Document:

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                                    EXHIBIT A
                             BASIC LEASE INFORMATION

Lease Date:                February 19, 1997

Landlord:                  Riggs Bank N.A., as Trustee of the
                           Multi-Employer Property Trust

Address of Landlord:       c/o Trammell Crow Company
                           626 120th Avenue N.E.
                           Suite B104 Bellevue, WA 98005

Tenant:                    Rosetta BioSystems, a Delaware corporation

Premises:                  12040 115th Ave NE
                           Suite 210
                           Kirkland, WA 98034

Paragraph 1                "Premises": approximately 18,691 rentable square feet
                           in Building G of approximately 31,637 rentable square
                           feet, such Premises being shown and outlined in red
                           on the plan attached hereto as Exhibit A, and being
                           part of the real property described in Exhibit B
                           attached hereto. Tenant accepts Landlord's
                           approximation of the square footage of the Premises.

Paragraph 1                "Lease Term": Commencing on the "Commencement Date"
                           as hereinafter defined and ending 60 months
                           thereafter, except that in the event the Commencement
                           Date is a date other than the first day of a calendar
                           month, the Lease Term shall end 60 months after the
                           last day of the calendar month containing the
                           Commencement Date.

Paragraph 1                Scheduled Term Commencement Date: July 2, 1997.

Paragraph 2                Monthly Base Rent: $26,479.00, Triple Net.

Paragraph 2(B)             Security Deposit: $30,879.00. (See Additional
                           Paragraph 32: Letter of Credit).

Paragraph 4(A)             Tenant's Initial Monthly Escrow Payment for Taxes and
                           Other Charges: $1,962.00.

Paragraph 7                Tenant's Initial Monthly Common Area Maintenance
                           Charge: $2,251.

Paragraph 13(B)            Tenant's Initial Monthly Insurance Escrow Payment:
                           $187.00.

                           Tenant's Initial Monthly Payment Total: $30,879.00.

         The foregoing Basic Lease Information is hereby incorporated into and
made a part of this Lease. Each reference in this Lease to any of the Basic
Lease Information shall mean the respective information herein above set forth
and shall be construed to Incorporate all of the terms provided under the
particular Lease paragraph pertaining to such information, In the event of any
conflict between any Basic Lease Information and the Lease, the former shall
control.
               Please Initial: Tenant LH ; Landlord
                                     ----          -------------

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<TABLE>
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                                TABLE OF CONTENTS

<S>      <C>                                                                                            <C>
1.       PREMISES AND TERM...............................................................................1
2.       BASE RENT AND SECURITY DEPOSIT..................................................................1
3.       USE/HAZARDOUS SUBSTANCES........................................................................2
4.       TAXES AND OTHER CHARGES.........................................................................3
5.       TENANT'S MAINTENANCE............................................................................4
6.       LANDLORD'S REPAIRS..............................................................................5
7.       MONTHLY COMMON-AREA MAINTENANCE CHARGE..........................................................5
8.       ALTERATIONS.....................................................................................6
9.       SIGNS...........................................................................................6
10.      INSPECTION......................................................................................6
11.      UTILITIES.......................................................................................7
12.      ASSIGNMENT AND SUBLETTING.......................................................................7
13.      INSURANCE, F1RE AND CASUALTY DAMAGE.............................................................8
14.      LIABILITY......................................................................................10
15.      CONDEMNATION...................................................................................10
16.      HOLDING OVER...................................................................................11
17.      QUIET ENJOYMENT................................................................................11
18.      EVENTS OF DEFAULT..............................................................................11
19.      REMEDIES.......................................................................................12
20.      LANDLORD'S LIEN................................................................................14
21.      MORTGAGES......................................................................................14
22.      LANDLORD'S DEFAULT.............................................................................14
23.      MECHANIC'S AND OTHER LIENS.....................................................................14
24.      NOTICES........................................................................................15
25.      MISCELLANEOUS..................................................................................16
26.      LIABILITY OF LANDLORD..........................................................................17
27.      ADDITIONAL PROVISIONS..........................................................................17
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                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT, made and entered into by and between Riggs Bank
N.A., as Trustee of the Multi-Employer Property Trust, hereinafter referred to
as "Landlord", and Rosetta Biosystems, a Delaware corporation, hereinafter
referred to as "Tenant";

                                   WITNESSETH

1.       PREMISES AND TERM.

         A. In consideration of the obligation of Tenant to pay Rent as herein
provided, and in consideration of the other terms, provisions and covenants
hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes
and leases from Landlord those certain Premises as outlined in red on Exhibit
"A" attached hereto (hereinafter referred to as the "Premises") and incorporated
herein by reference, together with all rights, privileges, easements,
appurtenances, and amenities belonging to or in any way appertaining to the
Premises and together with the buildings and other improvements situated or to
be situated upon land described in Exhibit "B" attached hereto.

         B. TO HAVE AND TO HOLD the same for a term commencing on the
"Commencement Date", as hereinafter defined, and ending thereafter as specified
in the Basic Lease Information, attached hereto, (the "Lease Term").

         C. The "Commencement Date" shall be the Scheduled Term Commencement
Date shown in the Basic Lease Information, attached hereto and incorporated
herein by reference, or the date upon which the Premises shall have been vacated
by the current tenant (Procyte Corporation), whichever is later. The Landlord
will use good faith efforts to secure the removal of the current tenant from the
Premises before the close of business on July 1, 1997 (if no holdover agreement
is executed between Landlord and current tenant), or July 15, 1997 (if holdover
agreement is executed between Landlord and current tenant). If the Premises
shall not be available for occupancy as aforesaid by the Scheduled Term
Commencement Date, Tenant's obligations to pay Rent and its other obligations
for payment under this Lease shall commence on the date the Tenant occupies the
Premises, and Landlord shall not be liable to Tenant for any loss or damage
resulting from such delay. Landlord shall notify Tenant in writing as soon as
Landlord deems the Premises ready for occupancy. The Tenant accepts the Premises
in "as-is" condition subject to all faults and deficiencies (and as further set
forth In Exhibit C hereto). Tenant acknowledges that no representations as to
the repair of the Premises have been made by Landlord, unless such are expressly
set forth in this Lease. After the Commencement Date, Tenant shall, upon demand,
execute and deliver to Landlord a letter of acceptance of delivery of the
Premises, specifying the Commencement Date and the rent commencement date, in
recordable form.

2.       BASE RENT AND SECURITY DEPOSIT.

         A. Tenant agrees to pay to Landlord Base Rent for the Premises, in
advance, without demand, deduction or set off, for the entire Lease Term hereof
at the rate specified in the Basic Lease Information, payable in monthly
installments. One such monthly installment shall be due and payable on the date
hereof and a like monthly installment shall be due and payable on or before the
first day of each calendar month succeeding the Commencement Date recited above
during the Lease Term, except that the rental payment for any fractional
calendar month at the commencement or end of the Lease period shall be prorated
on the basis of the number of days in said month.

         B. In addition, Tenant agrees to deposit with Landlord on the date
hereof a cash security deposit in the amount specified in the Basic Lease
Information, which sum shall be held by Landlord, without

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obligation for interest, as security for the performance of Tenant's covenants
and obligations under this Lease, it being expressly understood and agreed that
such deposit is not an advance rental deposit, not the last month's Rent nor a
measure of Landlord's damages in the event of Tenant's default. Upon the
occurrence of any event of default by Tenant, Landlord may, from time to time,
without prejudice to any other remedy provided herein or provided by law, use
such deposit to the extent necessary to make good any arrears of rent or other
payments due Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default, or to perform any obligation required
of Tenant under the Lease, and Tenant shall pay to Landlord on demand the amount
so applied in order to restore the security deposit to its original amount.
Although the security deposit shall be deemed the property of Landlord, any
remaining balance of such deposit shall be returned by Landlord to Tenant at
such time after termination of this Lease that all of Tenant's obligations under
this Lease have been fulfilled. Further security provisions are contained in
Additional Paragraph 32: Letter of Credit).

3.       USE/HAZARDOUS SUBSTANCES.

         A. USE. The Premises shall be used only for the purposes of
research and development (laboratory), general office, receiving, storing,
shipping, assembly, light manufacturing, and selling (other than retail)
products, materials and merchandise made and/or distributed by Tenant and for
such other lawful purposes as may be incidental thereto. Outside storage,
including without limitation, trucks and other vehicles, is prohibited without
Landlord's prior written consent. Tenant shall at its own cost and expense
obtain any and all licenses and permits necessary for its use of the Premises.
Subject to the provisions of this Lease dealing with Access Laws, Tenant shall
comply with all governmental laws, ordinances and regulations applicable to the
use of the Premises, and shall promptly comply with all governmental orders and
directives including but not limited to those regarding the correction,
prevention and abatement of nuisances in or upon, or connected with, the
Premises, all at Tenant's sole expense. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to
emanate from the Premises, nor take any other action which would constitute a
nuisance or would disturb or endanger any other tenants of the building in which
the Premises are situated or unreasonably interfere with their use of their
respective Premises. In addition to any other remedies Landlord may have for a
breach by Tenant of the terms of this paragraph 3, Landlord shall have the right
to have Tenant evicted from the Premises. Without Landlord's prior written
consent, Tenant shall not receive, store or otherwise handle any product,
material or merchandise which is explosive or highly inflammable. Tenant will
not permit the Premises to be used for any purpose or in any manner (including
without limitation any method of storage) which would render the insurance
thereon void or the insurance risk more hazardous or cause the State Board of
Insurance or other insurance authority to disallow any sprinkler credits. In the
event Tenant's use of the Premises shall result in an increase in insurance
premiums, Tenant shall be solely responsible for said increase.

         B. HAZARDOUS SUBSTANCES.

                  (1) Tenant agrees that neither Tenant nor its employees,
agents, licensees or invitees will store, place, generate, manufacture, refine,
handle, or locate on, in or around the Premises any Hazardous Substances, as
defined below, except for the storage, handling and use of Hazardous Substances
of types and in quantities as are reasonably necessary for the operation of
Tenant's business as described in the paragraph of this Lease setting forth
permitted uses; provided that (a) the storage, handling and use of such
permitted Hazardous Substances must at all times conform to all Governmental
Requirements and to all applicable fire, safety and insurance requirements, (b)
the types and quantities of permitted Hazardous Substances which are stored in
the Premises must be reasonable and appropriate to the nature and size of the
Tenant's operation in the Premises and reasonable and appropriate for
first-class industrial office parks located in the 1-405 Corridor market area,
(c) no fluid Hazardous Substances shall be stored in above-ground or
below-ground tanks or drums in the Premises or in sealed containers larger than
five (5) gallons, and (d) no Hazardous Substance shall be spilled or disposed of
on, in or around the Premises or the building of which the Premises

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is a part (the "Building") or any area adjacent thereto; provided further that,
in no event will Tenant be permitted to store, handle or use on, in or around
the Premises any Hazardous Substance which will increase the rate of fire or
extended coverage insurance on the Premises or the Building, unless (i) such
Hazardous Substance and the expected rate increase have been specifically
disclosed in writing to Landlord, (ii) Tenant has agreed in writing to pay any
rate increase related to each such Hazardous Substance, and (iii) Landlord has
approved in writing each such Hazardous Substance, which approval shall be
subject to Landlord's sole and absolute discretion. Tenant shall indemnify,
defend and hold harmless the Landlord from and against any and all loss,
liability, damage, expense, cost, claim or injury arising out of any breach of
any provision of this paragraph, including, but not limited to, attorneys' fees,
laboratory testing fees, personal injury claims, clean-up costs, and
environmental consultants' consultants' fees. Tenant agrees that Landlord may be
irreparably harmed by Tenant's breach of this paragraph and that a specific
performance action may be appropriately brought by Landlord; provided that,
Landlord's election to bring or not bring any such specific performance action
shall in no way limit, waive, impair or hinder Landlord's other remedies against
Tenant.

