Document:

exv10w35

Exhibit 10.35

EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made effective as of August 1, 2008 (the “Effective Date”), between HASTINGS
ENTERTAINMENT, INC., a Texas corporation (the “Company”), and Phil McConnell, an individual (the
“Executive”).

WITNESSETH:

     WHEREAS, the Company and the Executive desire to set forth the terms of their agreements
relating to the employment of Executive by the Company; and

     NOW THEREFORE, in consideration of the mutual promises herein contained, the Company and the
Executive agree as follows:

1. Employment. The Company hereby employs the Executive and the Executive hereby accepts
such employment subject to the terms and conditions contained in this Agreement. The
Executive is engaged as an employee of the Company. Neither the Executive nor the Company
intend to create a joint venture, partnership or other relationship that might impose a
fiduciary obligation on the Executive or the Company in the performance of this Agreement,
other than as an officer of the Company.

2. Executive’s Duties. The Executive is employed on a full-time basis. Throughout the term
of this Agreement, the Executive will use the Executive’s best efforts and due diligence to
assist the Company in the objective of achieving the most profitable operation of the
Company and the Company’s affiliated entities consistent with developing and maintaining a
quality business operation.

	 	2.1	 	Specific Duties. During the term of this Agreement, the
Executive will serve as Vice-President of Product for the Company and perform
the duties of such office as set forth in the Bylaws of the Company. The
Executive agrees to use the Executive’s best efforts to perform all of the
services required to fully and faithfully execute the offices and positions to
which the Executive is appointed and elected and such other services as may be
reasonably directed by the Chief Executive Officer of the Company in accordance
with this Agreement.
	 
	 	2.2	 	Modifications. The precise duties to be performed by the
Executive may be extended or curtailed in the discretion of the Chief Executive
Officer of the Company.
	 
	 	2.3	 	Responsibility. The Board of Directors of the Company retains
ultimate responsibility to determine the duties of the Executive.
	 
	 	2.4	 	Rules and Regulations. From time to time, the Company may issue
policies and procedures applicable to all its employees including the Executive.
These policies and procedures include, but are not limited to, the Company’s
Associate Handbook and Code of Conduct. The Executive agrees to comply with
such policies and procedures, except to the extent such policies conflict

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	 	 	 	with a material term or condition contained within this Agreement. Such
policies and procedures may be supplemented, modified, changed or adopted
without notice in the sole discretion of the Company at any time. In the
event of a conflict between such policies and procedures and this Agreement,
this Agreement will control unless compliance with this Agreement will
violate any law or regulation applicable to the Company or its affiliated
entities. The Company will apply its existing and future policies and
procedures in a lawful and evenhanded manner.

3. Other Activities. Except for activities approved by the Board of Directors, during the
period of Executive’s employment, the Executive will not: (a) engage in activities which
require such substantial services on the part of the Executive that the Executive is unable
to perform the duties assigned to the Executive in accordance with this Agreement; (b) serve
as an officer or director of any publicly held entity; or (c) directly or indirectly invest
in, participate in or acquire an interest in any entity as defined in Section 8(a)(i)(a) or
(b). The limitations in this Section 3 will not prohibit an investment by the Executive in
publicly traded securities as allowed in Section 8(a)(i). The Executive is not restricted
from maintaining or making investments, or engaging in other businesses, enterprises or
civic, charitable or public service functions if such activities, investments, businesses or
enterprises do not result in a violation of clauses (a) through (c) of this Section 3.

4. Executive’s Compensation. The Company agrees to compensate the Executive as follows:

	 	4.1	 	Base Salary. A base salary (the “Base Salary”), in an annual
rate of not less than ONE HUNDRED FIFTY-NINE THOUSAND SIX HUNDRED AND FIFTY AND
NO/100 ($159,650.00), will be paid to the Executive in installments consistent
with the Company’s customary payroll practices, during the term of this
Agreement.
	 
	 	4.2	 	Bonus. In addition to the Base Salary, the Executive will
participate in the Corporate Officer Incentive Plan (“COIP”). Executive’s
incentive target expressed as a percentage of Base Salary for the COIP
initially shall be Twenty percent (20%), proportionately reduced as to any
pro-rated performance period during which Executive is employed.
	 
	 	4.3	 	Equity Compensation. In addition to the compensation set forth
in Sections 4.1 and 4.2 of this Agreement, the Executive will be allowed to
participate in grants of stock options, restricted stock or other equity
related awards from the Company’s stock compensation plans put into effect from
time to time, subject to the terms and conditions of such plans.
	 
	 	4.4	 	Benefits. The Company agrees to extend to the Executive
retirement benefits, deferred compensation, reimbursement of reasonable
expenditures for dues, travel and entertainment and any other benefits the
Company provides to other executives or officers from time to time on the same
general terms as such benefits are provided to such individuals. The Company
will also provide the Executive the opportunity to apply for coverage under the

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	 	 	 	Company’s medical, life and disability plans, if any. If the Executive is
accepted for coverage under such plans, the Company will provide such
coverage on the same terms as is customarily provided by the Company to the
plan participants as modified from time to time.

	 	4.4.1	 	Vacation. The Executive will be entitled to
take paid vacation (as approved) each calendar year during the term of
this Agreement in accordance with Company policy, subject to proration
for any portion of a calendar year under this Agreement. No additional
compensation will be paid for failure to take vacation and no vacation
may be carried forward from one calendar year to another.

	 	4.5	 	Gross-Up Payment. In the event it is determined that any
payment or distribution by the Company or the Company’s subsidiaries or
affiliates to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 4.5) (“Parachute Payments”) subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code (the “Code”) or any
interest or penalties related to such excise tax (collectively, the “Excise
Tax”), and parachute payments exceed 110% of the Executive’s “280G parachute
limit” (determined in accordance with Internal Revenue Code Section 280G) the
Executive will be entitled to receive an additional payment (a “Gross-Up
Payment”) from the Company. The Gross-Up Payment will be equal to the amount
such that after payment by the Executive of all taxes (including the Excise
Tax, income taxes, interest and penalties imposed with respect to such taxes)
on the Gross-Up Payment, the Executive will retain an amount of the Gross-Up
Payment equal to the Excise Tax imposed on the Payment. If the Parachute
Payments to Executive are less than 110% of the 280G parachute limit, then the
amount of Parachute Payments will instead be reduced so that they are $1 less
than the 280G parachute limit. The Gross-Up Payment shall be paid to Executive
no later than the last day of the year after the year in which the Executive
remits the underlying taxes, penalties, and interest. If and to the extent
Executive’s compensation must be reduced to avoid Section 4999 excise taxes,
the annual bonus amount shall be reduced first, and if any additional amounts
must be reduced then the annual salary amount shall be reduced.

	 	4.5.1	 	Determination. Subject to the provisions of
Section 4.5.2 all determinations required to be made under this Section
4.5 (including whether and when a Gross-Up Payment is required, the
amount of such Gross-Up Payment and the assumptions to be utilized)
will be made by a nationally recognized certified public accounting
firm designated by the Executive (the “Accounting Firm”). The
Accounting Firm will provide detailed supporting calculations both to
the Company and the Executive within fifteen (15) business days of the
receipt of notice from the Executive that there has been a Payment of
excise tax, interest and/or penalties on the Parachute, or such

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	 	 	 	earlier time as is reasonably requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting a Change of Control (as
hereinafter defined), the Executive will be entitled to appoint
another nationally recognized accounting firm to make the
determinations required under this Section (which accounting firm
will then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm will be paid by the Company. Any
Gross-Up Payment required to be paid under this Section 4.5 will be
paid by the Company to the Executive within five (5) days of the
receipt of the Accounting Firm’s determination, but no later than the
last day of the year after the year in which the Executive remits the
underlying taxes, penalties, and interest. Any determination by the
Accounting Firm will be binding on the Company and the Executive. As
a result of the uncertainty in the application of Section 4999 of the
Code at the time of initial determination by the Accounting Firm, the
Gross-Up Payment made by the Company may be less than actually
required (an “Underpayment”) consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 4.5.2 below and the
Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm will determine the amount of the Underpayment
that has occurred and any such Underpayment will be promptly paid by
the Company to or for the benefit of the Executive. Any Underpayment
will be reimbursed, to the extent possible, in the same calendar year
in which it occurred, but in no event later than the end of the
calendar year after the year in which the executive remits the
underlying taxes.
	 
	 	4.5.2.	 	Contest of Claims. The executive will notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of a Gross-Up Payment. Such
notification will be given as soon as practicable but no later than ten
(10) business days after the Executive is informed in writing of such
claim and will apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive will
not pay such claim prior to the expiration of the thirty (30) day
period following the date on which the Executive notifies the Company
(or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such thirty (30) day
period that the Company desires to contest such claim, the Executive
will: (a) provide to the Company any information reasonably requested
by the Company relating to such claim; (b) take such action in
connection with contesting such claim as the Company reasonably
requests in writing including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company; (c) cooperate with the Company in good faith
as necessary to effectively contest

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	 	 	 	such claim; and (d) permit the Company to participate in any
proceedings relating to such claim. The Company will bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with the contest of the claim and
agrees to indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such protest
(including payment of costs and expenses as provided hereunder).
Without limitation on the foregoing provisions, the Company will
control all proceedings related to such contested claim, may at its
sole option pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may at its sole option either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner. The Executive agrees to prosecute
such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as the Company reasonably determines. If the Company directs
the Executive to pay a claim and sue for a refund, the Company will
be required to advance the amount of such payment to the Executive on
an interest-free basis and agrees to indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance, provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore,
the Company’s control of the contested claim will be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive will be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
	 
	 	4.5.3	 	Refunds. If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
4.5.2 the Executive becomes entitled to receive any refund with respect
to such claim the Executive will (subject to the Company’s complying
with the requirements of Section 4.5.2) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
4.5.2, a determination is made that the Executive will not be entitled
to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty (30) days after such
determination then the advance will be forgiven and will not be
required to be repaid and the amount of such advance will offset, to

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	 	 	 	the extent thereof, the amount of Gross-Up Payment required to be
paid.

	 	4.6	 	Compensation Review. The compensation of the Executive will be
reviewed on a regular basis by the Board of Directors of the Company (or a
Compensation Committee thereof) and shall be reviewed annually if the
compensation of other executive officers of the Company is reviewed at such
frequency. The compensation of the Executive prescribed in Section 4 of this
Agreement (including benefits) may be increased at the discretion of the Board
of Directors of the Company or the Compensation Committee.

5. Term. In the absence of an earlier termination as set forth in Section 6 below, this
Agreement will extend for a term commencing on the Effective Date, and ending on December
31, 2009 and, subject to the separation from service rights of either Company or Executive,
continuing automatically for successive twelve (12) month periods thereafter. Either
Company or Executive may terminate this Agreement effective as of January 1st of
any year beginning as of January 1, 2010 provided that written notice of such termination is
given to the other party on or before ninety (90) days preceding such January 1st
date of termination. However, unless the Company provides written notice of non-extension
to the Executive on or before thirty days prior to the expiration date, the term and the
expiration date will be automatically extended for one (1) additional year. The Executive
may continue to be employed by the Company upon termination of this Agreement if mutually
agreed in writing by Executive and Company.

6. Separation from Service. The Executive’s employment will continue in effect until the
expiration of the term set forth in Section 5 of this Agreement unless an earlier separation
from service occurs pursuant to this Section 6.

	 	6.1	 	Separation from Service by Company. The Company will have the
following rights to cause a separation from service between Employee and
Company:

	 	6.1.1	 	Separation from Service without Cause.
	 
	 	 	 	The Company may cause a separation from service and Executive’s
employment shall terminate without Cause at any time by the service
of written notice of separation from service and termination to the
Executive specifying an effective date of such separation and
termination not sooner than ten (10) days after the date of such
notice (the “Separation from Service Date”). In the event the
Executive is separated and terminated without Cause (other than a CC
Separation from Service under Section 6.3 of this Agreement), the
Executive will receive as compensation: (i) for a period of 18
months his Base Salary (as in effect on the Separation from Service
Date) plus bonus payable under COIP (based upon the incentive target
percentage in effect on the Separation from Service Date and assuming
Company performance at 100% of target); and (ii) any vacation pay
accrued through the Separation from Service Date. The payment of
such

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	 	 	 	amounts shall be made during the remaining term of the Agreement in
installments consistent with the Company’s normal payroll practices
(including proration of bonus and payment of bonus when normally paid
by the Company) but, if on the Separation from Service Date, the
Executive is a “specified employee” as defined in regulations under
Section 409A of the Code, such payments, to the extent not exempt,
will commence on the first payroll payment date which is more than
six (6) months following the Separation from Service Date (except as
otherwise required under 11.11 hereof) and the first payment shall
include any amounts that would have otherwise been payable during the
six month period.
	 
	 	6.1.2	 	Separation from Service for Cause. The
Company may cause a separation from service, and Executive’s employment
shall terminate, for Cause. For purposes of this Agreement, “Cause”
means either of the following:

(a) the engagement by the Executive in illegal conduct, gross
misconduct or a clearly established material violation of the
Company’s written policies and procedures; or

(b) the failure of the Executive to perform substantially the
Executive’s duties with the Company or its subsidiaries or affiliates
(other than a failure resulting from incapacity due to physical or
mental illness).

     For purposes of Section 6.1.2(a) of this Agreement, “gross
misconduct” means conduct evidencing a willful or wanton disregard
for the legitimate business interests of the Company, deliberate
violations of Company policy or flagrant disregard for standards of
behavior the Company has a right to expect from one of its corporate
officers, to the extent such policy or standards of behavior do not
violate any law or regulation.

     Any act, or failure to act, based on authority given pursuant to
a resolution duly adopted by the Board of Directors based on the
advice of counsel for the Company will be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in
the best interests of the Company. In the event a separation from
service occurs for Cause, the Company will not have any obligation to
provide any further payments or benefits to the Executive after the
effective date of such separation from service, except for prorated
bonus based on actual performance at the end of the performance
period, and accrued vacation through date of separation from service,
and any other amounts required by applicable law or policy.

