [ * ], such summary shall be
provided to [ * ] with a request that one or more [ * ]. [ * ] and forward the
summary to them. The [ * ] the proposed Steering Committee Action, and [ * ] if
one or more of them believes a meeting or meetings to be useful. If the [ * ] do
not resolve the matter by either approving in writing the proposed [ * ]
(whether or not in a revised form) or agreeing in writing to reject it, within [
* ] following the receipt by them (or by the [ * ] for either or both of them,
as described above) of the summary of the proposed action and the unresolved
dispute (or such lesser or longer period as they may agree is a useful period
for their discussions), then any one or more of the [ * ] may institute a formal
review of such matter by the [ * ] pursuant to [ * ].

     18.2 Review by CEOs.  Any dispute or difference between the parties arising
          --------------
out of or in connection with this Agreement, including a disagreement over a
proposed Steering Committee Action, that cannot be resolved pursuant to Section
18.1 shall be referred for review by the [ * ]. In the event of a dispute or
difference over proposed Steering Committee Action, a summary or summaries of
the proposed Steering Committee Action and the unresolved dispute will be
provided in writing by the [ * ] to the parties' [ * ] . Such [ * ] shall
discuss the proposed dispute or difference, and shall meet with respect thereto
if either of them believes a meeting or meetings to be useful. If the [ * ] do
not resolve the dispute or difference within [ * ] (or such lesser or longer
period as they may agree is a useful period for their discussions), and in the
case of a dispute or difference involving Steering Committee Action, such
resolution to be in accordance with the terms and conditions stated in [ * ]
then (except as provided in [ * ] may submit the dispute or difference to be
resolved by [ * ] pursuant to [ * ].

     18.3 Arbitration.  Should the parties fail to reach agreement with respect
          -----------
to a dispute or difference (other than as to a dispute relating to patent
validity or as to a matter left to the discretion of a party hereunder), between
the parties arising out of or in connection with this Agreement, including
without limitation a disagreement over a proposed Steering Committee Action,
then the dispute or difference will be determined [ * ] in accordance with [ * ]
by a [ * ] of [ * ] and [ * ] one of which will be [ * ], and the [ * ] of which
shall have had both training and experience as a [ * ].  If the parties to this
Agreement cannot agree [ * ] then [ * ] will be [ * ] by [ * ] in accordance
with the criteria set forth in the preceding sentence. The [ * ] may decide any
[ * ] as to whether, or as to the extent to which, any [ * ] and other [ * ]
provisions in this Agreement.  Any [ * ] by the [ * ] must be consistent with
the provisions of this Section 18.3 and

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -55-
<PAGE>

the [ * ] must [ * ] award in a writing, which writing must include [ * ] of the
[ * ] for such [ * ]. Any [ * ] pursuant to this section will be governed by [ *
] applicable to [ * ] made and to be [ * ] without regard to [ * ] and by the [
* ] and [ * ] upon the [ * ] rendered by the [ * ] may be entered by [ * ]
having [ * ] thereof. The [ * ] of the [ * ] applicable to the [ * ] will apply
to the [ * ] of an [ * ] under this section, except that no [ * ] will be
available based upon [ * ] during any [ * ] or [ * ] required pursuant to this
Article 18. All [ * ] of the [ * ] and all other costs and expenses of the [ * ]
will be [ * ] by the parties to this Agreement unless such parties [ * ] or
unless [ * ] assesses such [ * ] against [ * ] or [ * ] other than [ * ].
Pending the [ * ] of the [ * ] the parties shall [ * ] obligations under this
Agreement. Notwithstanding the foregoing, [ * ] on good cause shown [ * ] and/or
a [ * ] from a [ * ] to be effective pending [ * ] of the [ * ] or the [ * ] of
the [ * ].

     18.4 Matters to Proceed to Court.  Notwithstanding the foregoing, any [ * ]
          ----------------------------
relating to the [ * ] of a party's [ * ] or other issues relating solely to a
party's [ * ] and any [ * ] of this Agreement, including [ * ] made hereunder
shall be submitted [ * ] to the [ * ] and the parties hereby [ * ] to the [ * ]
of such [ * ].

                                ARTICLE NINETEEN
                                    General

     19.1 Entire Agreement.  This Agreement, together with all of the Exhibits
          ----------------
hereto, constitutes the entire agreement between the parties and supersedes all
prior and contemporaneous oral and written agreements, understandings or
arrangements relating to the subject matter hereof.  This Agreement has been
submitted to the scrutiny of, and has been negotiated by, both parties and their
counsel, and shall be given a fair and reasonable interpretation in accordance
with its terms, without consideration or weight being given to any such term's
having been drafted by any party or its counsel.

     19.2 Controlling Law.  This Agreement shall be governed by and construed
          ---------------
in accordance with the laws of the State of New York, without giving effect to
the doctrine of conflict of laws, except that the issues of patentability,
validity, enforceability and scope of any Patent Rights shall be determined
according to the patent laws of the Patent Country of such Patent Rights.

     19.3 Notices.  All notices, reports and other communications by ZGI or
          -------
Serono to the other shall:  (a) be in writing; (b) refer specifically to this
Agreement; and (c) be sent by electronic or facsimile transmission for which a
confirmation of delivery is obtained or by express courier services providing
evidence of delivery, in each case to the respective address specified below (or
to such updated address as may be specified in writing to the other party from
time to time).

     If to Serono:

          Ares Trading S.A.
          Chateau de Vaumarcus
          2028 Vaumarcus

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -56-
<PAGE>

          Switzerland
          Attn: General Manager
          FAX:  41-32-836-3899

     with a copy to:

          Serono S.A.
          c/o Serono International S.A.
          15 bis, Chemin des Mines
          Case Postale 54
          CH-1211 Geneve 20
          Switzerland
          Attn: General Counsel
          FAX:  41-22-739-3070

     If to ZGI:

          ZymoGenetics, Inc.
          1201 Eastlake Avenue East
          Seattle, WA 98102
          U.S.A.
          Attn: Senior Director, Intellectual Property
          FAX:  (206) 442-6697

     Such notice, report or other communication will be deemed effective as of
the date so delivered either by courier service or by electronic or facsimile
transmission.

     19.4 Force Majeure.   If either party hereto is prevented from carrying
          -------------
out its obligations under this Agreement by events beyond its reasonable
control, including acts or omissions of the other party, acts of God or
government, natural disasters or storms, fire, political strife, labor disputes,
failure or delay of transportation, default by suppliers or unavailability of
raw materials, then such party's performance of its obligations hereunder shall
be excused during the period of such events and for a reasonable period of
recovery thereafter, and the time for performance of such obligations shall be
automatically extended for a period of time equal to the duration of such
events; provided, however, that the party claiming force majeure shall promptly
notify the other party of the existence of such force majeure, shall use
commercially reasonable efforts to avoid or remedy such force majeure and shall
continue performance hereunder with the utmost dispatch whenever such force
majeure is avoided or remedied.

     19.5 Subcontracting.  Neither party may delegate or subcontract any of
          --------------
its obligations hereunder except to a Contractor in accordance with Section
1.15.

     19.6 Assignability.   Except an assignment that does not relieve the
          -------------
assigning party of any of its responsibilities or obligations hereunder and in
which the acquiring party agrees to be bound by all obligations of the
transferring party under this Agreement, and that is made in connection with the
transfer of all or substantially all of the assets of a party and its Affiliates

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -57-
<PAGE>

related to their respective pharmaceutical businesses to a single buyer or
pursuant to a merger or other corporate reorganization, neither this Agreement
nor any right herein granted may be assigned by either party to any Affiliate or
Third Party, without the prior, express written consent of the other party,
which consent shall not be unreasonably withheld.  Notwithstanding the forgoing,
Serono may assign its rights and interests under this Agreement to an entity
that was an Affiliate of Serono as of the Effective Date and that is also an
Affiliate of Serono as of the date of such assignment; provided that such
assignment [ * ] (except in the case of an assignment to [ * ] as contemplated
by [ * ] of any of its responsibilities or obligations hereunder and (including
in the case of an assignment to [ * ] as contemplated by [ * ] the assignee
agrees to be bound by all obligations of [ * ] hereunder, including, without
limitation, the obligations set forth in [ * ].  Any purported assignment
prohibited hereunder and made without [ * ] shall be void and shall constitute a
material breach of this Agreement.  A sale or transfer of the ownership or
control of [ * ] to whom it has assigned its rights or interest under this
Agreement as provided herein other than in connection with the transfer of all
or substantially all of the assets of [ * ] related to their respective [ * ]
shall be deemed to be a prohibited assignment by [ * ].  If, as a result of any
assignment of any rights or interest in this Agreement by [ * ] any payment by
or on behalf of [ * ] is subject to an increased level of withholding than would
have been the case otherwise under this Agreement and [ * ] cannot use any [ * ]
to offset against its obligation to pay [ * ] in the year in which the
withholding is effected, [ * ] an amount such that after [ * ] of any amount [ *
] receives the same amount that it would have received but for the assignment;
provided that if [ * ] in a [ * ] shall reimburse [ * ] for the amount paid to [
* ] as a result of the [ * ] giving rise [ * ].

     19.7 Amendments and Waivers.   No terms or provisions of this Agreement
          ----------------------
shall be varied or modified by any prior or subsequent statement, conduct or act
of either of the parties, whether oral or written, except that the parties may
amend this Agreement by written instruments specifically referring to, and
executed in the same manner as, this Agreement.  No waiver of any right or
remedy hereunder shall be effective unless in a writing signed by the party to
be bound, nor shall any wavier in one instance constitute a waiver of the same
or any other right or remedy in any other instance.

     19.8 Severability.   If any provision hereof should be held invalid,
          ------------
illegal or unenforceable in any respect in any jurisdiction, then, to the
fullest extent permitted by law:  (a) all other provisions hereof shall remain
in full force and effect in such jurisdiction and shall be liberally construed
in order to carry out the intentions of the parties hereto as nearly as is
possible; and (b) such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of such provision in any other
jurisdiction.  To the extent permitted by applicable law, ZGI and Serono hereby
waive their right to enforce any provision of law that would render any
provision hereof prohibited or unenforceable in any respect.  If the terms and
conditions of this Agreement are materially altered as a result of this Section
19.8, the parties shall attempt to renegotiate the terms and conditions of this
Agreement, in good faith, to resolve any inequities.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -58-
<PAGE>

     19.9   Counterparts.   This Agreement may be executed in counterparts, each
            ------------
of which shall be deemed an original, and all of such counterparts taken
together shall constitute one and the same instrument.

     19.10  Relationship.  This Agreement shall not create any employer-employee
            ------------
relationship between ZGI and Serono, nor shall it be deemed to establish a joint
venture or partnership between ZGI and Serono. Neither party shall at any time
enter into or incur, or hold itself out to third parties as having the authority
to enter into or incur, on behalf of the other party, any commitment, expense or
liability whatsoever. Nothing contained in this Agreement shall be construed, by
implication or otherwise, as an obligation incurred by either party to enter
into any further agreement with the other party.

     19.11  Use of Names, Trade Names and Trademarks.    Except as provided
            ----------------------------------------
herein, nothing contained in this Agreement shall be construed as conferring any
right on either party to use in advertising, publicity or other promotional
activities any name, trade name, trademark or other designation of the other
party hereto or of any of its licensors under any Third Party Agreement,
including any contraction, abbreviation or simulation of any of the foregoing,
unless the express written permission of such other party has been obtained.

     19.12  Headings.    The article and section headings contained herein are
            --------
for reference only and shall not be considered a part of this Agreement, nor
shall they in any way affect the interpretation hereof.

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
to be effective as of the Effective Date.

                              Ares Trading S.A.

                              By:  /s/ Ernesto Bertarelli
                                   ----------------------------
                                   Ernesto Bertarelli
                              Its: Authorized Representative

                              ZymoGenetics, Inc.

                              By:  /s/ Bruce L.A. Carter
                                   ---------------------
                                   Bruce L.A. Carter, Ph.D.
                              Its: President and Chief Executive Officer

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -59-
<PAGE>

                                  EXHIBIT 1.20
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

                        DEVELOPMENT COSTS AND PRINCIPLES

1    Definitions.

     Words and phrases used in this Exhibit shall have the meanings defined
elsewhere in the Agreement.  In addition, the following words and phrases shall
have the following stated or referenced meanings in this Exhibit:

     [ * ] - [3 PAGES OMITTED]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
<PAGE>

                                 EXHIBIT 1.34
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

                        EXISTING THIRD PARTY AGREEMENTS

                                     [ * ]

     [ * ]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
<PAGE>

                                 EXHIBIT 1.36
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

                             IG FUSION TECHNOLOGY

     [ * ] - [4 PAGES OMITTED]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
<PAGE>

                                 EXHIBIT 1.46
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

             NORTH AMERICAN COMMERCIALIZATION COSTS AND PRINCIPLES

     [ * ]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
<PAGE>

                                 EXHIBIT 1.70
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

                         SERONO BACKGROUND TECHNOLOGY

     [ * ]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
<PAGE>

                                 EXHIBIT 1.85
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

                           ZGI BACKGROUND TECHNOLOGY

                                     [ * ]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
<PAGE>

                                 EXHIBIT 13.5
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

                          INITIAL JOINT PRESS RELEASE

Contact:
Charles Hart                                    Name
Sr. Director, Corporate Communication &         Title
Investor Relations                              Serono S.A.
ZymoGenetics, Inc.                              Phone
(206) 442-6600                                  www.serono.ch
www.zymogenetics.com                            -------------
--------------------

Sharon Karlsberg
Director
Feinstein Kean Healthcare
(617) 577-8110
www.fkhealth.com
----------------

DRAFT - NOT FOR PUBLIC RELEASE

                ZymoGenetics and Serono Establish Collaboration
             for Co-Development of Products for Autoimmune Disease

Seattle, WA and Geneva, Switzerland, [Month XX], 2001 -

ZymoGenetics and Serono S.A. (SWX Swiss Exchange: SEO and NYSE: SRA) announced
that they have entered into an exclusive co-development and commercialization
agreement focused on two preclinical product candidates derived from
ZymoGenetics' discovery research.  Using a genomics-driven approach,
ZymoGenetics' scientists identified the two molecules, termed TACI and BCMA, as
key regulators of the human immune system. These two proteins are cell-surface
receptors found on B-lymphocytes, cells involved in the production of
antibodies.