                  (2) The term "Governmental Requirements" means any and all
statutes, ordinances, codes, laws, rules, regulations and directives of the
United States, the state in which the Premises is located, any political
subdivision of that state or any board, agency or authority associated with any
such governmental entity, including, but not limited to, the regulations of the
fire department having jurisdiction over the Premises, excepting only the
Americans with Disabilities Act of 1990 as now or hereafter amended. The term
"Hazardous Substance(s)" means asbestos petroleum or petroleum based chemicals
or substances, urea formaldehyde or any chemical, material, element, compound,
solution, mixture, substance or other matter of any kind whatsoever which is now
or hereafter defined, classified, listed, designated or regulated as hazardous,
toxic or radioactive by any federal, state, or local governmental entity or
agency.

4.       TAXES AND OTHER CHARGES.

A. Tenant agrees to pay its proportionate share of any and all real and personal
property taxes, installments of regular and special assessments, license fees,
public service impact fees and other charges of any kind and nature whatsoever,
payable by Landlord as a result of any public or quasi-public authority, private
party, or owner's association levy, assessment or imposition against, or arising
out of Landlord's ownership of or interest in, the real estate described in
Exhibit "B" attached hereto, together with the Building and the grounds, parking
areas, driveways, roads, and alleys around the Building in which the Premises
are located, or any part thereof (hereinafter collectively referred to as the
"Charges"). During each month of the Lease Term, Tenant shall make a monthly
escrow deposit with Landlord (the "Escrow Payment") equal to 1/12 of its
proportionate share of the Charges which will be due and payable for that
particular calendar year. Any lump sum public service impact fees paid by
Landlord shall be amortized over ten (10) years at interest not to exceed twelve
percent (12%) Interest per annum, and equal installments of such fee, together
with interest accrued thereon, shall be payable monthly as a portion of the
Charges. Tenant authorizes Landlord to use the funds deposited by Tenant with
Landlord under this paragraph 4 to pay the Charges. Each Escrow Payment shall be
due and payable, as additional rent at the same time and in the same manner as
the payment of monthly rental as provided herein. The amount of the Initial
Monthly Escrow Payment will be specified in the Basic Lease Information. The
initial Escrow Payment is based upon Tenant's proportionate share of the
estimated Charges for this year, and the monthly Escrow Payment is subject to
increase or decrease as determined by the Landlord to reflect an accurate escrow
amount of Tenant's estimated proportionate share of the Charges. The Escrow
[PHOTOCOPY ERROR] [ACCOUNT?] of Tenant shall be reconciled annually. If Tenant's
total Escrow Payments [PHOTOCOPY ERROR] than Tenant's actual pro rata share of
the Charges, Tenant shall pay to Landlord upon [PHOTOCOPY ERROR] and the
difference; if the Tenant's total Escrow Payments are more than Tenant's actual
pro rata share of the Charges, Landlord shall retain such excess and credit it
to Tenant's Escrow for the successive year's Charges. Tenant's proportionate
share of the Charges shall be computed by multiplying the Charges by a fraction,
the numerator of which shall be the number of gross leasable square feet of
floor space in the Premises and the

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denominator of which shall be the total applicable gross leasable square
footage; or such other equitable apportionment as may be adopted.

         B. If Tenant should fail to pay any Escrow Payments required to
be paid by Tenant hereunder, in addition to any other remedies provided herein,
Landlord may, if it so elects, pay such Escrow Payments or taxes, assessments,
license fees and other Charges. Any sums so paid by Landlord shall be deemed to
be so much additional rental owing by Tenant to Landlord and due and payable
upon demand as additional rental plus interest at the rate of eighteen percent
(18%) per annum from the date of payment by Landlord until repaid by Tenant.

         C.       (1) If at any time during the Lease Term, the present method
                  of taxation shall be changed so that in lieu of the whole or
                  any part of any taxes, assessments, fees or charges levied,
                  assessed or imposed on real estate and the improvements
                  thereon, there shall be levied, assessed or imposed on
                  Landlord a capital levy or other tax directly on the rents
                  received therefrom and/or a franchise tax, assessment, levy or
                  charge measured by or based, in whole or in part, upon such
                  rents e~ of the present or any future building or buildings,
                  then all such taxes, assessments, fees or charges, or the part
                  thereof so measured or based, shall be deemed to be included
                  within the term "Charges" for the purposes hereof.

                  (2) Tenant may, alone or along with other tenants of the
                  building containing the Premises, at its sole cost and
                  expense, in its or their own name(s) dispute and contest any
                  Charges by appropriate proceedings diligently conducted in
                  good faith, but only after Tenant and all other tenants, if
                  any, joining with Tenant in such contest have deposited with
                  Landlord the amount so contested and unpaid or their
                  proportionate shares thereof as the case may be, which shall
                  be held by Landlord without obligation for interest until the
                  termination of the proceedings, at which. time the amount(s)
                  deposited shall be applied by Landlord toward the payment of
                  the items held valid (plus any court costs, Interest,
                  penalties and other liabilities associated with the
                  proceeding(s)), and Tenant's share of any excess shall be
                  returned to Tenant. Tenant further agrees to pay to Landlord
                  upon demand Tenant's share (as among all Tenants who
                  participated in the contest) of all court costs, interest,
                  penalties and other liabilities relating to such proceedings.
                  Tenant hereby indemnifies and agrees to hold harmless the
                  Landlord from and against any cost, damage or expense
                  (including attorney's fees) in connection with any such
                  proceedings.

                  (3) Any payment to be made pursuant to this paragraph 4 with
                  respect to the calendar year in which this Lease commences or
                  terminates shall bear the same ratio to the payment which
                  would be required to be made for the full calendar year as
                  that part of such calendar year covered by the Lease Term
                  bears to a full calendar year.

         D. Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by Tenant in the Premises. If any such taxes
are levied against Landlord or Landlord's property and if Landlord elects to pay
the same or if the assessed value of Landlord's property is increased by
inclusion of personal property and trade fixtures placed by Tenant in the
Premises and Landlord elects to pay the taxes based on such increase, Tenant
shall pay to Landlord upon demand that part of such taxes for which Tenant is
primarily liable hereunder.

5. TENANT'S MAINTENANCE.

         A. Tenant shall at its own cost and expense keep and maintain all parts
of the Premises (except those for which Landlord is expressly responsible under
the terms of this Lease) in good condition, ordinary wear and tear (of the
nature typical of an office tenant) excepted, promptly making all necessary
repairs and

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replacements, including but not limited to, windows, glass and plate glass,
doors, any special office entry, interior walls and finish work, floor and floor
covering, heating and air-conditioning systems, plumbing work and fixtures
located within the inside face of the exterior walls of the Premises, termite
and pest extermination, regular removal of trash and debris, and keeping the
Premises in a clean and sanitary condition. Tenant shall not be obligated to
repair any damage caused by Landlord's acts or omissions, condemnation, or fire,
tornado, or other casualty, except that Tenant shall be obligated to repair all
wind damage to glass except with respect to tornado or hurricane damage.

         B. Tenant shall not damage any demising wall or disturb the integrity
and support provided by any demising wall and shall, at its sole cost and
expense, promptly repair any damage or injury to any demising wall caused by
Tenant or its employees, agents, licensees or invitees.

         C. Tenant and its employees, customers and licensees shall have the
right to use the parking areas, if any, as may be designated by Landlord in
writing, subject to such reasonable rules and regulations as Landlord may from
time to time prescribe and subject to rights of ingress and egress of other
tenants. Landlord shall not be responsible for enforcing Tenant's exclusive
parking rights against any third parties. Tenant's parking rights are subject to
the provisions of Addendum to Paragraph 5(C). If Tenant or any other particular
tenant of the building can be clearly identified as being responsible for
obstructions or stoppage of a common sanitary sewage line, then Tenant, if
Tenant is responsible, or such other responsible Tenant, shall pay the entire
cost thereof, upon demand, as additional Rent.

         D. Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
for servicing all heating and air-conditioning systems and equipment within the
Premises.

6.       LANDLORD'S REPAIRS.

         After reasonable notice from Tenant, Landlord shall make any necessary
repairs to the roof, exterior walls, and foundations, and the costs thereof
shall be shared as provided in paragraph 7; provided, that the costs of any such
repairs which constitute capital repairs under generally accepted accounting
standards shall be amortized, together with twelve percent (12%) interest, over
the useful life of the repaired item, and Tenant shall only be required to pay
its share of the portion of said amortized costs attributable to the term of
this Lease (including any exercised option terms). Tenant shall repair and pay
for any damage to such items to be maintained by Landlord caused by any act,
omission or negligence of Tenant, or Tenant's employees, agents, licensees or
invitees, or caused by Tenant's default hereunder. The term "walls" as used
herein shall not include windows, glass or plate glass, doors, special store
fronts or office entries. Tenant shall immediately give Landlord written notice
of defect or need for repairs, after which Landlord shall have a reasonable
opportunity and time to repair same or cure such defect. Landlord's liability
with respect to any defects, repairs or maintenance for which Landlord is
responsible under any of the provisions of this Lease shall be limited to the
cost of such repairs or maintenance or the curing of such defect.

7.       MONTHLY COMMON-AREA MAINTENANCE CHARGE.

         Tenant agrees to pay as an additional charge each month its
proportionate share of the cost of operation and maintenance of the Common Area
which shall be defined from time to time by Landlord. Common Area costs which
may be incurred by Landlord, at its discretion, may include, but not be limited
to, costs incurred for lighting, water, sewage, trash removal, exterior
painting, exterior window cleaning, accounting, policing, sweeping, services
negotiation, a customary third-party property management fee not to exceed 5% of
rentals, sewer lines, plumbing, paving, landscape maintenance, plant material
replacement, maintenance and repair of parking areas, driveways, alleys, dock
boards, truck doors, dock bumpers, downspouts, gutters, and other like charges,
and for administration of the items set forth in this paragraph.

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Landlord shall maintain the Common Areas in reasonably good condition and
repair. The proportionate share to be paid by Tenant of the cost of operation
and maintenance of the Common Area shall be computed on the ratio that the gross
leasable square feet of the Premises bears to the total applicable gross
leasable square footage or such other equitable apportionment as may be adopted
by Landlord. Tenant shall make monthly or other periodic payments based upon the
estimated annual cost of operation and maintenance of the Common Area, payable
in advance but subject to adjustment after the end of the year on the basis of
the actual cost for such year. Any such periodic charges shall be due and
payable upon delivery of notice thereof. The initial Common-Area Maintenance
Charges, subject to adjustment as provided herein, shall be due and payable, as
additional rent, at the same time and in the same manner as the time and manner
of the payment of monthly rental as provided herein. The amount of the initial
monthly Common-Area Maintenance Charge shall be as specified in the Basic Lease
Information.

8.       ALTERATIONS.

         A. Tenant shall not make any alterations, additions or
improvements to the Premises (including but not limited to roof and wall
penetrations) without the prior written consent of Landlord. Tenant may, without
the consent of Landlord, but at its own cost and expense and in a good
workmanlike manner erect such shelves, bins, machinery and trade fixtures as it
may deem advisable, without altering the basic character of the Building or
improvements and without overloading or damaging the Building or improvements,
and in each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. All alterations, additions, improvements and
partitions erected by Tenant shall be and remain the property of Tenant during
the Term of this Lease and Tenant shall, unless Landlord otherwise elects as
hereinafter provided, remove all alterations, additions, improvements and
partitions erected by Tenant and restore the Premises to their original
condition by the date of termination of this Lease or upon earlier vacating of
the Premises; provided, however, that if Landlord so elects prior to termination
of this Lease or upon earlier vacating of the Premises, such alterations,
additions, improvements and partitions shall become the property of Landlord as
of the date of termination of this Lease or upon earlier vacating of the
Premises and shall be delivered up to the Landlord with the Premises. All
shelves, bins, machinery and trade fixtures installed by Tenant at its cost may
be removed by Tenant prior to the termination of this Lease if Tenant so elects,
and shall be removed by the date of termination of this Lease or upon earlier
vacating of the Premises if required by Landlord; upon any such removal Tenant
shall restore the Premises to their original condition. All such removals and
restoration shall be accomplished in good workmanlike manner so as not to damage
the primary structure or structural qualities of the buildings and other
improvements situated on the Premises.

         B. Notwithstanding anything to the contrary contained herein,
Landlord agrees that the. Tenant shall not be responsible for, and Landlord
shall hold Tenant harmless against, any costs of cleanup or removal arising from
or associated with any hazardous material existing in, on or throughout the
Premises, as of the date Tenant occupies the Premises pursuant to the terms of
this Lease.