	 	6.2	 	Separation from Service by Executive. The Executive may
voluntarily cause a separation from service with the Company by the service of
written

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	 	 	 	notice of such separation from service to the Company specifying an
effective date of such separation from service thirty (30) days after the
date of such notice, during which time the Executive may use remaining
accrued vacation days, or at the Company’s option, be paid for such days.
In the event separation from service is undertaken by the Executive, neither
the Company nor the Executive will have any further obligations hereunder,
except for any obligations which expressly survive separation from service
including, without limitation, any obligation of the Company to provide any
further payments or benefits to the Executive after the effective date of
such separation from service.
	 
	 	6.3	 	Separation from Service After Change in Control. If during the
term of this Agreement there is a “Change of Control” and within twenty-four
(24) months thereafter, notwithstanding any separation from service pursuant to
Section 5, there is a CC Separation from Service (as hereafter defined), then
the Executive will be entitled to a severance payment (in addition to any other
rights and other amounts payable to the Executive or under Company plans in
which Executive is a participant) payable in a lump sum in cash within 10 days
following the CC Separation from Service in an amount equal to two times (2X)
the sum of the following: (a) the Executive’s Base Salary for the last
eighteen (18) calendar months ending immediately prior to the CC Separation
from Service and bonus paid pursuant to Section 4.2 (based upon the incentive
target percentage in effect on the Separation from Service Date and assuming
Company performance at 100% of target); plus (b) any applicable Gross-Up
Payment. If the foregoing amount is not paid within ten (10) days after the CC
Separation from Service, the unpaid amount will bear interest at the per annum
rate of 12%, but in no event higher than the highest rate allowed by applicable
law. Notwithstanding the foregoing, if at the time of a CC Separation from
Service, the Executive is a “specified employee” as defined in regulations
under Section 409A of the Code, such payment, to the extent not exempt, will be
made on the first day which is more than six months following the CC Separation
from Service. In connection with any Change of Control, the Company shall
obtain the assumption of this Agreement, without limitation or reduction, by
any successor to the Company or any parent corporation of the Company. In
addition, the vesting for stock options, SERP, and issued restricted stock
shall be accelerated to the date of the CC Separation from Service.

	 	6.3.1	 	Change of Control. For the purpose of this
Agreement, a “Change of Control” means the occurrence of any of the
following:

(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14 (d)(2) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)) (a “Person”), other
than John H. Marmaduke or his affiliate or by a party or entity
acting for or by the direction of John Marmaduke (the “Exempt
Persons”), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either (i) the

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then outstanding shares of common stock of the Company (the
“Outstanding Company Common Stock”) or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the “Outstanding Company
Voting Securities”). For purposes of this paragraph (a) the
following acquisitions by a Person will not constitute a Change of
Control: (i) any acquisition directly from the Company; (ii) any
acquisition by the Company; (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or (iv) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of this Section 6.3.1.

(b) If, during any 12 consecutive month period during this Agreement,
the individuals who, as of the date hereof, constitute the Board of
Directors (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board of Directors. Any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company’s shareholders, is approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board will be considered a member of the Incumbent Board as
of the date hereof, but any such individual whose initial assumption
of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Incumbent Board will not be deemed
a member of the Incumbent Board as of the date hereof.

(c) The consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a “Business Combination”), unless following such
Business Combination:

(i) (a) the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company’s assets either directly
or through one or more subsidiaries) in

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substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities as the case may be,

     (b) no Person (excluding any corporation resulting from
such Business Combinations or any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) other than one or more of the
Exempt Persons beneficially owns, directly or indirectly, 40%
or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business
Combination of the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and

     (c) at least a majority of the members of the board of
directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination, or

     (d) A majority of the board of directors of the
corporation resulting from such Business Combination are
Incumbent Directors.

(d) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

	 	6.3.2	 	Change of Control Separation from Service.
The term “CC Separation from Service” means any of the following: (a)
a separation from service is undertaken by the Company other than under
Sections 6.1.2, 6.4 or 6.5; or (b) the Executive undertakes a
separation from service as a result of a material adverse change in the
Executive’s duties or title, a significant reduction in the Executive’s
then current Base Salary that is not generally applicable to all or
substantially all of the Company’s executives or a significant
reduction in the Executive’s then current benefits as provided in
Section 4; (c) a relocation of more than One Thousand (1,000) miles
from the Executive’s then current place of employment being required by
the Board of Directors; (d) the approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company; or (e)
a default by the Company under this Agreement.

	 	6.4	 	Incapacity of Executive. If the Executive suffers from a
medically diagnosed physical or mental condition, which in the reasonable
business

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	 	 	 	judgment of the Company’s Board of Directors, prevents the Executive (in
whole or in part) from performing the duties specified herein for a period
of four (4) consecutive months, the Company may cause a separation from
service, in which event, the Company will pay Executive his Base Salary and
Bonus (computed at up to 100% of plan based on actual performance, but in no
event more than 100% of plan regardless of actual performance) in effect on
the date of notice of separation from service through the lesser of (i) the
death of Executive; or (ii) the remaining term of this Agreement, but in any
event through the Expiration Date, reduced by any disability payments
received by Executive from any third party. The payment of such amounts
shall be made during the remaining term of the Agreement in installments
consistent with the Company’s normal payroll practices. It is the intent of
the parties to hereby create a “bona fide disability plan provision” exempt
from IRC 409A, but, if on the separation from service date, the Executive is
a “specified employee” as defined in regulations under Section 409A of the
Code, such payments, in and to the extent deemed covered by 409A, will
commence on the first payroll payment date which is more than six months
following the notice of separation from service date and the first payment
shall include any amounts that would have otherwise been payable during the
six (6) month period. Notwithstanding the foregoing, the amount payable
hereunder will be reduced by any benefits payable under any disability plans
provided by the Company under Section 4.4 of this Agreement. Nothing in
this Section will be interpreted or applied so as to lessen the Executive’s
rights under state or federal disability or medical leave laws.
	 
	 	6.5	 	Death of Executive. If the Executive dies during the term of
this Agreement, it will be deemed that a separation from service occurred on
the date of death and Executive’s employment will terminate without
compensation to the Executive’s estate except: (a) the obligation to continue
the Base Salary payments under Section 4.1 of this Agreement for twelve (12)
months after the date of death of the Executive, and (b) the benefits described
in Section 4.4 of this Agreement accrued through the date of death of the
Executive, including a prorated portion of bonus paid pursuant to the
provisions and goals of the COIP then in effect, based upon the incentive
target percentage in effect and assuming performance at 100% of target.
	 
	 	6.6	 	Resignation Following Constructive Discharge. If at any time,
except in connection with a separation from service otherwise pursuant to this
Agreement, Executive is Constructively Discharged (as that term is defined in
this Section 6.6) then Executive shall have the right, by written notice to
Company within sixty (60) days of such Constructive Discharge, to undertake a
separation from service hereunder, effective as of thirty (30) days after such
notice; provided the Company has failed to cure the Constructive Discharge
within the thirty-day period following the notice. Executive shall in such
event be entitled to the compensation and benefits as if such separation from
service occurred pursuant to Section 6.1.1.

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For purposes of this Agreement, Executive shall be “Constructively
Discharged” upon the occurrence of any one of the following events:

(a) Executive is demoted or removed from his position with the Company other
than as a result of Executive’s appointment to a position of equal or
superior scope and responsibility.

(b) Executive’s targeted total compensation is reduced by more than 20%
(other than across-the-board reductions similarly affecting all executive
officers of Company).

(c) Executive experiences a material adverse change of duties or
responsibilities in his position.

(d) Any material breach of this Agreement by the Company.

	 	6.7	 	Effect of Separation from Service. A separation from service
will terminate all obligations of the Executive to render services on behalf of
the Company. The Executive will maintain the confidentiality of all
information acquired by the Executive during the term of his Employment in
accordance with Section 7 of this Agreement and the covenants set forth in
Section 8 of this Agreement. Except as otherwise provided in this Section 6,
no accrued bonus, severance pay or other form of compensation will be payable
by the Company to the Executive by reason of the separation from service. In
the event that payments are required to be made by the Company under this
Section 6, the Executive will not be required to seek other employment as a
means of mitigating the Company’s obligations hereunder resulting from
separation from service and the Company’s obligations hereunder (including
payment of severance benefits) will not be terminated, reduced, or modified as
a result of the Executive’s earnings from other employment or self-employment.
All keys, entry cards, credit cards, records, financial information, furniture,
furnishings, equipment, supplies and other items relating to the Company will
remain the property of the Company. The Executive will have the right to
retain and remove all personal property and effects that are owned by the
Executive and located in the offices of the Company, subject to inspection by
the Company. All such personal items will be removed from such offices no
later than ten (10) days after the effective date of separation from service,
and the Company is hereby authorized to discard any items remaining and to
reassign the Executive’s office space after such date. Prior to the effective
date of termination, the Executive will cooperate with the Company to provide
for the orderly separation from service of the Executive’s employment.

7. Confidentiality. The Executive recognizes that the nature of the Executive’s services
are such that Executive will have access to information which constitutes trade secrets, is
of a confidential nature, is of great value to the Company or is the foundation on which the
business of the Company is predicated. The Executive agrees not to disclose to any person
other than the Company’s employees or the Company’s legal counsel or other

Page 12 of 18

 

parties authorized by the Company to receive confidential information (“Confidential
Information”) nor use for any purpose, other than the performance of this Agreement, any
Confidential Information. Confidential Information includes data or material (regardless of
form) which is: (a) a trade secret; (b) provided, disclosed or delivered to Executive by
the Company, any officer, director, employee, agent, attorney, accountant, consultant, or
other person or entity employed by the Company in any capacity, any customer, borrower or
business associate of the Company or any public authority having jurisdiction over the
Company of any business activity conducted by the Company; or (c) produced, developed,
obtained or prepared by or on behalf of Executive or the Company (whether or not such
information was developed in the performance of this Agreement) with respect to the Company
or any assets oil and gas prospects, business activities, officers, directors, employees,
borrowers or customers of the foregoing. However, Confidential Information will not include
any information, data or material which at the time of disclosure or use was generally
available to the public other than by a breach of this Agreement, was available to the party
to whom disclosed on a non-confidential basis by disclosure or access provided by the
Company or a third party, or was otherwise developed or obtained independently by the person
to whom disclosed without a breach of this Agreement. On request by the Company, the
Company will be entitled to a copy of any Confidential Information in the possession of the
Executive. The provisions of this Section 7 will survive the termination, expiration or
cancellation of Executive’s employment and shall continue indefinitely. The Executive will
deliver to the Company all originals and copies of the documents or materials containing
Confidential Information. For purposes of Sections 7, 8, and 9 of this Agreement, the
Company expressly includes any of the Company’s subsidiaries or affiliates.

8. Non-Competition.

(a) Scope. During the effectiveness of this Agreement (the “Term”), Executive shall devote
substantially of his business, time, attention and energies to the business and interests of
Company, and except as otherwise provided herein, shall not be engaged (whether or not
during normal business hours) in any other business or professional activity (whether or not
such activity is pursued for gain, profit or other pecuniary advantage) without first
obtaining the written consent of the Board of Directors of Company. During the Term of and
for a period of eighteen (18) months after the expiration or termination of this Agreement,
for any reason or for no reason at all, Employee shall not directly or indirectly:

(i) Own, have any interest in or be, serve or act as an individual proprietor,
partner, agent, stock holder, officer, employee, consultant, director, joint
venturer, investor, lender, or in any other capacity whatsoever (other than as the
holder of not more than one percent (1%) of the total outstanding stock of a
publicly held company) of or with, or assist in any way,

(a) any corporation, partnership, firm or business enterprise at least 20%
of whose sales (in annual dollar volume) are books, music or video sales or
rentals (whether such book, music or video [including games] is new or
pre-owned) (individually or in the aggregate with all affiliates thereof) or
which does business anywhere in the United States, or

Page 13 of 18

 

(b) any of the following companies (individually or in the aggregate with
all their affiliates) Wal-Mart Stores, Inc., Books-A-Million, Inc., GameStop
Corp., Barnes & Noble, Inc., Borders Group, Inc., Target Corp., Best Buy Co.
Inc., Circuit City Stores Inc., Blockbuster Inc., and Movie Gallery, Inc.

(ii) Solicit or induce, or attempt to induce, any employee or independent contractor
of Company or any other person who shall be in the service of Company to terminate
his or her employment with or otherwise cease his or her relationship with Company;
or

(iii) Solicit, divert or take away, or attempt to solicit, divert or take away the
business or patronage of any of the clients, customers (whether any such customer
has done business once or more than once), suppliers or accounts, or prospective
clients, customers or accounts, or suppliers to Company, but Executive shall not be
prevented from doing business with such persons or entities.

a. It is hereby expressly agreed that if any portion of this Section 7 or any of the
covenants and provisions set forth in this Agreement regarding restrictions on competition,
confidentiality or solicitation is held to be unreasonable, arbitrary, against public policy
or otherwise unenforceable for any reason, then each such covenant or provision shall be
considered divisible as to scope, time and geographical area, with each month of a specified
period being deemed a separate period of time and each county within any geographical area
being deemed a separate geographical area. The parties to this Agreement also expressly
agree that notwithstanding their mutual expectation that the covenants and restrictions
contained herein will be enforceable and enforced, a lesser scope, period of time or
geographic area shall be enforced to the extent that the covenants contained herein may be
unenforceable as written.

