Document:

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                                                                   EXHIBIT 10.29

                                      LEASE

          1.   PARTIES. This Lease is entered into as of this 31st day of
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January, 1996, by and between KENT CENTENNIAL LIMITED PARTNERSHIP, a Washington
limited partnership ("Landlord"), and HDE, INC., a Washington corporation (as
"Tenant").

          2.   PREMISES. Landlord hereby leases to Tenant and Tenant hereby
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leases form Landlord upon the terms and conditions herein set forth that certain
space (the "Premises") containing approximately 4,422 square feet of floor area,
all as shown on Exhibit A attached hereto and incorporated herein by this
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reference. The Premises constitute a portion of a building (the "Building")
located at 400 West Gowe, Kent, Washington, and situated upon the real property
legally described on Exhibit B attached hereto and incorporated herein by this
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reference (the "Land").

          3.   COMMON AREAS. The following areas adjacent to or located in or on
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the Premises, Building, or Land shall constitute common areas available for
Tenant's non-exclusive use including without limitation: walkways, hallways,
stairways, driveways, lavatories, janitorial rooms, mechanical rooms, electrical
rooms, landscaped areas and grounds, parking areas, Parking Garage and all other
areas used in common by the tenants of the Building, Landlord, and invitees and
employees of Tenant. All Common Areas shall be subject to Landlord's sole
management and control and shall be operated and maintained in such manner as
Landlord, in its sole discretion, shall determine. Landlord may, from time to
time in Landlord's sole discretion, alter, modify or change the dimensions and
location of the Common Areas, or designate portions of the Common Areas for the
exclusive use of tenants of the Building. Tenant and others entitled or allowed
to use the Common Areas shall be subject to and shall comply with rules and
regulations applicable to the Common Areas as may be established by Landlord
from time to time.

          4.   LEASE TERM AND COMMENCEMENT DATE. This Lease shall be for a term
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of twelve (12) months and shall, subject to the provisions of this paragraph,
commence on February 1, 1996 (the "Commencement Date"), and shall end on that
date which is one (1) day prior to twelve (12) months thereafter, or January 31,
1997 (the "Termination Date").

               4.1  Tenant Improvements. Landlord shall furnish and install
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within the Premises, the Tenant Improvements in accordance with final plans and
specifications shown on Exhibit A and in accordance with the Work Letter
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attached hereto. Landlord shall, in accordance with the provisions of the Work
Letter attached hereto and incorporated herein by this reference, complete the
Tenant Improvements to the Premises pursuant to the Work Letter. The Tenant
Improvements shall be deemed completed three (3) business days after the date
Landlord's contractor certifies to Tenant in writing that the Tenant
Improvements are substantially completed pursuant to the Work Letter, subject to
the completion of minor "punch list" items not necessary for Tenant's use or
occupancy of the Premises. Landlord shall, after substantial completion, cause
the punch list items to be promptly and diligently completed.

          5.   RENT; ADDITIONAL RENT.
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               5.1  Monthly Rent. Tenant agrees to pay Landlord as Rent, without
                    ------------
notice or demand, the sums for the time periods shown on the Rent Schedule
attached hereto as Exhibit C (the "Monthly Rent"), in advance, on or before the
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first day of the month in which the

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Commencement Date occurs, and a like sum on or before the first day of each and
every successive calendar month thereafter during the term hereof. Monthly Rent
for any period during the term hereof which is for less than one month shall be
a prorated portion of the Monthly Rent herein, based upon a thirty (30) day
month. The Monthly Rent payable hereunder shall be subject to adjustment as
hereinafter provided in subparagraph 5.2, and Tenant agrees to pay as additional
rental, the amount of the rental adjustments and other charges required by this
Lease. All Rent shall be paid to Landlord at the address to which notices to
Landlord are to be given, in accordance with paragraph 27.17 herein, without
deduction or offset in lawful money of the United States of America, or to such
other persons or at such other place as Landlord may from time to time designate
in writing.

               5.2  Monthly Rent Adjustment; Additional Rent. It is agreed that
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the Monthly Rent called for in subparagraph 5.1 above includes Tenant's Share of
"Operating Expenses." The amount of annual Operating Expenses which Landlord has
included within the Monthly Rent at the commencement of the Lease term is $4.95
per square foot per year ("Operating Expenses Base"). As used herein, "Operating
Expenses" shall mean:

                    5.2.1     Operating Expenses. Operating Expenses include any
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          and all costs and expenses directly related to and incurred by
          Landlord in connection with the repair, operation, and maintenance of
          the Building, including interior and exterior maintenance, all costs
          to maintain, repair and replace Common Areas, including covered and
          uncovered parking areas (including the Parking Garage), elevators,
          sidewalks, driveways, exterior walls (including periodic painting
          thereof), roof membrane and surface, and all other areas used in
          common by tenants of the Building and, in addition, the structural
          parts including glass and doors, (but excluding foundation, structural
          portions of the roof, concrete walls and the concrete floors and
          subflooring (but not he finish thereon)); all reasonable costs to
          supervise, manage, and administer the maintenance of the Building and
          the Land, including the Common Areas, and such fees (not to exceed
          four percent (4%) of the Monthly Rent) as may be paid to a third party
          in connection with such supervision and management or a fee to
          Landlord or Landlord's designee to supervise and administer the
          maintenance of the Building and the Land, including the Common Areas,
          including wages, salaries, and benefits of personnel engaged in the
          management, operation, maintenance or repair of the Building and the
          Land; the costs of the annual determination of the operating expenses,
          the amortization of capital investments made to reduce operating costs
          limited, however, to the amount of the resulting reduction in
          Operating Expenses, and the amortization of extraordinary repairs made
          to extend the life of the Building in accordance with generally
          accepted operational and maintenance procedures as such repairs are
          amortized over their useful life in accordance with reasonable and
          sound operational and accounting practices; the amortization of
          capital investments made to the Building and Common Areas required by
          governmental law or action; and all costs of services furnished by
          Landlord, including janitorial, security, gardening, landscaping, and
          related costs and expenses, licenses, permits, and inspection fees,
          the cost of supplies, materials, equipment, and tools used in
          connection with the maintenance, operation, or repair of the Building
          and Land, and all other costs and expenses directly related to the
          operation, maintenance, and repair of the Building, Land and Common
          Areas, (excluding, however, such costs which are the responsibility of
          third parties or other tenants of the Building). Operating Expenses
          shall also include: Real estate taxes and insurance defined as
          follows:

                Real estate taxes. All real estate taxes, including, without
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                limitation, any installments payable for any improvement
                assessments, personal property taxes, and any and all other
                governmental charges, general or special, ordinary or
                extraordinary, of any kind and nature whatsoever, including
                without limitation, surcharges levied upon or assessed upon
                parking spaces or areas (including the

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                Parking Garage), and payments to public transit or carpooling
                facilities required by any governmental agency; and

                Insurance. Any and all insurance premiums including fire,
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                extended coverage, public liability, boiler, elevator, D.I.C.,
                property damage, and other insurance premiums as such amounts
                relate to the Premises, the Building, and the Land on which the
                Premises are located.

                    5.2.2   Tenant's Share of Operating Expenses.  Tenant's
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          Share of Operating Expenses shall equal its prorated share of the
          total Operating Expenses calculated by dividing the actual square foot
          area of the Premises by the actual total leasable area in the Building
          containing the Premises. As of the date of this Lease, it is estimated
          that Tenant's Share will be 6.2%. Operating Expenses covering a period
          not within the term of this Lease shall be prorated.

                    5.2.3   Adjustment.  For purposes of Tenant's paying its
                            ----------
          share of Operating Expenses, Tenant and Landlord agree that the
          Monthly Rent called for in subparagraph 5.1 above is subject to
          adjustment at the beginning of each calendar year for the term hereof.
          The Monthly Rent shall be adjusted to include Tenant's Share of
          Operating Expenses in excess of the Operating Expenses Base of $4.95
          per square foot per year. If Tenant's Share of the Operating Expenses
          paid or incurred by Landlord for any calendar year exceeds the
          Operating Expenses Base included in Tenant's Monthly Rent, then Tenant
          shall pay such excess as additional rent.

                    On March 1 after the beginning of each calendar year of the
          term hereof, Landlord shall give to Tenant a statement of any
          additional rent payable by Tenant hereunder for the previous year,
          which shall be due and payable within thirty (30) days of Tenant's
          receipt of said statement. In addition, Tenant shall pay Tenant's
          Share of Landlord's estimate of the amount by which the Operating
          Expenses shall exceed the Operating Expenses Base. This estimated
          amount shall be divided into twelve (12) equal monthly installments.
          Tenant shall pay to Landlord, concurrently with the regular Monthly
          Rent payment next due following the receipt of such statement, an
          amount equal to one (1) monthly installment multiplied by the number
          of months from January in the calendar year in which said statement is
          submitted to the month of such payment, both months inclusive.
          Subsequent installments shall be payable concurrently with the regular
          Monthly Rent payments for the balance of that calendar year and shall
          continue until the next calendar year's statement is rendered.

                    If, in any calendar year the actual amount of Tenant's Share
          of actual Operating Expenses which is in excess of the Operating
          Expenses Base is less than the payments made by Tenant during that
          year, then upon receipt of Landlord's statement, Landlord shall pay
          the excess to Tenant at the time Landlord furnishes said statement, or
          credit the excess toward Tenant's payments of Tenant's Share of
          Operating Expenses in the next succeeding calendar year, at Tenant's
          sole election. However, in no event shall Tenant be credited for any
          amount which will cause Tenant's rent to be reduced below the Monthly
          Rent established in paragraph 5.1 above.