The companies intend to focus their activities on the development of one or more
products based on these receptors for the treatment of autoimmune diseases where
there is an over production of autoantibodies (antibodies that attack ones own
cells).  Serono has extensive experience in the research and treatment of
autoimmune diseases such as multiple sclerosis and rheumatoid arthritis, where
there remains significant unmet medical needs.

"This exciting collaboration with Serono underscores the power of ZymoGenetics'
product discovery engine," stated Bruce L.A. Carter, Ph.D., President and Chief
Executive Officer of ZymoGenetics.  "In addition to working with a world leader
in the development of protein

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-
<PAGE>

therapeutics we will also benefit from Serono's long-standing expertise as we
build our own clinical development and manufacturing capabilities here at
ZymoGenetics."

"This collaboration exemplifies Serono's approach to access novel genomics-based
technologies through strategic partnerships and emphasizes our commitment to the
treatment of autoimmune and serious inflammatory diseases," commented Silvano
Fumero, Head of Research and Pharmaceutical Development at Serono.
"ZymoGenetics' expertise in functional genomics combined with our own experience
in product development and commercialization will help take these preclinical
product candidates through development."

Under the terms of the agreement, ZymoGenetics could receive license fees and
milestone payments of up to $52.5 million linked to the development and approval
of products, and will receive undisclosed royalties on product sales.  The two
companies will share research and development expenses worldwide, excluding
Japan where Serono will cover all expenses.  ZymoGenetics retains an option to
co-promote products with Serono in North America.  If ZymoGenetics exercises
this option the two companies will share commercialization expenses and profits
equally.  Serono will have exclusive rights to market products in the remainder
of the world.  Serono will manufacture all products for both clinical trials and
commercial sale.

"A key component of this agreement is ZymoGenetics' participation in the sales
and marketing of products resulting from the collaboration," Dr. Carter added.
"We see this as critical to the long-term development of our business.  Our
ultimate goal is to be a fully integrated company that spans from initial drug
discovery to the sale of biopharmaceutical products.  By partnering with Serono,
we believe that we have enhanced our efforts toward this goal."

For further information please contact:

  Serono International S.A., Geneva, Switzerland:
  Media Relations:           Investor Relations:          Noonan/Russo
                                                          Communications:
  Tel:  +41-22-739 36 00     Tel:  +41-22-739 3601        Tel:  +44-20 7726 4452
  Fax:  +41-22-739 30 85     Fax:  +41-22-739 3022        Fax:  +44-20 7726 4453
  www.serono.com             Reuters: SEOZ.VX             www.noonanrusso.com
  --------------             Bloomberg: SEO VX            -------------------
                              EQUITY / SRA US

  Serono, Inc., Norwell, MA
  Media Relations:
  Tel.   +1 781 681 2340
  Fax:  +1 781 982 1369
  www.seronousa.com
  -----------------

About ZymoGenetics

ZymoGenetics is an independent biopharmaceutical company focused on the
discovery and development of protein therapeutics for the prevention or
treatment of significant human

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -2-
<PAGE>

diseases. Using its proven product discovery engine, comprising genomics,
bioinformatics, protein chemistry and preclinical biology, ZymoGenetics has
generated a broad pipeline of proprietary product candidates. ZymoGenetics will
commercialize these products through internal development, collaborations with
biopharmaceutical partners, and out-licensing of its extensive patent portfolio.
For further information, visit www.zymogenetics.com.
                               --------------------

About Serono

Serono is a global biotechnology leader. The Company has six recombinant
products on the market, Gonal-F(R), Luveris(R), Ovidrel(R), Rebif(R),
Serostim(R) and Saizen(R), (Rebif(R) and Luveris(R) are not approved in the
USA). In addition to being the world leader in reproductive health, Serono has
strong market positions in neurology, metabolism and growth. The Company's
research programs are focused on growing these businesses and on establishing
new therapeutic areas. Currently, there are thirteen molecules in development.

In 2000, Serono achieved worldwide revenues of US$1.240 billion, and a net
income of US$301 million, making it the third largest biotech company in the
world based on revenues. The Company operates in 45 countries, and its products
are sold in over 100 countries. Bearer shares of Serono S.A., the holding
company, are traded on the SWX Swiss Exchange (SEO) and its American Depositary
Shares are traded on the New York Stock Exchange (SRA).

Some of the statements in this press release are forward looking. Such
statements are inherently subject to known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of
Serono S.A. and affiliates to be materially different from those expected or
anticipated in the forward-looking statements. Forward-looking statements are
based on Serono's current expectations and assumptions, which may be affected by
a number of factors, including those discussed in this press release and more
fully described in Serono's Annual Report on Form 20-F filed with the U.S.
Securities and Exchange Commission on April 23, 2001. These factors include any
failure or delay in Serono's ability to develop new products, any failure to
receive anticipated regulatory approvals, any problems in commercializing
current products as a result of competition or other factors, our ability to
obtain reimbursement coverage for our products, and government regulations
limiting our ability to sell our products. Serono has no responsibility to
update the forward-looking statements contained in this press release to reflect
events or circumstances occurring after the date of this press release.

                                      ###

BACKGROUND INFORMATION

Autoimmune Disease Progression
------------------------------
One of the key components of the autoimmune disease process is the development
of antibodies to an individual's own healthy tissues.  When normal immune
function goes awry due to altered development, inherited disorders or
environmental factors, the body's B cells (B lymphocytes) produce
"autoantibodies." These autoantibodies then attack the individual, leading to
destruction of specific tissues.  Depending upon the type of autoimmune
disorder, targeted tissues may be the kidney, as in systemic lupus erythematosus
(SLE); the muscle system, as in myasthenia gravis and multiple sclerosis; or
portions of the joint, as in rheumatoid arthritis.  Currently available
treatments for these conditions are often limited due to toxic side effects,
including their overall suppressive effects on the human immune system.  New
therapies that act specifically on destructive B cell pathways provide a novel
opportunity to improve patient outcomes.

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -3-
<PAGE>

TACI and BCMA Product Candidates
--------------------------------
The two product candidates, TACI and BCMA, are receptors found on B cells, that
when stimulated, induce the production of antibodies.  In the case of autoimmune
disease these are autoantibodies (antibodies that attack one's own cells). Using
their bioinformatics gene discovery platform, scientists at ZymoGenetics
initially identified a growth factor called BlyS (also known as BAFF, TALL-1,
THANK and zTNF4) that is a key mediator in regulating the human immune system.
This factor was found to bind to B cells, stimulating the replication and
survival of these cells, and inducing their production of antibodies. Using
their expertise in pairing growth factors with their corresponding receptors,
the ZymoGenetics scientists subsequently identified two receptors, TACI and
BCMA, that are found on the surface of B cells and that bind BLyS.  These
receptors also bind a second growth factor called APRIL.  The importance of this
pathway for regulating B cell function is demonstrated in a recent publication
from ZymoGenetics (Immunity, 15;289-302,2001) where the gene for BLyS was
eliminated in mice, thereby preventing the production of BLyS protein.  These
mice had virtually no mature B cells present and had reduced serum antibody
response to immunization. ZymoGenetics scientists further showed that mice
genetically engineered to over express the gene for BlyS develop symptoms of the
autoimmune disease systemic lupus erythematosus (SLE), including the generation
of autoantibodies (Nature 404;995-999, 2000).  Reports from ZymoGenetics and
others have also demonstrated an association between elevated levels of
circulating BLyS and autoimmune disease, including SLE in mice and humans and
rheumatoid arthritis in humans.

By using the receptor portions of TACI and BCMA responsible for binding the
growth factors, ZymoGenetics researchers have produced antagonist proteins that
can "mop up" increased BLyS and APRIL growth factor present in the blood.  Such
a soluble TACI- or BCMA- molecule thus prevents binding of the growth factors to
the B cells, regulating the development of mature B cells and antibody
production.  In published studies (Immunity, 2001), scientists at ZymoGenetics
demonstrated that in TACI transgenic mice, mice that have been genetically
engineered to over express a soluble form of the TACI receptor, there are fewer
mature B cells and reduced levels of circulating antibody.  Similar results were
observed in normal mice treated with soluble TACI receptor.

Through the ability of soluble receptors to bind to and eliminate the BLyS and
APRIL growth factors and consequently avert production of destructive
autoantibodies, it may be possible to limit the extent of tissue damage observed
in patients with autoimmune disease.  In animal models of SLE, for example,
scientists at ZymoGenetics demonstrated that a soluble form of TACI-receptor was
effective in limiting progression of the disease (Nature, 2000). Similarly, in a
mouse model of collagen-induced arthritis, ZymoGenetics scientists demonstrated
that treatment with soluble TACI-receptor was able to inhibit the development of
collagen-specific antibodies and the incidence of disease (Immunity, 2001).

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -4-
<PAGE>

                                EXHIBIT 14.2(j)
to the Collaborative Development and Marketing Agreement, dated August 30, 2001,
                by and between ZGI and Serono (the "Agreement")

                 MATERIALS TO BE TRANSFERRED BY ZGI TO SERONO

     [ * ]

[ * ] designates portions of this document that have been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

                                      -1-<PAGE>

                                                                   Exhibit 10.34

                            OFFICE LEASE AGREEMENT

     This Office Lease Agreement (the "Lease") is made and entered into as of
the 9/th/ day of November, 2001, ("Effective Date") by and between, 1144
Eastlake LLC, a Washington limited liability company ("Landlord"), and
ZymoGenetics, Inc., a Washington corporation ("Tenant").

1.   Basic Lease Information.

     1.1  "Property" shall mean the building and associated real property
          located at 1144 Eastlake Avenue, Seattle, Washington and legally
          described on Exhibit A-2. "Building" is the structure located on the
          Property.

     1.2  "Premises" shall mean the entire Rentable Area, as defined below, of
          the fifth (5th) floor of the Building as depicted on the floor plan
          attached as Exhibit A-1 to this Lease. The "Rentable Area of the
          Premises" is approximately fifteen thousand six hundred forty (15,640)
          square feet, and the Rentable Area of the Building is approximately
          seventy-nine thousand eight hundred sixty-eight (79,868) square feet.
          "Rentable Area" shall have the same meaning as set forth in the 1996
          "BOMA Standard Method for Measuring Floor Area in Office Buildings"
          (American National Standard ANSI/BOMA Z65.1-1996) ("BOMA
          Measurement"). As soon as reasonably possible after execution of this
          Lease, and in no event later than the Commencement Date, as defined
          hereinafter, Landlord, at Landlord's expense, shall have the Rentable
          Areas of both the Premises and the Building measured by SPACE LLC,
          which shall also be instructed by Landlord to provide copies, in
          reasonable detail, of the bases for the final computations of such
          Rentable Areas to both Landlord and Tenant. The parties agree to
          accept the measurements, as so determined, and to thereafter enter
          into a Confirmation Statement to be attached to this Lease setting
          forth the agreed Rentable Areas of the Premises and the Building, as
          well as the "Tenant's Pro Rata Share," as provided for in Section 1.4,
          each of which shall thereafter be adjusted only in the event of an
          actual change in the Rentable Area of the Premises, as contemplated in
          Section 6 below, or the Building.

     1.3  "Base Rent":

<TABLE>
<CAPTION>
                                                                                      Annual Rate
                                   Period                                           Per Square Foot
                                   ------                                           ---------------
<S>                                                                                 <C>
           Lease Term Months One (1) through Thirty-Six (36)                        $26.50 per RSF

           Lease Term Months Thirty-Seven (37) through Sixty (60)                   $27.50 per RSF

           Lease Term Months Sixty-One (61) through Ninety-Six (96)                 $29.50 per RSF

           Lease Term Months Ninety-Seven (97) through One Hundred Twenty (120)     $30.50 per RSF
</TABLE>

     1.4  "Tenant's Pro Rata Share" is estimated to be twenty percent (20%), but
          shall be finally determined and confirmed by the parties in the manner
          described in Section 1.2.

     1.5  "Term": A period of One Hundred Twenty (120) months. The Term shall
          commence on the earlier of (i) the occupancy of the Premises by Tenant
          for normal business operations, or February 1, 2002 ("Commencement
          Date"), and, unless terminated early in accordance

                                                                          Page 1
                                                                November 9, 2001
<PAGE>

          with this Lease, end One Hundred Twenty (120) months thereafter (the
          "Termination Date"). By no later than November 21, 2001, Landlord
          shall deliver to Tenant a letter from Landlord's lender on the
          Property, KeyBank, N.A., confirming that Landlord has the financial
          ability to pay the Tenant Allowance and that the Tenant Allowance will
          be available and paid to or for the benefit of Tenant on a percentage-
          of-completion basis as the Tenant Improvement work is done.

     1.6  Tenant Allowance: Thirty Dollars ($30.00) per square foot of Rentable
          Area of the Premises, as more particularly described on Exhibit D.

     1.7  Security Deposit: Seventy Four Thousand Two Hundred Ninety Dollars
          ($74,290) ("Deposit"). The portion of the Deposit equal to the first
          full month's Base Rent to become payable hereunder shall be credited
          to payment of such first full month's Base Rent with the remainder of
          the Deposit held and applied as provided in this Lease.

     1.8  "Permitted Use": general business office and uses customarily
          incidental thereto.

     1.9  "Notice Addresses": Notices shall be sent to the parties at the
          following addresses:
               Tenant:          ZymoGenetics, Inc.
                                Attn: Shinko Campos
                                1201 Eastlake Ave. East
                                Seattle, WA  98102

               with a copy to:  Perkins Coie LLP
                                Attn: Craig H. Shrontz
                                411 - 108/th/ Ave. N.E.
                                Bellevue, WA  98004

               Landlord:        1144 Eastlake LLC
                                c/o JSH Properties
                                Attn: Diane Decker
                                14900 Interurban Ave. South, Suite 210
                                Seattle, WA 98168

          Rent (defined in Section 4.1) is payable to the order of Landlord at
          its notice address, or at such other address as Landlord may specify
          from time to time by written notice given in accordance with Section
          27.

     1.10 "Business Day(s)" are Monday through Friday (and Saturday mornings) of
          each week, exclusive of New Year's Day, President's Day, Memorial Day,
          Independence Day, Labor Day, Thanksgiving Day and Christmas Day
          ("Holidays"). Landlord may designate additional Holidays, provided
          that the additional Holidays are commonly recognized by other office
          buildings in the area where the Property is located.