9. Proprietary Matters. The Executive expressly understands and agrees that any and all
improvements, inventions, discoveries, processes or know-how that are generated or conceived
by the Executive during the term of this Agreement, whether generated or conceived during
the Executive’s regular working hours or otherwise, will be the sole and exclusive property
of the Company. Whenever requested by the Company (either during the term of this Agreement
or thereafter), the Executive will assign or execute any and all applications, assignments
and/or other instruments and do all things which the Company deems necessary or appropriate
in order to permit the Company to: (a) assign and convey or otherwise make available to the
Company the sole and exclusive right, title, and interest in and to said improvements,
inventions, discoveries, processes, know-how, applications, patents, copyrights, trade names
or trademarks; or (b) apply for, obtain, maintain, enforce and defend patents, copyrights,
trade names, or trademarks of the United States or of foreign countries for said
improvements, inventions, discoveries, processes or know-how. However, the improvements,
inventions, discoveries, processes or know-how generated or conceived by the Executive and
referred to above (except as they may be included in the patents, copyrights or registered
trade names or trademarks of the Company, or corporations, partnerships or other entities
which may be affiliated with the Company) will not be exclusive property of the Company at
any time after having been disclosed or revealed or have otherwise become available to the
public or to a third party on a non-confidential basis other than by a breach of this
Agreement, or after they have been independently developed or

Page 14 of 18

 

discussed without a breach of this Agreement by a third party who has no obligation to the
Company or the Company Entities.

10. Arbitration. The parties will attempt to promptly resolve any dispute or controversy
arising out of or relating to this Agreement or separation of service of the Executive by
the Company. Any negotiations pursuant to this Section 10 are confidential and will be
treated as compromise and settlement negotiations for all purposes. If the parties are
unable to reach a settlement amicably, the dispute will be submitted to binding arbitration
before a single arbitrator in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. The arbitrator will be instructed and empowered to take
reasonable steps to expedite the arbitration and the arbitrator’s judgment will be final and
binding upon the parties subject solely to challenge on the grounds of fraud or gross
misconduct. The arbitration will be held in Potter County, Texas. Judgment upon any
verdict in arbitration may be entered in any court of competent jurisdiction and the parties
hereby consent to the jurisdiction of, and proper venue in, the federal and state courts
located in Potter or Randall County, Texas. The Company will pay the costs and expenses of
the arbitration including, without implied limitation, the fees for the arbitrators.
Subject to the provisions of Section 11.8, Executive shall pay for the fees and expenses of
his counsel, experts and any other advisors, unless otherwise determined by the arbitrator.
Unless otherwise expressly set forth in this Agreement, the procedures specified in this
Section 10 will be the sole and exclusive procedures for the resolution of disputes and
controversies between the parties arising out of or relating to this Agreement.
Notwithstanding the foregoing, a party may seek a preliminary injunction or other
provisional judicial relief if in such party’s judgment such action is necessary to avoid
irreparable damage or to preserve the status quo.

11. Miscellaneous. The parties further agree as follows:

	 	11.1	 	Time. Time is of the essence of each provision of this
agreement.
	 
	 	11.2	 	Notices. Any notice, payment, demand or communication required
or permitted to be given by any provision of this Agreement will be in writing
and will be deemed to have been given when received by personal delivery, by
facsimile, by overnight courier, or by certified mail, postage and charges
prepaid, directed to the following address or to such other or additional
addresses as any party might designate by written notice to the other party:

	 	 	 	 	 
	 

	 	To the Company:
	 	Hastings Entertainment, Inc.
	 

	 	 	 	Attn: President
	 

	 	 	 	P. O. Box 35350 (79120)
	 

	 	 	 	3601 Plains Blvd.
	 

	 	 	 	Amarillo, TX 79102
	 
	 

	 	   With a copy to:
	 	Sprouse Shrader Smith, P.C.
	 

	 	 	 	 
	 

	 	 	 	Attn: Jeffrey G. Shrader
	 

	 	 	 	P. O. Box 15008 (79105)
	 

	 	 	 	701 S. Taylor, Suite 500
	 

	 	 	 	Amarillo, TX 79101

Page 15 of 18

 

	 	 	 	 	 
	 

	 	To the Executive:
	 	Phil McConnell
	 

	 	 	 	Hastings Entertainment, Inc.
	 

	 	 	 	P. O. Box 35350 (79120)
	 

	 	 	 	3601 Plains Blvd.
	 

	 	 	 	Amarillo, TX 79102

	 	11.3	 	Assignment. Neither this Agreement nor any of the parties’
rights or obligations hereunder can be transferred or assigned without the
prior written consent of the other parties to this Agreement.
	 
	 	11.4	 	Construction, Choice of Law & Choice of Forum. This Agreement
is intended to be interpreted, construed and enforced in accordance with the
laws of the state of Texas. Further, any claim or cause of action or judicial
proceedings that arise under or relate to this Agreement must be brought in a
court of the competent jurisdiction in and for Potter County, Texas which shall
be the exclusive forum.
	 
	 	11.5	 	Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is determined, to any
extent, to be invalid or unenforceable, the remainder of this Agreement, or the
application of such provision to persons or circumstances other than those as
to which the same is held invalid or unenforceable, will not be affected
thereby, and each term and provision of this Agreement will be valid and
enforceable to the fullest extent permitted by law.
	 
	 	11.6	 	Entire Agreement. Except as otherwise provided in this
Agreement, this Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter herein contained, and no modification
hereof will be effective unless made by a supplemental written agreement
executed by all of the parties hereto.
	 
	 	11.7	 	Binding Effect. This Agreement will be binding on the parties
and their respective successors, legal representatives and permitted assigns.
In the event of a merger, consolidation, combination, dissolution or
liquidation of the Company, the performance of this Agreement will be assumed
by any entity which succeeds to or is transferred the business of the Company
as a result thereof.
	 
	 	11.8	 	Attorney’s Fees, Costs, and Other Enforcement. If any party
institutes an action, proceeding or arbitration against any other party
relating to the provisions of this Agreement or any default hereunder, each
Party will be responsible for paying their own legal fees and expenses, unless
an award of fees by the arbitrator or court provides otherwise, including any
costs of appeal, except if Executive is required to bring action or pursue
legal remedies to enforce payment following CC Separation from Service
provisions, Executive shall be entitled to recover all reasonable and necessary
attorney’s fees incurred in such action, on a monthly basis, regardless of the
outcome of such action. In addition, should the Company fail or refuse to

Page 16 of 18

 

	 	 	 	make payment of any amounts under the CC Separation from Service provisions,
upon written request of the Executive, in addition to the payment of any
other sums provided in this Agreement, interest at the prime rate published
from time to time in the Wall Street Journal plus three (3) percentage
points, compounded daily, on any amount remaining unpaid fifteen (15) days
following receipt of such demand, until paid to Executive. If the timing of
such reimbursement of fees and costs or payment of interest to Executive by
Company would trigger tax liability under IRC Code 409A, the Company shall
pay the Executive’s estimate of fees, costs, and interest by the deadline
set out in the final IRC 409A regulations and Executive will be required to
pay the amounts to Company if he loses, except under a CC Separation from
Service situation, in which Executive shall be under no obligation to repay
such amounts.
	 
	 	11.9	 	Supersession. This Agreement is the final, complete and
exclusive expression of the agreement between the Company and the Executive and
supersedes and replaces in all respects any prior oral or written employment
agreements. On execution of this Agreement by the Company and the Executive,
the relationship between the Company and the Executive after the effective date
of this Agreement will be governed by the terms of this Agreement and not by
any other agreements, oral or otherwise.
	 
	 	11.10	 	Non-Contravention. Executive represents and warrants to the
Company that the execution and performance of this Agreement will not violate,
constitute a default under, or otherwise give rights to any third party,
pursuant to the terms of any Agreement to which Executive is a party.
	 
	 	11.11	 	Indemnity. EXECUTIVE AGREES TO INDEMNIFY AND HOLD HARMLESS
THE COMPANY, ITS DIRECTORS, OFFICERS AND EMPLOYEES AND AGENTS (THE “INDEMNIFIED
PARTIES”) AGAINST ANY LOSS, CLAIM, DAMAGE, LIABILITY OR EXPENSE, AS INCURRED,
(“LOSS”) TO WHICH THE INDEMNIFIED PARTIES MAY BECOME SUBJECT OR INCUR, INSOFAR
AS SUCH LOSS AS ARISES OUT OF OR IS BASED UPON ANY INACCURACY IN ANY
REPRESENTATION OR WARRANTY GIVEN BY EMPLOYEE IN SECTION 11.10 OF THIS AGREEMENT
AND TO REIMBURSE THE INDEMNIFIED PARTIES FOR ANY AND ALL EXPENSES (INCLUDING
THE FEES AND DISBURSEMENTS OF COUNSEL CHOSEN BY THE INDEMNIFIED PARTIES) AS
SUCH EXPENSES ARE REASONABLY INCURRED BY THE INDEMNIFIED PARTIES IN CONNECTION
WITH INVESTIGATING, DEFENDING, SETTLING, COMPROMISING OR PAYING ANY SUCH LOSS.
	 
	 	11.12	 	Compliance with Section 409A of the Code. Payments to
Executive that are covered by IRC 409A under this Agreement are intended to
comply with Section 409A of the Internal Revenue Code and this Agreement shall
be construed and interpreted in accordance with such intent. To the extent any
benefit paid under this Agreement shall be subject to Section 409A of the

Page 17 of 18

 

	 	 	 	Code, such benefit shall be paid in a manner that will comply with Section
409A, including any guidance thereunder. Any provision of this Agreement
that would cause the payment of any benefit to fail to satisfy Section 409A
of the Code shall have no force and effect until amended to comply with
Section 409A which amendment may be retroactive to the extent permitted by
the Section 409A and any guidance thereunder. As used in this Agreement, a
“separation from service” (and its derivatives, such as “separation from
service date”) shall occur when the Executive ceases to be employed by the
Company and all entities considered a single employer with the Company under
Code Sections 414(b) and (c) as a result of the Executive’s death,
retirement, or other termination of employment. Whether a separation from
service occurs shall be based on all the relevant facts and circumstances
and shall be determined in accordance with the final regulations under Code
Section 409A.
	 
	 	11.13	 	Termination of Any Prior Employment Agreements. Any prior
employment agreement or contract between Executive and Company is terminated as
of the Effective Date.
	 
	 	11.14	 	Payments Due Upon Separation from Service Except for
Disability or Death of Executive. Except where this Agreement provides for a
later commencement date all payments due Executive upon separation from service
other than for disability or death of Executive shall commence forty-five (45)
days following separation from service, provided Executive has executed a
general release in favor of the Company and all periods in which Executive may
revoke such release have expired. The failure to provide such a general
release shall result in a termination of the Company’s obligations to make any
such payments hereunder. Any payments due as a result of Executive’s death or
disability shall be made as otherwise provided herein or as soon as reasonably
practicable.

     IN WITNESS WHEREOF, the undersigned have executed this Agreement effective the Effective Date.

	 	 	 	 	 
	 	HASTINGS ENTERTAINMENT, INC.

 	 
	 	By:  	/s/
John H. Marmaduke	 
	 	 	John H. Marmaduke 	 
	 	 	President

(the “Company”) 	 
	 
	 	 	 
	 	By:  	
/s/ Phil McConnell	 
	 	 	Phil McConnell 	 
	 	 	(the “Executive”) 	 
	 

Page 18 of 18exv10w1

Exhibit 10.1

FIRST AMENDMENT TO OFFICE LEASE AGREEMENT

     THIS FIRST AMENDMENT TO OFFICE LEASE AGREEMENT (the “Amendment”) is made and entered into as
of April 15, 2009, by and between W2007 SEATTLE OFFICE BELLEFIELD OFFICE PARK REALTY, L.L.C., a
Delaware limited liability company (“Landlord”), and COINSTAR, INC., a Delaware corporation
(“Tenant”).

RECITALS

     A. Landlord’s predecessor-in-interest, EOP Operating Limited Partnership, a Delaware limited
partnership, and Tenant entered into that certain Office Lease Agreement dated January 1, 2004 (the
“Original Lease”). The Original Lease as amended by this Amendment is herein referred to as the
“Lease”.

     B. Tenant is leasing Suites 100 and 200 comprising 46,070 rentable square feet located on the
first (1st) and second (2nd) floors of the office building known as the
Aspenwood Building located at 1800 114th Avenue SE, Bellevue, Washington 98004 (the “Building”),
within the multi-building project known as the Bellefield Office Park currently comprised of
fifteen (15) buildings, inclusive of the Building, and the Property associated therewith
(collectively, the “Project”), as more particularly described in the Original Lease. All
capitalized terms used but not otherwise defined herein shall have the meaning given such terms in
the Original Lease.

     C. The Term of the Original Lease is scheduled to expire on December 31, 2009. Landlord and
Tenant now desires to extend the Term of the Lease and amend the Lease on the terms and conditions
contained herein. Simultaneously with the execution of this Amendment, Landlord and Tenant will
also execute another First Amendment to Office Lease Agreement, extending the term of another lease
dated December 19, 2006, for certain premises in the Project located at the building known as the
“Maplewood Building”, with an address of 1687 114th Avenue SE, Bellevue, Washington (collectively
with the First Amendment to Office Lease Agreement, the “Maplewood Lease”).

AGREEMENT

     NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Landlord and Tenant agree as follows:

     1. Extension of Term. The Term is hereby extended for a period of one hundred twenty (120) months (the “Extended
Term”) commencing on January 1, 2010 (the “Extended Term Commencement Date”) and ending on December
31, 2019 (the “Termination Date”), on the terms and conditions of the Original Lease, as modified
hereby. Section 1.06 of the Original Lease is hereby modified accordingly.