                    Even though the term is expired and Tenant has vacated the
          Premises, when the final determination is made of Tenant's Share of
          Operating Expenses for the year in which this Lease terminates, Tenant
          shall immediately pay an increase due over the estimated Operating
          Expenses paid and, conversely, any overpayment made in the event said
          Operating Expenses decrease shall be immediately rebated by Landlord
          to Tenant.

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          5.3   Occupancy Adjustment Period. In the event the average occupancy
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level of the Building for any year of the Lease term was or is not ninety five
percent (95%) or more of full occupancy, the sum of all costs and expenses
comprising of the Operating Expenses of such year shall be adjusted
proportionately by Landlord to reflect those costs which would have occurred had
the Building been ninety five percent (95%) occupied during such year.

          5.4  Change in Method of Taxation. If, at any time during the term of
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this Lease, the present method of taxation is changed to that in lieu of or in
addition to the whole or part of any taxes, assessments, or charges levied,
assessed, or imposed upon real estate and the improvements thereon, there is
levied, assessed, or imposed on Landlord a capital levy, or other tax directly
on the rents received or a franchise tax assessment, levy, or charge measured by
or based, in whole or in part, upon such rents for the present or any future
building or buildings on the Land or any other tax or assessment, levied or
assessed in lieu of or in addition to present taxes, assessments or charges,
then all such other or additional taxes, assessments, levies, or charges will be
deemed to be included within the term "real estate taxes" for the purposes
hereof.

     6.   SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of Five
          ----------------
Thousand Five Hundred Ninety Three Dollars ($5,593.00) as of the date of
execution of this Lease, as a security deposit. Said sum shall be held by
Landlord as security for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenants defaults with respect to any provision of
this Lease, including, but not limited to, the provisions relating to payment of
rent, Landlord may (but shall not be required to) use, apply, or retain all or
any part of this security deposit for payment of any rent or any other sum in
default or for the payment of any amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said deposit is so used or applied, Tenant shall,
within five (5) days after written demand thereof, deposit cash with Landlord in
an amount sufficient to restore the security deposit to its original amount and
Tenant's failure to do so shall be a default under this Lease. Landlord shall
not be required to keep the security deposit separate from its general funds.
Landlord shall receive any and all interest accruing on such deposit. If Tenant
shall fully and faithfully perform every provision of this Lease to be performed
by it, the security deposit or any balance thereof shall be returned to Tenant
or, at Landlord's option, to the last assignee of Tenant's interest hereunder
(within 10 days following expiration of the Lease term). In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer said
deposit to Landlord's successor in interest. The use by Landlord of all or a
portion of the security deposit shall not constitute a limitation on Tenant's
liability.

     7.   USE OF PREMISES. Tenant's use and occupancy of the Premises shall be
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for general office purposes. Tenant shall not use or permit the Premises to be
used for any other purpose without the prior written consent of Landlord.

          7.1  Uses Prohibited. No retail sales shall be made on the Premises.
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Tenant shall not do or permit anything to be done in or about the Premises nor
bring of keep anything therein which will in any way increase the existing rate
of or affect any fire or other insurance upon the Building or any of its
contents or cause a cancellation of any insurance policy covering the Building
or any part thereof or any of its contents. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful, or objectionable purpose, nor shall Tenant cause, maintain,
or permit any nuisance in, on, or about the Premises. Tenant shall not commit or
allow to be committed any waste in or upon the Premises.

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          7.2  Compliance With Law. Tenant shall not use or permit the use of
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the Premises in any way in conflict with any law or governmental rule. Tenant
shall, at its sole cost, promptly comply with all such laws and governmental
rules, including, without limitation, the Americans With Disabilities Act and
with the requirements of any board of fire underwriters or similar bodies now or
hereafter constituted relating to the condition, use or occupancy of the
Premises. The judgment of any court of competent jurisdiction or the admission
of Tenant in any action against Tenant that Tenant has violated any law or
governmental rule, whether or not Landlord is a party, shall be conclusive of
that fact as between Landlord and Tenant.

          7.3  Use of Parking Garage; Parking Charges. The Parking Garage and
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parking areas shall be used for vehicle parking only and not for storage.
Garbage and refuse awaiting collection which may be placed in parking areas or
the parking Garage shall be stored in dumpster type containers which shall be
placed in areas away from public view. Use of the parking areas and Parking
Garage shall be subject to parking charges as determined by Landlord in its sole
discretion, from time to time, during the term of this Lease. Tenant shall have
available to it a parking ratio of 3.5 parking stalls per 1,000 rentable square
feet in the restricted area of the Parking Garage, provided, however, such
stalls are on a first come, first served basis only.