9.       SIGNS.

         Tenant shall not install signs upon the Premises without Landlord's
prior written approval, and any such signage shall be subject to any applicable
governmental laws, ordinances, regulations and other requirements, including the
Kirkland 405 Corporate Center Sign Policy attached as Exhibit H. Tenant shall
remove all such signs by the termination of this Lease. Any installations and
removals shall be made in such a manner as to avoid injury or defacement of the
building and other improvements, and Tenant shall repair any injury or
defacement, including without limitation discoloration caused by such
installation and/or removal.

10.      INSPECTION.

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         A. Landlord and Landlord's agents and representatives shall have the
right to enter and inspect the Premises at any reasonable time during business
hours, for the purpose of ascertaining the condition of the Premises or in order
to make such repairs as may be required or permitted to be made by Landlord
under the terms of this Lease. During the period that is six (6) months prior to
the end of the Term hereof, Landlord and Landlord's agents and representatives
shall have the right to enter the Premises at any reasonable time during
business hours for the purpose of showing the Premises and shall have the right
to erect on the Premises a suitable sign indicating the Premises are available.

         B. Tenant shall give written notice to Landlord at least thirty (30)
days prior, to vacating the Premises and shall arrange to meet with Landlord for
a joint Inspection of the Premises prior to vacating. In the event of Tenant's
failure to give such notice or arrange such joint inspection, Landlord's
inspection at or after Tenant's vacating the Premises shall be conclusively
deemed correct for the purposes of determining Tenant's responsibility for
repairs and restoration. it shall be the responsibility of Tenant, prior to
vacating the Premises, to clean and repair the Premises and restore them to the
condition in which they were in upon delivery of the Premises to Tenant at the
Commencement Date, reasonable wear and tear (of the nature typical of an office
tenant) excepted. Cleaning, repair and restoration shall include, but not be
limited to, removal of all trash, cleaning and repainting of walls, where
necessary, cleaning of carpet and flooring, replacement of light bulbs and
tubes, cleaning and wiping down of all fixtures, maintenance and repair of all
heating and air-conditioning systems, and all similar work, which shall be done
at the latest practical date prior to vacation of the Premises.

11.      UTILITIES.

         Landlord agrees to provide at its cost water, electricity and gas
service connections into the Premises. Tenant shall pay for all water, gas,
heat, light, power, telephone, sewer, sprinkler charges and other utilities and
services used on or from the Premises, together with any taxes, penalties,
surcharges or the like pertaining thereto and any maintenance charges for
utilities. If any such services are not separately metered to Tenant, Tenant
shall pay a reasonable proportion as determined by Landlord of alt charges
jointly metered with other premises. The Landlord may, at its option and
expense, cause to be installed a separate water meter to monitor water and sewer
Charges for the Premises. Landlord shall in no event be liable for any
interruption or failure of utility services on the Premises.

12.      ASSIGNMENT AND SUBLETTING.

         A. Tenant shall have the right, voluntarily or involuntarily, to
assign, convey, transfer, mortgage or sublet the whole or any part of the
Premises under this Lease without with the prior written consent of Landlord,
which consent shall not be unreasonable withheld. Landlord's rights to withhold
consent to any proposed assignment or sublease are specifically set forth in
Addendum to Paragraph 12(A), below. In the event Tenant applies to Landlord for
consent to assign, convey, transfer or sublet the Premises, Landlord may
condition such consent upon the right to receive one-half of the profit, if any,
which Tenant may realize on account of such assignment, conveyance, transfer or
sublease of the Premises. For purposes of this paragraph, "profit" shall mean
any sum which Tenant receives from the assignee, sublessee or transferee is
required to pay, or which is credited to Tenant as rent in excess of the rents
required to be paid by Tenant to Landlord under this Lease, less all of Tenant's
reasonable costs in obtaining such assignment or sublease, including without
limitation leasing commissions, attorneys' fees, tenant improvements and tenant
credits and allowances. Landlord also reserves the right to recapture the
Premises or applicable portion thereof in lieu of giving its consent by notice
given to Tenant within twenty (20) days after receipt of Tenant's written
request for assignment or subletting. Such recapture shall terminate this Lease
as to the applicable space effective on the prospective date of assignment or
subletting, which shall be the last day of a calendar month and not earlier than
sixty (60) days after receipt of Tenant's request hereunder. In the event that
Landlord shall not

                                      -7-

<PAGE>

elect to recapture and shall thereafter give its consent, in addition to any
fees paid to outside parties assisting Tenant in subletting or assignment,
Tenant shall pay Landlord Landlord's agent a fee of $500.00, plus Landlord's
reasonable attorneys' fees, if any, to reimburse Landlord for processing and
leasing costs incurred in connection with such consent.

         B. Notwithstanding any permitted assignment or subletting, Tenant shall
at all times remain directly, primarily and fully responsible and liable for the
payment of the rent herein specified and for compliance with all of its other
obligations under the terms, provisions and covenants of this Lease. Upon the
occurrence of an "event of default" as hereinafter defined, if the Premises or
any part thereof are then assigned or sublet, Landlord, in addition to any other
remedies herein provided, or provided by law, may at its option collect directly
from such assignee or subtenant all rents becoming due to Tenant under such
assignment, transfer or sublease and apply such rent against any sums due to
Landlord from Tenant hereunder, and no such collection shall be construed to
constitute a novation or a release of Tenant from the further performance of
Tenant's obligations hereunder.

13.      INSURANCE, F1RE AND CASUALTY DAMAGE.

         A. Landlord agrees to maintain insurance covering the Building of which
the Premises are a part in an amount not less than eighty percent (80%) (or such
greater percentage as may be necessary to comply with the provisions of any
co-insurance clauses of the policy) of the "replacement cost" thereof as such
term is defined in the Replacement Cost Endorsement to be attached thereto,
insuring against the perils of Fire, Lightning, Extended Coverage, Vandalism and
Malicious Mischief, extended by Special Extended Coverage Endorsement to insure
against all other Risks of Direct Physical Loss, such coverages and endorsements
to be as defined, provided and limited in the standard bureau forms prescribed
by the insurance regulatory authority for the State in which the Premises are
situated for use by insurance companies admitted in such state for the writing
of such insurance on risks located within such state. Subject to the provisions
of subparagraph 13(C-E) below, such insurance shall be for the sole benefit of
Landlord and under its sole control. In the event the insurance policy shall
contain a deductible, Tenant shall be liable for and pay its pro rata share of
any deductible withheld from insurance proceeds or payable under the terms of
the insurance policy in the event of a claim or insured loss thereunder.
Landlord acknowledges that damage, caused by an event or condition for which
Landlord has failed to procure any insurance at all, shall not be deemed to be a
"deductible" for purposes of the preceding sentence.

         B. Tenant agrees to pay its proportionate share of Landlord's cost of
carrying fire and extended coverage insurance ("Insurance") on the building.
During each month of the term of this Lease, Tenant shall make a monthly escrow
deposit with Landlord equal to one-twelfth of its proportionate share of the
Insurance on the buildings and grounds which will be due and payable for that
particular year. Tenant authorizes Landlord to use the funds deposited by it
with Landlord under this paragraph to pay the cost of such Insurance. Each
Insurance Escrow Payment shall be due and payable, as additional rent, at the
same time and manner of the payment of the monthly rental as provided herein.
The initial share of the estimated insurance for this year, and the monthly
Insurance Escrow Payment, is subject to increase or decrease as determined by
Landlord to reflect an accurate monthly escrow of Tenant's estimated
proportionate share of said Insurance. The Insurance Escrow Payment account of
Tenant shall be reconciled annually. If the Tenant's total Insurance Escrow
Payments are less than Tenant's actual pro rate share of the Insurance, Tenant
shall pay to Landlord upon demand the difference; if the total Insurance Escrow
Payments of Tenant are more than Tenant's actual pro rate share of the
Insurance, Landlord shall promptly refund the balance of such excess to Tenant
after first crediting the excess to the next monthly payment by Tenant for its
proportionate share of Taxes and Insurance. Tenant's cost of insurance shall be
computed by multiplying the cost of Insurance by a fraction, the numerator of
which shall be the number of gross leasable square feet of floor space in the
Premises and the denominator of which shall be the total applicable gross
leasable square

                                      -8-

<PAGE>

footage. The amount of the initial monthly Insurance Escrow Payment will be as
specified in the Basic Lease Information.

         C. If the Building of which the Premises are a part,. should be
damaged or destroyed by fire, tornado or other casualty, Tenant shall give
immediate written notice thereof to Landlord.

         D. If the Building of which the Premises are a part, should be totally
destroyed by fire, tornado or other casualty, or if it should be so damaged
thereby that rebuilding or repairs cannot in Landlord's estimation be completed
within two hundred (200) days after the date upon which Landlord is notified by
Tenant of such damage, this Lease shall terminate and the rent shall be abated
during the unexpired portion of this Lease, effective upon the date of the
occurrence of such damage. If the casualty event or condition is isolated to the
Building, and does not damage other improvements or real property, Landlord
shall give notice to Tenant in writing of its determination to terminate this
Lease within sixty (60) days following the date of the occurrence of such
damage. However, if the casualty event or condition damages improvements or real
property in addition to the Building, Landlord shall give notice to Tenant in
writing of its determination to terminate this Lease within ninety (90) days
following the date of the occurrence of such damage.

         E. If the Building of which the Premises are a part, should be damaged
by any peril covered by the Insurance to be provided by Landlord under
subparagraph 13(A) above, but only to such extent that rebuilding or repairs can
in Landlord's estimation be completed within two hundred (200) days after the
date upon which Landlord is notified by Tenant of such damage, this Lease shall
not terminate, and Landlord shall at its sole cost and expense thereupon proceed
with reasonable diligence to rebuild and repair the Building to substantially
the condition in which it existed prior to such damage, except that Landlord
shall not be required to rebuild, repair or replace any part of the partition,
fixtures, additions and other improvements which may have been placed in, or
about the Premises by Tenant. If the Premises are untenantable in whole or in
part following such damage, the rent payable hereunder during the period in
which they are untenantable shall be reduced to such extent as may be fair and
reasonable under all of the circumstances. In the event that Landlord shall fail
to complete such repairs and rebuilding within two hundred (200) days after the
date upon which Landlord is notified by Tenant of such damage, Tenant may at its
option terminate this Lease by delivering written notice of termination as
Tenant's exclusive remedy, whereupon all rights and obligations hereunder shall
cease and terminate.

         F. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Premises requires that the Insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon all rights and obligations hereunder shall
cease and terminate.

         G. Each of Landlord and Tenant hereby release each other from any loss
or damage to property caused by fire or any other perils insured through or
under them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils insured in policies of Insurance covering
such property, even if such loss or damage shall have been caused by the fault
or negligence of the other party, or anyone for whom such party may be
responsible; provided, however, that this release shall be applicable and in
force and effect only with respect to loss or damage occurring during such times
as the releasor's policies shall contain a clause or endorsement to the effect
that any such release shall not adversely affect or impair said policies or
prejudice the right of the releasor to recover thereunder and then only to the
extent of the Insurance proceeds payable under such policies. Landlord and
Tenant agree that they will request their respective Insurance carriers to
include in their policies such a clause or endorsement. If extra cost shall be
charged therefor, each party shall advise the other thereof and of the amount of
the extra cost, and the other party, at its election, may pay the same, but
shall not be obligated to do so.