     2. Base Rent. From and after the Extended Term Commencement Date, the Base Rent payable pursuant to
Section 1.03 of the Original Lease shall be as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Period	 	Annual Rate Per RSF	 	Annual Base Rent	 	Monthly Base Rent
	1/1/2010 — 12/31/2010
	 	$	23.50	 	 	$	1,082,645.00	 	 	$	90,220.42	 
	1/1/2011 — 12/31/2011
	 	$	24.00	 	 	$	1,105,680.00	 	 	$	92,140.00	 
	1/1/2012 — 12/31/2012
	 	$	24.50	 	 	$	1,128,715.00	 	 	$	94,059.58	 
	1/1/2013 — 12/31/2013
	 	$	25.00	 	 	$	1,151,750.00	 	 	$	95,979.17	 
	1/1/2014 — 12/31/2014
	 	$	25.50	 	 	$	1,174,785.00	 	 	$	97,898.75	 

-1-

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Period	 	Annual Rate Per RSF	 	Annual Base Rent	 	Monthly Base Rent
	1/1/2015 — 12/31/2015
	 	$	26.00	 	 	$	1,197,820.00	 	 	$	99,818.33	 
	1/1/2016 — 12/31/2016
	 	$	26.50	 	 	$	1,220,855.00	 	 	$	101,737.91	 
	1/1/2017 — 12/31/2017
	 	$	27.00	 	 	$	1,243,890.00	 	 	$	103,657.50	 
	1/1/2018 — 12/31/2018
	 	$	27.50	 	 	$	1,266,925.00	 	 	$	105,577.08	 
	1/1/2019 — 12/31/2019
	 	$	28.00	 	 	$	1,289,960.00	 	 	$	107,496.67	 

     Notwithstanding the foregoing to the contrary, Landlord hereby agrees to abate the Base Rent
otherwise due and payable by Tenant for each of the first fifteen (15) months of the Extended Term
(the “Abated Base Rent”).

     3. Base Year. As of the Extended Term Commencement Date, Section 1.05, the “Base Year”, is deleted in its
entirety and replaced with the following:

“1.05 “Base Year” for Taxes (defined in Exhibit B): 2010; “Base
Year” for Expenses (defined in Exhibit B): 2010.”

     4. Building Service Hours. Notwithstanding anything to the contrary contained in the Original Lease, from and after
the Extended Term Commencement Date, the “Building Service Hours” (as defined in Section 1.13 of
the Original Lease) shall be 7:00 a.m. to 6:00 p.m. on Business Days and 8:00 a.m. to 12:00 p.m. on
Saturdays, excluding Holidays. Subject to the terms and conditions of the Lease, Tenant shall have
access to the Premises twenty-four hours per day, seven days per week.

     5. Expenses and Taxes. As of the Extended Term Commencement Date, Exhibit “B” to the Original Lease is
amended as follows: Sections 1-4 of Exhibit “B” are deleted in their entirety and replaced
with the following Sections 1-4:

1. Payments.

1.01 Subject to the cap on Controllable Expenses described
below, Tenant shall pay Tenant’s Pro Rata Share of the amount, if
any, by which Expenses (defined in Section 2.01 below) for each
calendar year during the Term exceed Expenses for the Base Year (the
“Expense Excess”) and also the amount, if any, by which Taxes
(defined in Section 3 below) for each calendar year during the Term
exceed Taxes for the Base Year (the “Tax Excess”). If Expenses or
Taxes in any calendar year decrease below the amount of Expenses or
Taxes for the Base Year, Tenant’s Pro Rata Share of Expenses or
Taxes, as the case may be, for that calendar year shall be $0.
Landlord shall provide Tenant with a good faith estimate of the
Expense Excess and of the Tax Excess 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 both the Expense
Excess and Tax Excess. If Landlord determines that its good faith
estimate was incorrect by a material amount (i.e., by five percent
[5%] or more), Landlord may provide Tenant with a revised estimate,
but not more than once annually. 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 Expense Excess or the Tax Excess by January 1 of a calendar
year, Tenant shall continue to pay monthly installments based on the
previous year’s estimate(s) until Landlord provides Tenant with the
new estimate. For purposes of computing Tenant’s Pro Rata Share of
Expenses following

-2-

 

the Base Year, the Controllable Expenses
(hereinafter defined) shall not increase by more than five percent
(5%) over the Controllable Expenses payable by Tenant in the
immediately preceding calendar year. “Controllable Expenses” shall
mean all Expenses exclusive of the cost of insurance and all Taxes.

1.02 As soon as is practical following the end of each
calendar year (but in no event later than March 31st of
the immediately succeeding calendar year), Landlord shall furnish
Tenant with a statement of the actual amount of Expenses and Expense
Excess and the actual amount of Taxes and Tax Excess (the “Year End
Statement”) for the prior calendar year. If the estimated Expense
Excess or estimated Tax Excess for the prior calendar year is more
than the actual Expense Excess or actual Tax Excess, as the case may
be, for the prior calendar year, Landlord shall either provide
Tenant with a refund or 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 Expense Excess or estimated Tax Excess
for the prior calendar year is less than the actual Expense Excess
or actual Tax Excess, as the case may be, for such prior year,
Tenant shall pay Landlord, within 30 days after its receipt of the
Year End Statement, any underpayment for the prior calendar year,
subject to the cap on Controllable Expenses identified in Section
1.01 above.

2. Expenses

2.01 “Expenses” means all costs and expenses incurred by
Landlord in each calendar year in connection with operating,
maintaining, repairing, and managing the Building and the Property.
Expenses include, without limitation: (a) all labor and labor
related costs, including wages, salaries, bonuses, taxes, insurance,
uniforms, training, retirement plans, pension plans and other
employee benefits; (b) management fees; (c) the cost of equipping,
staffing and operating an on-site and/or off-site management office
for the Building, provided if the management office services one or
more other buildings or properties, the shared costs and expenses of
equipping, staffing and operating such management office(s) shall be
equitably prorated and apportioned between the Building and the
other buildings or properties; (d) accounting costs; (e) the cost of
services; (f) rental and purchase cost of parts, supplies, tools and
equipment; (g) insurance premiums and deductibles; (h) electricity,
gas and other utility costs; and (i) the
amortized cost of capital improvements (as distinguished from
replacement parts or components installed in the ordinary course of
business) made to the Property subsequent to the Base Year which are
performed primarily to reduce current or future operating expense
costs, upgrade Building security or otherwise improve the operating
efficiency of the Property. The cost of capital improvements shall
be amortized by Landlord over the lesser of the Payback Period
(defined below) or the useful life of the capital improvement as
reasonably determined by Landlord. The amortized cost of capital
improvements may, at

-3-

 

Landlord’s option, include actual or imputed
interest at the rate that Landlord would reasonably be required to
pay to finance the cost of the capital improvement “Payback Period”
means the reasonably estimated period of time that it takes for the
cost savings resulting from a capital improvement to equal the total
cost of the capital improvement. Landlord, by itself or through an
affiliate, shall have the right to directly perform, provide and be
compensated for any services under the Lease. If Landlord incurs
Expenses for the Building or Property together with one or more
other buildings or properties, whether pursuant to a reciprocal
easement agreement, common area agreement or otherwise, the shared
costs and expenses shall be equitably prorated and apportioned
between the Building and Property and the other buildings or
properties.

2.02 Expenses shall not include: the cost of capital
improvements (except as set forth above); depreciation; interest
(except as part of the amortization of the cost of capital
improvements as set forth above); principal payments of mortgage and
other non-operating debts of Landlord; the cost of repairs or other
work to the extent Landlord is reimbursed by insurance or
condemnation proceeds; costs in connection with leasing space in the
Building, including brokerage commissions; lease concessions, rental
abatements and construction allowances granted to specific tenants;
costs incurred in connection with the sale, financing or refinancing
of the Building; fines, interest and penalties incurred due to the
late payment of Taxes or Expenses; organizational expenses
associated with the creation and operation of the entity which
constitutes Landlord; or any penalties or damages that Landlord pays
to Tenant under the Lease or to other tenants in the Building under
their respective leases.

The following items are also excluded from Expenses:

     (a) Sums (other than management fees) paid to subsidiaries or
other affiliates of Landlord for services on or to the Property,
Building and/or Premises, but only to the extent that the costs of
such services exceed the competitive cost for such services rendered
by persons or entities of similar skill, competence and experience.

     (b) Any fines, penalties or interest resulting from the
negligence or willful misconduct of the Landlord or its agents,
contractors, or employees.

     (c) Advertising and promotional expenditures.

     (d) Landlord’s charitable and political contributions.

     (e) Ground lease rental.

     (f) Attorney’s fees and other expenses incurred in connection
with negotiations or disputes with prospective tenants or tenants or
other occupants of the Building.

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     (g) The cost or expense of any services or benefits provided
generally to other tenants in the Building and not provided or
available to Tenant.

     (h) All costs of purchasing or leasing major sculptures,
paintings or other major works or objects of art (as opposed to
decorations purchased or leased by Landlord for display in the
Common Areas of the Building).

     (i) Any expenses for which Landlord has received actual
reimbursement (other than through Expenses).

     (j) Costs incurred by Landlord in connection with the
correction of defects in design and original construction of the
Building or Property.

     (k) Expenses for the replacement of any item covered under
warranty, unless Landlord has not received payment under such
warranty and it would not be fiscally prudent to pursue legal action
to collect on such warranty.

     (l) Fines or penalties incurred as a result of violation by
Landlord of any applicable Laws.

     (m) Costs of any special services rendered to individual
tenants (including Tenant) for which a special charge is made.

     (n) Costs incurred to remove or remediate Hazardous Materials
in the Building or on the Property, unless such Hazardous Materials
were released by Tenant;

     (o) Costs incurred to comply with any Laws, unless attributable
to changes to the Premises by Tenant after the Extended Term
Commencement Date;

     (p) Costs to continuously maintain and repair the Garage and
Surface Parking Areas in a manner so as to prevent further
subsidence of the parking areas that may result from any cause and
in a condition similar to parking lots in comparable properties.

2.03 If at any time during a calendar year (including, without
limitation, the Base Year) the Project is not at least 100% occupied
or Landlord is not supplying services to at least 100% of the total
Rentable Square Footage of the Project, Expenses shall be determined
as if the Project had been 100% occupied and Landlord had been
supplying
services to 100% of the Rentable Square Footage of the Project. The
extrapolation of Expenses under this Section shall be performed in
accordance with the methodology specified by the Building Owners and
Managers Association.

3. “Taxes” shall mean: (a) all real property taxes and other
assessments on the Building and/or Property, including, but not
limited

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to, assessments for special improvement districts and
building improvement districts, governmental charges, fees and
assessments for police, fire, traffic mitigation or other
governmental service of purported benefit to the Property, taxes and
assessments levied in substitution or supplementation in whole or in
part of any such taxes and assessments and the Property’s share of
any real estate taxes and assessments under any reciprocal easement
agreement, common area agreement or similar agreement as to the
Property; and (b) all costs and fees incurred in connection with
seeking reductions in any tax liabilities described in (a),
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,
transfer, capital stock, gift, franchise, estate or inheritance tax.
If a change in Taxes is obtained for any year of the Term during
which Tenant paid Tenant’s Pro Rata Share of any Tax Excess, then
Taxes for that year will be retroactively adjusted and Landlord
shall provide Tenant with a credit, if any, based on the adjustment.

4. Audit Rights. Tenant, within 365 days after receiving any Year
End Statement, may give Landlord written notice (“Review Notice”)
that Tenant intends to review Landlord’s records of the Expenses and
Taxes for the calendar year to which such Year End Statement
applies. Within a reasonable time after receipt of the Review
Notice, Landlord shall make all pertinent records available for
inspection that are reasonably necessary for Tenant to conduct its
review. If any records are maintained at a location other than the
management office for the Building, Tenant may either inspect the
records at such other location or pay for the reasonable cost of
copying and shipping the records. If Tenant retains an agent to
review Landlord’s records, the agent must be with a CPA firm
licensed to do business in the state or commonwealth where the
Property is located. Notwithstanding the foregoing, Landlord agrees
that Tenant may retain a third party agent to review Landlord’s
books and records which is not a CPA firm, so long as the third
party agent retained by Tenant shall have expertise in and
familiarity with general industry practice with respect to the
operation of and accounting for a first class office building and
whose compensation shall in no way be contingent upon or correspond
to the financial impact on Tenant resulting from the review. Except
as otherwise provided in this Section 4 below, Tenant shall be
solely responsible for all costs, expenses and fees incurred for the
audit. Within 90 days after the records are made available to
Tenant. Tenant shall have the right to give Landlord written notice
(an “Objection Notice”) stating in reasonable detail any objection
to the Year End Statement for that year. If Tenant provides
Landlord with a timely Objection Notice, Landlord and Tenant shall
work together in good faith to resolve any issues raised in Tenant’s
Objection Notice. If
Landlord and Tenant determine that Expenses or Taxes for the
Building for the year in question were less or more than stated,
then either Landlord shall provide Tenant with a credit against the
next installment of Rent in the amount of the overpayment, or Tenant
shall pay Landlord the amount of the underpayment within 30 days, as
the case may be. In addition, if Landlord and Tenant determine that
Expenses or Taxes for the Building for the year in question were
less than stated by more than

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5%, Landlord, within 30 days after its
receipt of paid invoices therefor from Tenant, shall reimburse
Tenant for the reasonable amounts paid by Tenant to third parties in
connection with such review by Tenant. If Tenant fails to give
Landlord an Objection Notice within the 90 day period or fails to
provide Landlord with a Review Notice within the 365 day period
described above, Tenant shall be deemed to have approved Landlord’s
statement of Expenses and Taxes and shall be barred from raising any
claims regarding the Expenses and Taxes for that year. The records
obtained by Tenant shall be treated as confidential; provided,
however, that Tenant may use such records as reasonably necessary to
complete its review as provided above and to enforce its rights
hereunder. In no event shall Tenant be permitted to examine
Landlord’s records or to dispute any statement of Expenses or Taxes
unless Tenant has paid and continues to pay Rent when due.