     8.   ALTERATIONS AND ADDITIONS. Tenant shall not make or allow to be made
          -------------------------
be made any alterations, improvements, or changes to or of the Premises or any
part thereof, including tenant improvements, without the prior written consent
of Landlord, and all improvements, alterations, or changes so made shall become
a part of the leased Premises and shall belong to Landlord upon expiration or
sooner termination of this Lease, unless Landlord requests that Tenant remove
the same upon termination or relocation under this Lease. In connection with
Landlord's determination regarding Landlord's consent, Landlord may request and
Tenant shall provide Landlord with current financial information regarding
Tenant's creditworthiness in order that Landlord may determine, in the exercise
of its reasonable judgment, Tenant's financial capability to pay for such
alterations, improvements, or changes to or of the Premises. In the event
Landlord consents to the making of any alterations, additions, or improvements
to the Premises by Tenant, the same shall be made by Tenant at Tenant's sole
cost and expense.

     9.   MAINTENANCE AND REPAIRS. Responsibility for maintenance and repairs
          -----------------------
shall be allocated between Landlord and Tenant as follows:

          9.1  Tenant's Obligations. By taking possession of the Premises,
               --------------------
Tenant shall be deemed to have accepted the Premises as being clean and in good
order, condition, and repair. Tenant shall, at Tenant's sole cost and expense,
keep the Premises and every part thereof in good condition and repair (except as
hereinafter provided with respect to Landlord's obligations), including without
limitation the maintenance, replacement, and repair of any doors, windows, and
window casements. Tenant shall further, at Tenant's sole cost and expense,
repair any damage to plumbing, pipes, electrical wiring, and conduits located
within the Premises that occurs as a result of Tenant's neglect in its use of
these improvements to the Premises. Tenant shall, upon the expiration or sooner
termination of this Lease, surrender the Premises to Landlord in good condition,
broom clean, ordinary wear and tear excepted. Damage caused by Tenant's use of
the Premises shall be repaired at the sole cost and expense of Tenant.

          9.2  Landlord's Obligations. Upon receipt of written notice of the
               ----------------------
need for the same, subject to the provisions of paragraph 5 hereinabove,
Landlord shall arrange for the repair and maintenance of the structural portions
of the Building, including the concrete walls and the concrete floors and
subflooring (but not the finish thereon), structural portions of the roof and
foundation. In the event the Building of which the Premises are a part is
occupied by third parties, in addition to Tenant, and in the event such
maintenance and repairs are necessitated in whole or in part by the acts,
neglect, fault, or omission of any duty by Tenant, its agents,

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servants, employees, invitees, Tenant shall pay to Landlord the entire cost of
such maintenance and repairs, rather than a prorated portion thereof as provided
in paragraph 5. There shall be no abatement of rent and no liability of Landlord
by reason of any injury to or interference with Tenant's business arising from
the making of any repairs, alterations, or improvements in or to any portion of
the Building or the Premises or in or to fixtures, appurtenances, and equipment.
Tenant waives the right to make repairs at Landlord's expense under any law,
statute, or ordinance now or hereafter in effect.

     10.  LIENS. Tenant shall keep the Premises and the Land on which the
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Premises are situated free from any liens arising out of any work performed,
materials furnished, or obligations incurred by Tenant. Landlord may require, at
Landlord's sole option, that Tenant shall provide Landlord, at Tenant's sole
cost and expense, a lien and completion bond in an amount equal to one and one-
half (1 -1/2) times the estimated cost of any improvements, additions, or
alterations in the Premises which Tenant desires to make with Landlord's prior
consent, to insure Landlord against any liability from mechanics' and
materialmen's liens, and to insure completion of the work. On final
determination of any lien and/or claim for lien, Tenant shall immediately pay
any judgment rendered, together with all proper costs and charges, and shall
have the lien released or judgment satisfied at no cost to Landlord.

     11.  HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord from
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and against any and all claims arising from Tenant's use of the Premises or from
the conduct of its business or from any activity, work, or other things done,
permitted or suffered by Tenant in or about the Premises and shall further
indemnify and hold harmless Landlord from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease or arising from any act or
negligence of Tenant or any officer, agent, employee, guest, or invitee of
Tenant, and from all costs, attorneys' fees, liabilities incurred in or about
the defense of any such claim or any action or proceeding brought thereon. In
any action or proceeding brought against Landlord by reason of such claim,
Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. Landlord shall not be liable to
Tenant for damage to Tenant or Tenant's property or injury to persons in, upon,
or about the Premises from any cause, except that Landlord shall be liable to
Tenant for damage to Tenant or Tenant's property resulting from the intentional
acts of Landlord, its agents or employees. Landlord or its agent shall not be
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, or rain which may
leak from any part of the Building or from the pipes, appliances, or plumbing
works therein or from the roof, street, or subsurface, or from any other place
resulting from dampness, or from any other cause whatsoever, unless caused by or
due to the negligence of Landlord, its agents, or employees. Landlord or its
agent shall not be liable for interference with the light or air, or for any
latent defect in the Premises. Tenant shall give prompt notice to Landlord in
case of casualty or accidents in the Premises.