                                      -9-

<PAGE>

14.      LIABILITY.

         Landlord shall not be liable to Tenant or Tenant's employees, agents,
servants, guests, invitees or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the Premises, resulting
from and/or caused in part or whole by the negligence or misconduct of Tenant,
its employees, agents, servants, guests, invitees or visitors, or of any other
person entering upon the Premises, or caused by the building and improvements
located on the Premises becoming out of repair, or caused by leakage of gas,
oil, water or steam or by electricity emanating from the Premises, or due to any
cause whatsoever, and Tenant hereby covenants and agrees that it will at all
times indemnify and hold safe and harmless the property, the Landlord (including
without (imitation the trustee and beneficiaries if Landlord is a trust),
Landlord's employees, agents, servants, guests, invitees and visitors from any
loss, liability, claims, suits, costs, expenses, including without limitation
attorneys' fees and damages, both real and alleged, arising out of any such
damage or injury, except injury to persons or damage to property the sole cause
of which is the negligence of Landlord or the failure of Landlord to repair any
part of the Premises which Landlord is obligated to repair and maintain
hereunder within a reasonable time after the receipt of written notice from
Tenant of needed repairs. Tenant's obligation to indemnify Landlord under this
paragraph 14 includes an obligation to indemnify for losses resulting from death
or injury to Tenant's employees, and Tenant accordingly hereby waives any and
all immunities it now has or hereafter may have under any Industrial Insurance
Act, or other worker's compensation, disability benefit or other similar act
which would otherwise be applicable in the case of such a claim. Tenant shall
procure and maintain throughout the term of this Lease a policy or policies of
Insurance, at its sole Cost and expense, insuring both Landlord and Tenant
against all claims, demands or actions arising out of or in connection with: (i)
the Premises; (ii) the condition of the Premises; (iii) Tenant's operations in
and maintenance and use of the Premises; and (iv) Tenant's liability assumed
under this Lease, the limits of such policy or policies to be in the amount of
not less than $1,000,000 per occurrence in respect of injury to persons
(including death) and in respect of property damage or destruction, including
loss of use thereof. All such policies shall be procured by Tenant from
responsible Insurance companies satisfactory to Landlord. Certified copies of
such policies, together with receipt evidencing payment of premiums therefor,
shall be delivered to Landlord prior to the Commencement Date of this Lease. Not
less than fifteen (15) days prior to the expiration date of any such policies,
certified copies of the renewals thereof (bearing notations evidencing the
payment of renewal premiums) shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days written notice shall be
given to Landlord before such policy may be canceled or changed to reduce
insurance provided thereby.

15.      CONDEMNATION.

         A. If the whole or any substantial part of the Premises should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof and the taking would prevent or materially interfere with the use of the
Premises for the purpose for which they are being used, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease, effective when the physical taking of said Premises shall occur.

         B. If part of the Premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain, or by private purchase in lieu thereof, and this Lease
is not terminated as provided in the subparagraph above, this Lease shall not
terminate but the rent payable hereunder during the unexpired portion of this
Lease shall be reduced to such extent as may be fair and reasonable under all of
the circumstances.

         C. In the event of any such taking or private purchase in lieu thereof,
Landlord shall be entitled to receive the entire award. Tenant shall be entitled
to make a claim in any condemnation proceedings which

                                      -10-

<PAGE>

does not reduce the amount of Landlord's award, for the value of any furniture,
furnishings and fixtures installed by and at the sole expense of Tenant.

16.      HOLDING OVER.

         Tenant will, at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Landlord agrees in
writing that Tenant may hold over after the expiration or termination of this
Lease, unless the parties hereto otherwise agree in writing on the terms of such
holding over, the hold over tenancy shall be subject to termination by Landlord
at any time upon not less than five (5) days advance written notice, or by
Tenant at any time upon not less than thirty (30) days advance written notice,
and all of the other terms and provisions of this Lease shall be applicable
during that period, except that Tenant shall pay Landlord from time to time upon
demand, as rental for the period of any hold over, an amount equal to one and
one-half (1-1/2) the Base Rent in effect on the termination date, plus all
additional rental as defined herein, computed on a daily basis for each day of
the hold over period. No holding over by Tenant, whether with or without consent
of Landlord, shall operate to extend this Lease except as otherwise expressly
provided. The preceding provisions of this paragraph 16 shall not be construed
as Landlord's consent for Tenant to hold over.

17.      QUIET ENJOYMENT.

         Landlord covenants that it now has, or will acquire before Tenant takes
possession of the Premises, good fee or leasehold title to the Premises, free
and clear of all liens and encumbrances, excepting only the lien for current
taxes not yet due, such mortgage or mortgages as are permitted by the terms of
this Lease, zoning ordinances and other building and fire ordinances and
governmental regulations relating to the use of such property, and easements,
restrictions and other conditions of record. In the event this Lease is a
sublease, then Tenant agrees to take the Premises subject to the provisions of
the prior leases. Landlord represents and warrants that it has full right and
authority to enter into this Lease and that Tenant, upon paying the rental
herein set forth and performing its other covenants and agreements herein set
forth, shall peaceably and quietly have, hold and enjoy the Premises for the
term hereof without hindrance or molestation from Landlord, subject to the terms
and provisions of this Lease.

18.      EVENTS OF DEFAULT.

         The following events shall be deemed to be events of default by Tenant
under this Lease:

         A. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any payment with respect to taxes hereunder when due, or any other
payment or reimbursement to Landlord required herein when due, and such failure
shall Continue for a period of five (5) days from the date such payment was due.
On no more than two occasions each lease year (from commencement date to
anniversary thereof, and from anniversary date to anniversary date), Tenant's
failure to pay as provided in the preceding sentence shall not constitute an
event of default unless such failure continues for five days after Tenant
receives written notice (which may be delivered by facsimile) from Landlord of
Tenant's failure to make any such payment when due.

         B. Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.

         C. Tenant shall file a petition under any section or chapter of
the National Bankruptcy Act, as amended, or under any similar law or statute of
the United States or any State thereof; or Tenant shall be adjudged bankrupt or
insolvent in proceedings filed against Tenant thereunder.

                                      -11-

<PAGE>

         D. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant.

         E. Tenant shall desert or vacate any substantial portion of the
Premises for more than 14 consecutive days, unless, prior to such desertion or
vacation, Tenant shall have delivered to Landlord written notice of its intent
to continue to comply with all of its obligations under this Lease.

         F. Tenant shall fail to comply with any term, provision or covenant of
this Lease (other than the foregoing in this paragraph 18), and shall not cure
such failure within twenty (20) days after written notice thereof to Tenant, or
such longer period (of no more than 90 days) as is reasonably necessary to
complete the cure, so long as the same is commenced within the 20-day period and
pursued In good faith.

19.      REMEDIES.

         Upon the occurrence of any such events of default described in
Paragraph 18 hereof, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever.

         A. If Landlord terminates this Lease because of Tenant's default,
Landlord shall have the right to recover from Tenant as damages:

                  (i) The worth at the time of award of unpaid rent and other
         sums due and payable which had been earned at the time of termination;
         plus

                  (ii) The worth at the time of award of the amount by which the
         unpaid rent and other sums which would have been payable after
         termination but before the time of award exceeds the amount of such
         rent loss that can be reasonably avoided; plus

                  (iii) The worth at the time of award of the amount by which
         the unpaid rent and other sums due and payable for the balance of the
         regularly scheduled term and any exercised extensions thereof after the
         time of award exceeds the amount of such rent loss that can be
         reasonably avoided; plus

                  (iv) Any other amount which is necessary to compensate
         Landlord for all the detriment proximately caused by Tenant's failure
         to perform Tenant's obligations under this Lease, including, without
         limitation, any costs or expense reasonably incurred by Landlord: (1)
         in retaking possession of the Premises; (2) In maintaining, repairing,
         preserving, restoring, replacing, cleaning, altering or rehabilitating
         the Premises or any portion thereof, including such acts for reletting
         to a new Tenant or Tenants; (3) for leasing commissions; or (4) for any
         other costs necessary or appropriate to relet the Premises.

                  (v) The "worth at the time of award" of the amounts referred
         to in subparagraphs (i) and (ii) is computed by allowing interest at
         the rate of twelve percent (12%) per annum on the unpaid rent and other
         sums due and payable from the due date or dates thereof (or the
         termination date If not yet due) through the date of award. The "worth
         at the time of award" of the amount referred to in subparagraph (iii)
         is computed by discounting such amount at the discount rate of the
         Federal Reserve Bank of San Francisco at the time of award.

         B. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails so to do, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying such Premises or any
part thereof, by force if necessary,

                                      -12-

<PAGE>

without being liable for prosecution or any claim of damages therefor, and
Tenant agrees to pay to Landlord on demand the amount of all loss and damage
which Landlord may suffer by reason of such termination, whether through
inability to relet the Premises on satisfactory terms or otherwise.

         C. Enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying such Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor, and relet the Premises for such terms ending before,
on or after the expiration date of the .Lease Term, at such rentals and upon
such other conditions (including concessions and prior occupancy periods) as
Landlord in its sole discretion may determine, and receive the rent therefor;
and Tenant agrees to pay to the Landlord on demand any deficiency that may arise
by reason of such reletting. Landlord shall only be required to undertake
commercially reasonable efforts to relet the Premises and collect rent from any
such tenant. In the event Landlord is successful in reletting the Premises at a
rental in excess of that agreed to be paid by Tenant pursuant to the terms of
this Lease, Landlord and Tenant each mutually agree that Tenant shall not be
entitled, under any circumstances, to such excess rental, and Tenant does hereby
specifically waive any claim to such excess rental.

         D. Enter upon the Premises, by force If necessary, without being liable
for prosecution or any claim for damages therefor, and do whatever Tenant is
obligated to do under the terms of this Lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action, unless caused by the willful acts of Landlord.

         E. Whether or not Landlord retakes possession or relets the Premises,
Landlord shall have the right to recover unpaid rent and all damages caused by
Tenant's default, including attorney's fees. Damage shall include, without
limitation, all rents lost, all legal expenses and other related costs
reasonably incurred by Landlord following Tenant's default, all costs reasonably
incurred by Landlord in restoring the Premises to good order and condition, or
in remodeling, renovating or otherwise preparing the Premises for reletting, all
costs (including without limitation any brokerage commissions and the value of
Landlord's time) reasonably incurred by Landlord, plus interest thereon from the
date of expenditure until fully repaid at the rate of eighteen percent (18%) per
annum.

         F. In the event Tenant fails to pay any installment of rent,
additional rent or other charges hereunder as and when such installment is due,
to help defray the additional cost to Landlord for processing such late payments
Tenant shall pay to Landlord on demand a late charge in an amount equal to five
percent (5%) of such installment, and the failure to pay such late charge within
ten (10) days after demand therefor shall be an event of default hereunder. The
provision for such late charge shall be in addition to all of Landlord's other
rights and remedies hereunder or at law and shall not be construed as liquidated
idamages or as limiting Landlord's remedies in any manner.

         G. Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law, such remedies being cumulative and non-exclusive, nor shall
pursuit of any remedy herein provided Constitute a forfeiture or waiver of any
rent due to Landlord hereunder or of any damages accruing to Landlord by reason
of the violation of any of the terms, provisions and covenants herein contained.
No act or thing done by the Landlord or its agents during the Lease Term hereby
granted shall be deemed a termination of this Lease or an acceptance of the
surrender of the Premises, and no agreement to terminate this Lease or accept a
surrender of said Premises shall be valid unless in writing signed by Landlord.
No waiver by Landlord of any violation or breach of any of the terms, provisions
and covenants herein contained shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions and
covenants herein contained. Landlord's acceptance of the payment of rental or
other payments hereunder after the occurrence of an event of default shall not
be

                                      -13-

<PAGE>

construed as a waiver of such default, unless Landlord so notifies Tenant in
writing. Forbearance by Landlord to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default or of Landlord's right to enforce any such remedies
with respect to such default or any subsequent default. If, on account of any
breach or default by Tenant in Tenant's obligations under the terms and
conditions of this Lease, it shall become necessary or appropriate for Landlord
to employ or consult with an attorney concerning or to enforce or defend any of
Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable
attorney's fees so incurred.

20.      LANDLORD'S LIEN.

         In addition to any statutory lien for rent in Landlord's favor,
Landlord shall have and Tenant hereby grants to Landlord a continuing security
interest for all rentals and other sums of money becoming due hereunder from
Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory,
accounts, contract rights, chattel paper and other personal property of Tenant
situated on the Premises, and such property shall not be removed therefrom
without the consent of Landlord until all arrearages in rent as well as any and
all other sums of money then due to Landlord hereunder shall first have been
paid and discharged. In the event of a default under this Lease, Landlord shall
have, in addition to any other remedies provided herein or by law, all rights
and remedies under the Uniform Commercial Code, including without limitation the
right to sell the property described in this paragraph 20 at public or private
sale. Tenant hereby agrees to execute such financing statements and other
instruments necessary or desirable in Landlord's discretion to perfect the
security interest hereby created. Any statutory lien for rent is not hereby
waived, the express contractual lien herein granted being in addition and
supplementary thereto. Landlord shall not unreasonably refuse to subordinate the
non-statutory portion of the security interest granted herein to the interest of
entities providing operational or purchase-money financing to Tenant.