     6. Parking. Section II(A) of Exhibit “F” to the Original Lease is amended by deleting the first
three (3) sentences and replacing them with the following:

“Landlord shall allow Tenant, or cause the operator (the
“Operator”), if any, of the garage servicing the Building (the
“Garage”) and other parking areas servicing the Project (the
“Surface Parking Areas”) to allow Tenant, (i) the use of all
reserved parking spaces in the Garage (the “Reserved Spaces”) for
the use of Tenant and its employees and invitees, and (ii) the use
of additional unreserved parking spaces in the Surface Parking Areas
(the “Surface Spaces”) for the use of Tenant and its employees and
invitees, such that Tenant shall at all times have a total of 4
stalls per 1,000 rentable square feet leased by Tenant. Throughout
the Extended Term (and any extensions thereof), Tenant’s use of the
Spaces (as defined below) shall be free.”

     7. Renewal Options. Section IX of Exhibit “F” to the Original Lease is hereby amended as follows:

          (a) Subsection IX(A) is hereby deleted in its entirety and replaced with the following:

“A. Grant of Options; Conditions. Tenant shall have the
right to extend the Extended Term (each a “Renewal Option”) for two
(2) additional periods of three (3) to five (5) years (each a
“Renewal Term”), if:

	 	1.	 	Landlord receives notice of exercise (“Initial
Renewal Notice”) not more than fifteen (15) full calendar months nor
less than nine (9) calendar months prior to the expiration of the
Extended Term, or the first Renewal Term, as applicable (it being
understood that in the event Tenant fails to specify in the Initial
Renewal Notice whether the applicable extension Term shall be three (3)
or five (5) years, Tenant shall be deemed to have selected five (5)
years); and
	 
	 	2.	 	No more than 50% of the Premises is sublet
(other than pursuant to a Permitted Transfer, as defined in Section 11
of the Lease) at the time 

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	 	 	 	Tenant delivers its Initial Renewal Notice or
at the time Tenant delivers its Binding Notice.”

          (b) The first (1st) sentence of Subsection (IX)(B)(1) is hereby deleted in its
entirety and replaced with the following:

“1. The initial Base Rent rate per rentable square foot for the
Premises during the Renewal Term shall equal ninety-five percent
(95%) of the Prevailing Market (hereinafter defined) rate per
rentable square foot for the Premises.”

          (c) Subsection (IX)(F) is hereby amended as follows:

1. The phrase “new leases,” is added before “renewal leases and amendments” in the
third line.

2. The last sentence is hereby deleted in its entirety and replaced with the
following: “As used in this subparagraph F, “Suburban Bellevue Area” means the
office buildings located within one half mile of Highway 405, Interstate 90, or
Highway 520 and within the City limits of Bellevue.”

3. The following sentence is hereby added at the end of Subsection (IX)(F):

“In determining the Prevailing Market rate, Landlord shall also determine the
then-current standard tenant improvement package. Notwithstanding anything to the
contrary contained in this Subsection (IX)(F), the then-current standard tenant
improvement package determined by prevailing market conditions shall not be
considered a rental concession in determining Prevailing Market. However, for each
rental rate of each comparable lease used to assess the Prevailing Market rate, the
face rental rate stated in the lease shall be adjusted if the tenant thereunder
received either an above then-current standard or below then-current standard tenant
improvement package.”

          (d) Landlord shall provide the then-current standard tenant improvement package determined by
prevailing market conditions to Tenant as a Construction Allowance to be used under terms and
conditions consistent with those in Exhibit A to this Amendment (including, without limitation, the
conditions relating to the proportion of the allowance that may be used for “soft costs”, as that
term is defined in Exhibit A, and the proportion of the allowance that may be credited against
rent). In addition, the free parking Tenant is receiving under the Lease shall not be considered
in determining Tenant’s Rent for the Extended Term.

     8. Parking Lot and Landscaping Repairs. Prior to the Extended Term Commencement Date, Landlord shall make certain repairs and/or
upgrades, at its sole cost and expense, to (i) re-level the entrance to the parking Garage (as
defined in Exhibit “F” to the Original Lease) located under the Building, such that cars
shall not “bottom out”, and (ii) the landscaping appurtenant to the Building pursuant to a
landscape plan consistent with the type of landscaping present at the remainder of the Project
which shall be developed in consultation with Tenant and subject to Tenant’s prior written consent
and for which Landlord shall provide a budget of $20,000, provided that so long as Landlord fully
implements the approved plan, cost savings that Landlord achieves shall be for the account of
Landlord and not shared with Tenant. The Construction Allowance (provided for in Exhibit
“A” attached hereto) shall not be used for the foregoing repairs/upgrades, nor shall such
repairs/upgrades be passed through to Tenant as Expenses. Promptly upon execution of this
Amendment, Landlord shall retain a qualified engineer who will evaluate two or more alternative
methods by which to re-level the entrance to the

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parking Garage. Landlord shall provide copies of
the engineer’s reports and recommendations to Tenant and the method of re-leveling the entrance
shall be subject to Tenant’s approval, not to be unreasonably withheld, conditioned or delayed.

     Without limiting Landlord’s obligations under the Lease, Landlord shall continuously maintain
the upgraded landscaping during the Extended Term (and any extensions thereof) consistent with its
obligations under the Lease, the costs of which shall be included within Expenses. Throughout the
Extended Term (and any extensions thereof), Landlord shall also, at its sole cost and expense,
continuously maintain and repair the Garage and Surface Parking Areas in a manner so as to prevent
further subsidence of the parking areas that may result from any cause and in a condition similar
to parking lots in comparable properties.

     In the event Landlord fails to make the repairs and upgrades to the Garage entrance or the
landscaping as described above or fails to maintain the upgraded landscaping to the standard
required by the Lease or fails to maintain and repair the Garage or Surface Parking Areas as
provided above, Tenant shall have the right to provide Landlord with written notice of the failure,
and if Landlord fails to commence to make such repairs within thirty (30) days after Tenant’s
written notice of the failure to Landlord and thereafter diligently pursue the performance of such
repairs to completion, upon written notice to Landlord, Tenant may, in addition to other rights or
remedies Tenant may have under the Lease or otherwise, perform the repairs and upgrades or the
maintenance and Landlord shall reimburse Tenant for all out-of-pocket expenses reasonably incurred
by Tenant for such repairs, upgrades or maintenance (the “Out-of-Pocket Repair Expenses”) within
thirty (30) days of receipt of applicable invoices, receipts and lien waivers. If Landlord fails
to reimburse Tenant for such Out-of-Pocket Repair Expenses within said thirty (30) day period,
Tenant shall have the right to deduct the Out-of-Pocket Repair Expenses from the Base Rent then due
to Landlord. In the event Tenant elects to exercise its self-help rights described above, Tenant
shall indemnify, defend and hold Landlord harmless from and against any and all costs, damages,
claims, and liabilities arising out of, or in connection with, the performance of such upgrades,
repairs or maintenance by Tenant and its employees, agents and contractors, to the extent of the
negligence or willful misconduct of Tenant or its employees, agents, or contractors.

     9. Assignment & Subletting. As of the Extended Term Commencement Date, Section 11 of the Original Lease is amended as
follows:

          (a) The first (1st) sentence of Section 11.01 is amended by deleting the words “if
Landlord does not exercise its recapture rights under Section 11.02”.

          (b) The second (2nd) and third (3rd) sentences of Section 11.02 are
deleted in their entirety and replaced with the following:

“Within 15 Business Days after receipt of the required information
and documentation, Landlord shall either: (a) consent to the
Transfer by execution of a consent agreement in a form reasonably
designated by Landlord; or (b) reasonably refuse to consent to the
Transfer in writing.”

          (c) Section 11.03 is deleted in its entirety.

          (d) Notwithstanding anything to the contrary contained in Section 11, Tenant acknowledges that
it shall be reasonable for Landlord to withhold its consent to a Transfer solely because the
proposed assignee or subtenant is a then-current tenant or occupant of the Project.

     10. Right of First Offer. Section X of Exhibit “F” to the Original Lease is hereby deleted in its entirety
and replaced with the following terms and conditions:

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Subject to renewal or expansion options or other preferential rights
of other tenants existing as of the date of this Amendment, during
the Extended Term (and any extensions thereof), Landlord shall,
prior to offering any premises in the Project containing ten
thousand (10,000) rentable square feet or greater (the “Offer
Space”) to any party (other than the then-current tenant or occupant
of such Offer Space), first offer to lease to Tenant the Offer
Space; such offer shall (a) be in writing, (b) specify the part of
the Offer Space being offered to Tenant hereunder (the “Designated
Offer Space”), and (c) specify the lease terms for the Designated
Offer Space, including the rent to be paid for the Designated Offer
Space and the date on which the Designated Offer Space shall be
included in the Premises (the “Offer Notice”). The Offer Notice
shall be substantially similar to the Offer Notice attached to this
Amendment as Exhibit “B”. Tenant shall notify Landlord in
writing whether Tenant elects to lease the entire Designated Offer
Space on the terms set forth in the Offer Notice, within thirty (30)
days after Landlord delivers to Tenant the Offer Notice. If Tenant
timely elects to lease the Designated Offer Space, then Landlord and
Tenant shall execute an amendment to this Lease, effective as of the
date the Designated Offer Space is to be included in the Premises,
on the terms set forth in the Offer Notice and, to the extent not
inconsistent with the Offer Notice terms, the terms of this Lease;
however, Landlord shall not provide to Tenant any allowances (e.g.,
moving allowance, construction allowance, and the like) or other
tenant inducements, except as specifically provided in the Offer
Notice. If Tenant fails or is unable to timely exercise its right
hereunder with respect to the Designated Offer Space, then such
right shall lapse with respect to that particular Offer Notice, time
being of the essence with respect to the exercise thereof, and
Landlord may lease all or a portion of the Designated Offer Space to
third parties on such terms as Landlord may elect; provided however,
if Landlord reduces the rent or other financial terms by more than
fifteen percent (15%)(considering any tenant improvement allowance,
free or stepped rate rent, free parking, moving allowance, and other
concessions), Landlord shall re-offer the Offer Space to Tenant on
the revised terms and Tenant shall have thirty (30) days in which to
notify Landlord that Tenant elects to lease the Offer Space on such
revised terms. Tenant’s rights under this Section
shall terminate if this Lease or Tenant’s right to possession of the
Premises is terminated.

     11. Option to Purchase. Tenant shall have the one-time right to elect to purchase the Aspenwood Building and the
land (and other improvements thereon) upon which it is located (collectively, the “Aspenwood
Parcel”) for its Fair Market Value (as defined below) subject to, and in accordance with, the terms
and conditions of this Section. The Aspenwood Parcel is legally described on Exhibit “C”
attached to this Amendment. Landlord represents and warrants to Tenant that, as of the date of
this Amendment, no party has any rights of any kind to purchase, lease, or otherwise acquire the
Aspenwood Parcel, whether by an option to purchase, a right of first refusal, a right of first
offer, or otherwise.

          (a) To exercise the option (“Purchase Option”), Tenant shall deliver written notice (“Tenant’s
Notice of Exercise”) to Landlord during the period commencing with the sixty-first
(61st) month of the Extended Term and ending on the last day of the Extended Term (the
“Purchase Option Period”). If Tenant fails to deliver Tenant’s Notice of Exercise during the
Purchase Option Period,

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Tenant shall be deemed to have irrevocably and unconditionally waived its
right to purchase the Aspenwood Parcel pursuant to this Section, in which event, at Landlord’s
option, Landlord and Tenant shall execute an amendment to the Lease confirming the fact that
Tenant’s Purchase Option is null and void and Tenant shall execute any other reasonable document
requested by Landlord evidencing same.

          (b) Within ten (10) Business Days after Landlord’s receipt of Tenant’s Notice of Exercise, the
escrow company (“Escrow Holder”) through which the purchase and sale of the Aspenwood Parcel is to
be closed will be designated by Landlord. Within ten (10) Business Days after designation of the
Escrow Holder by Landlord and following determination of the Fair Market Value or as required by
Escrow Holder from time to time, Landlord and Tenant shall deliver to Escrow Holder an executed
copy of this Amendment which shall constitute escrow instructions to Escrow Holder, and such other
supplemental escrow instructions as are customarily and reasonably required by the Escrow Holder,
which shall be the escrow instructions for the Closing of the purchase and sale contemplated
hereunder. Tenant shall deliver to Escrow Holder in immediately available funds the amount of Two
Hundred Thousand Dollars ($200,000.00) as a deposit (the “Deposit”) on or before the expiration of
ten (10) Business Days following Landlord’s designation of the Escrow Holder and opening of escrow.
The Deposit shall be non-refundable (except the Deposit shall be promptly returned to Tenant in
the event (i) Tenant revokes [or is deemed to have revoked] the Purchase Option pursuant to the
terms of Subsection 11(d) of this Amendment below, or (ii) the Closing does not occur due to a
default by Landlord of the terms hereof), but applicable to the purchase price at Closing. In the
event Tenant fails to deliver the Deposit within said ten (10) Business Day period and such failure
continues for ten (10) Business Days after Landlord provides written notice thereof to Tenant, the
Lease shall continue in full force and effect, but the Purchase Option shall terminate, and neither
Tenant nor Landlord shall have any further rights or obligations to the other with respect to the
Purchase Option or the sale and acquisition of the Aspenwood Parcel pursuant to the Purchase
Option.