     12.  SUBROGATION. So long as their respective insurers so permit, Landlord
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and Tenant hereby mutually waive their respective rights of recovery against
each other for any loss insured by fire, extended coverage, and other property
insurance policies existing for the benefit of the respective parties. Each
party shall apply to their insurers to obtain said waivers. Each party shall
obtain any special endorsements if required by their insurer, to evidence
compliance with the aforementioned waiver.

     13.  LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and
          -------------------
keep in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability arising
out of the ownership, use, occupancy, or maintenance of the Premises. Such
insurance shall be in amount not less than $1,000,000 Combined Single Limit with
respect to injuries to or death of persons, and/or destruction of or damage to
property. The limit of any such insurance shall not, however, limit the
liability of

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Tenant hereunder. Tenant may provide this insurance under a blanket policy
provided said insurance shall have a landlord's protective liability endorsement
attached thereto. If Tenant shall fail to procure and maintain said insurance,
Landlord may, but shall not be required to, procure and maintain the same at the
expense of Tenant. Insurance required hereunder shall be in companies rated A-XI
or better in "Best's Insurance Guide." Tenant shall deliver to Landlord, prior
to right of entry, certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to Landlord. No policy shall be
cancelable or subject to reduction of coverage by the Tenant without prior
written consent of Landlord. All such policies shall be written as primary
policies not contributing with and not only in excess of coverage which Landlord
may carry. Landlord shall, as an Operating Expense, cause to be obtained and
kept in force during the term of this Lease a policy of hazard and casualty
insurance, with replacement coverage in an amount acceptable to Landlord's
lender.

     14.  SERVICES AND UTILITIES. Provided that Tenant is not in default
          ----------------------
hereunder, Landlord agrees to furnish to the Premises during the hours of 6:45
A.M. to 7:00 P.M. on generally recognized business days, and during non-business
hours and non-business days, on an access and override basis, and subject to the
reasonable rules and regulations of the Building of which the Premises are a
part, the following services: (a) electricity for normal lighting and routine
office machines, (b) heat and air conditioning required in Landlord's judgment
for the comfortable use and occupation of the Premises, and maintenance of a
reasonable temperature in the Premises; (c) janitorial services unless Tenant
advises Landlord of Tenant's desire to provide its own janitorial services; and
(d) water in quantities reasonably used by Tenant. Landlord shall also maintain
and keep lighted the common stairs, common entries and toilet rooms in the
Building of which the Premises are a part. Landlord shall not be liable for, and
Tenant shall not be entitled to, any reduction of rent by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by accident,
breakage, repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar, beyond
the reasonable control of Landlord. Landlord shall not be liable under any
circumstances for a loss of or injury to property, however, occurring, through
or in connection with or incidental to failure to furnish any of the foregoing,
except to the extent such loss or injury is directly caused by Landlord.
Wherever h eat generating machines or equipment are used by Tenant in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, and the cost of operation and maintenance thereof shall be paid by
Tenant to Landlord upon demand by Landlord.

     Tenant will not, without written consent of Landlord, use any apparatus or
device in the Premises, including machines which require electricity in excess
of that normally used by office machines such as photocopiers and mini
computers, which will in any way increase the amount or electricity usually
furnished or supplied for the use of the Premises as office space; nor connect
with electric current except through existing electrical outlets in the Premises
as agreed to in Tenant Improvements, any apparatus or device, for the purpose of
using electric current. If Tenant shall require water or electric current in
excess of that usually furnished or supplied for the use of the Premises as
general office space, Tenant shall first procure the written consent of
Landlord, which consent shall not be unreasonably withheld, to the use thereof
and Landlord may cause a water meter or electrical current meter to be installed
in the Premises, so as to measure the excess amount of water and electric
current consumed for any such use. The cost of any such meters and of
installation, maintenance and repair thereof shall be paid for by Landlord and
if excessive usage is disclosed by said meters, Tenant agrees to pay to Landlord
promptly upon demand, therefor by Landlord, for all such water and electric
current consumed as shown by said meters, at the rate charged for such services
by the local public utility furnishing the same, plus any additional expense
incurred in keeping account of the water and electric current so consumed. If a
separate meter is not installed, such excess cost for such water and electric
current will be established by an estimate made by a utility company or
electrical engineer.

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     15.  PERSONAL PROPERTY TAXES. Tenant shall pay or cause to be paid before
          -----------------------
delinquency any and all taxes levied or assessed and which become payable during
the term hereof upon all tenants' equipment, furniture, fixtures, and any other
personal property located in the Premises. In the event any or all of the
Tenants' equipment, furniture, fixtures, and any other personal property shall
be assessed and taxed with the real property, Tenant shall pay to Landlord its
share of such taxes within ten (10) days after delivery to Tenant by Landlord of
a statement in writing setting forth the amount of such taxes applicable to
Tenant's property.