21.      MORTGAGES.

         Tenant accepts this Lease subject and subordinate to any mortgage(s)
and/or deed(s) of trust now or at any time hereafter constituting a lien or
charge upon the Premises or the improvements situated thereon7 provided,
however, that if the mortgagee, trustee, or holder of any such mortgage or deed
of trust elects to have Tenant's Interest in this Lease superior to any such
instrument, then by notice to Tenant from such mortgagee, trustee or holder,
this Lease shall be deemed superior to such lien, whether this Lease was
executed before or after said mortgage or deed of trust. Tenant shall at any
time hereafter on demand execute any instruments, releases or other documents
which may be required by any mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage.

22.      LANDLORD'S DEFAULT.

         In the event Landlord should become in default in any payment due on
any such mortgage described in paragraph 21 hereof or in the payment of taxes or
any other item which might become a lien upon the Premises and which Tenant is
not obligated to pay under the terms and provisions of this Lease, Tenant is
authorized and empowered after giving Landlord five (5) days prior written
notice of such default and Landlord's failure to cure such default, to pay any
such items for and on behalf of Landlord, and the amount of any item so paid by
Tenant for or on behalf of Landlord, together with any interest or penalty
required to be paid in connection therewith, shall be payable on demand by
Landlord to Tenant; provided, however, that Tenant shall not be authorized and
empowered to make any payment under the terms of this paragraph 22 unless the
item paid shall be superior to Tenant's interest hereunder. In the event Tenant
pays any mortgage debt in full, in accordance with this paragraph, it shall, at
its election, be entitled to the mortgage security by assignment or subrogation.

23.      MECHANIC'S AND OTHER LIENS.

                                      -14-

<PAGE>

         Tenant shall have no authority, express or implied, to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind, the interest of Landlord in the Premises or to charge the rentals
payable hereunder for any claim in favor of any person dealing with Tenant,
including those who may furnish materials or perform labor for any construction
or repairs, and each such claim shall affect and each such lien shall attach to,
if at all, only the leasehold interest granted to Tenant by this instrument
Lease. Tenant covenants and agrees that it will pay or cause to be paid all sums
legally due and payable by it on account of any labor performed or materials
furnished in connection with any work performed on the Premises on which any
lien is or can be validly and legally asserted against its leasehold interest in
the Premises or the improvements thereon and that it will save and hold Landlord
harmless from any and all loss, cost or expense based on or arising Out of
asserted claims or liens against the leasehold estate or against the right,
title and interest of the Landlord in the Premises or under the terms of this
Lease.

24.      NOTICES.

         Unless otherwise specifically provided in this Lease, each provision of
this Lease or of any applicable governmental laws, ordinances, regulations and
other requirements with reference to the sending, mailing or delivery of any
notice or the making of any payment by Landlord to Tenant or with reference to
the sending, mailing or delivery of any notice or the making of any payment by
Tenant to Landlord shall be deemed to be complied with when and if the following
steps are taken:

         A. All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address set forth below
or at such other address as Landlord may specify from time to time by written
notice delivered in accordance herewith. Tenant's obligation to pay rent and any
other amounts to Landlord under the terms of this Lease shall not be deemed
satisfied until such rent and other amounts have been actually received by
Landlord.

         B. All payments required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address hereinbelow set forth, or at
such other address within the continental United States as Tenant may specify
from time to time by written notice delivered in accordance herewith.

         C. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not when
deposited in the United States Mail, postage prepaid, Certified or Registered
Mail, addressed to the parties hereto at the respective addresses set out below,
or at such other address as they have theretofore specified by written notice
delivered in accordance herewith:

         LANDLORD:                                            TENANT:

         Riggs Bank N.A.                             Rosetta Biosystems
         c/o Trammell Crow Company                   12040 - 115th Ave NE
         626 120th Avenue N.E., Suite B104           Kirkland, WA 98034
         Suite 210 Bellevue, WA 98005

         with a copy to:                             with a copy to:

         Riggs Bank N.A./MEPT                        Bill Ericson
         808 17th Street N.W.                        Venture Law Group
         P.O. Box 96202                              4750 Carillon Pt
         Washington, D.C. 20090-6202                 Kirkland, WA 98033
         Attn:  Leanne Tobias

                                      -15-

<PAGE>

         Marc Winters
         McNaul Ebel Nawrot Helgren & Vance
         600 University Street Suite 2700
         Seattle, WA 98101-3143

If and when included within the term "Landlord", as used in this Lease, there is
more than one person, firm or corporation, all shall jointly arrange among
themselves for their joint execution of such a notice specifying some individual
at some specific address for the receipt of notices and payments to Landlord; if
and when included within the term "Tenant", as used in this Lease, there is more
than one person, firm or corporation, all shall jointly arrange among themselves
for their joint execution of such a notice specifying some individual at some
specific address within the continental United States for the receipt of notices
and payments to Tenant. All parties included within the terms "Landlord" and
"Tenant", respectively, shall be bound by notices given in accordance with the
provisions of this paragraph to the same effect as if each had received such
notice.

25.      MISCELLANEOUS.

         A. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.

         B. The terms, provisions and covenants and conditions contained
in this Lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly provided.
Landlord shall have the right to assign any of its rights and obligations under
this Lease. Each party agrees to furnish to the other, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of such party to
enter into this Lease, and each party hereby covenants to the other that the
person signing this Lease on its behalf is duly authorized to do so, and that
this Lease is the binding and enforceable act of each party.

         C. The captions inserted in this Lease are for convenience only
and in no way define, limit or otherwise describe the scope or intent of this
Lease, or any provision hereof, or in any way affect the interpretation of this
Lease.

         D. Tenant agrees from time to time within ten (10) days after
request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, the date to
which rent has been paid, the unexpired term of this Lease .and such other
matters pertaining to this Lease as may be requested by Landlord. It is
understood and agreed that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of this Lease.

         E. This Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.

         F. All obligations of Tenant hereunder not fully performed as of
the expiration or earlier termination of the term of this Lease shall survive
the expiration or earlier termination of the Term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the Premises. Upon the expiration or
earlier termination of the Term hereof, and prior to Tenant vacating the
Premises, Tenant shall pay to Landlord any amount reasonably estimated by
Landlord as necessary to put the Premises, including without limitation all
heating and air-conditioning systems and equipment therein, in the condition and
repair in which Tenant is obligated to maintain them. Tenant shall also, prior
to vacating the Premises, pay to Landlord the amount, as estimated by Landlord,
of

                                      -16-

<PAGE>

Tenant's obligation hereunder for real estate taxes and insurance premiums for
the year in which the Lease expires or terminates. All such amounts shall be
used and held by Landlord for payment of such obligations of Tenant hereunder,
with Tenant being liable for any additional costs therefor upon demand by
Landlord, or with any excess to be returned to Tenant after all such obligations
have been determined and satisfied, as the case may be. Any security deposit
held by Landlord shall be credited against the amount payable by Tenant under
this paragraph 25(F).

         G. If any clauses or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added as part
of this Lease contract a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.

         H. All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this Lease.

         I. During the term of this Lease and any subsequent option periods,
Landlord shall have the right to request and obtain Tenant's current financial
statements with reasonable advance notice. Tenant shall comply with Landlord's
request for financial statements in a reasonable time frame not to exceed thirty
(30) days from the date of request.

26.      LIABILITY OF LANDLORD.

         Tenant agrees that no trustee, officer, employee, agent or individual
partner of Landlord, or its constituent entities, shall be personally liable for
any obligation of Landlord hereunder, and that Tenant must look solely to the
interests of Landlord, or its constituent entities in the subject real estate,
and any rents, sale proceeds, insurance proceeds, condemnation awards and other
proceeds thereof for the enforcement of any claims against Landlord arising
hereunder.

27.      ADDITIONAL PROVISIONS.

         The addendum and Additional Paragraph(s) attached hereto are hereby
incorporated and made a part of this Lease. In the event of any conflict between
the terms of the Addendum and the terms of the printed form portion of this
Lease, the terms of the Addendum shall control.

                                      -17-

<PAGE>

LANDLORD:                                            TENANT:

Riggs Bank N.A., as trustee of the      Rosetta Biosystems, a Delaware
Multi-Employer Property Trust           corporation

By:      /s/ Leanne Tobias              By:      /s/ Leroy Hoop
   -------------------------------         -----------------------------
         Leanne Tobias                           Its:     CEO
Its:     Vice President                    -----------------------------

STATE OF WASHINGTON        )
                           )ss.
COUNTY OF KING             )

         On this 20th day of February, 1997, before me, a Notary Public in and
for the State of Washington, personally appeared Leanne Tobias, to me known to
be the Vice President of Riggs Bank N.A., formerly known as The Riggs National
Bank of Washington, D.C., Trustee of the Multi-Employer Property Trust, the
national banking association that executed the within and foregoing instrument
and acknowledged said Instrument to be the free and voluntary act and deed of
said national banking association as trustee for the uses and purposes therein
mentioned, and on oath stated that she was authorized to execute said
instrument.

         WITNESS my hand and official seal hereto affixed the day and year first
as above written.

                                     /s/  Chris E. Tucker
                            -------------------------------------------------
                            Name:    Chris E. Tucker
                                 --------------------------------------------
                            Notary Public in and for the State of Washington,
                            residing at   Seattle
                                       ----------------
                            My commission expires   3/15/00
                                                 -------------------

[SEAL]

STATE OF WASHINGTON        )
                           )ss.
COUNTY OF KING....         )

         On this 21st day of February, 1997, before me, the undersigned, a
Notary Public in and for said county and state, personally appeared Leroy Hood,
to me known to be the CEO of Rosetta BioSystems, Inc.,

                                      -18-

<PAGE>

and acknowledged that he executed the foregoing agreement on behalf of such
corporation and for the uses and purposes therein mentioned, and on oath stated
that he was authorized to execute such agreement.

         WITNESS my hand and official seal hereto affixed the day and year first
as above written.

                            Name:    Denise M. Hoopes
                                 --------------------------------------------
                            Notary Public in and for the State of Washington,
                            residing at   MONROE
                                       --------------------------------------
                            My commission expires   10/9/00
                                                 ----------------------------

[SEAL]

                                      -19-

<PAGE>

                          ADDENDUM TO LEASE AGREEMENT:
                         Riggs Bank N.A., as trustee of
                        the Multi-Employer Property Trust
                                       and
                   Rosetta BioSystems, a Delaware Corporation

ADDENDUM TO PARAGRAPH 5(C).  PARKING.

         Tenant shall be allowed to use approximately 2.3 parking stalls per
1,000 rentable square feet, on a first-come, first-serve basis. Landlord will
undertake commercially reasonable efforts to increase the no-cost parking
available to Tenant, but shall not be liable for any failure to do so.

ADDENDUM TO PARAGRAPH 12(A). SUBLEASE.