     1.11 "Landlord Work" means the work, if any, that Landlord is obligated to
          perform in the Premises pursuant to Exhibit C.

     1.12 "Law(s)" means all applicable statutes, codes, ordinances, orders,
          rules and regulations of any municipal or governmental entity.

     1.13 "Normal Business Hours" for the Property are 7:00 a.m. to 6:30 p.m. on
          Business Days and 8:00 A.M. to 12:00 noon on Saturdays.

     1.14 "Property" includes the Building and the parcel(s) of land on which it
          is located and other improvements serving the Building, if any, and
          the parcel(s) of land on which they are located.

                                                                          Page 2
<PAGE>

     1.15 "Class A" building, or office building, as used in this Lease, shall
          mean first-class commercial office buildings of the type which are
          located in the South Lake Union area, and which are reasonably
          comparable in age and available amenities to the Building which is the
          subject of this Lease.

2.   Lease Grant.

     Landlord leases the Premises to Tenant and Tenant leases the Premises from
Landlord, together with the right in common with others to use any portions of
the Property that are designated by Landlord for the common use of tenants and
others, such as common corridors, elevator foyers, restrooms, vending areas and
lobby areas (the "Common Areas").

3.   Possession; Acceptance of Condition of Premises.

     3.1  If Tenant occupies the Premises prior to the Commencement Date for the
          purpose of completing Tenant's Work or for any other purpose with
          Landlord's prior written consent, such early occupancy shall be
          subject to all of the terms and conditions of this Lease, but Tenant
          will not be obligated to pay Base Rent or a Pro Rata Share of
          Expenses, Taxes or Insurance until the Commencement Date. Tenant and
          Landlord agree to cooperate with each other in making mutually
          acceptable arrangements for early occupancy by Tenant and to cooperate
          with Landlord's contractor during the period of any such early
          occupancy so as not to interfere with Landlord's ability to complete
          Landlord's Work.

     3.2  The work on the Premises to be performed by Landlord is described in
          Exhibit C ("Landlord's Work"). The parties hereby acknowledge that
          Landlord's Work is continuing as of the Effective Date , and that
          Tenant may reasonably commence Tenant's Work and installation of
          equipment (even though a portion of Landlord's Work may remain to be
          completed during Tenant's Work).

          Landlord's Work shall be (1) completed in accordance with the plans
          and specifications identified on Exhibit C, (2) completed in
          accordance with all Laws and governmental requirements, (3)
          constructed of all new materials, and (4) free of defects in materials
          and workmanship.  Landlord shall promptly correct all defects in
          Landlord's Work, and all failures of such work to conform to the plans
          and specifications for such work which have been agreed upon by
          Landlord and Tenant, which defects or non-conformities are discovered
          before or within one year after the Commencement Date.  Landlord shall
          bear all costs of correcting Landlord's Work.  Landlord and Tenant
          shall each give the other prompt written notice after discovering the
          existence of any such defects or nonconformities in Landlord's Work.

     3.3  Except as set forth in Section 1.5, Landlord shall not be liable for
          nor shall this Lease be affected by any delay in the occurrence of the
          Commencement Date because of delays caused to Landlord's Work by
          strikes, riots, fire, shortage of required materials, acts of God,
          governmental intervention, delays or the like which are not within its
          reasonable control.

     3.4  Notwithstanding anything to the contrary contained herein, the
          Commencement Date shall not be deemed to occur until the following
          conditions shall have been satisfied by Landlord:

               (1)  The utility and other systems servicing the Building and
          necessary for the operation of the Building or Tenant's occupancy and
          full enjoyment of the Premises (such as elevators, plumbing, heating,
          ventilating, air conditioning, electrical and security systems) shall
          be completed and in good order and operating condition except for
          details

                                                                          Page 3
<PAGE>

          of construction, decoration and mechanical adjustments which do not
          materially interfere with Tenant's use of the Premises;

               (2)  Landlord shall have obtained a temporary Certificate of
          Occupancy for the Building;

               (3)  The lobby of the Building and the entrances and public
          portions (including the garage), stairways, corridors and elevators
          (including freight elevators) of the Building, shall have been
          finished (except for details of construction, decoration and
          mechanical adjustments which do not materially detract from the
          appearance of such areas or materially interfere with their use for
          normal purposes) and shall be in a clean and orderly condition
          affording reasonable access to all portions of the Premises; and

               (4)  The exterior of the Building (including the installation of
          glass therein) shall have been completed except for portions thereof
          which in the aggregate do not materially affect Tenant's use of the
          Premises, and, in any event, Landlord's Work shall be substantially
          complete in all material respects by no later than January 25, 2002.

          The occurrence of the Commencement Date prior to the completion in
          full of all work required to be performed by Landlord as provided
          herein shall not relieve Landlord of its obligation thereafter to
          complete the same with due dispatch and in a workmanlike manner.

4.   Rent.

     4.1  Payments. As consideration for this Lease, Tenant shall pay Landlord,
          without any setoff or deduction (except as expressly set forth in this
          Lease), the total amount of Base Rent and Additional Rent due for the
          Term. "Additional Rent" means all sums (exclusive of Base Rent) that
          Tenant is required to pay Landlord. Additional Rent and Base Rent are
          sometimes collectively referred to as "Rent". Tenant shall pay and be
          liable for all rental, sales and use taxes (but excluding income
          taxes), if any, imposed upon or measured by Rent under applicable Law.
          Base Rent and recurring monthly charges of Additional Rent shall be
          due and payable in advance on the first day of each calendar month
          without notice or demand. All other items of Rent shall be due and
          payable by Tenant on or before 30 days after billing by Landlord. All
          payments of Rent shall be by good and sufficient check or by other
          means (such as automatic debit or electronic transfer) acceptable to
          Landlord. If Tenant fails to pay any item or installment of Rent
          within three (3) business days after such payment is due, Tenant shall
          pay Landlord an administration fee equal to five percent (5)% of the
          past due Rent. If the Term commences on a day other than the first day
          of a calendar month or terminates on a day other than the last day of
          a calendar month, the monthly Base Rent and Tenant's Pro Rata Share of
          Expenses (defined in Section 4.3) for the month shall be prorated
          based on the number of days in such calendar month. Landlord's
          acceptance of less than the correct amount of Rent shall be considered
          a payment on account of the earliest Rent due. No endorsement or
          statement on a check or letter accompanying a check or payment shall
          be considered an accord and satisfaction, and either party may accept
          the check or payment without prejudice to that party's right to
          recover the balance or pursue other available remedies. Tenant's
          covenant to pay Rent is independent of every other covenant in this
          Lease.

     4.2  Payment of Tenant's Pro Rata Share of Expenses, Taxes and Insurance.
          Tenant shall pay Tenant's Pro Rata Share of the total amount of
          Expenses and of Taxes and Insurance for each year during the Term.
          Landlord shall annually provide Tenant with a good faith estimate of
          the total amount of Expenses and the total amount of Taxes and
          Insurance for each calendar year during the Term. On or before the
          first day of each month, Tenant shall pay to Landlord a monthly
          installment equal to one-twelfth of Tenant's Pro Rata Share of
          Landlord's estimate of the total amount of Expenses, plus

                                                                          Page 4
<PAGE>

          one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of the
          total amount of Expenses, plus one-twelfth of Tenant's Pro Rata Share
          of Landlord's estimate of the total amount of Taxes and Insurance. If
          Landlord determines that its good faith estimate was incorrect by a
          material amount, Landlord may provide Tenant with a revised estimate
          once per calendar year. After its receipt of the revised estimate,
          Tenant's monthly payments shall be based upon the revised estimate. If
          Landlord does not provide Tenant with an estimate of the total amount
          of Expenses and the total amount of Taxes and Insurance by January 1
          of a calendar year, Tenant shall continue to pay monthly installments
          based on the previous year's estimate until Landlord provides Tenant
          with the new estimate. Upon delivery of the new estimate, an
          adjustment shall be made for any month for which Tenant paid monthly
          installments based on the previous year's estimate. Tenant shall pay
          Landlord the amount of any underpayment within 30 days after receipt
          of the new estimate. Any overpayment shall be refunded to Tenant
          within 30 days or credited against the next due future installment(s)
          of Additional Rent.

          By May 1 following the end of each calendar year, Landlord shall
          furnish Tenant with a statement of the actual amount of Taxes and
          Insurance, and Tenant's Pro Rata Share of the actual amount of Taxes
          and Insurance for the prior calendar year. If the estimated amount of
          Taxes and Insurance for the prior calendar year is more than the
          actual amount of Taxes and Insurance for the prior calendar year,
          Landlord shall apply any overpayment by Tenant against Additional Rent
          due or next becoming due, provided if the Term expires before the
          determination of the overpayment, Landlord shall refund any
          overpayment to Tenant after first deducting the amount of Rent due. If
          the estimated amount of Taxes and Insurance for the prior calendar
          year is less than the actual amount of Taxes and Insurance for such
          prior year, Tenant shall pay Landlord, within 30 days after its
          receipt of the statement of Taxes and Insurance, any underpayment for
          the prior calendar year.

     4.3  Expenses Defined. "Expenses" means all costs and expenses incurred by
          Landlord in connection with owning, operating, maintaining, repairing,
          and managing the Premises as a "Class A office building," as defined
          herein, including, but not limited to (1) utilities, including, but
          not limited to, utilities and lighting for areas occupied by tenants
          as well as Common Areas; (2) maintenance costs for performance of any
          Landlord's maintenance and repair obligations hereunder for the
          Building located on the Property, Common Areas, Property, including,
          but not limited to parking facilities and landscaping, maintaining and
          repairing sewer main, ducts, conduits and similar items, fire
          protection systems, sprinkler and security alarm systems, elevators,
          storm and sanitary drainage systems and other utility and mechanical
          systems; materials and services for operation, maintenance or the
          security or protection of the Property including any janitorial
          services, pest control, HVAC service contracts, any other repair and
          maintenance by Landlord; (3) roof and other exterior maintenance; (4)
          the amortized cost of capital improvements made to the Property which
          are for the purpose of reducing operating expense costs, or which are
          required to comply with any laws, rules or regulations of any
          governmental authority first enacted after the Commencement Date or a
          requirement of Landlord's insurance carrier first enacted after the
          Commencement Date; (5) property management fees not exceeding three
          and one-half percent (3.5%) of Base Rent (calculated without regard to
          the management fee); (6) all sums expended in connection with any
          Common Areas for maintenance and repairs, (7) operation, maintenance
          and repair of any heating, ventilation and air conditioning system,
          including repair of any HVAC components or units as reasonably needed;
          (8) the cost of utilities consumed on the Property if paid for by
          Landlord; (9) the cost of any governmentally required license, permit,
          or inspection for or of the Property (other than those required in
          connection with Landlord's Work); (10) replacement or supplemental
          directional and other signage other than the initial signage installed
          in the Building or on the Property by Landlord as part of Landlord's
          Work; and (11) and any other costs and expenses of any other kind
          whatsoever which are generally considered expenses in accordance with
          generally accepted accounting principles and which are reasonably
          incurred by Landlord in connection with owning, operating or

                                                                          Page 5
<PAGE>

          maintaining the Property and any expense designated by this Lease to
          be an Expense. Expenses shall be "net" only and for that purpose shall
          be deemed reduced by the amounts of any insurance reimbursement or
          other reimbursement received by Landlord in connection with such
          expenses.

          The following shall not be Expenses: (1) repairs or other work
          occasioned by insured casualty except for the deductible portion of
          any insured casualty loss; (2) marketing costs including, without
          limitation, leasing commissions, attorneys' fees in connection with
          the negotiation and preparation of letters, deal memos, letters of
          intent, leases, subleases and/or assignments, space planning costs,
          tenant improvement costs, and other costs and expenses incurred in
          connection with lease, sublease and/or assignment negotiations,
          disputes and transactions with present or prospective tenants; (3)
          depreciation and amortization; (4) interest on debt or principal
          payments to a Lender or rental under a ground lease; (5) costs of
          Landlord's general overhead and general and administrative expense;
          provided this limitation shall not be construed to limit Landlord's
          right to require Tenant to pay as an Expense the property management
          fee provided for above; (6) specific costs incurred for the account of
          specific tenants only; (7) salaries of officers, executives and
          partners of Landlord, and salaries of Building employees to the extent
          allocated to properties other than the Property; (8) penalties
          incurred as a result of Landlord's negligence, inability or
          unwillingness to make payments, or penalties incurred due to the
          Building not being in compliance with applicable law; (9) capital
          improvements, except as otherwise provided above; (10) the cost of
          tenant improvements; (11) costs relating to any parking garage in the
          Building (such as utilities, attendants, cashiers and janitorial
          services); (12) costs resulting from the correction of any
          construction or design defects in all or any portion of the Premises
          or Building in connection with any of Landlord's Work; (13) penalties
          due to any violation of Law by Landlord; and (14) structural repairs
          or replacements.

     4.4  Taxes and Insurance Defined. "Taxes" shall mean: (1) all real estate
          taxes and other assessments on the Property, including, but not
          limited to, assessments for special improvement districts and building
          improvement districts, taxes and assessments levied in substitution or
          supplementation in whole or in part of any such taxes and assessments
          and the Premises' share of any real estate taxes and assessments under
          any reciprocal easement agreement, common area agreement or similar
          agreement as to the Property; (2) all personal property taxes for
          property that is owned by Landlord and used in connection with the
          operation, maintenance and repair of the Premises or the Property; and
          (3) all reasonable costs and fees incurred in connection with seeking
          reductions in any tax liabilities described in (1) and (2), including,
          without limitation, any costs incurred by Landlord for compliance,
          review and appeal of tax liabilities. Without limitation, Taxes shall
          not include any income, capital levy, franchise, capital stock, gift,
          estate or inheritance tax. If an assessment is payable in
          installments, Taxes for the year shall include the amount of the
          installment and any interest due and payable during that year. For all
          other real estate taxes, Taxes for that year shall, at Landlord's
          election, include either the amount accrued, assessed or otherwise
          imposed for the year or the amount due and payable for that year,
          provided that Landlord's election shall be applied consistently
          throughout the Term. If a change in Taxes is obtained for any year of
          the Term, then Taxes for that year will be retroactively adjusted and
          Landlord shall provide Tenant with a credit, if any, based on the
          adjustment. "Insurance" shall mean the cost of premiums for any hazard
          insurance or liability insurance carried by Landlord, for the benefit
          of Landlord or at the expense of Landlord, on or in connection with
          the Property.