     16.  ENTRY BY LANDLORD. At any and all reasonable times during regular
          -----------------
business hours, upon one (1) day's prior written notice to Tenant, Landlord
reserves and shall have the right to enter the Premises to inspect the same a
reasonable number of times, to submit the Premises to prospective purchasers or
tenants, to repair the Premises and any portion of the Building that Landlord
may deem necessary or desirable, without abatement of rent, and may for that
purpose erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always providing that the
entrance to the Premises shall not be blocked thereby and further providing that
the business of Tenant shall not be interfered with unreasonably. Tenant hereby
waives any claim for damages or for any injury or inconvenience to or
interference with Tenant's business or any loss of occupancy or quiet enjoyment
of the Premises, and any other loss occasioned thereby. Landlord shall have the
right to use any and all means which Landlord may deem proper to open any doors
or otherwise obtain access to the Premises in an emergency, without liability to
Tenant except for any failure to exercise due care for Tenant's property, and
any entry to the Premises obtained by Landlord by any of said means or otherwise
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction of Tenant from
the Premises or any portion thereof.

     17.  ASSIGNMENT AND SUBLETTING. It is understood and agreed that Landlord
          -------------------------
may fully assign its interest in this Lease as Landlord. Tenant shall not either
voluntarily or by operation of law assign, transfer, mortgage, pledge,
hypothecate, or encumber this Lease or any interest therein and shall not sublet
the Premises or any part thereof or any right or privilege appurtenant thereto
or allow any person (the employees, agents, servants and invitees of Tenant
excepted) to occupy or use the Premises or any portion thereof without the prior
written consent of Landlord. Landlord reserves the right to recapture the
Premises, or applicable portions thereof, in lieu of giving its consent by
notice given to Tenant within fifteen (15) days after receipt of Tenant's
request for assignment or subletting and delivery of all reasonable information
or any such assignee or subtenant as requested by Landlord. Such recapture shall
terminate this Lease as to the applicable space effective on the prospective
date of the 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 for
assignment or subletting and delivery of all reasonable information on any such
assignee or subtenant as requested by Landlord. If Landlord elects not to
recapture and thereafter gives its consent, Landlord and Tenant agree that
Landlord may charge Tenant a reasonable sum to reimburse Landlord for legal and
administrative costs incurred in connection with such consent; and that from the
date of such assignment or sublease of this Lease, Landlord shall receive any
rental, fees, and other proceeds payable by such subtenant or assignee in excess
of the rent to be paid to Landlord under the terms of this Lease. Any such
assignment or subletting without compliance with the terms of this paragraph
shall be void and shall, at the option of Landlord, constitute a default under
the terms of this Lease. If Tenant is a corporation, any transfer of this Lease
from Tenant by merger, consolidation, or liquidation or any change in the
ownership or power to vote in the majority of the outstanding voting stock of
Tenant shall constitute an assignment for purposes of this paragraph. If Tenant
is a partnership, any change in the individuals or entities of which the
partnership is composed shall constitute an assignment for purposes of this
paragraph. A consent to one assignment, subletting, occupation, or use by any
other person shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation, or use by another person. Consent to any such assignment
or subletting shall in no

                                       -8-
<PAGE>

way relieve Tenant of any liability under this Lease. Landlord may assign the
rental herein provided to any person, partnership, corporation, or bank, and
Tenant agrees when notified in writing by the assignee of such assignment to
make the rental payments to assignee under the terms of said assignment.

     18.  HOLDING OVER. If Tenant remains in possession of the Premises or any
          ------------
part thereof after the expiration of the term of this Lease with the express
written consent of Landlord, such occupancy shall be a tenancy from month to
month at a rental in the amount of 125% of the last monthly minimum rent, plus
all other charges payable hereunder, and upon all the terms hereof applicable to
a month-to-month tenancy.

     19.  TENANT'S DEFAULT. The occurrence of any one or more of the following
          ----------------
events shall constitute a default and breach of this Lease by Tenant.

          19.1  Abandonment. Tenant vacates or abandons the Premises while the
                -----------
rent remains unpaid;

          19.2  Failure to Pay Rent. Tenant fails to make any payment of rent or
                -------------------
any other payment required to be made by Tenant hereunder, as and when due,
where such failure shall continue for a period of three (3) business days after
written notice thereof by Landlord to Tenant;

          19.3  Failure to Observe Other Covenants. Tenant fails to observe or
                ----------------------------------
perform any of the covenants, conditions, or provisions of this Lease to be
observed or performed by Tenant, other than described in subparagraph 19.1 and
19.2 above, where such failure shall continue for a period of thirty (30) days
after written notice thereof by Landlord to Tenant; provided, however, that if
the nature of Tenant's default is such that more than thirty (30) days are
reasonably required for such cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within said thirty (30) days and
thereafter, diligently prosecutes such cure to completion;

          19.4  Insolvency. Tenant makes any general assignment or general
                ----------
arrangement for the benefit of creditors or the filing by or against Tenant of a
petition to have Tenant adjusted a bankrupt, or a petition to reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days) or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days or the
attachment, execution, or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interests in this Lease
where such seizure is not discharged within thirty (30) days:

          19.5  Misrepresentation. Tenant makes or has made or furnishes or has
                -----------------
furnished any warranty, representation or statement to Landlord in connection
with this Lease, or any other agreement to which Tenant and Landlord are
parties, which is or was false or misleading in any material respect when made
or furnished; or

          19.6  Failure To Take Possession. Tenant fails to take possession of
                --------------------------
the Premises when Landlord delivers the same by notifying Tenant that the
Premises are ready for occupancy.