         With respect to Landlord's consent to sublease in the first sentence of
Paragraph 12(A), it shall not be unreasonable for MEPT Landlord to withhold its
consent for any one or more of the following reasons:

         (a) The proposed subtenant is or will be unwilling or unable to execute
and deliver to Landlord ERISA Representations as set forth in Additional
Paragraph 28 of this Lease, or Landlord believes that the proposed sublease
would constitute a prohibited transaction under or otherwise violate ERISA;

         (b) The proposed subtenant does not, in Landlord's good faith
judgement, have financial worth or creditworthiness sufficient to Insure Its
full and timely performance under the proposed sublease;

         (c) Landlord has, in its reasonable opinion, received insufficient
evidence of the financial worth or creditworthiness of the proposed subtenant to
make the determination set forth in subparagraph (b) above;

         (d) In Landlord's reasonable opinion, the proposed subtenant has a
track record of engaging in disputes in contractual relations, falling to
observe and perform its contractual obligations in a timely and complete manner
or of negative business relations in the business community for or otherwise as
a tenant of property;

         (e) Landlord has had prior negative leasing experience with the
proposed subtenant. Landlord shall provide evidence of said negative leasing
experience to Rosetta Tenant upon request;

         (f) The use of the Premises by the proposed subtenant will not be in
conformance with existing law;

         (g) In Landlord's reasonable judgment,, the proposed subtenant is
engaged in a business, or the Premises or any part of the Premises will be used
in a manner, that is not in keeping with the then standards of the Kirkland 405
Corporate Center, or that is not compatible with the businesses of other tenants
in the Center or that is inappropriate for the Center, or that will violate any
negative covenant as to use contained in any other lease of space in the Center,
provided, that Landlord agrees that a sublease to an entity affiliated with
Tenant and engaged in research, development and/or laboratory work would not
violate this sub-section, and that vivarium use is generally not incompatible;

         (h) Tenant is in material default of any obligation of Tenant under the
Lease, or Rosetta has materially defaulted under the Lease on three (3) or more
occasions during the twenty-four (24) months preceding the date that Tenant
shall request such consent;

                                      -1-

<PAGE>

         (i) Landlord does not approve of any of the tenant improvements
required for the proposed subtenant, and such disapproval is reasonable; or

         (j) Landlord has had active contact with the proposed subtenant, In the
six (6) months preceding Tenant's request, regarding the leasing by the proposed
subtenant of other, comparable space in any buildings owned by Landlord in the
metropolitan area in which the Premises is located.

ADDITIONAL PARAGRAPH 28.  ERISA.

         Tenant represents and warrants to Landlord that, with the exception of
this Lease, neither the Tenant nor any affiliate of the Tenant is a tenant under
a lease or any other tenancy arrangement: (a) with: (1) The Riggs National Bank
of Washington, D.C., as Trustee of the Multi-Employer Property Trust; (2) the
Multi-Employer Property Trust; (3) The National Bank of Washington
Multi-Employer Property Trust, the previous name of the Multi-Employer Property
Trust; (4) Alameda Industrial Properties Joint Venture; (5) Harman International
Business Campus Joint Venture; (6) Beaverton-Redmond Tech Properties; (7)
Corporate Drive Corporation as trustee of the Corporate Drive Nominee Realty
Trust; (8) Goldbelt Place Joint Venture; (9) Boca 1515; (10) Arboretum Lakes-i,
L.L.C.; (ii) Village Green of Rochester Hills Associates L.L.C.; or (12) Pine
Street Development, L.L.C.; or (b) involving any property in which the entities
named in clauses (a)(1), (a)(2) or (a)(3) are known by the Tenant to have an
ownership interest.

ADDITIONAL PARAGRAPH 29.  ACCESS LAWS AND GOVERNMENTAL REGULATIONS.

         A. As used in this Section, the term "Access Laws" shall mean the
Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of
1988, all state and local laws or ordinances related to handicapped access, or
any statute, rule, regulation, ordinance, order of governmental bodies or
regulatory agencies, or order or decree of any court adopted or enacted with
respect to any of the foregoing. The term Access Laws shall include all Access
Laws now in existence or hereafter enacted adopted or applicable.

         B. To the best of Landlord's actual knowledge, which is limited
to the information available at the office of property manager, the building and
the area outside of the Premises are, as of the date hereof, in compliance with
Access Laws. If required by law and subject to subparagraph D below, the
building and the area outside of the Premises will be brought into compliance
with Access Laws at Landlord's cost and expense.

         C. Tenant agrees to notify Landlord immediately if Tenant becomes
aware of (a) any condition or situation in or on the Premises which would
constitute a violation of any Access Laws, or (b) any threatened or actual lien,
action or notice of the Premises not being in compliance with any Access Laws.
Tenant shall inform Landlord of the nature of any such condition, situation,
lien, action or notice and of the action Tenant proposes to take in response
thereto.

         D. Tenant shall be solely responsible for all costs and expenses
relating to or incurred in connection with (i) bringing the Premises into
compliance with the Access Laws if and to the extent such costs and expenses
arise out of or relate to a change in Tenant's use of the Premises or
modifications, improvements or alterations to the Premises made during the term
or any extension of this Lease, and (ii) bringing the Building or Common Areas
of the project of which the Building is a part into compliance with the Access
Laws if such costs and expenses are required solely because of a change in
Tenant's use of the Premises or solely because of modifications, improvements or
alterations to the Premises made during the term or any extension of this Lease.
Any cost or expense to bring the Premises, the Building or Common Areas of the
project of which the Building is a part into compliance with Access Laws which
is not covered by the preceding sentence and which is paid for or incurred by
Landlord shall be amortized over the useful economic life of the improvement
(not to exceed ten (10) years) at an interest rate of twelve percent (12%)

                                      -2-

<PAGE>

per annum, and Tenant shall pay equal monthly installments of such amortized
cost or expense, together with interest accrued thereon, as a portion of the
monthly common area maintenance charges described elsewhere in this Lease.

         E. Tenant agrees to indemnify, defend and hold harmless Landlord
from and against any and all claims, demands, damages, losses, liens,
liabilities, penalties, fines, lawsuits, and other proceedings and expenses
(including attorneys' fees), arising directly or indirectly from or out of, or
in any way connected with any activity on or use of the Premises, the Building
or the Common Areas by Tenant, its agents, employees, contractors, invitees, or
subtenant, which activity or use results in the Premises violating any
applicable Access Laws.

         F. The provisions in subparagraphs A through E of this Additional
Paragraph 29 shall supersede any other provisions in this Lease regarding Access
Laws to the extent inconsistent with the provisions of such provisions. The
provisions of this Additional Paragraph 29 shall survive the expiration of the
Lease Term or the termination of this Lease for any other reason whatsoever.

ADDITIONAL PARAGRAPH 30.  EXCULPATORY PROVISION.

         Landlord has executed this Lease by its Trustee signing solely in a
representative capacity. Notwithstanding anything contained in this Lease to the
contrary, Tenant confirms that the covenants of Landlord are made and intended,
not as personal covenants of the trustee, or for the purpose of binding the
trustee personally, but solely in the exercise of the representative powers
conferred upon the trustee by its principal. Liability with respect to the entry
and performance of this Lease by or on behalf of Landlord, however it may arise,
shall be asserted and enforced only against the Landlord's estate and interest
in the Building, and any rents, sale proceeds, insurance proceeds, condemnation
awards and other proceeds thereof, and Landlord shall have no personal liability
in the event of any claim against Landlord arising out of or in connection with
this Lease, the relationship of Landlord and Tenant or Tenant's use of the
Premises. Further, in no event whatsoever shall any and all partners, officers,
agents, employees, trustees, investment advisors and consultants of Landlord
have any liability or responsibility whatsoever arising out of or in connection
with this Lease, the relationship of Landlord and Tenant or Tenant's use of the
Premises. Any and all personal liability, if any, beyond that which may be
asserted under this paragraph, is expressly waived and released by Tenant and
all persons claiming by, through or under Tenant.

 ADDITIONAL PARAGRAPH 31.  OPTION TO RENEW.

         So long as there is no monetary event of default default, or material
non-monetary event of default then existing under the Lease, and subject to the
terms and conditions of this Additional Paragraph 31, Tenant shall have one (1)
Option to Renew the term of the Lease for a period of three (3) years ("Option
Term"). If the Option to Renew referenced in the preceding sentence is exercised
during any applicable cure period following an event, which with the passage of
time or the giving of notice, or both, would constitute en event all of default,
then such exercise shall be void and of no further force or effect unless the
cure is fully completed within the applicable cure period, but in no event later
than the expiration or earlier termination of the Lease. Except as set forth in
this Additional Paragraph 31, all terms and conditions of the Lease shall remain
the same during the Option Term except The Monthly Base Rent at the end of the
initial term as defined in Paragraph 2 of the Lease, shall be adjusted as to the
then-current market Rent for comparable biotechnology laboratory space in the
Kirkland, Redmond, or Bothell/Northcreek Area of like quality, size and
amenities. In no event will the Rent for the Option Term be less than the Rent
for the month preceding the expiration of the initial Lease Term. Unless
otherwise agreed, there shall be no rent concessions or tenant improvements. For
purposes of this Additional Paragraph 31 the Option to Renew the term for a
period of three (3) years Is referred to as the "Option to Renew."

                                      -3-

<PAGE>

As a condition to the Tenant's right to exercise the Option to Renew, Tenant
shall give Landlord written notice of its intent to exercise its Option to Renew
at least nine (9) months but not more than ten (10) months prior to the
expiration of the initial Lease Term ("Notice Period"), together with Tenant's
determination ("Tenant's Determination") of the Prevailing Fair Market Base
Rental Rate ("PFMBRR"). If Tenant timely delivers notice of its Intent to
exercise its Option to Renew but fails to timely deliver Tenant's Determination,
said attempt to exercise the Option to Renew shall be ineffective. If Landlord
does not agree with Tenant's Determination, Landlord shall provide Tenant with
notice of its determination of the PFMBRR ("Landlord's Determination") within
twenty days of Landlord's receipt of Tenant's Determination. If Landlord fails
to provide Landlord's Determination within such time, the PFMBRR for the Option
Term shall be that set forth in Tenant's Determination.

         If Landlord and Tenant each timely submit their respective
Determinations as set forth above, said Determinations are different, and the
parties are unable to agree upon the PFMBRR within sixty days of Tenant's
receipt of Landlord's Determination, the parties shall within fifteen days
together appoint a mutually acceptable arbitrator or, if they are unable to
agree upon such an arbitrator, shall apply to the American Arbitration
Association for the designation of an arbitrator (the "Arbitrator") in the
Seattle; Washington metropolitan area to render a final determination of the
PFMBRR. Unless otherwise agreed by the parties, the Arbitrator shall be a real
estate appraiser or consultant who shall be a M.A.I. member and who shall have
at least fifteen years continuous experience in the business of appraising
commercial office buildings in the greater Seattle area. The Arbitrator shall
conduct such hearings and Investigations as the Arbitrator shall deem
appropriate and shall, within sixty days after having been appointed, choose
either the Landlord's or Tenant's Determination (the "Option Term Base Rent"),
and that choice by the Arbitrator shall be final and binding upon the parties.
The party whose Determination is not chosen shall pay all the fees and expenses
of the Arbitrator and the American Arbitration Association, if any. The
Arbitrator shall not have the power to add to, modify, or change any of the
provisions of this Lease.

         In the event that Landlord's and Tenant's PFMBRRs differ by ten percent
or less (based on the higher number), then the PFMBRR shall not be determined by
arbitration, but shall instead be set by taking the average of the parties'
Determinations.

         If for any reason the Option Term Base Rent has not been arrived at
prior to the commencement of the Option Term, Tenant shall pay each month as
Base Rent the lower of the two Determinations until the Option Term Base Rent is
finalized, at which point Tenant will immediately pay to Landlord any rent
differential.

         Any determination of the PFMBRR, whether by Tenant or Landlord, shall
include a statement of the elements of rent included In such determination
(whether tenant improvement allowances, free rent, common area cost allowances,
or otherwise) sufficient to permit a calculation of the effective rent of the
Premises.

         Upon determination of the Option Term Base Rent, the payment of Monthly
Base Rent due for the first month of the Option Term shall be deposited with
Landlord.

         In addition to the provisions set forth above, the Option to Renew
shall be conditioned upon the following: (i) at the time of Tenant's notice to
Landlord of its intent to exercise the Option to Renew, and continuing
thereafter until the commencement of the Option Term, Tenant shall have been In
possession of and occupying the Premises for the conduct of its business therein
and there shall have been no assignment of this Lease or subletting of all of
the Premises; and (ii) the notice of the Intent to exercise shall constitute a
representation and promise by Tenant to Landlord effective as of the date of the
notice that Tenant does not intend to and shall not seek to assign the Lease in
whole or in part, or sublet all or any portion of the Premises, at any time
during any remaining Initial Lease Term or the Option Term, the election to
extend the term being for purposes of utilizing the Premises for Tenant's
purposes in the conduct of Tenant's business

                                      -4-

<PAGE>

therein. This Option to Renew is personal to Rosetta BioSystems and shall not
apply to any subtenant, assignee or licensee.