     4.5  After first providing reasonable advance written notice to Landlord,
          Tenant or its accountants (so long as such accountant is not
          compensated on a contingent fee basis) shall have the right to inspect
          and audit Landlord's books and records with respect to this Lease to
          verify actual Expenses for the two (2) calendar years immediately
          preceding the year in which the inspection is made. Tenant's review
          shall be limited to Expenses

                                                                          Page 6
<PAGE>

          charged to Tenant during the immediately preceding two (2) calendar
          years only. The books and records shall be kept in accord with
          reasonable accounting principles. If Tenant's audit of the Expenses
          reveals an overcharge of more than five percent (5%), Landlord
          promptly shall reimburse Tenant for its reasonable out-of-pocket cost
          of the audit. Any overcharge or underpayment of Expenses shall be due
          from one party to the other within thirty (30) days after the amount
          of the overcharge or underpayment has been fixed.

     4.6  Deposit. The Deposit (after application of a portion thereof equal to
          the first month's Base Rent) shall be security for Tenant's full
          performance of Tenant's lease obligations. If Tenant fails to pay rent
          or any other charges due from Tenant under this Lease after the
          expiration of applicable notice and cure periods, Landlord may elect
          to apply the Deposit toward the payment of such default. If Landlord
          applies any portion of the Deposit, Tenant shall, on ten (10) days
          written notice, deposit cash with Landlord in an amount sufficient to
          restore the Deposit to the full amount stated above; Tenant's failure
          to do so shall be a default. Landlord may commingle the Deposit with
          Landlord's other funds and no interest shall be paid or accrued on the
          Deposit. If Tenant performs all of Tenant's lease obligations, the
          Deposit (or so much as has not been applied by Landlord) shall be
          returned to Tenant (or, at Landlord's option, to the last assignee, if
          any, or Tenant's interest under the Lease) within thirty (30) days.
          Landlord shall transfer the Deposit to the purchaser of its interest
          in the event of sale and Tenant shall look solely to such purchaser
          for return of the deposit.

5.   Compliance with Laws; Use.

     The Premises shall be used only for the Permitted Use and for no other use
whatsoever. Tenant shall not use or permit the use of the Premises for any
purpose which is illegal, dangerous to persons or property or which, in
Landlord's reasonable opinion, unreasonably disturbs any other occupants of the
Property or unreasonably interferes with the operation of the Premises or the
Property. Tenant shall comply with all Laws, including the Americans with
Disabilities Act, regarding the operation of Tenant's business and the use,
condition, configuration and occupancy of the Premises. Tenant, within 10 days
after receipt, shall provide Landlord with copies of any notices it receives
regarding a violation or alleged violation of any Laws relating to the use,
condition, configuration or occupancy of the Premises. Tenant shall comply with
the rules and regulations of the Property attached as Exhibit B and such other
reasonable rules and regulations adopted by Landlord from time to time. Tenant
shall also cause its agents, contractors, subcontractors, employees, customers,
and subtenants to comply with all rules and regulations. Landlord shall enforce
the rules and regulations uniformly with respect to violations thereof of which
it either has been notified or otherwise has actual knowledge, and shall not
knowingly discriminate against Tenant in Landlord's enforcement of the rules and
regulations.

     Tenant shall have access to the Premises 24 hours per day, 365 days per
year. Landlord initially shall provide all Tenant employees assigned to the
Premises, not exceeding fifty-five (55), with door keys and access cards at no
additional costs to Tenant. If reasonably achievable within the design of
Landlord's security system, Landlord will reasonably attempt to program its
security system for the Building in a manner to allow Tenant's employees to
utilize their access cards used at Tenant's headquarters (1201 Eastlake Avenue
East). If the Premises are subsequently expanded pursuant to the provisions of
Section 6 below, or otherwise, Landlord shall provide Tenant with additional
door keys and access cards at no additional cost to Tenant, and the number of
such additional no-cost keys and cards issued with respect to the additional
Rentable Area of the expanded Premises shall be in the same proportion as the
fifty-five (55) cards issued initially bears to the initial Rentable Area of the
Premises. Landlord may impose a reasonable charge, however, to replace keys
and/or access cards which are lost or damaged, or to issue keys or access cards
in addition to those which Landlord is required to initially provide to Tenant
at no cost pursuant to this Section 5.

                                                                          Page 7
<PAGE>

6.  25/th/ Month Expansion; Option to Renew; First Right of Refusal To Lease.

     6.1  25/th/ Month Expansion. If, by the twenty-third (23/rd/) full calendar
          month following the Commencement Date, Tenant has not leased at least
          the entirety of the fourth (4/th/) floor or third (3/rd/) floor of the
          Building, whether by exercise of its first right of refusal provided
          in Section 6.3 below or by other agreement with Landlord, this Lease
          shall be deemed automatically amended to incorporate within the
          definition of the Premises the entirety of the fourth (4/th/) floor of
          the Building, if then available for lease, or otherwise the entirety
          of the third (3/rd/) floor of the Building, if then available for
          lease; provided, however, that Tenant shall not be required to lease
          either the remaining portion of the third or the fourth floors of the
          Building pursuant to this Section 6.1 if only a portion of such
          floor(s) is then available for lease. In the event Tenant leases the
          third or fourth floor pursuant to this Section 6.1, all of the terms
          of this Lease shall apply to such expanded Premises as of the first
          (1/st/) day of the twenty-fifth (25/th/) full calendar month following
          the Commencement Date, including the agreement to pay Base Rent in the
          then applicable amount per square foot of Rentable Area (provided if
          such expanded Premises consists of the third (3/rd/) floor and not the
          fourth (4/th/) floor, the Base Rent for such newly leased area shall
          be two dollars ($2.00) per Rentable Square Foot less than otherwise
          applicable) and Tenant's Pro Rata Share shall be adjusted upwards
          accordingly. Upon the effective date of such expansion, Tenant shall
          be entitled to receive from Landlord a Tenant Allowance of Thirty
          Dollars ($30.00) per square foot of Rentable Area contained in such
          newly leased area on the same terms and conditions as described in
          Exhibit D; Landlord shall pay additional commissions as provided in
          Section 31.7 below and Landlord shall not be obligated to provide any
          other improvements to the expansion area of the Premises.

     6.2  Option to Renew.

          6.2.1  Tenant has the option to renew this Lease for up to two (2)
                 additional terms, each of sixty (60) months, commencing on the
                 day following expiration of the preceding Term. Tenant shall
                 exercise the Option to Renew by providing a written notice of
                 exercise to Landlord no less than two hundred seventy (270)
                 days prior to the end of the then current term of this Lease
                 and as provided more specifically below. All of the terms and
                 conditions of this Lease will remain the same during such
                 renewal term except for the Base Rent which shall be the fair
                 market rental value of the Premises as of the commencement of
                 the renewal term; fair market rental value of the Premises
                 shall be the amount of rent which a well-informed tenant,
                 willing, but not obliged to lease the property, would pay, and
                 which a well-informed landlord, willing, but not obligated to
                 lease, would accept, taking into consideration all uses to
                 which the property is adapted and might in reason be applied,
                 the then market terms being offered in the Lake Union area of
                 Seattle for space reasonably comparable to the Premises in
                 size, location, parking availability and quality.

          6.2.2  If, after bargaining in good faith for no less than thirty (30)
                 days, either party determines, by written notice to the other
                 party, that the parties cannot agree on the amount of the then
                 fair market rental value of the Premises, then the fair market
                 rental value shall be established by binding arbitration with a
                 single arbitrator in accordance with the following procedures.
                 The arbitrator shall be an MAI real estate appraiser with at
                 least ten (10) years experience in appraising commercial real
                 property in the Seattle metropolitan area ("Arbitrator")
                 selected jointly by the parties; if the parties do not agree as
                 to the identity of the Arbitrator within twenty (20) days after
                 the end of the thirty (30) day bargaining period, the then
                 Presiding Judge of the Superior Court for King County, upon an
                 appropriate request which either party may make, shall appoint
                 the Arbitrator. Within ten (10) days of the appointment of the
                 Arbitrator, the parties each shall submit in

                                                                          Page 8
<PAGE>

               writing to Arbitrator the amount which they propose be
               established as the Base Rent at the commencement of such renewal
               term ("Submissions"); such Submissions shall not be disclosed to
               the parties by Arbitrator until the Arbitrator has received both
               parties' Submission. Each party may include in such Submissions
               any information which such party deems relevant or helpful to the
               Arbitrator in determining the fair market rental value of the
               Premises including costs or benefits which such party or the
               other party would enjoy in the event of a renewal of the lease or
               amenities and advantages of the Premises and Property not likely
               to be available to a party in another location. Arbitrator shall
               study such evidence and information in determining such Base
               Rent; provided that the Arbitrator's determination of the amount
               of such Base Rent shall be confined and strictly limited to
               selection, as the more reasonable approximation of the fair
               market rental value of the Premises, of the amount stated in the
               Submission of Tenant or the Submission of Landlord, and
               Arbitrator may not select or declare any third number to be such
               Base Rent. Except as to the Parties' Submissions, any other
               communication by a party to Arbitrator shall be in writing with a
               copy to the other party. Upon completion of his investigation of
               such Base Rent, Arbitrator shall, no later than thirty (30) days
               after delivery of the Submissions, report in writing to each of
               the parties which party's Submission has been selected by him as
               the more reasonable approximation of the fair market rental value
               of the Premises without requirement of further substantiation or
               information. In no event may the new Base Rent be less than the
               average Base Rent payable during the last year of the preceding
               term. Each party shall pay its own costs of arbitration and one-
               half of the Arbitrator's fee.

       6.2.3   In the event of any renewal, Landlord shall have no obligation to
               make any improvements to the Premises, to provide to Tenant any
               funds for any improvement, pay or make any other concessions or
               to pay any commission to Tenant's broker. After the exercise of
               the option to extend, all references in this Lease to the Term
               shall be considered to mean the Term as extended, and all
               references to the Termination Date or to the end of the Term
               shall be considered to mean the Term as extended.

       6.2.4   Tenant's right to exercise the options to renew is subject to the
               following conditions precedent:

               6.2.4.1   The Lease must be in effect at the time the notice of
       exercise is given and on the last day of the term immediately preceding
       commencement of the renewal term.

               6.2.4.2   Tenant may not be in default beyond applicable notice
       and cure periods under any provision of this Lease at the time notice of
       exercise is given or on the last day of the term immediately preceding
       commencement of the renewal term.

               6.2.4.3   At least two hundred seventy (270) days before the last
       day of such term, Tenant shall, in writing, have given Landlord notice
       irrevocably and unconditionally exercising the option.

       Each party shall, at the request of the other, endorse on the original
       lease that party's signature or signatures, and date the option was
       exercised, and the words "Option Exercised". Alternatively, each party
       shall, at the request of the other, execute a memorandum, in recordable
       form, acknowledging the fact that the option has been exercised.

6.3    Right of First Refusal. If, during the period ("RFR Period") commencing
       on the mutual execution of this Lease and expiring on the last day of the
       twenty-fourth (24/th/) full calendar

                                                                          Page 9
<PAGE>

          month following the Commencement Date, Landlord receives a letter of
          intent or other offer to lease all or a portion of the fourth (4/th/)
          floor of the Building which has been accepted in writing by Landlord,
          Landlord shall deliver a copy to Tenant, who shall then have ten (10)
          business days following receipt to notify Landlord that Tenant elects
          to lease the same portion of the Building on the same terms and rental
          rate as contained in this Lease, including, without limitation, that
          Tenant shall be entitled to receive from Landlord a Tenant Allowance
          of Thirty Dollars ($30.00) per square foot of Rentable Area contained
          in such newly leased area on the same terms and conditions as
          described in Exhibit D, but Landlord shall not be obligated to provide
          any other improvements to the expansion area of the Premises; provided
          that if Tenant leases only part of the 4/th/ floor by exercising its
          right of first refusal, Landlord shall not be obligated to construct a
          demising wall or multi-tenant hallway to separate such space from the
          remaining Rentable Area of the 4/th/ floor. In addition to the
          foregoing, if the terms of the offer include space on other floors in
          addition to the fourth floor, Tenant shall be required to lease such
          other space as well. If Tenant does not elect to so lease within such
          ten (10) business day period, Tenant's preferential right to lease the
          area subject to such offer shall lapse and Landlord may lease such
          area to the third party free of any further rights of Tenant. In the
          event that Landlord leases any portion of the fourth (4/th/) floor to
          a third party after Tenant was offered such first right of refusal
          which right Tenant did not exercise, Tenant's right of first refusal
          with respect to the remainder of the fourth (4/th/) floor shall
          thereafter lapse, but Tenant instead shall have the same right of
          first refusal in accordance with the above terms as to the third
          (3/rd/) floor during the remainder of the RFR Period, unless any
          portion of the third (3/rd/) floor was leased to a third party before
          Tenant was required to exercise its right of first refusal with
          respect to the fourth (4/th/), and in such latter event Tenant shall
          not have a right of first refusal with respect to the third (3/rd/)
          floor. Tenant shall not have any such preferential right to lease
          during the continuation of any default by Tenant under the terms of
          this Lease beyond applicable notice and cure periods.

7.   Services and Utilities.

     7.1  Landlord shall furnish Tenant with the following services: (1) hot and
          cold water service for use in the lavatories and kitchen on each floor
          on which the Premises are located, and for drinking purposes
          (provided, that Landlord shall not be required to provide special
          filtration or otherwise provide treatment to the available tap water
          in order to make it more desirable to Tenant for drinking or cooking
          purposes); (2) heat, ventilation and air conditioning in season during
          Normal Business Hours, at such temperatures and in such amounts as are
          standard for comparable Class A office buildings or as required by
          governmental authority. Tenant, upon such advance notice (which may be
          telephonic) as is reasonably required by Landlord, shall have the
          right to receive HVAC service during hours other than Normal Business
          Hours (Tenant shall pay Landlord's reasonable charge for the
          additional service, which charge shall approximate Landlord's actual
          expense in providing such additional service); (3) maintenance and
          repair of the Premises or Property as described in Section 9.2 and to
          fulfill its obligations in Section 4.3.; (4) elevator service; (5)
          electricity and other utilities to the Premises for general office
          use, in accordance with and subject to the terms and conditions in
          Article 10 and Exhibit C; (5) washing of interior and exterior
          surfaces of exterior windows with reasonable frequency; and (7) such
          other services as Landlord reasonably determines are necessary or
          appropriate for the Premises or the Property as a Class A office
          building.