          20.  REMEDIES ON DEFAULT. In the event of any default or breach by
               -------------------
Tenant, Landlord may, at any time thereafter with or without notice or written
demand in the exercise of a right or remedy which Landlord may have by reason of
such default or breach, terminate this Lease by written notice to Tenant, revoke
the Tenant's right to any free rent (whereupon any such free rent shall become
due and payable to Tenant), reenter and take possession of the Premises

                                       -9-
<PAGE>

without termination of this Lease, declare all Rent to become due during the
initial term of this Lease to be fully and immediately due and payable, or
pursue any remedy allowed by law. Tenant agrees to pay Landlord the cost of
recovering possession of the Premises, the expenses of reletting, and any other
costs or damages arising out of Tenant's default, including, without limitation,
the costs of removing persons and property from the Premises, the costs of
repairing or altering the Premises for reletting, brokers' commissions, and
legal expenses and fee. Notwithstanding any termination, reentry, or reletting,
the liability of Tenant for the rent and additional rent for the balance of the
term of this Lease shall not be extinguished and Tenant shall pay and Landlord
may recover from Tenant at the time of termination, reentry, or reletting, the
excess, if any, of the amount of the rent reserved in this Lease for the balance
of the term hereof over the then reasonable rental value of the Premises for the
same period. Reasonable rental value shall mean the amount of rental which
Landlord does or could reasonably be expected to obtain as rent for the
remaining balance of the Lease term. In the event that Landlord relets the
Premises or any part thereof without first terminating Tenant's right to
possession pursuant to this Lease, Landlord reserves the right, at any time
thereafter, to elect to terminate Tenant's right to possession to that portion
of the Premises for the default that originally resulted in the reletting.

          20.1  Remedies Cumulative. The remedies hereinafter described shall be
                -------------------
cumulative and Landlord shall be entitled to pursue any other remedy now or
hereafter available to Landlord under the law or judicial decisions of the State
of Washington.

          20.2  Removal of Personal Property. In the event of a retaking of
                ----------------------------
possession of the Premises by Landlord, Tenant shall remove all personal
property located thereon and upon failure to do so upon demand of Landlord,
Landlord may remove and store the same in any place selected by Landlord,
including but not limited to a public warehouse, at the expense and risk of
Tenant. If Tenant shall fail to pay the cost of storing any such property after
it has been stored for a period of thirty (30) days or more, Landlord may sell
any or all of such property at a public or private sale and shall apply the
proceeds of such sale first to the cost of such sale, secondly to the payment of
the charges for storage, if any, and thirdly to the payment of any other sums of
money which may be due from Tenant to Landlord under the terms of this Lease,
and the balance, if any, to Tenant. Tenant hereby waives all claims for damages
that may be caused by Landlord's lawfully reentering and taking possession of
the Premises or lawfully removing and storing the property of Tenant as herein
provided and will save Landlord harmless from loss or damages occasioned by
Landlord thereby, whether such lawful reentry shall be considered or construed
to be a forcible entry.

     21.  DAMAGE AND RECONSTRUCTION. Should the Premises be damaged during the
          -------------------------
term of this Lease, Tenant shall immediately notify Landlord and the rights and
responsibilities of Landlord and Tenant shall be as follows:

          21.1  Insured Damage. In the event the Premises are damaged by fire or
                --------------
other perils covered by extended coverage insurance, Landlord agrees to
forthwith commence repair of the same to the extent of insurance proceeds
available and this Lease shall remain in full force and effect, except that
Tenant shall be entitled to a proportionate reduction of the minimum monthly
rent from the date of such damage and while such repairs are being made until
such repairs are substantially completed, such proportionate reduction to be
based upon the extent to which the damage and making of such repairs shall
unreasonably interfere with the business carried on by Tenant in the Premises.
If the damage is due to the fault or neglect of Tenant or its employees, there
shall be no abatement of rent.

          21.2  Other Damage. In the event the Premises are damaged as a result
                ------------
of any cause other than the perils covered by fire and extended coverage
insurance, then Landlord shall forthwith commence repair of the same, provided
the extent of the destruction is less than ten

                                      -10-
<PAGE>

percent (10%) of the then full replacement cost of the Premises. In the event
the destruction of the Premises is to an extent of ten percent (10%) or more of
the full replacement cost, then Landlord shall have the option (a) to repair or
restore such damage, this Lease continuing in full force and effect, but the
minimum monthly rent to be proportionately reduced as hereinabove provided as
for the date of such damage and while such repairs are being made until such
repairs are substantially completed, or (b) to give notice to Tenant at any time
within (60) days after such damage, terminating this Lease as of the date
specified by Landlord.