ADDITIONAL PARAGRAPH 32.  LETTER OF CREDIT.

         A. Prior to, or upon, execution of this Lease Tenant shall provide an
unconditional, irrevocable, on-sight Letter of Credit ("LOC") in the amount of
Three Hundred and Seventy-Five Thousand Dollars ($375,000.00), issued by Silicon
Valley Bank, in the form attached to this Lease as Exhibit I. The LOC shall name
Landlord as beneficiary. The LOC shall remain in full force and effect as
follows: the Lease is validly terminated by Landlord (pursuant to the terms of
this Lease) as the result of the occurrence of a material breach by Tenant of
the Lease, the LOC shall remain in full force and effect for one year after the
date of said termination; and if the Lease term expires without Tenant being in
material default thereof at that time, the LOC shall remain in full force and
effect until that time. The LOC shall be renewed at least annually, and my be in
such lower amounts at each renewal as consented to by Landlord. In addition,
Landlord will consider in good faith eliminating the LOC requirement at such
time as Tenant has received, in Landlord's reasonable opinion, significant
financing and has reserved therefrom sufficient funds to satisfy Its obligations
under the Lease.

         B. If Landlord has not received written notification from the issuer of
the LOC, at least five days before the date on which any required renewal of the
LOC is to occur, that it will cause the LOC to be renewed as required by the
Lease, then, regardless of whether Landlord has suffered or incurred any damages
at that point, Landlord shall be entitled to draw down the entire amount of the
LOC prior to its expiration as security for Tenant's performance of its Lease
obligations. Upon any reinstatement of the LOC thereafter, Landlord shall return
all withdrawn amounts (other than any amounts to be retained to compensate
Landlord for any actual damages suffered or incurred by Landlord at that point)
to the Issuer.

         C. Landlord or its agents shall have the right to draw upon the LOC for
the purpose of compensating Landlord for actual damages, suffered or incurred
(or to be suffered or incurred) by Landlord and which are caused by Tenant's
failure to perform, or delay in performance of, any of its obligations under the
Lease. Landlord may draw upon the LOC at such time, and from time to time, as
its actual damages have been reasonably determined by Landlord.

ADDITIONAL PARAGRAPH 34, BROKER'S FEES.

         Landlord shall be responsible for payment of any reasonable broker's
fees incurred as a result of the execution of this Lease. Tenant represents that
its sole broker for the purpose of this paragraph 34 is CB Commercial Real
Estate Group, Inc., attn: Paul Sweeney, 110 - 110th Avenue N.E., Suite 100,
Bellevue, WA 98004.

<PAGE>

                            FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE is made this 1st day of July 1998, by and between
Riggs & Company, a division of Riggs Bank NA., as Trustee of the Multi-Employer
Property Trust (the "Landlord") and Rosetta Inpharmatics, Inc., a Delaware
Corporation (the "Tenant").

         WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
February 19, 1997, for space in Building G, Suite 210 of the Kirkland 405
Business Center, (the "Premises"), as more filly described in the Lease; and

WHEREAS, Tenant desires to expand the Premises and modify the Lease.

         NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the Landlord and Tenant hereby agree as follows:

         1. The Lease is hereby amended to reflect that effective February 1,
1999, the Premises shall be increased by approximately 5,440 rentable square
feet to a total rentable area of approximately 24,119 rentable square feet as
outlined in red on Exhibit A attached hereto (herein referred to as the
"Expanded Premises").

         2. The Lease Term for the Expanded Premises shall be a period of 41
months commencing February 1, 1999 and expiring July 1, 2002.

         3. Landlord hereby acknowledges receipt of the sum of $2,400.00 as an
additional security deposit.

         4. Effective February 1, 1999, monthly Base Rent as provided for in
Paragraph 2 of the Lease Shall be increased by $ 6,573.00 per month for months
1-21, and $6,800 per month for months 22-41, and the Rent schedule for the
Expanded Premises shall be as outlined below.

         5. Total monthly Rent, including the Rent as described in Paragraph 2
of the Lease, plus the increase in Rent required for the Expansion Space shall
be:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
           DATE               ORIGINAL PREMISES RENT          EXPANSION SPACE RENT         TOTAL BASE RENT
------------------------------------------------------------------------------------------------------------
<S>                           <C>                             <C>                          <C>
    2/1/99 -- 10/31/00             $26,479.00/Mo.                 $6,573.00/Mo.             $33,052.00/Mo.
------------------------------------------------------------------------------------------------------------
     11/1/00 -- 7/1/02             $26,479.00/Mo.                 $6,800.00/Mo.             $33,279.00/Mo.
------------------------------------------------------------------------------------------------------------
</TABLE>
          6. The Landlord agrees to provide a tenant improvement allowance equal
to $5.50 per rentable square foot, or $29,920.00 for improvements to the
Premise. Tenant shall reimburse Landlord for all costs associated with the
tenant improvements in excess of the allowance described herein except for space
planning services.

          7. Tenant hereby affirms that on the date hereof no known breach or
known default

<PAGE>

by either party has occurred and that the Lease, and all of its terms,
conditions, covenants, agreements and provisions, except as hereby modified, are
in full force and effect.

          8. Except as expressly modified above, all terms and conditions of the
Lease REMAIN in full force and effect and are hereby ratified and confirmed.

LANDLORD:                                   TENANT:

Riggs & Company, a division of              Rosetta Inpharmatics, Inc.
Riggs Bank NA., as Trustee of the           a Delaware Corporation
Multi-Employer Property Trust

By:      /s/                                By:            /s/
   --------------------------------            ---------------------------------
Its: Managing Director                      Its:           Sr. Vice President
                                                --------------------------------

                                      -2-

<PAGE>

STATE OF WASHINGTON                  )
                                     )ss.
COUNTY OF KING                       )

         On this 8th day of July, 1998, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared John J. King, to me known to be the person who signed as Sr.
V.P. of Rosetta Inpharmatics, the corporation that executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act. and deed of said corporation for the uses and purposes therein
mentioned; and on oath stated that he was authorized to execute said instrument
on behalf of said corporation.

         IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first as above written.

                                                /s/
                                       ----------------------------------------
                                       NOTARY PUBLIC,
                                       residing at       Seattle
                                                  -----------------------------
                                       My appointment Expires    5/20/99
                                                             ------------------

DISTRICT OF COLUMBIA________________)
                                    )SS.

         On this 24th day of November, 1998, before me, a Notary Public in and
for the District of Columbia, personally appeared Leanne Tobias, to me known to
be the Managing Director of Riggs & Company, a division of Riggs Bank N.A.,
formerly known as The Riggs Bank of Washington, D.C., Trustee of the
Multi-Employer Property Trust, the national banking association that executed
the within and foregoing instrument as______________ , and acknowledged said
instrument to be the free and voluntary act. and deed of said national banking
association as Trustee and______________, for the uses and purposes therein
mentioned, and on oath stated that she was authorized to execute said instrument

         WITNESS my hand and official seal hereto affixed the day and year first
as above written.

                              Name:    Denise Hart-Gamble /s/
                                   ---------------------------------------------
                              Notary Public in and for the District of Columbia,
                              Residing at       Riggs Bank N.A.
                                         ---------------------------------------
                              My commission Expires      March 31, 2003
                                                   -----------------------------

                                      -5-

<PAGE>

                            SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE is made this 1st day of May, 1999, by and between
Riggs & Company, a division of Riggs Bank NA., as Trustee of the Multi-Employer
Property Trust (the "Landlord") and Rosetta Inpharmatics, Inc., a Delaware
Corporation (the "Tenant").

         WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
February 19, 1997, and First Amendment to Lease dated July 1, 1998, for space in
Building G, Suite 210 of the Kirkland 405 Business Center, (the "Premises"), as
more fully described in the Lease; and

WHEREAS, Tenant desires to expand the Premises and modify the Lease.

         NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the Landlord and Tenant hereby agree as follows:

         1. The Lease is hereby amended to reflect that effective May 1, 1999,
the Premises shall be increased by approximately 1,407 rentable square feet to a
total rentable area of approximately 25,516 rentable square feet as outlined in
red on Exhibit A attached hereto (herein referred to as the "Expanded
Premises").

         2. The Lease Term for the Expanded Premises shall be a period of 37
months commencing May 1, 1999 and expiring July 1, 2002.

         3. Effective May 1, 1999, monthly Base Rent as provided for in
Paragraph 2 of the Lease and previously modified in First Amendment to Lease
dated July 1, 1998, shall be increased by $1,843.00 per month for months 1-11,
and $2,080.00 per month for months 12-37, and the Rent schedule for the Expanded
Premises shall be as outlined below.

         4. Total monthly Rent, including the Rent as described in Paragraph 2
of the Lease, the revised Rent described in Paragraph 5 of the First Amendment,
plus the increase in Rent required for the Expansion Space shall be:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------
       DATE         ORIGINAL BASE RENT      EXPANSION SPACE RENT        TOTAL BASE RENT
----------------------------------------------------------------------------------------
<S>                 <C>                     <C>                         <C>
5/1/99 -- 3/31/00     $33,052.00/Mo.            $1,843.00/Mo.            $34,895.00/Mo.
----------------------------------------------------------------------------------------
4/1/00 -- 7/1/02      $33,279.00/Mo.            $2,080.00/Mo.            $35,359.00/Mo.
----------------------------------------------------------------------------------------
</TABLE>
         5. The Landlord agrees to provide a tenant improvement allowance equal
to Ten Thousand and 00/100 ($10,000).00) for improvements to the Premise. Tenant
shall reimburse Landlord for all costs associated with the tenant improvements
in excess of the allowance described herein.

          6. Tenant hereby affirms that on the date hereof no known breach or
known default by either party has occurred and that the Lease, and all of its
terms, conditions, covenants, agreements and provisions, except as hereby
modified, are in full force and effect.

<PAGE>

          7. Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.

          8. ADDITIONAL PARAGRAPH 34; Deleted in its entirety from the Lease
Agreement dated February 19, 1997.

LANDLORD:                                    TENANT:

Riggs & Company, a division of               Rosetta Inpharmatics, Inc.
Riggs Bank NA., as Trustee of the            a Delaware Corporation
Multi-Employer Property Trust

By:      /s/                                 By:     /s/ John J. King
   ---------------------------------            --------------------------------
Its: Managing Director                       Its:    Sr. Vice President & C.O.O.

                                      -2-

<PAGE>

                            THIRD AMENDMENT TO LEASE

       THIS SECOND AMENDMENT TO LEASE is made this 6th day of December, 1999, by
and between Riggs & Company, a division of Riggs Bank NA., as Trustee of the
Multi-Employer Property Trust (the "Landlord") and Rosetta Inpharmatics, Inc., a
Delaware Corporation (the "Tenant").

         WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
February 19, 1997, First Amendment to Lease dated July 1, 1998, and Second
Amendment to Lease dated May 6, 1999, for space in Building G, Suite 210 of the
Kirkland 405 Business Center, (the "Premises"), as more fully described in the
Lease; and

WHEREAS, Tenant desires to expand the Premises and modify the Lease.

         NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the Landlord and Tenant hereby agree as follows:

         1. The Lease is hereby amended to reflect that effective January 1,
2000, the Premises shall be increased by approximately 3,257 rentable square
feet to a total rentable area of approximately 28,773 rentable square feet as
outlined in red on Exhibit A attached hereto (herein referred to as the
"Expanded Premises").

         2. The Lease Term for the Expanded Premises shall be a period of 30
months commencing January 1, 2000 and expiring July 1, 2002.

         3. Effective January 1, 2000, monthly Base Rent as provided for in
Paragraph 2 of the Lease and previously modified in First Amendment to Lease
dated July 1, 1998, and Second Amendment to Lease dated May 6, 1999, shall be
increased by $4,266.00 per month for months 1-3, and $4,821.00 per month for
months 4-30, and the Rent schedule for the Expanded Premises shall be as
outlined below.