          (c) Within ten (10) Business Days after Landlord’s receipt of Tenant’s Notice of Exercise,
Landlord shall deliver to Tenant copies of all documents, materials, and information in Landlord’s
possession or control (but without any representation or liability whatsoever, including but not
limited to, with respect to the accuracy or completeness thereof) relating to the development,
ownership, maintenance, use, and operation of the Aspenwood Parcel (including, but not limited to,
all documents, materials, and information relating to the environmental condition of the Aspenwood
Parcel) (collectively, the “Aspenwood Documents”). Tenant shall thereafter have a period of sixty
(60) days (the “Due Diligence Period”) to review the Aspenwood Documents and to conduct such
inspections, studies, and testing as Tenant shall deem desirable in its sole discretion, subject to
the terms and
conditions of this Section. If, during the foregoing Due Diligence Period, Tenant reasonably
believes the Aspenwood Parcel is or may be contaminated with hazardous substances, Tenant shall
have the right to extend the Due Diligence Period by an additional sixty (60) days by providing
written notice of its extension to Landlord and by providing Landlord copies of environmental
reports prepared on behalf of Tenant that recommend additional environmental testing or that
suggest additional environmental testing would be prudent to undertake. In the event Tenant
exercises its extension right, the term “Due Diligence Period” shall be deemed to include the
additional sixty (60) day period. At least five (5) Business Days prior to any soils,
environmental or other physical testing or investigation of the Aspenwood Parcel, Tenant shall
provide Landlord with written notice thereof and Landlord shall have the right to have a
representative or agent present during such testing or investigation, which shall be coordinated
between Landlord and Tenant. In the event Tenant revokes (or is deemed to have revoked) the
Purchase Option pursuant to the terms of Subsection 11(d) of this Amendment below, Tenant shall
provide Landlord with copies of all tests, reports and studies promptly following completion
thereof.

          (d) Within five (5) Business Days following the Due Diligence Period, Tenant shall provide
Landlord written notice of its election to proceed with the purchase or to revoke its exercise of
the Purchase Option. If Tenant revokes its exercise of the Purchase Option by providing written
notice

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thereof to Landlord within said five (5) Business Day period (or fails to provide written
notice within said five (5) Business Day period of its election to proceed with the purchase of the
Aspenwood Parcel), the Lease shall continue in full force and effect and the Purchase Option shall
terminate and Tenant shall have no further rights or obligations with respect to the Purchase
Option or the acquisition of the Aspenwood Parcel. In such event, Tenant shall return all
Aspenwood Documents to Landlord.

          (e) If the Purchase Option is not revoked pursuant to Subsection 11(d) of this Amendment
above, the close of escrow (the “Closing”) shall take place on or before the expiration of sixty
(60) days following the date the Fair Market Value is established pursuant to this Section. In the
event the Closing fails to occur due to Tenant’s failure to comply with any of the provisions
hereof, Tenant’s Purchase Option shall be null and void and of no further force and effect.
Appropriate prorations will be made as of the Closing, and the parties will pay the expenses of
such transaction in accordance with the custom in the area where the Aspenwood Parcel is located.
Landlord shall pay all Washington State Real Estate Excise Taxes due at Closing and Tenant’s ALTA
form Owner’s standard policy of title insurance (Tenant shall pay the additional premiums, if any,
for an extended policy of title insurance and any endorsements to the title policy requested by
Tenant). Landlord shall convey the Aspenwood Parcel to Tenant by Bargain and Sale Deed, free and
clear of all mortgages, deeds of trust and other security instruments, judgment liens, mechanics
and materialmen’s liens not caused by Tenant and other monetary encumbrances arising after the date
of this Lease from or through Landlord and delinquent Taxes. Subject to the foregoing sentence,
and provided that the use of the Aspenwood Parcel for general office use is not materially and
adversely affected thereby, Tenant acknowledges and agrees that Landlord shall have the right, from
time to time prior to Tenant’s Notice of Exercise, without Tenant’s consent to (i) grant, create or
allow the creation of any easement, right-of-way, encumbrance, lien, restriction, or assessment on
title that benefits the Aspenwood Parcel or any of the other buildings within the Project, or (ii)
enter into any further or amend any existing agreements or contracts with respect to the Aspenwood
Parcel. At Closing, to the extent reasonably necessary, Landlord shall also bargain, sell and
convey to Tenant vehicular and pedestrian ingress and egress easements and utility easements for
Tenant, its successors and assigns, and their respective tenants, licensees and invitees to legally
access to the Aspenwood Parcel from the public roads servicing Bellefield office park and common
utilities serving one or more buildings within the Bellefield office park complex and to use the
Aspenwood Parcel, individually, as it used at the time of the purchase.

          (f) Tenant acknowledges that because of Tenant’s occupancy of the Aspenwood Parcel pursuant to
the Lease, Tenant will have sufficient time and opportunity to inspect the physical and
environmental condition of the Aspenwood Building and the remainder of the Aspenwood Parcel and to
determine the condition and suitability thereof, including without limitation, the presence of
hazardous materials, compliance of or by the Aspenwood Parcel or its operation with any laws,
rules, ordinances or regulations of any applicable governmental authority or body, or any zoning or
other use restrictions. Accordingly, Tenant hereby acknowledges and agrees that Tenant shall
purchase the Aspenwood Parcel in its “AS IS”, “WHERE-IS” physical and environmental condition
existing at the Closing without any representations or warranties by Landlord (other than those
contained in this Section 11) regarding the condition of the Aspenwood Building and Aspenwood
Parcel including, without limitation, the environmental condition. In the event Tenant purchases
the Aspenwood Parcel, as of the Closing, (i) subject to and without waiver or modification of any
indemnification or other obligations of Tenant to Landlord under the Lease, Landlord agrees to
indemnify, defend and hold Tenant and its successors and assigns harmless from and against any and
all costs, expenses, damages, claims and liabilities arising out of or in connection with the acts
or omissions of Landlord or its employees or contractors on or with respect to the Aspenwood Parcel
prior to Closing, and (ii) Tenant agrees to indemnify, defend and hold Landlord and its successors
and assigns harmless from and against any and all costs, expenses, damages, claims and liabilities
arising out of or in connection with the acts or omissions of Tenant or its employees or
contractors on or with respect to the Aspenwood Parcel from and after the Closing. The foregoing

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indemnification and release provisions shall survive the expiration or termination of the Lease and
the Closing.

          (g) Within thirty (30) days following the expiration of the Due Diligence Period (provided the
Purchase Option was not revoked [or deemed revoked] by Tenant pursuant to Subsection 11(d) of this
Amendment above), Landlord shall provide Tenant with written notice of Landlord’s determination of
the Fair Market Value of the Aspenwood Parcel. If Tenant objects to Landlord’s determination of
the Fair Market Value of the Aspenwood Parcel, Tenant shall notify Landlord in writing, within
twenty (20) Business Days after receipt of Landlord’s notice of the Fair Market Value
determination, that Tenant disagrees with Landlord’s determination of the Fair Market Value. If
Tenant fails to provide such objection in writing within said twenty (20) Business Day period,
Landlord shall have the right to provide written notice to Tenant notifying Tenant that Landlord
did not receive written notice from Tenant objecting to Landlord’s determination of the Fair Market
Value, and if Tenant fails to provide such written objection within ten (10) Business Days
thereafter, Tenant shall be deemed to be in agreement with Landlord’s Fair Market Value
determination. In the event that Landlord and Tenant are unable to agree (or deemed to have
agreed) upon the Fair Market Value of the Aspenwood Parcel, then the Fair Market Value shall be
determined by appraisal in the manner provided below.

               (i) Within ninety (90) days following Landlord’s receipt of Tenant’s notice objecting to
Landlord’s determination of the Fair Market Value, the Aspenwood Parcel shall be appraised by a
Qualified Appraiser (as defined below) chosen and paid for by Landlord (the “First Appraiser”) and
the appraisal report (the “First Appraisal”) shall be forwarded to Tenant. If the First Appraisal
is deemed unacceptable by Tenant, then Tenant shall so advise Landlord in writing within ten (10)
Business Days after receipt of the First Appraisal and Tenant shall have the right, within ninety
(90) days following Tenant’s receipt of the First Appraisal, to engage and pay for a Qualified
Appraiser (the “Second Appraiser”) to appraise the Aspenwood Parcel and the appraisal report (the
“Second Appraisal”) shall be forwarded to Landlord. In the event Tenant fails to object to the
First Appraisal within said ten (10) Business Day period, Landlord shall have the right to provide
written notice to Tenant notifying Tenant that Landlord did not receive written notice of Tenant’s
written objection to the First Appraisal, and if Tenant fails to provide such written objection to
the First Appraisal within five (5) Business Days thereafter, Tenant shall be deemed to have
accepted the First Appraisal.

               (ii) In the event Tenant has not accepted (or deemed to have accepted) the First Appraisal in
accordance with the terms above, if Landlord shall deem the Second Appraisal to be unacceptable,
then Landlord shall advise Tenant within ten (10) Business Days after receipt of the Second
Appraisal, and the First Appraiser and Second Appraiser shall together choose a third Qualified
Appraiser
(the “Third Appraiser”). The Third Appraiser shall, within ten (10) Business Days of its
appointment, review the First Appraisal (prepared by the First Appraiser as set forth above) and
the Second Appraisal (prepared by the Second Appraiser as set forth above) and such other
information as it shall deem necessary and shall determine which of the two (2) appraisals is
closer to the actual Fair Market Value. The Third Appraiser shall be instructed, in deciding
whether the Landlord’s determination of the Fair Market Value (as set forth in the First Appraisal)
or the Tenant’s determination of the Fair Market Value (as set forth in the Second Appraisal) is
closer to the actual Fair Market Value, to use the criteria as to the determination of the Fair
Market Value forth below. The Third Appraiser shall not establish its own Fair Market Value, but
must select either the First Appraisal or the Second Appraisal and shall immediately and
concurrently notify the parties of its selection. The Fair Market Value determined by the First
Appraiser or the Second Appraiser and selected as the one closer to the actual Fair Market Value by
the Third Appraiser shall be the purchase price payable by Tenant for the Aspenwood Parcel. The
cost of the Third Appraiser shall be borne solely by the party whose appraisal was not selected by
the Third Appraiser.

-13-

 

               (iii) As used in this Section, the “Fair Market Value” means the price that a ready, willing
buyer would purchase the Aspenwood Parcel in an arms-length transaction and shall assume that the
Lease is in full force and effect (and remain in full force and effect for the Term) and that
Tenant has complied with all of the terms and conditions thereof. As used herein, the term
“Qualified Appraiser” shall mean an MAI appraiser with at least ten (10) years experience with
similar commercial properties in the geographic location of the Aspenwood Parcel.

          (h) Landlord and Tenant shall have the right to accomplish a tax deferred exchange of real
property to Internal Revenue Code Section 1031. If either party elects to accomplish such
exchange, the other party shall reasonably cooperate with such party provided it is at no
liability, cost or expense to the cooperating party, the cooperating party is not required to take
title to any other property, and it does not delay the close of this transaction.

          (i) Following the date of this Amendment, Tenant, at its sole cost and expense, may record a
memorandum of option to purchase in form and content reasonably agreed to in writing by Landlord
(the “Option Memorandum”) against the Aspenwood Parcel in the real property records of King County
to provide notice of the Purchase Option. As a condition to recordation of the Option Memorandum,
at Landlord’s request, Tenant shall duly execute, notarize and deliver to Landlord a termination of
option agreement, quitclaim deed or other instrument reasonably requested by Landlord, which shall
be held in trust by Landlord and recorded against the Aspenwood Parcel in the real property records
of King County upon the expiration, waiver or termination of the Purchase Option pursuant to the
terms of this Section. In addition, the expiration, waiver or termination of the Purchase Option
pursuant to the terms of this Section, Tenant shall execute any instruments reasonably required by
Landlord (including an amendment to this Lease) to evidence the expiration, waiver or termination
of the Purchase Option pursuant to the terms of this Section. Landlord represents and warrants to
Tenant that its grant of the Purchase Option does not violate the rights of any third party or with
any agreement to which Landlord is a party or by which Landlord may be bound.

          (j) Notwithstanding anything to the contrary contained herein, in the event Landlord elects to
market the entire fifteen (15) building Project (of which the Aspenwood Parcel is a part) for sale
and enters into a definitive purchase and sale agreement in an arms length transaction with a third
party with respect to the sale of the Project, Landlord shall provide written notice to Tenant
thereof (the “Project Sale Notice”), and Tenant shall thereafter have a period of thirty (30) days
to exercise the Purchase Option. If Tenant does not exercise the Purchase Option within such
thirty (30) days, Tenant’s Purchase Option shall be temporarily suspended for a period of six (6)
months following expiration of the thirty (30) day exercise period and for a period of six (6)
months following closing of the purchase to the third party, if closing shall occur. For the
avoidance of doubt, Landlord acknowledges that, in the event
closing occurs in less than six (6) months following expiration of Tenant’s thirty (30) day
exercise period, the first six (6) month period shall terminate at closing, and the post-closing
six (6) month period shall commence. Upon expiration of the foregoing six (6) month periods, as
applicable, Tenant’s Purchase Option shall be automatically reinstated.

          (k) Tenant’s rights under this Section shall terminate if this Lease or Tenant’s right to
possession of the Premises is terminated.

     12. Storage Space. During the Extended Term (and any extensions thereof), pursuant to all of the terms and
conditions of Section V of Exhibit “F” to the Original Lease (except as hereby modified),
Tenant shall continue to lease the Storage Spaces (as shown on Exhibit “A-3” to the
Original Lease) from Landlord at the Monthly Storage Base Rent equal to One Thousand Eighty-Three
and 33/100 Dollars ($1,083.33) (based upon $10.00 per square foot per annum).

-14-

 

     13. Space Pocket. Under the Maplewood Lease, Tenant has the right, during the first twenty four (24) months
of the Extended Term, to use certain Reserved Space (as defined in the Maplewood Lease) for tenant
improvement activities, installing and storing furniture, fixtures, and equipment, and for staging
and temporary relocation of personnel. Landlord acknowledges and agrees that, in addition to
Tenant’s use of the Reserved Space for the benefit of its premises in the Maplewood Building,
Tenant may use the Reserved Space for the benefit of its operations and tenant improvement
activities at the Premises.