     7.2  Tenant's failure to receive or any interruption or termination of,
          services due to the application of Laws, the failure of any equipment,
          the performance of repairs, improvements or alterations, or the
          occurrence of any event or cause beyond the reasonable control of
          Landlord (a "Service Failure") shall not render Landlord liable to
          Tenant, constitute a constructive eviction of Tenant, give rise to an
          abatement of Rent, nor relieve Tenant from the obligation to fulfill
          any covenant or agreement. However, if the Premises, or a material
          portion of the Premises, is made untenantable for a period in

                                                                         Page 10
<PAGE>

          excess of 3 consecutive Business Days as a result of the Service
          Failure due to Landlord's negligence or willful misconduct, then
          Tenant, as its sole remedy, shall be entitled to receive an abatement
          of Rent payable hereunder during the period beginning on the 4th
          consecutive Business Day of the Service Failure and ending on the day
          the service has been restored. If the entire Premises has not been
          rendered untenantable by the Service Failure, the amount of abatement
          that Tenant is entitled to receive shall be prorated based upon the
          percentage of the Premises rendered untenantable and not used by
          Tenant. In no event, however, shall Landlord be liable to Tenant for
          any loss or damage, including the theft of Tenant's Property (defined
          in Article 15), arising out of or in connection with the failure of
          any security services, personnel or equipment not caused by Landlord's
          negligence or willful misconduct. If the Premises are so untenantable,
          Landlord will use its commercially reasonable best efforts to provide
          Tenant with alternative space in the Building until the Premises are
          restored.

8.   Leasehold Improvements.

     All improvements to the Premises other than Tenant's personal property and
trade fixtures (collectively, "Leasehold Improvements") shall be owned by
Landlord and shall remain upon the Premises without compensation to Tenant.
However, Landlord, by written notice to Tenant within 30 days prior to the
Termination Date, may require Tenant to remove, at Tenant's expense: (1) Cable
(defined in Section 9.1) installed by or for the exclusive benefit of Tenant and
located in the Premises or other portions of the Premises or the Property; and
(2) any Leasehold Improvements that are performed by or for the benefit of
Tenant and, in Landlord's reasonable judgment, are of a nature that would
require removal and repair costs that are materially in excess of the removal
and repair costs associated with standard office improvements (collectively
referred to as "Required Removables"). Without limitation, it is agreed that
Required Removables include internal stairways, raised floors, personal baths
and showers, vaults, rolling file systems and structural alterations and
modifications of any type. The Required Removables designated by Landlord shall
be removed by Tenant before the Termination Date. Tenant shall repair damage
caused by the installation or removal of Required Removables. If Tenant fails to
remove any Required Removables or perform related repairs in a timely manner,
Landlord, at Tenant's expense, may remove and dispose of the Required Removables
and perform the required repairs. Tenant, within 30 days after receipt of an
invoice, shall reimburse Landlord for the reasonable costs incurred by Landlord.
Notwithstanding the foregoing, Tenant, at the time it requests approval for a
proposed Alteration (defined in Section 9.3), may request in writing that
Landlord advise Tenant whether the Alteration or any portion of the Alteration
will be designated as a Required Removable. Within 10 days after receipt of
Tenant's request, Landlord shall advise Tenant in writing as to which portions
of the Alteration, if any, will be considered to be Required Removables, and if
Landlord does not respond within such 10 day period, such Alterations will not
be considered Required Removables (and, in such event, Landlord shall not have
the right under the second sentence of this Section 8 to later require Tenant to
remove such Alterations).

9.   Repairs and Alterations.

     9.1  Tenant's Repair. Except as provided in Sections 4.3 and 9.2, Tenant
          shall, at its sole cost and expense, keep the interior, non-structural
          portions of the Premises in good condition and repair, reasonable wear
          and tear excepted. Tenant's repair obligations include, without
          limitation, repairs to: (1) floor covering, if needed due to abnormal
          wear and tear; (2) interior partitions; (3) interior doors; (4) the
          interior side of demising walls; (5) electronic, phone and data
          cabling and related equipment (collectively, "Cable") that is
          installed by or for the benefit of Tenant and located in the Premises
          and that was not part of or included in Landlord's Work; (6)
          supplemental air conditioning units, hot water heaters, plumbing, and
          similar facilities serving Tenant exclusively; and (7) Alterations
          performed after the Commencement Date by contractors retained by
          Tenant, including related HVAC balancing. All work shall be performed
          in accordance with the rules and procedures described in Section 9.3
          below. If Tenant fails to make any repairs to the

                                                                         Page 11
<PAGE>

          Premises for more than 30 days after notice from Landlord (although
          notice shall not be required if there is an emergency), Landlord may
          make the repairs, and Tenant shall pay the reasonable cost of the
          repairs to Landlord within 30 days after receipt of an invoice,
          together with an administrative charge in an amount equal to 10% of
          the cost of the repairs.

     9.2  Landlord's Maintenance and Repair. Landlord shall provide daily
          janitorial service to the Premises (exclusive of Saturdays, Sundays
          and holidays) including vacuuming, dusting, trash removal and such
          regular maintenance as is normally conducted in a comparable Class A
          office building in the geographical area of the Premises including but
          not limited to window cleaning, pest control and snow shoveling;
          provided that janitorial service shall not include shampooing the
          carpets, except for the Common Areas. Tenant shall make repairs and
          replacements to the Premises, common area, or Property needed because
          of any negligent or intentional act or omission of Tenant or Tenant's
          agents, employees or invitees, except to the extent that the repairs
          or replacements are covered by Landlord's insurance. Except for the
          repairs and replacements that Tenant must make under the preceding
          sentence and in Section 9.1 regarding Tenant's repairs, Landlord shall
          pay for, subject to reimbursement as an Expense if and to the extent
          provided in Section 4.3, and make all other repairs and replacements
          to the Common Area and Building, and shall maintain the Building in
          good condition as a Class A office building, including, but not
          limited to, structural parts of the Building, foundations, bearing and
          exterior walls (including glass), subflooring and roof (including roof
          membrane and skylights), electrical, plumbing and sewage systems,
          Cable installed as part of Landlord's Work, gutters and down spouts,
          the heating, ventilating and air conditioning system, interior walls,
          floors, ceilings, interior and exterior doors and windows and their
          appurtenant sills and frames, together with all fixtures, lighting,
          appliances, elevators, equipment, and plumbing and utility lines, and
          the sidewalks, grounds, landscaping, parking and loading areas. In no
          event shall Tenant be entitled to undertake any such maintenance or
          repairs, whether at the expense of Tenant or Landlord, and Tenant
          hereby waives the benefits of any law now or hereafter in effect which
          would otherwise provide Tenant with such right. The Lease and Tenant's
          obligation hereunder shall in no way be affected, impaired or excused
          because Landlord is unable to fulfill any of its obligations under
          this Lease due to fire, earthquake, inclement weather or other acts of
          God, acts of the public enemy, riot, insurrection, governmental
          regulation of the sales of materials or supplies or the transportation
          thereof, strikes or boycotts, shortages of materials or labor, or any
          other cause beyond the control of Landlord.

     9.3  Alterations. Tenant shall not make alterations, additions or
          improvements to the Premises or other portions of the Property after
          the Commencement Date which are not part of the initial Tenant's Work
          provided for herein (collectively referred to as "Alterations")
          without first obtaining the written consent of Landlord in each
          instance, which consent shall not be unreasonably withheld or delayed.
          If Landlord does not respond to Tenant's request for consent within
          ten (10) business days, Landlord shall be deemed to have granted its
          consent. However, Landlord's consent shall not be required for any
          Alteration that satisfies all of the following criteria (a "Cosmetic
          Alteration"): (1) is of a cosmetic nature such as painting,
          wallpapering, hanging pictures and installing carpeting; (2) is not
          visible from the exterior of the Premises or Property; (3) will not
          affect the systems or structure of the Property; and (4) does not
          require work to be performed inside the walls or above the ceiling of
          the Premises (other than installation of telephone, computer, data
          transmission, internet and other telecommunications cables and wires).
          However, even though consent is not required, the performance of
          Cosmetic Alterations shall be subject to all the other provisions of
          this Section 9.3. Prior to starting work, Tenant shall furnish
          Landlord with plans and specifications reasonably acceptable to
          Landlord; names of contractors reasonably acceptable to Landlord
          (provided that Landlord may designate specific contractors with
          respect to Property systems); necessary permits and approvals; and
          evidence of contractor's and subcontractor's insurance in

                                                                         Page 12
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          amounts reasonably required by Landlord. Material changes to the plans
          and specifications must also be submitted to Landlord for its
          approval, which approval shall not be unreasonably withheld or
          delayed. Alterations shall be constructed in a good and workmanlike
          manner using materials of a quality that is at least equal to the
          quality designated by Landlord as the minimum standard for the
          Premises. Landlord may designate reasonable rules, regulations and
          procedures for the performance of work in the Premises and, to the
          extent reasonably necessary to avoid disruption to the occupants of
          the Building, shall have the right to designate the time when
          Alterations may be performed. Tenant shall reimburse Landlord within
          30 days after receipt of an invoice for reasonable sums paid by
          Landlord for third party examination of Tenant's plans for non-
          Cosmetic Alterations, provided that no such reimbursement shall be due
          with respect to Tenant's initial Alterations in the Premises (or in an
          expansion of the Premises under Sections 6.1 or 6.3). Upon completion,
          Tenant shall furnish "as-built" plans (except for Cosmetic
          Alterations), completion affidavits, full and final waivers of lien
          and receipted bills covering all labor and materials. Tenant shall
          assure that the Alterations comply with all insurance requirements and
          Laws. Landlord's approval of an Alteration shall not be a
          representation by Landlord that the Alteration complies with
          applicable Laws or will be adequate for Tenant's use.

10.  Use of Electrical Services by Tenant.

     10.1 Electricity used by Tenant in the Premises shall be paid for by Tenant
          through inclusion in Expenses (except as provided in Section 10.2 for
          excess usage). Electrical service to the Premises may be furnished by
          one or more companies providing electrical generation, transmission
          and distribution services, and the cost of electricity may consist of
          several different components or separate charges for such services,
          such as generation, distribution and stranded cost charges. Landlord
          shall have the exclusive right to select any company providing
          electrical service to the Premises, to aggregate the electrical
          service for the Property and Premises with other buildings, to
          purchase electricity through a broker and/or buyers group and to
          change the providers and manner of purchasing electricity. In the
          event that any other tenant of the Building utilizes such tenant's
          premises, or any material portion thereof, for permitted uses which
          cause such tenant to use electrical service in excess of that
          associated with general office purposes, Landlord shall provide a
          separate meter to such tenant and separately charge such tenant for
          its electrical service, so that Tenant is not required to pay for any
          such excess use of electrical service by another tenant as part of the
          Expenses.

     10.2 Tenant's use of electrical service shall not exceed, either in
          voltage, rated capacity, use beyond Normal Business Hours or overall
          load, that which Landlord reasonably deems to be standard for normal
          office use in Class A office buildings. If Tenant requests permission
          to consume excess electrical service, Landlord may condition consent
          upon conditions that Landlord reasonably elects (including, without
          limitation, the installation of utility service upgrades, meters,
          submeters, air handlers or cooling units), and the additional usage
          (to the extent permitted by Law), installation and maintenance costs
          shall be paid by Tenant. Landlord shall have the right, at Landlord's
          cost, to separately meter electrical usage for the Premises and to
          measure electrical usage by survey or other commonly accepted methods.

11.  Entry by Landlord.

     Landlord, Landlord's agents, contractors and representatives may enter the
Premises to inspect or show the Premises, to clean and make repairs, alterations
or additions to the Premises, and to conduct or facilitate repairs, alterations
or additions to any portion of the Property, including other tenants' premises.
Except in emergencies or to provide janitorial and other Property services after
Normal Business Hours, Landlord shall provide Tenant with reasonable prior
notice of entry into the Premises,

                                                                         Page 13
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which may be given orally. If reasonably necessary for the protection and safety
of Tenant and its employees, Landlord shall have the right to temporarily close
all or a portion of the Premises and/or the Premises to perform repairs,
alterations and additions. However, except in emergencies, Landlord will not
close the Premises or the Premises if the work can reasonably be completed on
weekends and after Normal Business Hours. Entry by Landlord shall not constitute
constructive eviction or entitle Tenant to an abatement or reduction of Rent.
Any entry by Landlord and its agents and employees (including, but not limited
to the janitorial company servicing the Premises), shall be conducted in
compliance with reasonable confidentiality and security measures which may be
required by Tenant (including, but not limited to, an escort by one of Tenant's
employees and execution of confidentiality or nondisclosure agreements) in order
to protect the confidentiality and security of Tenant's business and employees,
and Landlord acknowledges and accepts that Tenant considers the entire Premises
as highly confidential and Landlord would have access to the Premises only if
escorted by one of Tenant's employees.

12.  Assignment and Subletting.

     12.1  Except in connection with a Permitted Transfer (defined in Section
           12.4 below), Tenant shall not assign, sublease, transfer or encumber
           any interest in this Lease or allow any third party to use any
           portion of the Premises (collectively or individually, a "Transfer")
           without the prior written consent of Landlord, which consent shall
           not be unreasonably withheld or delayed. Without limitation, it is
           agreed that Landlord's consent shall not be considered unreasonably
           withheld if: (1) in the event of a proposed assignment, the proposed
           transferee's financial condition does not meet Landlord's reasonable
           criteria used to select Building tenants having similar leasehold
           obligations; (2) the use of the Premises by the proposed transferee
           is not substantially the same as Tenant's use of the Premises (3) the
           proposed transferee is a governmental agency, or occupant of the
           Property with whom Landlord is then negotiating for other space in
           the Building; or (4) Tenant is in default after the expiration of the
           notice and cure periods in this Lease. Tenant shall not be entitled
           to receive monetary damages based upon a claim that Landlord
           unreasonably withheld its consent to a proposed Transfer and Tenant's
           sole remedy shall be an action to enforce any such provision through
           specific performance or declaratory judgment. Any attempted Transfer
           in violation of this Article shall, at Landlord's option, be void.
           Consent by Landlord to one or more Transfer(s) shall not operate as a
           waiver of Landlord's rights to approve any subsequent Transfers. In
           no event shall any Transfer or Permitted Transfer release or relieve
           Tenant from any obligation under this Lease.