         4. Total monthly Rent, including the Rent as described in Paragraph 2
of the Lease, the revised Rent described in Paragraph 5 of the First Amendment,
the revised Rent described in paragraph 4 of the Second Amendment, plus the
increase in Rent required for the Expansion Space shall be:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------
           DATE                 ORIGINAL BASE RENT                   EXPANSION SPACE RENT                 TOTAL BASE RENT
------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                                  <C>                                  <C>
     1/1/00 -- 3/31/00             $34,895.00/Mo.                        $4,266.00/Mo.                     $39,161.00/Mo.
------------------------------------------------------------------------------------------------------------------------------
     4/1/00 -- 7/1/02              $35,359.00/Mo.                        $4,821.00/Mo.                     $40,180.00/Mo.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
          5. The Landlord agrees to provide a tenant improvement allowance equal
to Thirty-two thousand five hundred seventy dollars and 00/100 ($32,570.00).00)
for improvements to the Premise. Tenant shall reimburse Landlord for all costs
associated with the tenant improvements in excess of the allowance described
herein.

<PAGE>

          6. Tenant hereby affirms that on the date hereof no known breach or
known default by either party has occurred and that the Lease, and all of its
terms, conditions, covenants, agreements and provisions, except as hereby
modified, are in full force and effect.

          7. Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.

LANDLORD:                                       TENANT:

Riggs & Company, a division of                  Rosetta Inpharmatics, Inc.
Riggs Bank NA., as Trustee of the               a Delaware Corporation
Multi-Employer Property Trust

By:      /s/ Leanne Tobias                      By:      /s/ John J. King
   --------------------------------                -----------------------------
Its: Managing Director                          Its:   Sr. Vice President

<PAGE>

STATE OF WASHINGTON                  )
                                     )ss.
COUNTY OF KING                       )

         On this 13th day of December, 1999, before me, the undersigned, a
Notary Public in and for the State of Washington, duly commissioned and sworn,
personally appeared John J. King, to me known to be the person who signed as of
Rosetta Inpharmatics, the Sr. V.P. & CO.O. that executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act. and deed of corporation for the uses and purposes therein
mentioned; and on oath stated that he was authorized to execute said instrument
on behalf of said corporation.

         IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first as above written.

                                                   /s/      Regina R. Warmoth
                                          --------------------------------------
                                          Notary Public in and for the state of
                                          washington
                                          residing at       Seattle
                                                     ---------------------------
                                          My appointment Expires    7/15/02
                                                                ----------------

DISTRICT OF COLUMBIA________________)
                                    )SS.

         On this 22nd day of December, 1999, before me, a Notary Public in and
for the District of Columbia, personally appeared Leanne Tobias, to me known to
be the Managing Director of Riggs & Company, a division of Riggs Bank N.A.,
formerly known as The Riggs Bank of Washington, D.C., Trustee of the
Multi-Employer Property Trust, the national banking association that executed
the within and foregoing instrument as Managing Director, and acknowledged said
instrument to be the free and voluntary act. and deed of said national banking
association as Trustee and she, for the uses and purposes therein mentioned, and
on oath stated that she was authorized to execute said instrument

         WITNESS my hand and official seal hereto affixed the day and year first
as above written.

                       Name:    Denise Hart-Gamble /s/
                            -----------------------------------------------
                       Notary Public in and for the District of  Columbia,
                       Residing at Riggs Bank N.A.
                                  -----------------------------------------
                       My commission Expires      March 31, 2003
                                            -------------------------------

<PAGE>

                                    EXHIBIT A

                                  [Building G]

<PAGE>

                              ROSETTA INPHARMATICS
                       OPERATING LEASE COMMITMENT SCHEDULE
                                 AS OF 12/31/99

<TABLE>
<CAPTION>

                                                        2000          2001         2002          2003          2004      Thereafter
                                                     ------------ ------------- ------------  ------------ ------------- ----------

<S>                                                    <C>         <C>            <C>           <C>           <C>       <C>
Multi-Employer Trust--12040 115th Ave NE, Blg. G       584,307     592,624        299,074           --          --             --

Siemens Medical Systems - 12004 115th Ave NE, Bldg. H   72,072      42,487             --           --          --             --

Acacia Lease - C&R Investments                           9,452          --             --           --          --             --

Acacia Lease - C&R Overaa                                9,000          --             --           --          --             --

Ikon Office - Ricoh Copier                               3,363       1,121

Toshiba - Fax                                              744         496

Toshiba - (2) Copiers                                    5,229          --

Pitney Bowes - Mail machine                              2,376       1,188

         Totals                                        686,543     637,916        299,074           --          --             --
                                                     ------------ ------------- ------------  ------------ ------------- ----------
                                                     ------------ ------------- ------------  ------------ ------------- ----------
</TABLE>

MULTI-EMPLOYER SUPPORT

<TABLE>
<CAPTION>

                                                          Monthly Amounts
                                      ========================================================
                                            Base            Triple Net
                                            Rent             Expenses             Total
                                      ------------------ ------------------  -----------------
<S>                                         <C>             <C>                   <C>
1/1/00 - 3/31/00                            39,161             8,767               47,928
4/1/00 - 12/31/00                           40,180             8,767               48,947
1/1/01 - 12/31/01                           40,180             9,205               49,385
1/1/02 - 7/1/09                             40,180             9,666               49,846
</TABLE>

Note - triple net expenses for 1001-2001 are based on 2000 rate, increased 5%
each year.

<PAGE>

Note - includes all amounts through amendment 3 (amendment 3 for the Omni space)

SIEMENS SUPPORT

<TABLE>
<CAPTION>

                                                         Monthly Amounts
                                      ========================================================
                                            Base            Triple Net
                                            Rent             Expenses             Total
                                      ------------------ ------------------  -----------------
<S>                                         <C>             <C>                   <C>
1/1/00 - 12/31/00                            4,736             1,270                6,006
1/1/01 - 7/31/01                             4,736             1,334                6,070
</TABLE>

Note - triple net expenses for 2001 are based on 2000 rate, increased 5%.

IKON OFFICE SOLUTIONS-IKON CAPITAL
Ricoh 4527 Copier 48 month lease-04/97
 .093 excess copies

<TABLE>
<CAPTION>

                                                Monthly Amounts
                                      =====================================
                                            Base
                                            Rent               Total
                                      ------------------ ------------------
<S>                                         <C>               <C>
01/01/2000 - 12/31/2000                      280.27           3363.24
01/01/01 - 7/31/2001                         280.27           1121.08
</TABLE>

TOSHIBA EASY LEASE
Fax machine with memory and cassette
36 month lease 08/03/98

<TABLE>
<CAPTION>

                                                Monthly Amounts
                                      =====================================
                                            Base
                                            Rent               Total
                                      ------------------ ------------------
<S>                                         <C>                <C>
01/01/2000 - 12/31/2000                       62               744
01/01/01 - 07/31/2001                         62               496
</TABLE>

<PAGE>

TOSHIBA EASY LEASE
Two (2) Copy machines lease with sorter
36 month lease 07/10/97

<TABLE>
<CAPTION>

                                                Monthly Amounts
                                      =====================================
                                            Base
                                            Rent               Total
                                      ------------------ ------------------
<S>                                         <C>               <C>
01/01/2000 - 07/31/2000                      747              5229
</TABLE>

PITNEY BOWES CREDIT CORP.
Mail machine and postage by phone
51 month lease 06/17/97

<TABLE>
<CAPTION>

                                                Monthly Amounts
                                      =====================================
                                            Base
                                            Rent               Total
                                      ------------------ ------------------
<S>                                         <C>               <C>
01/01/2000 - 12/31/2000                      198              2376
01/01/2001 - 06/30/2001                      198              1188
</TABLE><PAGE>

                         SECOND AMENDMENT TO RIGHTS AGREEMENT

       This Second Amendment to Rights Agreement is entered into as of October
25, 1999 between DAMARK INTERNATIONAL, INC., a Minnesota corporation
("Company"), and NORWEST BANK MINNESOTA, N.A. (the "Rights Agent").

                                       RECITALS

       1.     The Company and the Rights Agent entered into a Rights Agreement
dated as of April 16, 1998 (the "Rights Agreement"), with respect to the
Shareholder Rights Plan ("SRP") adopted by the Company.

       2.     The Company and the Rights Agent entered into a First Amendment to
the Rights Agreement dated as of July 15, 1998.

       3.     The Board of Directors of the Company has authorized a second
amendment to the Rights Agreement for purposes of further modifying the
definition of Acquiring Person.

       NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree to amend the Rights Agreement as follows:

       Section 1.    MODIFICATION OF DEFINITION OF ACQUIRING PERSON.  Section
1(a) is amended to substitute in total for Section 1(a) of the original Rights
Agreement the following:

              (a)    "Acquiring Person" shall mean any Person (as such term is
              hereinafter defined) who or which, together with all Affiliates
              and Associates (as such terms are hereinafter defined) of such
              Person, shall be the Beneficial Owner (as such term is hereinafter
              defined) of 25% or more of the Common Shares of the Company then
              outstanding, but shall not include (i) the Company, (ii) any
              Subsidiary (as such term is hereinafter defined) of the Company,
              (iii) any employee benefit plan of the Company or any Subsidiary
              of the Company, (iv) any Person holding Common Shares for or
              pursuant to the terms of any such plan, or (v) any Person holding
              Common Shares issued to that person from the Company in a transfer
              approved by the Board of Directors of the Company (which action
              shall be effective only with the concurrence of a majority of the
              Continuing Directors and only if the Continuing Directors
              constitute a majority of the number of directors then in office)
              (each of (i) through (v) an "Exempt Person").  Notwithstanding the
              foregoing, no Person shall (x) be an "Acquiring Person" as a
              result of Common Shares beneficially owned on April 16, 1998, or
              (y) become an "Acquiring Person" as the result of an acquisition
              of Common Shares by the Company which, by reducing the number of
              shares outstanding, increases the proportionate number of shares
              beneficially owned by such Person to 25% or more of the Common
              Shares of the Company then outstanding; PROVIDED, HOWEVER, that if
              a Person, together with all Affiliates and Associates of such
              Person, is or shall become the Beneficial Owner of 25% or more of
              the

                                      1

<PAGE>

              Common Shares of the Company then outstanding by reason of
              either clause (x) or clause (y) of this sentence, and shall
              thereafter become the Beneficial Owner of additional Common Shares
              representing more than 1% of the Common Shares of the Company,
              then such Person shall be deemed to be an "Acquiring Person"
              unless within ten days of the determination of such ownership the
              Board of Directors of the Company (which action shall be effective
              only with the concurrence of a majority of the Continuing
              Directors and only if the Continuing Directors constitute a
              majority of the number of directors then in office) acts to
              approve such ownership.  Further, if the Board of Directors of the
              Company (which action shall be effective only with the concurrence
              of a majority of the Continuing Directors and only if the
              Continuing Directors constitute a majority of the number of
              directors then in office) determines in good faith that a Person
              who would otherwise be an "Acquiring Person," as defined pursuant
              to the foregoing provisions of this paragraph (a), has become such
              inadvertently, and such Person divests as promptly as practicable
              a sufficient number of Common Shares so that such Person would no
              longer be an "Acquiring Person," as defined pursuant to the
              foregoing provisions of this paragraph (a), then such Person shall
              not be deemed to be an "Acquiring Person" for any purposes of this
              Agreement.

       Section 2.    FULL FORCE AND EFFECT.  Except as set forth in this Second
Amendment, all other terms of the Rights Agreement shall continue in full force
and effect.

       Section 3.    GOVERNING LAW.  This Second Amendment, the Rights Agreement
and each Right Certificate issued thereunder shall be deemed to be a contract
under the laws of the State of Minnesota and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts made and performed entirely within such State.

       Section 4.    COUNTERPARTS.  This First Amendment may be executed in any
number of counterparts and each such counterpart shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

       IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed, as of the day and year first above written.

                                   DAMARK INTERNATIONAL, INC.

                                          /s/ Mark A. Cohn
                                   -----------------------------------------
                                   By: Mark A. Cohn, Chairman, President and
                                          Chief Executive Officer

                                   NORWEST BANK MINNESOTA, N.A.

                                          /s/ Karri Van Dell
                                   -----------------------------------------
                                   By:  Karri Van Dell, Officer

                                      2

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