     14. Signage.

          (a) Monument Signage. Subject to Force Majeure delays, prior to the expiration of calendar
year 2010, Landlord shall construct, at its sole cost and expense, monument signage at each
entrance to the Project, with 3 sign positions on each monument signage, pursuant to plans and
specifications approved by Tenant (which approval shall not be unreasonably conditioned, withheld,
or delayed, provided the prominence and visibility of Tenant’s position on the monument are
aesthetic matters reserved to the discretion of Tenant). Tenant, at Landlord’s cost and expense,
may (i) install its sign panel on each monument signage in the top position, with Tenant’s sign
being the largest relative to the sign panel of any other tenant, and (ii) install, or cause to be
installed, a sign panel on the bottom position of such monument signage for the benefit of a future
subtenant or an Affiliate of Tenant. The size, shape, content, general appearance, design,
materials, coloring and lettering of the Tenant’s sign panels shall be subject to Landlord’s prior
approval, which approval shall not be unreasonably conditioned, withheld, or delayed. Tenant shall
maintain and repair its sign panels in good condition and repair at its sole cost and expense. The
costs and expenses in connection with the maintenance and repair of the monument signs shall be
included within Expenses. In the event Landlord, in its sole option, constructs other monument
signage for the Project in the future, such signage shall be at Landlord’s sole cost and expense
and shall be subject to the approval and size/location requirements under this Section 14.

          (b) Exterior Building Signage. Tenant shall have the right, at its sole cost and expense and
subject to obtaining all required permits and approvals therefor, to install exterior Building
identification signs (“Building Signs”) containing only Tenant’s name at a location compatible with
the Building design and otherwise in accordance with all applicable laws and restrictions and the
provisions
of the Lease. The location, size, shape, content, general appearance, design, materials,
coloring and lettering of the Building Sign shall be subject to Landlord’s prior approval, which
approval shall not be unreasonably conditioned, withheld, or delayed. Tenant shall be solely
responsible for all costs of the fabrication, permitting, installation, maintenance, repair and
removal of the Building Signs, such costs to include, without limitation, all required permits and
approvals. Notwithstanding anything to the contrary contained herein, Tenant’s right to install
and maintain the Building Signs shall be subject to Tenant’s operating its business from at least
fifty percent (50%) of the Premises. At the expiration or earlier termination of the Lease or if
Tenant fails to operate its business from fifty percent (50%) of the Premises, Tenant shall, at
Tenant’s sole cost and expense, remove the Building Sign and restore the Building to its original
condition. All of the provisions of the Lease with respect to Tenant’s Premises shall apply to
Tenant’s installation, use and maintenance of the Building Sign, including without limitation,
provisions relating to compliance with requirements as to insurance, indemnity, repairs and
maintenance, and compliance with applicable laws.

     15. Notice Addresses. The “Notice Addresses” (as defined in Section 1.12 of the Original Lease) of Landlord set
forth in the Original Lease are hereby changed to:

W2007 Seattle Office Bellefield Office Park Realty, L.L.C.

c/o CB Richard Ellis

1111 Third Avenue, Suite 310

-15-

 

Seattle, Washington 98104

Attention: Property Manager

Telephone: (206) 788 4450

Telecopy: (206) 788 4456

With a copy to:

W2007 Seattle Office Bellefield Office Park Realty, L.L.C.

c/o Archon Group, L.P.

6011 Connection Drive

Irving, Texas 75039

Attention: General Counsel — Bellefield Office Park

Telephone: (972)-368-2200

Telecopy: (972)-368-3199

     16. Representation &Warranty. Landlord represents and warrants to Tenant that, as of the date of this Amendment, Landlord
has not received written from any governmental agency that (i) the Premises or Building is in
violation of Law, and (ii) the Premises or Building contains Hazardous Materials at levels in
violation of Law requiring remediation.

     17. Brokerage. Each party represents and warrants that it has not dealt with any real estate broker or
agent in connection with this Amendment or its negotiation, except GVA Kidder Mathews (who
represents Landlord) and Raskin Partners (who represents Tenant). The commission of Landlord’s
broker shall be paid by Landlord pursuant to a separate written agreement. The commission of
Tenant’s broker shall be paid by Landlord pursuant to a separate written agreement between Landlord
and Tenant’s broker. Each party shall indemnify the other and hold it harmless from any cost,
expense, or liability
(including costs of suit and reasonable attorneys’ fees) for any compensation, commission or
fees claimed by any real estate broker or agent in connection with this Amendment or its
negotiation by reason of any act or statement of the indemnifying party.

     18. Binding Effect; Governing Law. Except as modified hereby, the Original Lease shall remain in full effect and this
Amendment shall be binding upon Landlord and Tenant and their respective successors and assigns.
If any inconsistency exists or arises between the terms of the Original Lease and the terms of this
Amendment, the terms of this Amendment shall prevail. This Amendment shall be governed by the laws
of the State in which the Premises is located.

     19. Removal of Parking and Storage Area Transfer Restrictions

          Subsections II(H) and V(H) of Exhibit “F” to the Original Lease are hereby deleted in
their entirety.

     20. Ancillary Rights not Severable

          Notwithstanding anything to the contrary contained herein, Tenant’s Right of First Offer,
Option to Purchase, roof rights, monument and exterior building signage rights, parking rights and
storage space rights, may not be severed and assigned or apportioned separate and apart from the
Lease, but only in connection with an authorized assignment or sublease.

[remainder of page left blank intentionally — signature page follows]

-16-

 

     IN WITNESS WHEREOF, the parties hereby to have executed this Amendment effective as of the
date first written above.

	 	 	 	 	 
	LANDLORD:

W2007 SEATTLE OFFICE BELLEFIELD OFFICE PARK REALTY, L.L.C.,

a Delaware limited liability company

 
	By:  	/s/  Nancy M. Haag
 	 
	 	Name:  	Nancy M. Haag 	 
	 	Title:  	Assistant Vice President 	 
	 
	TENANT:

COINSTAR, INC.,

a Delaware corporation

 	 
	By:  	/s/  Brian V. Turner
 	 
	 	Name:  	Brian V. Turner 	 
	 	Title:  	Chief Financial Officer 	 
	 

-17-

 

EXHIBIT A

TENANT FINISH-WORK

     1. Alterations. During the Extended Term, Tenant may, at any time and from time to
time, perform Alterations to the Premises in accordance with the terms of this Original Lease, as
amended hereby. In the event Tenant elects to perform Alterations for which Tenant will use the
Construction Allowance (as defined below), the terms and conditions of this Exhibit A shall
apply. Notwithstanding anything to the contrary contained in this Exhibit A, in the event
Tenant elects to perform Cosmetic Alterations for which Tenant will use the Construction Allowance,
the provisions of this Exhibit B relating to Landlord’s payment of the Construction Allowance, but
no other provisions (including, without limitation, those relating to Landlord’s approval rights),
shall apply.

     2. Space Plans. Prior to performing Alterations, Tenant shall submit to Landlord for
approval a space plan (the “Space Plans”) depicting improvements to be installed in the Premises
prepared by Tenant’s licensed architect (the “Architect”). Landlord shall notify Tenant whether it
approves of the Space Plans within ten (10) Business Days after Tenant’s submission thereof, which
approval shall not be unreasonably conditioned, withheld, or delayed. Landlord shall notify Tenant
whether it approves of the Space Plans within ten (10) Business Days after Tenant’s submission
thereof, which approval shall not be unreasonably conditioned, withheld, or delayed. If Landlord
disapproves of such Space Plans, then Landlord shall notify Tenant thereof specifying in reasonable
detail the reasons for such disapproval, in which case Tenant shall, within ten (10) Business Days
after such notice, revise such Space Plans in accordance with Landlord’s objections and submit the
revised Space Plans to Landlord for its review and approval. Landlord shall notify Tenant in
writing whether it approves of the resubmitted Space Plans within ten (10) Business Days after its
receipt thereof. This process shall be repeated until the Space Plans have been finally approved
by Tenant and Landlord.

     3. Working Drawings.

          (a) Preparation and Delivery. Tenant shall provide to Landlord for its approval final
working drawings consistent with the Space Plans, prepared by the Architect, of all improvements
that Tenant proposes to install in the Premises; such working drawings shall include the partition
layout, ceiling plan, electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building, and detailed plans and
specifications for the construction of the improvements called for under this Exhibit in accordance
with all Laws.

          (b) Approval Process. Landlord shall notify Tenant whether it approves of the
submitted working drawings within fifteen (15) Business Days after Tenant’s submission thereof,
which approval shall not be unreasonably withheld, conditioned or delayed. If Landlord disapproves
of such working drawings, then Landlord shall notify Tenant thereof specifying in reasonable detail
the reasons for such disapproval, in which case Tenant shall, within ten (10) Business Days after
such notice, revise such working drawings in accordance with Landlord’s objections and submit the
revised working drawings to Landlord for its review and approval. Landlord shall notify Tenant in
writing whether it approves of the resubmitted working drawings within ten (10) Business Days after
its receipt thereof. This process shall be repeated until the working drawings have been finally
approved by Tenant and Landlord.

          (c) Landlord’s Approval; Performance of Work. If any of Tenant’s proposed
construction work will affect the Base Building, then the working drawings pertaining thereto must
be approved by the Building’s engineer of record, which approval shall not be unreasonably
withheld, conditioned or delayed. Landlord’s approval of such working drawings shall not be
unreasonably

-18-

 

conditioned, withheld, or delayed, provided that (1) they comply with all Laws, (2) the
improvements depicted thereon do not adversely affect (in the reasonable discretion of Landlord)
the Base Building (including the Building’s restrooms or mechanical rooms), the exterior appearance
of the Building, or the appearance of the Building’s common areas or elevator lobby areas, (3) such
working drawings are sufficiently detailed to allow construction of the improvements in a good and
workmanlike manner, and (4) the improvements depicted thereon conform to the rules and regulations
promulgated from time to time by Landlord for the construction of tenant improvements (a copy of
which has been delivered to Tenant), so long as such rules and regulations are reasonable and they
are not enforced against Tenant in a discriminatory manner and provided that, in the event of any
conflict between the terms of the Lease and the rules and regulations, the terms of the Lease shall
control. As used herein, “Working Drawings” means the final working drawings approved by Landlord,
as amended from time to time by any approved changes thereto, and “Work” means all improvements to
be constructed in accordance with and as indicated on the Working Drawings, together with any work
required by governmental authorities to be made to other areas of the Building as a result of the
improvements indicated by the Working Drawings. Landlord’s approval of the Working Drawings shall
not be a representation or warranty of Landlord that such drawings are adequate for any use or
comply with any Law, but shall merely be the consent of Landlord thereto. Tenant shall, at
Landlord’s request, sign the Working Drawings to evidence its review and approval thereof. After
the Working Drawings have been approved, Tenant shall cause the Work to be performed substantially
in accordance with the Working Drawings, or at its election, shall request that Landlord cause the
Work to be performed in accordance with the Working Drawings. In the event Tenant requests that
Landlord cause the Work to be performed, Landlord shall not charge Tenant any management or
supervision fee to undertake, manage, or coordinate the Work for Tenant.

          (d) Bidding of Work. In the event Tenant has elected Landlord to perform the Work,
prior to commencing the Work, Landlord shall competitively bid the Work to three (3) contractors
reasonably approved by Landlord. Tenant shall be allowed to review the submitted bids from such
contractors to value engineer any of Tenant’s requested alterations, and to reasonably approve the
selection of the contractor by Landlord for the Work. In such case, Tenant shall notify Landlord
of any items in the Working Drawings that Tenant desires to change, and whether it approves the
selection of the contractor, within fifteen (15) Business Days after Landlord’s submission of the
bids to Tenant. If Tenant fails to notify Landlord of its election within such fifteen (15)
Business Day period, Landlord shall have the right, but not the obligation, to provide a second
written notice to Tenant, and if Tenant fails to notify Landlord of its election within three (3)
Business Day following delivery of such second notice, Tenant shall be deemed to have rejected the
bids. Within fifteen (15) Business Days following Landlord’s submission of the initial
construction bids to Tenant under the foregoing provisions, Tenant shall complete all of the
following items: (a) finalize with Landlord’s representative and the proposed contractor, the
pricing of any requested revisions to the bids for the Work, and (b) approve in writing any overage
in the Total Construction Costs in excess of the Construction Allowance.

     4. Contractors; Performance of Work. The Work shall be performed only by licensed
contractors and subcontractors approved in writing by Landlord, which approval shall not be
unreasonably conditioned, withheld, or delayed. All contractors and subcontractors shall be
required to procure and maintain insurance against such risks, in such amounts, and with such
companies as Landlord may reasonably require. Certificates of such insurance, with paid receipts
therefor, must be received by Landlord before the Work is commenced. The Work shall be performed
in a good and workmanlike manner free of defects, shall conform substantially with the Working
Drawings, and shall be performed in such a manner and at such times as and not to interfere with or
delay Landlord’s other contractors (who shall be instructed to coordinate their work so that they
will not interfere with Tenant’s Work), the operation of the Building, and the occupancy thereof by
other tenants. All contractors and subcontractors shall contact Landlord and schedule time periods
during which they may use Building facilities in connection with the Work (e.g., elevators, excess
electricity, etc.).

-19-

 

     5. Construction Contracts.

          (a) Tenant’s General Contractor. In the event Tenant elects to perform the Work, or
any portion thereof, Tenant shall enter into a construction contract with a general contractor
selected by Tenant and approved by Landlord (which approval shall not be unreasonably withheld,
conditioned or delayed) in a form acceptable to Tenant’s representative for the Work, which shall
comply with the provisions of this Section 5 and provide for, among other things, (1) a one-year
warranty for all defective Work; (2) a requirement that Tenant’s Contractor maintain general
commercial liability insurance of not less than a combined single limit of $5,000,000, naming
Landlord, Landlord’s property management company, Landlord’s asset management company, Landlord’s
mortgagee, Tenant, and each of their respective affiliates as additional insureds; (3) a
requirement that the contractor perform the Work in substantial accordance with the Space Plans and
the Working Drawings and in a good and workmanlike manner; (4) a requirement that the contractor is
responsible for daily cleanup work and final clean up (including removal of debris); and (5) those
items described in Section 5(b) below (collectively, the “Approval Criteria”). Landlord shall have
ten (10) Business Days to notify Tenant whether it approves the proposed construction agreements.
If Landlord disapproves of the proposed construction agreements, then it shall specify in
reasonable detail the reasons for such disapproval, in which case Tenant shall revise the proposed
construction agreements to correct the objections and resubmit them to Landlord within five (5)
Business Days after Landlord notifies Tenant of its objections thereto, following which Landlord
shall have five (5) Business Days to notify Tenant whether it approves the revised construction
agreements.