     12.2  As part of its request for Landlord's consent to a Transfer, Tenant
           shall provide Landlord with financial statements for the proposed
           transferee (in the event of a proposed assignment), a complete copy
           of the proposed assignment, sublease and other contractual documents
           and such other information as Landlord may reasonably request.
           Landlord shall, by written notice to Tenant within 15 business days
           of its receipt of the required information and documentation, either
           consent to the Transfer by the execution of a consent agreement in a
           form reasonably designated by Landlord or reasonably refuse to
           consent to the Transfer in writing. Tenant shall pay Landlord a
           review fee not exceeding $2,500.00 for Landlord's review of any
           Permitted Transfer or requested Transfer for its actual reasonable
           costs and expenses (including reasonable attorney's fees).

     12.3  Tenant shall pay Landlord 50% of all rent and other consideration
           which Tenant receives as a result of a Transfer that is in excess of
           the Rent payable to Landlord for the portion of the Premises and Term
           covered by the Transfer. Tenant shall pay Landlord for Landlord's
           share of any excess within 30 days after Tenant's receipt of such
           excess consideration. Tenant may deduct from the excess all
           reasonable and customary expenses directly incurred by Tenant
           attributable to the Transfer (other than Landlord's review fee),
           including brokerage fees, legal fees and construction costs. If
           Tenant is in Monetary Default (defined in Section 19.1 below),
           Landlord may require that all sublease

                                                                         Page 14
<PAGE>

           payments be made directly to Landlord, in which case Tenant shall
           receive a credit against Rent in the amount of any payments received
           (less Landlord's share of any excess).

     12.4  Notwithstanding anything to the contrary contained in this Lease,
           Tenant may assign its entire interest under this Lease to a successor
           to Tenant by purchase, merger, consolidation or reorganization
           without the consent of Landlord, provided that all of the following
           conditions are satisfied (a "Permitted Transfer"): (1) Tenant is not
           in default under this Lease beyond applicable notice and cure
           periods; (2) Tenant's successor shall own all or substantially all of
           the assets of Tenant; (3) no material change of use of the Premises
           occurs; (4) Tenant shall give Landlord written notice at least 15
           days prior to the effective date of the proposed purchase, merger,
           consolidation or reorganization; and (5) all individuals then
           existing as guarantors execute a reaffirmation of the guarantee
           provided for by this Lease, if any, which is reasonably satisfactory
           in substance and form to Landlord. Tenant's notice to Landlord shall
           include information and documentation showing that each of the above
           conditions has been satisfied. If requested by Landlord in the event
           of an assignment, Tenant's successor shall sign a commercially
           reasonable form of assumption agreement. Notwithstanding anything to
           the contrary contained in this Lease, Tenant may sublet all or a
           portion of the Premises without Landlord's consent to an entity that
           qualifies as a permitted transferee under the foregoing provisions
           concerning Permitted Transfers, and Tenant may sublet a portion of
           the Premises which is less than 50% hereof to any contractors,
           vendors or other third parties who may be required by Tenant to work
           in conjunction with Tenant at the Premises on a project-specific
           basis.

13.  Liens.

     Tenant shall not permit mechanic's or other liens to be placed upon the
Property, the Premises or Tenant's leasehold interest in connection with any
work or service done or purportedly done by or for benefit of Tenant. If a lien
is so placed, Tenant shall, within 10 days of notice from Landlord of the filing
of the lien, fully discharge the lien by settling the claim which resulted in
the lien or by bonding or insuring over the lien in the manner prescribed by the
applicable lien Law, unless the lien arises out of Landlord's failure to pay the
Tenant Allowance in accordance with Exhibit D (in which event Landlord shall be
responsible for discharging the lien). If Tenant fails to discharge the lien
when Tenant is required to do so, then, in addition to any other right or remedy
of Landlord, Landlord may bond or insure over the lien or otherwise discharge
the lien. Tenant shall reimburse Landlord for any amount paid by Landlord to
bond or insure over the lien or discharge the lien, including, without
limitation, reasonable attorneys' fees (if and to the extent permitted by Law)
within 30 days after receipt of an invoice from Landlord.

14.  Indemnity and Waiver of Claims.

     14.1  Except to the extent caused by the negligence or willful misconduct
           of Landlord or any Landlord Related Parties (defined below), Tenant
           shall indemnify, defend and hold Landlord, its trustees, members,
           principals, beneficiaries, partners, officers, directors, employees,
           Mortgagee(s) (defined in Article 25) and agents ("Landlord Related
           Parties") harmless against and from all liabilities, obligations,
           damages, penalties, claims, actions, costs, charges and expenses,
           including, without limitation, reasonable attorneys' fees and other
           professional fees (if and to the extent permitted by Law), which may
           be imposed upon, incurred by or asserted against Landlord or any of
           the Landlord Related Parties and arising out of or in connection with
           any damage or injury occurring in the Premises or any acts or
           omissions (including violations of Law) of Tenant, the Tenant Related
           Parties (defined below) or any of Tenant's contractors or licensees.

     14.2  Except to the extent caused by the negligence or willful misconduct
           of Tenant or any Tenant Related Parties (defined below), Landlord
           shall indemnify, defend and hold

                                                                         Page 15
<PAGE>

           Tenant, its trustees, members, principals, beneficiaries, partners,
           officers, directors, employees and agents ("Tenant Related Parties")
           harmless against and from all liabilities, obligations, damages,
           penalties, claims, actions, costs, charges and expenses, including,
           without limitation, reasonable attorneys' fees and other professional
           fees (if and to the extent permitted by Law), which may be imposed
           upon, incurred by or asserted against Tenant or any of the Tenant
           Related Parties and arising out of or in connection with the acts or
           omissions (including violations of Law) of Landlord, the Landlord
           Related Parties or any of Landlord's contractors.

     14.3  Except to the extent such damage or loss results from the negligence
           or willful misconduct of Landlord or any Landlord Related Parties,
           Landlord and the Landlord Related Parties shall not be liable for,
           and Tenant waives, all claims for loss or damage to Tenant's business
           or loss, theft or damage to Tenant's Property or the property of any
           person claiming by, through or under Tenant resulting from: (1) wind
           or weather; (2) the failure of any sprinkler, heating or air-
           conditioning equipment, any electric wiring or any gas, water or
           steam pipes; (3) the backing up of any pipe or drain; (4) the
           bursting, leaking or running of any tank, water closet, drain or
           other pipe; (5) water, snow or ice upon or coming through the roof,
           skylight, stairs, doorways, windows, walks or any other place upon or
           near the Property; (6) any act or omission of any party other than
           Landlord or Landlord Related Parties; and (7) any causes not
           reasonably within the control of Landlord. Tenant shall insure itself
           against such losses under Article 15 below.

15.   Insurance.

      15.1  By Tenant. Tenant shall carry and maintain the following insurance
            ("Tenant's Insurance"), at its sole cost and expense: (1) Commercial
            General Liability Insurance, written on a claims made basis,
            applicable to the Premises and its appurtenances providing a minimum
            combined single limit of $2,000,000.00; and (2) All Risk
            Property/Business Interruption Insurance, including flood and
            earthquake (if available at reasonable cost), written at replacement
            cost value and with a replacement cost endorsement covering all of
            Tenant's trade fixtures, equipment, furniture and other personal
            property within the Premises ("Tenant's Property"). Any company
            writing any of Tenant's Insurance shall have an A.M. Best rating of
            not less than A-VIII. All Commercial General Liability Insurance
            policies shall name Tenant as a named insured and Landlord (or any
            successor), as additional insureds. All policies of Tenant's
            Insurance shall contain endorsements that the insurer(s) shall give
            Landlord and its designees at least 30 days' advance written notice
            of any cancellation, termination or lapse of insurance. Tenant shall
            provide Landlord with a certificate of insurance evidencing Tenant's
            Insurance prior to the earlier to occur of the Commencement Date or
            the date Tenant is provided with possession of the Premises for any
            reason, and upon renewals at least 15 days prior to the expiration
            of the insurance coverage.

15.2  By Landlord.

      15.2.1  Building and Improvements. Landlord shall obtain and keep in force
              during the term of this Lease a policy or policies in the name of
              Landlord, with loss payable to Landlord and to any Lender(s),
              insuring against loss or damage to the Property with such
              commercially reasonable deductible amount as is selected by
              Landlord. Such insurance shall be for full replacement cost, as
              the same shall exist from time to time, or the amount required by
              any Lender(s), but in no event more than the commercially
              reasonable and available insurable value thereof if, by reason of
              the unique nature or age of the improvements involved, such latter
              amount is less than full replacement cost. If the coverage is
              available and commercially reasonable, Landlord's policy or
              policies may insure against all risks of direct physical loss or
              damage (including flood and/or earthquake), including coverage for
              any additional costs resulting from debris removal and reasonable
              amounts of

                                                                         Page 16
<PAGE>

              coverage for the enforcement of any ordinance or law regulating
              the reconstruction or replacement of any undamaged sections of the
              Premises required to be demolished or removed by reason of the
              enforcement of any building, zoning, safety or land use laws as
              the result of a covered loss. Such policies may also contain an
              agreed valuation provision in lieu of any co-insurance clause,
              waiver of subrogation, and inflation guard protection causing an
              increase in the annual property insurance coverage amount by a
              factor selected by the insurer.

      15.2.2  Rental Value. Landlord also may obtain and keep in force during
              the term of this Lease a policy or policies in the name of
              Landlord, with loss payable to Landlord and any lender(s) to
              Landlord, insuring the loss of the full rental and other charges
              (including Operating Expenses) payable by all tenants of the
              Premises to Landlord for one year. Said insurance may provide that
              in the event the Lease is terminated by reason of an insured loss,
              the period of indemnity for such coverage shall be extended beyond
              the date of the completion of repairs or replacement of the
              Premises, to provide for one full year's loss of rental revenues
              from the date of any such loss. Said insurance shall contain an
              agreed valuation provision in lieu of any co-insurance clause, and
              the amount of coverage shall be adjusted annually to reflect the
              projected payments payable by Tenant for the next 12-month period.

      15.2.3  Increases Caused by Tenant. Tenant shall pay for any increase in
              the premiums charged to Landlord for the Property or Common Areas
              if said increase is caused by Tenant's acts, omissions, use or
              occupancy of the Premises.

      15.2.4  Liability for Common Areas. Landlord shall carry and maintain with
              respect to the Common Areas Commercial General Liability
              Insurance, written on a claims made basis, applicable to the
              Premises and its appurtenances providing a minimum combined single
              limit of $2,000,000.00, which shall name Landlord as a named
              insured and Tenant as an additional insured. Upon Tenant's
              request, Landlord shall provide Tenant with a certificate of
              insurance evidencing such liability insurance.

16.  Subrogation.

     Notwithstanding anything in this Lease to the contrary, Landlord and Tenant
hereby waive, and shall cause their respective insurance carriers to waive, any
and all rights of recovery, claim, action or causes of action against the other
and their respective trustees, principals, beneficiaries, partners, officers,
directors, agents, and employees, for any loss or damage that may occur to
Landlord or Tenant or any party claiming by, through or under Landlord or
Tenant, as the case may be, with respect to Tenant's Property, the Property, the
Premises, any additions or improvements to the Property, or Premises, or any
contents thereof, including all rights of recovery, claims, actions or causes of
action arising out of the negligence of Landlord or any Landlord Related Parties
or the negligence of Tenant or any Tenant Related Parties, which loss or damage
is (or would have been, had the insurance required by this Lease been carried)
covered by insurance.

17.  Casualty Damage.

     17.1  If all or any part of the Premises is damaged by fire or other
           casualty, Tenant shall immediately notify Landlord in writing. During
           any period of time that all or a portion of the Premises is rendered
           untenantable as a result of a fire or other casualty, the Rent shall
           abate for the portion of the Premises that is untenantable and not
           used by Tenant. Landlord shall have the right to terminate this Lease
           if: (1) the Property or the Premises shall be damaged so that, in
           Landlord's reasonable judgment, substantial alteration or

                                                                         Page 17
<PAGE>

           reconstruction of the Property not covered by insurance shall be
           required (whether or not the Premises has been damaged) and Landlord
           is therefore terminating all leases in the Building; (2) Landlord is
           not permitted by Law to rebuild the Property or the Premises in
           substantially the same form as existed before the fire or casualty
           (in which event Tenant may also terminate this Lease); (3) the
           Premises have been materially damaged and there is less than 2 years
           of the Term remaining on the date of the casualty; (4) any Mortgagee
           requires that such insurance proceeds be applied to the payment of
           the mortgage debt; or (5) a material uninsured loss to the Property
           or the Premises occurs. Landlord may exercise its right to terminate
           this Lease by notifying Tenant in writing within 90 days after the
           date of the casualty. If Landlord does not terminate this Lease,
           Landlord shall commence and proceed with reasonable diligence to
           repair and restore the Premises and the Leasehold Improvements
           (excluding any Alterations that were performed by Tenant in violation
           of this Lease). However, in no event shall Landlord be required to
           spend more than the insurance proceeds received by Landlord. Landlord
           shall not be liable for any loss or damage to Tenant's Property or to
           the business of Tenant resulting in any way from the fire or other
           casualty or from the repair and restoration of the damage. Landlord
           and Tenant hereby waive the provisions of any Law relating to the
           matters addressed in this Article, and agree that their respective
           rights for damage to or destruction of the Premises shall be those
           specifically provided in this Lease.