          (b) All Construction Contracts. Unless otherwise agreed in writing by Landlord and
Tenant, each of Tenant’s construction contracts shall: (1) provide a schedule and sequence of
construction activities and completion reasonably acceptable to Landlord, (2) be in a contract form
that satisfies the Approval Criteria, (3) require the contractor and each subcontractor to name
Landlord, Landlord’s property management company, Landlord’s asset management company, Landlord’s
mortgagees and Tenant as additional insured on such contractor’s insurance maintained in connection
with the construction of the Work, (4) be assignable following a default by Tenant under the Lease
to Landlord and Landlord’s mortgagees, and (5) contain at least a one-year warranty for all
workmanship and materials.

     6. Change Orders. Tenant may initiate changes in the Work. Each such change must
receive the prior written approval of Landlord, such approval not to be unreasonably withheld,
conditioned or delayed; however, if such requested change would adversely affect (in the reasonable
discretion of Landlord) (1) the Base Building (including the Building’s restrooms or mechanical
rooms), (2) the exterior appearance of the Building, or (3) the appearance of the Building’s common
areas or elevator lobby areas, Landlord may withhold its consent in its sole and absolute
discretion. Tenant shall, upon completion of the Work, furnish Landlord with an accurate
architectural “as-built” plan of the Work as constructed, which plan shall be incorporated into
this Exhibit “A” by this reference for all purposes. If Tenant requests any changes to the
Work described in the Space Plans or the Working Drawings, then such increased costs and any
additional design costs incurred in connection therewith as the result of any such change shall be
added to the Total Construction Costs.

     7. Definitions. As used herein “Substantial Completion”, “Substantially Completed”
and any derivations thereof mean the Work in the Premises is substantially completed (as reasonably
determined by Landlord) in accordance with the Working Drawings. Substantial Completion shall have
occurred even though minor details of construction, decoration, and mechanical adjustments remain
to be completed.

     8. Walk-Through; Punchlist. When the party performing the Work considers the Work in
the Premises to be Substantially Completed, the party performing the work will notify the other
party and

-20-

 

within five (5) Business Days thereafter, Landlord’s representative and Tenant’s
representative shall conduct a walk-through of the Premises and identify any necessary touch-up
work, repairs and minor completion items that are necessary for final completion of the Work.
Neither Landlord’s representative nor Tenant’s representative shall unreasonably withhold his or
her agreement on punchlist items. The party performing the Work shall use reasonable efforts to
cause its contractor performing the Work to complete all punchlist items within 30 days after
agreement thereon.

     9. Excess Costs. The entire hard and soft costs of performing the Work (including
design of and space planning for the Work and preparation of the Working Drawings and the final
“as-built” plan of the Work, costs of construction labor and materials, reasonable out-of-pocket
moving costs, project management costs, furniture, fixture, and equipment costs, cable and security
system installation costs, electrical usage during construction, additional janitorial services,
general tenant signage (other than those that Landlord is required to install at its sole cost),
related taxes and insurance costs, licenses, permits, certifications, surveys and other approvals
required by Law, all of which costs are herein collectively called the “Total Construction Costs”)
in excess of the Construction Allowance (hereinafter defined) shall be paid by Tenant. Upon
approval of the Working Drawings and selection of a contractor, Tenant shall promptly (a) execute a
work order agreement prepared by Landlord which identifies such drawings and itemizes the Total
Construction Costs and sets forth the Construction Allowance, and (b) if Tenant has elected that
Landlord perform the Work, pay to Landlord 50% of the amount by which Total Construction Costs
exceed the Construction Allowance. Upon Substantial Completion of the Work, Tenant shall pay to
Landlord an amount equal to the Total Construction Costs (as adjusted for any approved changes to
the Work), less (1) the amount of the advance payment already made by Tenant, and (2) the amount of
the Construction Allowance. In the event of default of payment of such excess costs, Landlord (in
addition to all other remedies) shall have the same rights as for a Default under the Lease.

     10. Construction Allowance. Landlord shall provide to Tenant a construction allowance
not to exceed One Million One Hundred Fifty-One Thousand Seven Hundred Fifty and 00/100 Dollars
($1,151,750.00) (based upon $25.00 per rentable square foot within the Premises) (the “Construction
Allowance”) to be applied toward the Total Construction Costs of any Work under the Lease or the
Maplewood Lease, as adjusted for any changes to the Work and subject to the limitations on
allocating the Construction Allowance for soft costs as hereinafter provided in this Section 10.
Tenant may use the Construction Allowance for Work at any time, and from time to time, during the
ten (10) year Extended Term until such Construction Allowance has been exhausted. In the event
Tenant has elected to have Landlord perform the Work, the Construction Allowance shall not be
disbursed to Tenant in cash, but shall be applied by Landlord to the payment of the Total
Construction Costs, if, as, and when the cost of the Work is actually incurred and paid by
Landlord. In the event Tenant has elected to perform the Work, no advance of the Construction
Allowance shall be made by Landlord until Tenant has first paid to the contractor from its own
funds (and provided reasonable evidence thereof to Landlord) the anticipated amount by which the
projected Total Construction Costs exceed the amount of the Construction Allowance. Thereafter,
Landlord shall pay to Tenant the Construction Allowance in multiple disbursements (but not more
than once in any calendar month) following the receipt by Landlord of the following items: (a) a
request for payment, (b) final or partial lien waivers, as the case may be, from all persons
performing work or supplying or fabricating materials for the Work, fully executed, acknowledged
and in recordable form, and (c) the Architect’s certification that the Work for which reimbursement
has been requested has been finally completed, including (with respect to the last application for
payment only) any punch-list items, on the appropriate AIA form or another form approved by
Landlord, and, with respect to the disbursement of the last 10% of the Construction Allowance: (1)
the permanent certificate of occupancy issued for the Premises, (2) Tenant’s occupancy of the
Premises, (3) delivery of the architectural “as-built” plan for the Work as constructed (and as set
forth above) to Landlord’s construction representative (set forth below), and (4) an estoppel
certificate confirming such factual matters as Landlord or Landlord’s mortgagee may reasonably
request (collectively, a “Completed Application for Payment”). Landlord shall pay the amount
requested in the

-21-

 

applicable Completed Application for Payment to Tenant within thirty (30) days following
Tenant’s submission of the Completed Application for Payment. If, however, the Completed
Application for Payment is incomplete or incorrect, Landlord’s payment of such request shall be
deferred until thirty (30) days following Landlord’s receipt of the Completed Application for
Payment. Notwithstanding anything to the contrary contained in this Exhibit, Landlord shall not be
obligated to make any disbursement of the Construction Allowance during the pendency of any of the
following: (A) Landlord has received written notice of any unpaid claims relating to any portion of
the Work or materials in connection therewith, other than claims which will be paid in full from
such disbursement, (B) there is an unbonded lien outstanding against the Building or the Premises
or Tenant’s interest therein by reason of work done, or claimed to have been done, or materials
supplied or specifically fabricated, claimed to have been supplied or specifically fabricated, to
or for Tenant or the Premises, or (C) the conditions to the advance of the Construction Allowance
are not satisfied. Landlord acknowledges that it shall not be permitted to deduct management,
supervision, or coordination fees or charges from the Construction Allowance. Tenant shall have
the right, at any time and from time to time by notice to Landlord in writing, to require Landlord
to credit all or a portion of any unused Construction Allowance against Tenant’s obligation to pay
Base Rent until such unused portion is exhausted, provided, however, that no more than half of the
Construction Allowance may be used for soft costs and, provided further, that no more than $10.00
per rentable square foot within the Premises may be used as a credit against rent. The term “soft
costs” for the purposes of the foregoing sentence includes design and space planning costs, costs
for the preparation of the Working Drawings and the final “as-built” plan of the Work, reasonable
out-of-pocket moving costs, costs of furniture, fixtures, equipment, cabling, and security system
installation, and credit against future rent. In such event, Landlord shall credit such difference
against Tenant’s Base Rent obligations next coming due. Any unused Construction Allowance Tenant
does not elect to have credited against Base Rent shall be held by Landlord for Tenant’s use in
future Work.

     11. Construction Representatives. Landlord’s and Tenant’s representatives for
coordination of construction and approval of change orders will be as follows, provided that either
party may change its representative upon written notice to the other:

	 	 	 
	     Landlord’s Representative:

	 	Marc Michalson
	 

	 	c/o CB Richard Ellis
	 

	 	Asset Services
	 

	 	530 Dexter Ave North, Suite 200
	 

	 	Seattle, Washington 98109
	 

	 	Telephone: (206) 262-8888
	 

	 	Telecopy: (206) 262 8805
	 
	 	 
	     Tenant’s Representative:

	 	To be designated by Tenant prior to commencement of any Work.

     13. Common Areas. Tenant may perform Alterations in Common Areas located within the
Building, upon obtaining Landlord’s prior written consent, which consent shall not be unreasonably
conditioned, withheld, or delayed (in light of the fact that Tenant is the sole tenant in the
Building). In the event Tenant performs any Alterations within such Common Areas which Landlord
has consented in writing to and which are performed in accordance with this Exhibit, upon
termination or expiration of the Lease, Tenant shall not be required to restore the Common Areas to
the condition they existed prior to the Alterations, and Landlord may not condition its consent on
Tenant’s commitment to such restoration.

     14. Miscellaneous. To the extent not inconsistent with this Exhibit, Sections 8 and 9
of the Lease shall govern the performance of the Work and Landlord’s and Tenant’s respective rights
and obligations regarding the improvements installed pursuant thereto.

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     15. Space Planning Costs. Landlord shall be responsible for, and shall promptly pay
separately, all space planning costs and expenses charged by JPC Architects prior to March 30,
2009. Notwithstanding Section 9 above, the foregoing space planning costs and expenses shall not
be included in the Total Construction Costs and shall not be deducted from the Construction
Allowance.

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EXHIBIT B

FORM OF OFFER NOTICE

[Insert Date of Notice]

BY TELECOPY AND FEDERAL EXPRESS

                                        

                                        

                                        

			
	Re:	 	Lease dated                      (the “Lease”) between                               , a                    
  (“Landlord”), and                                                                         
  , a                                          (“Tenant”). Capitalized terms used herein
but not defined shall be given the meanings assigned to them in the Lease.

Ladies and Gentlemen:

     Pursuant to the Right of First Offer set forth in the Lease, enclosed please find an Offer
Notice on                     . The basic terms and conditions are as follows:

	 	 	 
	LOCATION:

	 	                          
                                               
                           
	 
	 	 
	SIZE:

	 	                     rentable square feet
	 
	 	 
	BASIC RENT RATE:

	 	$                 per month
	 
	 	 
	TERM:

	 	                                                                         
                           
	 
	 	 
	IMPROVEMENTS:

	 	                                                                         
                           
	 
	 	 
	COMMENCEMENT:

	 	                                                                         
                           
	 
	 	 
	PARKING TERMS:

	 	                                                                         
                           
	 
	 	 
	OTHER MATERIAL TERMS:

	 	                                                                         
                           

     Under the terms of the Right of First Offer, you must exercise your rights, if at all, as to
the Offer Space described in this Offer Notice within thirty (30) days after Landlord delivers
such Offer Notice. Accordingly, you have until 5:00 p.m. Pacific time on                          , 200___,
to exercise your rights under the Right of First Offer and accept the terms as contained herein,
failing which your rights under the Right of First Offer shall terminate and Landlord shall be free
to lease the Offer Space to any third party. If possible, any earlier response would be
appreciated. Please note that your acceptance of this Offer Notice shall be irrevocable and may
not be rescinded.

     Upon receipt of your acceptance herein, Landlord and Tenant shall execute an amendment to the
Lease memorializing the terms of this Offer Notice including the inclusion of the Offer Space in
the Premises; provided, however, that the failure by Landlord and Tenant to execute such amendment
shall not affect the inclusion of such Offer Space in the Premises in accordance with this Offer
Notice.

     THE FAILURE TO ACCEPT THIS OFFER NOTICE BY (1) DESIGNATING THE “ACCEPTED” BOX, AND (2)
EXECUTING AND RETURNING THIS OFFER NOTICE TO LANDLORD WITHOUT MODIFICATION WITHIN SUCH TIME PERIOD
SHALL BE DEEMED A WAIVER OF TENANT’S RIGHTS UNDER THE RIGHT OF FIRST OFFER, AND TENANT SHALL HAVE
NO FURTHER RIGHTS TO THE OFFER SPACE. THE FAILURE TO EXECUTE THIS

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LETTER WITHIN SUCH TIME PERIOD SHALL BE DEEMED A WAIVER OF THIS OFFER NOTICE.

     Should you have any questions, do not hesitate to call.

	 	 	 
	 

	 	Sincerely,
	 
	 	 
	 

	 	 

	 

	 	 

	 

	 	 

	[please check appropriate box]
	 	 

ACCEPTED     o

REJECTED       o

	 	 	 	 	 	 	 
	                                                            , a              
                           	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 

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EXHIBIT C

LEGAL DESCRIPTION OF ASPENWOOD PARCEL

LOT 6 OF BELLEFIELD OFFICE PARK, ACCORDING TO THE PLAT THEREOF, RECORDED IN VOLUME 119, PAGES 81
THROUGH 90, RECORDS OF KING COUNTY;
SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON.

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