     17.2  If all or any portion of the Premises shall be made untenantable by
           fire or other casualty, Landlord shall, with reasonable promptness,
           cause an architect or general contractor selected by Landlord to
           provide Landlord and Tenant with a written estimate of the amount of
           time required to substantially complete the repair and restoration of
           the Premises and make the Premises tenantable again, using standard
           working methods ("Completion Estimate"). If the Completion Estimate
           indicates that the Premises cannot be made tenantable within 180 days
           from the date the repair and restoration is started, then regardless
           of anything in Section 17.1 above to the contrary, either party shall
           have the right to terminate this Lease by giving written notice to
           the other of such election within 10 days after receipt of the
           Completion Estimate.

18.  Condemnation.

     Either party may terminate this Lease if the whole or any material part of
the Premises shall be taken or condemned for any public or quasi-public use
under Law, by eminent domain or private purchase in lieu thereof (a "Taking").
Landlord shall also have the right to terminate this Lease if there is a Taking
of any portion of the Property or the Premises which would leave the remainder
of the Property or the Premises unsuitable for use as an office building in a
manner comparable to the Property's or the Premises' use prior to the Taking. In
order to exercise its right to terminate the Lease, Landlord or Tenant, as the
case may be, must provide written notice of termination to the other within 45
days after the Taking. Any such termination shall be effective as of the date
the physical taking of the Premises or the portion of the Property or the
Premises occurs. If this Lease is not terminated, the Rentable Area of the
Property, the Rentable Area of the Premises, Tenant's Pro Rata Share shall, if
applicable, be appropriately adjusted. In addition, Rent for any portion of the
Premises taken or condemned shall be abated during the unexpired Term of this
Lease effective when the physical taking of the portion of the Premises occurs.
All compensation awarded for a Taking, or sale proceeds, shall be the property
of Landlord, any right to receive compensation or proceeds being expressly
waived by Tenant. However, Tenant may file a separate claim at its sole cost and
expense for Tenant's Property and Tenant's reasonable relocation expenses,
provided the filing of the claim does not diminish the award which would
otherwise be receivable by Landlord.

19.  Events of Default.

     Tenant shall be considered to be in default of this Lease upon the
occurrence of any of the following events of default:

                                                                         Page 18
<PAGE>

     19.1   Tenant's failure to pay when due all or any portion of the Rent, if
            the failure continues for 3 business days after written notice to
            Tenant ("Monetary Default").

     19.2   Tenant's failure (other than a Monetary Default) to comply with any
            term, provision or covenant of this Lease, if the failure is not
            cured within 30 days after written notice to Tenant. However, if
            Tenant's failure to comply cannot reasonably be cured within 30
            days, Tenant shall be allowed additional time as is reasonably
            necessary to cure the failure so long as: (1) Tenant commences to
            cure the failure within 30 days, and (2) Tenant diligently pursues a
            course of action that will cure the failure and bring Tenant back
            into compliance with the Lease. However, if Tenant's failure to
            comply creates a hazardous condition, the failure must be cured
            immediately upon notice to Tenant.

     19.3   Tenant or any Guarantor becomes insolvent, makes a transfer in fraud
            of creditors or makes an assignment for the benefit of creditors, or
            admits in writing its inability to pay its debts when due.

     19.4   The leasehold estate is taken by process or operation of Law.

20.  Remedies.

     20.1   Upon any default, Landlord shall have the right without notice or
            demand (except as provided in Article 19) to pursue any of its
            rights and remedies at Law or in equity, including any one or more
            of the following remedies:

            20.1.1  Terminate this Lease, in which case Tenant shall immediately
                    surrender the Premises to Landlord. If Tenant fails to
                    surrender the Premises, Landlord may, in compliance with
                    applicable Law and without prejudice to any other right or
                    remedy, enter upon and take possession of the Premises and
                    expel and remove Tenant, Tenant's Property and any party
                    occupying all or any part of the Premises. Tenant shall pay
                    Landlord on demand the amount of all past due Rent and other
                    losses and damages which Landlord may suffer as a result of
                    Tenant's default, whether by Landlord's inability to relet
                    the Premises on satisfactory terms or otherwise, including,
                    without limitation, all Costs of Reletting (defined below)
                    and any deficiency that may arise from reletting or the
                    failure to relet the Premises. "Costs of Reletting" shall
                    include all costs and expenses incurred by Landlord in
                    reletting or attempting to relet the Premises, including,
                    without limitation, reasonable legal fees, brokerage
                    commissions, the cost of alterations and the value of other
                    concessions or allowances granted to a new tenant.

            20.1.2  Terminate Tenant's right to possession of the Premises and,
                    in compliance with applicable Law, expel and remove Tenant,
                    Tenant's Property and any parties occupying all or any part
                    of the Premises. Landlord may (but shall not be obligated
                    to, except to the extent required by law) relet all or any
                    part of the Premises, without notice to Tenant, for a term
                    that may be greater or less than the balance of the Term and
                    on such conditions (which may include concessions, free rent
                    and alterations of the Premises) and for such uses as
                    Landlord in its absolute discretion shall determine.
                    Landlord may collect and receive all rents and other income
                    from the reletting. Tenant shall pay Landlord on demand all
                    past due Rent, all Costs of Reletting and any deficiency
                    arising from the reletting or failure to relet the Premises.
                    Landlord shall not be responsible or liable for the failure
                    to relet all or any part of the Premises or for the failure
                    to collect any Rent. The re-entry or taking of possession of
                    the Premises shall not be construed as an election by
                    Landlord to terminate this Lease unless a written notice of
                    termination is given to Tenant.

                                                                         Page 19
<PAGE>

            20.1.3  In the event that Landlord shall elect to terminate this
                    Lease under Section 20.1.1, then upon such termination
                    Tenant shall (if it has not already done so) quit and
                    surrender the Premises to Landlord and Landlord may recover
                    from Tenant:

                         (i)   The worth at the time of award of any unpaid
                    Rent which had been earned at the time of such termination;
                    plus

                         (ii)  The worth at the time of award of 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

                         (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)  Any other amount necessary to compensate Landlord
                    for all the damage proximately caused by Tenant's failure to
                    perform Tenant's obligations under this Lease or which in
                    the ordinary course of things would be likely to result
                    therefrom.

                    As used in (i) and (ii) above, the "worth at the time of
                    award" is computed by allowing interest at 12% per annum. As
                    used in (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 1%.

     20.2   Unless expressly provided in this Lease, the repossession or re-
            entering of all or any part of the Premises shall not relieve Tenant
            of its liabilities and obligations under the Lease. No right or
            remedy of Landlord shall be exclusive of any other right or remedy.
            Each right and remedy shall be cumulative and in addition to any
            other right and remedy now or subsequently available to Landlord at
            Law or in equity. If Landlord declares Tenant to be in default,
            Landlord shall be entitled to receive interest on any unpaid item of
            Rent at a rate equal to 12% per annum. Forbearance by Landlord to
            enforce one or more remedies shall not constitute a waiver of any
            default.

21.  Landlord's Default; Limitation of Liability.

     Landlord's failure to perform or observe any of its obligations under this
Lease or to correct a breach of any warranty or representation made in this
Lease within thirty (30) days after receipt of written notice from Tenant
setting forth in reasonable detail the nature and extent of the failure (or if
more than thirty (30) days is required to cure the breach, Landlord's failure to
begin curing within the thirty (30) day period and diligently prosecute the cure
to completion) shall constitute a default by Landlord. If Landlord commits a
default, Tenant may, without waiving any claim for damages for breach of
agreement or any other rights or remedies it may have under this Lease at law,
at any time thereafter do any of the following:

     Provided Tenant has given notice of such default to Landlord's mortgage
lender and reasonable opportunity for said lender to cure the default, Tenant
may cure the default for the account of the Landlord, and any amount paid or any
contractual liability incurred by Tenant in so doing shall be deemed paid or
incurred for the account of Landlord, and Landlord shall reimburse Tenant within
thirty (30) days of demand. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO
TENANT SHALL BE LIMITED

                                                                         Page 20
<PAGE>

TO THE INTEREST OF LANDLORD IN THE PROPERTY AND ANY PROCEEDS THEREOF. TENANT
SHALL LOOK SOLELY TO LANDLORD'S INTEREST IN THE PROPERTY AND ANY PROCEEDS
THEREOF FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD. NEITHER
LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE PERSONALLY LIABLE FOR ANY
JUDGMENT OR DEFICIENCY. BEFORE FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD,
TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S) (DEFINED IN ARTICLE 25 BELOW)
WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES (DEFINED IN ARTICLE 25 BELOW) ON
THE PROPERTY, BUILDING OR PREMISES, NOTICE AND REASONABLE TIME TO CURE THE
ALLEGED DEFAULT. IN ADDITION, TENANT ACKNOWLEDGES THAT ANY ENTITY MANAGING THE
PREMISES ON BEHALF OF LANDLORD, OR WHICH EXECUTES THIS LEASE AS AGENT FOR
LANDLORD, IS ACTING SOLELY IN ITS CAPACITY AS AGENT FOR LANDLORD AND SHALL NOT
BE LIABLE FOR ANY OBLIGATIONS, LIABILITIES, LOSSES OR DAMAGES ARISING OUT OF OR
IN CONNECTION WITH THIS LEASE, ALL OF WHICH ARE EXPRESSLY WAIVED BY TENANT,
UNLESS DUE TO THE NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH ENTITY OR AGENT.

22.  No Waiver.

     Either party's failure to declare a default immediately upon its
occurrence, or delay in taking action for a default shall not constitute a
waiver of the default, nor shall it constitute an estoppel. Either party's
failure to enforce its rights for a default shall not constitute a waiver of its
rights regarding any subsequent default. Receipt by Landlord of Tenant's keys to
the Premises shall not constitute an acceptance or surrender of the Premises.

23.  Quiet Enjoyment.

     Tenant shall, and may peacefully have, hold and enjoy the Premises, subject
to the terms of this Lease, provided Tenant pays the Rent and fully performs all
of its covenants and agreements. This covenant and all other covenants of
Landlord shall be binding upon Landlord and its successors only during its or
their respective periods of ownership of the Premises, and shall not be a
personal covenant of Landlord or the Landlord Related Parties.

24.  Holding Over.

     Except for any permitted occupancy by Tenant under Article 8, if Tenant
fails to surrender the Premises at the expiration or earlier termination of this
Lease, occupancy of the Premises after the termination or expiration shall be
that of a tenancy at sufferance. Tenant's occupancy of the Premises during the
holdover shall be subject to all the terms and provisions of this Lease and
Tenant shall pay an amount (on a per month basis without reduction for partial
months during the holdover) equal to 150% of the sum of the Base Rent and
Additional Rent due for the period immediately preceding the holdover. No
holdover by Tenant or payment by Tenant after the expiration or early
termination of this Lease shall be construed to extend the Term or prevent
Landlord from immediate recovery of possession of the Premises by summary
proceedings or otherwise. In addition to the payment of the amounts provided
above, if Landlord is unable to deliver possession of the Premises to a new
tenant, or to perform improvements for a new tenant, as a result of Tenant's
holdover and Tenant fails to vacate the Premises within 15 days after Landlord
notifies Tenant of Landlord's inability to deliver possession, or perform
improvements, Tenant shall be liable to Landlord for all damages, including,
without limitation, consequential damages, that Landlord suffers from the
holdover.

25.  Subordination to Mortgages; Estoppel Certificate; Mortgagee Protection.

     Subject to the terms of this Section 25, Tenant accepts this Lease subject
and subordinate to any mortgage(s), deed(s) of trust or other lien(s) now or
subsequently arising upon the Premises or the Property, and to renewals,
modifications, refinancings and extensions thereof (collectively referred to as
a

                                                                         Page 21
<PAGE>

"Mortgage"). The party having the benefit of a Mortgage shall be referred to as
a "Mortgagee". This clause shall be self-operative, but upon request from a
Mortgagee, Tenant shall execute and deliver a subordination agreement in favor
of the Mortgagee within ten (10) business days of the request, provided that the
Mortgagee shall agree, in a non-disturbance agreement, to recognize this Lease
in the event of foreclosure if Tenant is not in default at such time subject to
such provisions relating to the disposition or application of insurance or
condemnation proceeds as may be contained in such Mortgagee's loan documents.
Tenant agrees to execute any reasonable documents required to effectuate such
subordination. In lieu of having the Mortgage be superior to this Lease, a
Mortgagee shall have the right at any time to subordinate its Mortgage to this
Lease. If requested by a successor-in-interest to all or a part of Landlord's
interest in the Lease, Tenant shall, without charge, attorn to the successor-in-
interest. Landlord and Tenant shall each, within 10 business days after receipt
of a written request from the other, execute and deliver an estoppel certificate
to those parties as are reasonably requested by the other (including a Mortgagee
or prospective purchaser). The estoppel certificate shall include a statement
certifying that this Lease is unmodified (except as identified in the estoppel
certificate) and in full force and effect, describing the dates to which Rent
and other charges have been paid, representing that, to such party's actual
knowledge, there is no default (or stating the nature of the alleged default)
and indicating other matters with respect to the Lease that may reasonably be
requested.

     Tenant agrees to give any mortgagee or deed of trust holder, by certified
mail, a copy of any notice of default served upon the Landlord, provided that
prior to such notice Tenant has been notified in writing (by way of Notice of
Assignment of Rents and Leases, or otherwise) of the addresses of such mortgagee
or deed of trust holder. Tenant further agrees that if Landlord shall have
failed to cure such default within the time provided for in this Lease, then the
mortgagees and/or trust deed holders have an additional thirty (30) days within
which to cure such default or if such default cannot be cured within that time,
then such additional time as may be necessary if within such 30 days any
mortgagee or deed of trust holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings if necessary to affect such cure), in
which event this Lease shall not be terminated if such remedies are being so
diligently pursued.

     Landlord represents that Landlord is the sole owner in fee simple of the
Property and that KeyBank, N.A. is the only mortgagee having a lien on the
Property as of the date of execution of this Lease. Landlord shall deliver to
Tenant, in recordable form, a subordination, nondisturbance and attornment
agreement from Mortgagee (the "Nondisturbance Agreement"), in such Mortagee's
customary form which shall be reasonably acceptable to Tenant, providing
substantially the same protections to Tenant as set forth above in this Section,
within twenty (20) days after execution of this Lease. If the Nondisturbance
Agreement is not so delivered, Tenant shall have the right to terminate this
Lease if it is not thereafter delivered within thirty (30) days after the giving
by Tenant to Landlord of written notice of Tenant's intent to terminate as a
result of Landlord's failure to so deliver.

26.  Attorneys' Fees.

     If either party institutes a suit against the other for violation of or to
enforce any covenant or condition of this Lease, or if either party intervenes
in any suit in which the other is a party to enforce or protect its interest or
rights, the prevailing party shall be entitled to all of its costs and expenses,
including, without limitation, reasonable attorneys' fees.

27.  Notice.

     If a demand, request, approval, consent or notice (collectively referred to
as a "notice") shall or may be given to either party by the other, the notice
shall be in writing and delivered by hand or sent by registered or certified
mail with return receipt requested, or sent by overnight or same day courier
service at the party's respective Notice Address(es) set forth in Article 1,
except that if Tenant has vacated the Premises (or if the Notice Address for
Tenant is other than the Premises, and Tenant has vacated such

                                                                         Page 22
<PAGE>

address) without providing Landlord a new Notice Address, Landlord may serve
notice in any manner described in this Article or in any other manner permitted
by Law. Each notice shall be deemed to have been received or given on the
earlier to occur of actual delivery or the date on which delivery is refused,
or, if Tenant has vacated the Premises or the other Notice Address of Tenant
without providing a new Notice Address, three (3) days after notice is deposited
in the U.S. mail or with a courier service in the manner described above. Either
party may, at any time, change its Notice Address by giving the other party
written notice of the new address in the manner described in this Article.

28.  Excepted Rights.

     This Lease does not grant any rights to light or air over or about the
Property or the Premises.  Landlord excepts and reserves exclusively to itself
the use of:  (1) roofs, (2) telephone, electrical and janitorial closets, (3)
equipment rooms, Property risers or similar areas that are used by Landlord for
the provision of Property services, (4) rights to the land and improvements
below the floor of the Premises, (5) the improvements and air rights above the
Premises, (6) the improvements and air rights outside the demising walls of the
Premises, and (7) the areas within the Premises used for the installation of
utility lines and other installations serving occupants of the Property.
Landlord  shall also have the right to make such other changes to the Property
(but not the interior of the Premises) as Landlord deems appropriate, provided
the changes do not materially affect Tenant's ability to use or access the
Premises for the Permitted Use.  Landlord shall also have the right (but not the
obligation) to temporarily close the Property if Landlord reasonably determine
that there is an imminent danger of significant damage to the Property or of
personal injury to Landlord's employees or the occupants of the Property.   The
circumstances under which Landlord may temporarily close the Property shall
include, without limitation, electrical interruptions, hurricanes and civil
disturbances.  A closure of the Property under such circumstances shall not
constitute a constructive eviction nor entitle Tenant to an abatement or
reduction of Rent.  Landlord shall have the right at any time, without thereby
creating an actual or constructive eviction or incurring any liability to Tenant
therefor, to change the arrangement or location of such of the following as are
not contained within the Premises or any part thereof (provided such change does
not adversely affect Tenant's use of or access to the Premises): entrances,
passageways, doors and doorways, corridors, stairs, toilets and other like
public service portions of the Property.

29.  Surrender of Premises.

     At the expiration or earlier termination of this Lease or Tenant's right of
possession, Tenant shall remove Tenant's Property (defined in Article 15) from
the Premises, and quit and surrender the Premises to Landlord, broom clean and
otherwise in the condition required by Section 9.1, ordinary wear and tear
excepted.  Tenant shall also be required to remove the Required Removables in
accordance with Article 8.  If Tenant fails to remove any of Tenant's Property
within 2 days after the termination of this Lease or of Tenant's right to
possession, Landlord, at Tenant's sole cost and expense, shall be entitled (but
not obligated) to remove and store Tenant's Property.  Landlord shall not be
responsible for the value, preservation or safekeeping of Tenant's Property.
Tenant shall pay Landlord, upon demand, the expenses and storage charges
incurred for Tenant's Property.  In addition, if Tenant fails to remove Tenant's
Property from the Premises or storage, as the case may be, within 30 days after
written notice, Landlord may deem all or any part of Tenant's Property to be
abandoned, and title to Tenant's Property shall be deemed to be immediately
vested in Landlord.

30.  Parking.

     30.1  Tenant agrees to further rent from Landlord and Landlord agrees to
           rent to Tenant the use, on a non-exclusive basis, of 1.7 parking
           stalls in the Building for each one thousand (1,000) square feet of
           Rentable Area of the Premises; provided Tenant shall be required to
           pay a parking fee for such use which fee shall be subject to change
           by Landlord (or Landlord's parking administrator) from time to time,
           but which fee shall not exceed the

                                                                         Page 23
<PAGE>

           market rate in the Lake Union area of Seattle for reasonably
           comparable parking facilities in reasonably comparable buildings. For
           the first twenty-four(s) months following the Commencement Date,
           Tenant and Landlord agree the fee shall be One Hundred Dollars ($100)
           per parking stall per month. Tenant's use of the parking shall be
           subject to such reasonable rules and regulations as Landlord may
           determine are appropriate.

     30.2  Tenant shall cooperate and comply with any legal requirements for the
           dissemination of information to commuters and visitors to the
           Property to encourage the use of available transportation
           alternatives and shall offer incentives to their employees to use
           such alternatives and otherwise comply with any governmentally
           sponsored traffic management or reduction plan. Landlord shall, at
           its cost, install a bicycle parking cage in the parking area.

31.  Miscellaneous.

     31.1  If Tenant's Premises become equal to at least two (2) full floors of
           the Building, Tenant, at Tenant's own expense, may place a ground
           level exterior monument sign, not exceeding four (4) feet in height
           or width, stating Tenant's name on the Building at the south side of
           the Building so long as (i) Tenant has obtained Landlord's prior
           written consent for the specific sign and location proposed by Tenant
           which consent shall not be unreasonably withheld, (ii) such sign
           shall conform to all applicable governmental rules and regulations,
           (iii) Tenant maintains such sign in good condition and appearance and
           (iv) at the termination of this Lease, Tenant, at Tenant's sole
           expense, shall remove such sign and repair any damage caused by such
           sign or its removal.

     31.2  This Lease and the rights and obligations of the parties shall be
           interpreted, construed and enforced in accordance with the Laws of
           the State of Washington and Landlord and Tenant hereby irrevocably
           consent to the jurisdiction and proper venue of such state. If any
           term or provision of this Lease shall to any extent be invalid or
           unenforceable, the remainder of this Lease shall not be affected, and
           each provision of this Lease shall be valid and enforced to the
           fullest extent permitted by Law. The headings and titles to the
           Articles and Sections of this Lease are for convenience only and
           shall have no effect on the interpretation of any part of the Lease.

     31.3  Tenant shall not record this Lease without Landlord's prior written
           consent, but the parties shall, at the request of either party,
           promptly execute a memorandum of this Lease which may be recorded in
           the real property records.

     31.4  Landlord and Tenant hereby waive any right to trial by jury in any
           proceeding based upon a breach of this Lease.

     31.5  Whenever a period of time is prescribed for the taking of an action
           by Landlord or Tenant, the period of time for the performance of such
           action shall be extended by the number of days that the performance
           is actually delayed due to strikes, acts of God, shortages of labor
           or materials, war, civil disturbances and other causes beyond the
           reasonable control of the performing party ("Force Majeure").
           However, events of Force Majeure shall not extend any period of time
           for the payment of Rent or other sums payable by either party.

     31.6  After the Notice Date and the substantial completion of Landlord's
           Work, Landlord shall have the right to transfer and assign, in whole,
           all of its rights and obligations under this Lease and in the
           Premises or the Property referred to herein, and upon such transfer
           and transfer of the Deposit, and provided the assignee assumes in
           writing all of Landlord's obligations hereunder, Landlord shall be
           released from any further obligations hereunder, and Tenant agrees to
           look solely to the successor in interest of Landlord for the
           performance of such obligations.

                                                                         Page 24
<PAGE>

31.7  Broker.

      31.7.1   Tenant represents and warrants to Landlord that it has not
               engaged nor dealt with any broker, finder or other person who
               would be entitled to any commission or fees for the negotiation,
               execution, or delivery of this Lease except for Teutsch Partners
               and Colliers International ("Landlord's Broker") and The Staubach
               Company ("Tenant's Broker"). Landlord agrees to pay and be
               responsible for any commissions owing to Landlord's Broker.
               Landlord agrees to pay in full satisfaction of any commission to
               Tenant's Broker due from Landlord arising out of this transaction
               and lease a commission equal to (i) Five Dollars ($5.00) per
               Rentable Square Foot of the Premises, as calculated at the
               commencement of this Lease (subject to adjustment if the Rentable
               Area of the Premises is re-calculated by the Commencement Date
               pursuant to Section 1.2), which commission shall be payable one-
               half (1/2) on mutual execution of this Lease and one-half (1/2)
               on occupancy of the Premises by Tenant and commencement of
               Tenant's obligation to pay Base Rent. In the event that the
               Premises are expanded by virtue of the 25th Month Expansion
               provided for in Section 6.1 above or by virtue of Tenant's
               exercise of its first right of refusal to lease provided for in
               Section 6.3 above, Landlord agrees to pay, in full satisfaction
               of any additional commission to Tenant's Broker, a commission
               equal to (i) Four Dollars ($4.00) per Rentable Square Foot the
               expanded portion of the Premises, which commission shall be
               payable upon commencement of Tenant's obligation to pay Base Rent
               for the expanded portion of the Premises. In the event of any
               renewal or extension of this Lease, Landlord shall have no
               obligation to pay any commission to Tenant's Broker. Tenant shall
               indemnify and hold Landlord harmless against any loss, cost,
               liability or expense incurred by Landlord as a result of any
               claim asserted by any such broker (other than Tenant's Broker and
               Landlord's Broker) on the basis of any arrangements or agreements
               made or alleged to have been made by or on behalf of Tenant in
               violation of Tenant's warranty in this Section.

      31.7.2   Agency Disclosure. At the signing of this Lease, Landlord was
               represented by Landlord's Broker. Each party signing this
               document confirms that the prior oral and/or written disclosure
               of agency was provided to such party in this transaction, as
               required by RCW 18.86.030(1)(g). Landlord and Tenant, by their
               execution of this Lease, each acknowledge and agree that they
               have timely received a pamphlet on the law of real estate agency
               as required under RCW 18.86.030(1)(f).

31.8  Tenant covenants, warrants and represents that: (1) each individual
      executing, attesting and/or delivering this Lease on behalf of Tenant is
      authorized to do so on behalf of Tenant; (2) this Lease is binding upon
      Tenant; and (3) Tenant is duly organized and legally existing in the state
      of its organization and is qualified to do business in the state in which
      the Premises are located. If there is more than one Tenant, or if Tenant
      is comprised of more than one party or entity, the obligations imposed
      upon Tenant shall be joint and several obligations of all the parties and
      entities. Notices, payments and agreements given or made by, with or to
      any one person or entity shall be deemed to have been given or made by,
      with and to all of them.

31.9  Time is of the essence with respect to Tenant's exercise of any expansion,
      renewal or extension rights granted to Tenant. This Lease shall create
      only the relationship of landlord and tenant between the parties, and not
      a partnership, joint venture or any other relationship. This Lease and the
      covenants and conditions in this Lease shall inure only to the benefit of
      and be binding only upon Landlord and Tenant and their successors and
      permitted assigns.

                                                                         Page 25
<PAGE>

     31.10  The expiration of the Term, whether by lapse of time or otherwise,
            shall not relieve either party of any obligations which accrued
            prior to or which may continue to accrue after the expiration or
            early termination of this Lease. Without limiting the scope of the
            prior sentence, it is agreed that Tenant's obligations under
            Sections 4.1, 4.2, 8, 14, 20 and 25 shall survive the expiration or
            early termination of this Lease.

     31.11  All understandings and agreements previously made between the
            parties are superseded by this Lease, and neither party is relying
            upon any warranty, statement or representation not contained in this
            Lease. This Lease may be modified only by a written agreement signed
            by Landlord and Tenant.

     31.12  Tenant, within 15 days after request (but not more than once per
            year), shall provide Landlord with a current financial statement and
            such other information as Landlord may reasonably request in order
            to create a "business profile" of Tenant and determine Tenant's
            ability to fulfill its obligations under this Lease. Landlord,
            however, shall not require Tenant to provide such information unless
            Landlord is requested to produce the information in connection with
            a proposed financing or sale of the Property. Upon written request
            by Tenant, Landlord shall enter into a commercially reasonable
            confidentiality agreement covering any confidential information that
            is disclosed by Tenant.

     31.13  The name of the Property may be changed by Landlord, provided it is
            not named after any biotechnical or pharmaceutical company.

     31.14  Tenant shall not be deemed to be a third party beneficiary of any
            other lease of the Property; Landlord retains the sole right to
            determine, in its reasonable discretion, whether to enforce and the
            method of enforcement of compliance by other tenants and their
            employees with the terms of their respective leases including any
            restrictions on use and parking; the existence of any violation of
            any lease provision by any other tenant shall not be deemed to be a
            violation of this Lease by Landlord.

     31.15  Submission of this Lease for examination, even though executed by
            Tenant, shall not bind Landlord in any manner, and no Lease or other
            obligation on the part of the Landlord shall arise, until this Lease
            is executed and delivered by Landlord to Tenant.

32.  Entire Agreement.

     This Lease and the following exhibits and attachments constitute the entire
agreement between the parties and supersede all prior agreements and
understandings related to the Premises, including all lease proposals, letters
of intent and other documents: Exhibit A-1 (Outline and Location of Premises),
Exhibit A-2 (Legal Description of Property), Exhibit B (Rules and Regulations),
Exhibit C (Landlord Work), Exhibit C-1 (Landlord's Plans and Specifications) and
Exhibit D (Tenant Allowance).

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                                                         Page 26
<PAGE>

     Landlord and Tenant have executed this Lease as of the day and year first
above written.

                    LANDLORD:

                    1144 Eastlake LLC, a Washington limited liability company

                    By:  /s/ Illegible
                       --------------------------------------------------------
                         Managing Member                  ,its authorized agent
                       -----------------------------------

                    TENANT:

                    ZymoGenetics, Inc., a Washington corporation

                    By:    /s/ Shinko Campos
                           ---------------------------------------------------
                    Name       Shinko Campos
                           ---------------------------------------------------
                    Title: Sr. VP. Operations
                           ---------------------------------------------------

                                                                         Page 27

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