          21.3  Damage During Last Twelve Months. Notwithstanding anything to
                --------------------------------
the contrary continued in this paragraph, Landlord shall not have any obligation
whatsoever to repair, reconstruct, or restore the Premises when the damage
resulting from any casualty covered under this paragraph occurs during the last
twelve (12) months of the term of this Lease. In such event, Landlord may, at
Landlord's option: (a) terminate this Lease in the manner provided in
subparagraph 21.2 above; or (b) reduce the minimum monthly rent by a proportion
equal to the extent, if any, the damage interferes with the business carried on
by Tenant in the Premises in the manner provided in subparagraph 21.2 above.

          21.4  Damage To Tenant's Property. Landlord shall not be required to
                ---------------------------
repair any injury or damage by fire or other cause or to make any repairs or
replacements of any leasehold improvements, fixtures, or other personal property
of Tenant.

     22.  EMINENT DOMAIN.
          --------------

          22.1  Taking. If twenty-five percent (25%) or more of the Premises
                ------
shall be taken or appropriated by any public or quasi-public authority under the
power of eminent domain, either party hereto shall have the right at its option
within sixty (60) days after said taking to terminate this Lease upon thirty
(30) days' written notice.

          22.2  Partial Taking. If less than twenty-five percent (25%) of the
                --------------
Premises are taken (or 25% or more of the Premises are taken and neither party
elects to terminate as herein provided) the minimum rent thereafter to be paid
shall be equitably reduced. If any part of the Building of which the Premises
are a part may be so taken or appropriated, Landlord shall within sixty (60)
days of said taking have the right at its option to terminate this Lease upon
written notice to Tenant.

          22.3  Award. In the event of any taking or appropriation whatsoever,
                -----
Landlord shall be entitled to any and all awards or settlements which may be
given and Tenant shall have no claim against the condemning authority or
Landlord for the value of any unexpired term of this Lease and Tenant hereby
assigns to Landlord any and all claims to any award or settlement. Nothing
contained herein shall be deemed to give Landlord any interest in or to require
Tenant to assign to Landlord any award made to Tenant for the taking of personal
property or fixtures belonging to Tenant or for the interruption of or damage to
Tenant's business or for Tenant's moving expenses.

     23.  SIGNS.
          -----

          23.1  Tenant Signs. No signage shall be installed on the Premises by
                ------------
Tenant. All signage within the Building and Premises shall be installed by
Landlord, at Landlord's expense, as a part of the completion of the Tenant
Improvements. Any such signage shall comply with and be subject to the Sign
Guidelines attached hereto as Exhibit D and incorporated herein by this
                              ---------
reference. Any such signs shall be the property of Landlord.

                                      -11-
<PAGE>

          23.2  For Lease or Sale Signs. At any time within one hundred eighty
                -----------------------
(180) days prior to the expiration of this Lease, Landlord may place upon the
Premises "for lease" signs. Landlord may place "for sale" signs on the Premises
at any time during the Lease term.

     24.  SUBORDINATION AND MODIFICATION BY LENDER. Tenant agrees that this
          ----------------------------------------
Lease shall be subordinate to any mortgage or deed of trust that may hereafter
be placed upon the Premises or the Building and to any and all advances to be
made thereunder to the interest thereon, and all renewals, replacements, and
extensions thereof; provided, the mortgagee or trustee named in such mortgage or
deed of trust shall agree in writing to recognize the Lease of Tenant in the
event of foreclosure, if Tenant is not in default. In the event any mortgagee or
trustee elects to have the Lease a prior lien to its mortgage or deed of trust,
then in such event, upon such mortgagee or trustee notifying Tenant to that
effect, this Lease shall be deemed prior in lien to the said mortgage or deed of
trust whether or not this Lease is dated prior to or subsequent to the date of
said mortgage or trust deed. Within fifteen (15) business days of presentation,
Tenant agrees to execute any documents which such mortgagee or trustee may
require to effectuate the provisions of this paragraph. Tenant further agrees
that, if in connection with obtaining financing for the Land, Building, or
Premises, a lender shall request modification of this Lease as a condition to
such financing, Tenant shall not withhold, delay or defer its consent thereto,
provided that such modifications do not increase the financial obligations of
Tenant hereunder or materially adversely affect the leasehold interest hereby
created.

     25.  TENANT'S STATEMENT. Tenant shall at any time and from time to time
          ------------------
upon not less than ten (10) business days' prior written notice from Landlord
execute, acknowledge, and deliver to Landlord a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified is in full force and effect) and the date to which the rental and
other charges are paid in advance, if any, and (b) acknowledging that there are,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults if any are claimed, and (c) setting forth the date
of commencement of rents and expiration of the term hereof. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of the Land,
Building, or Premises.

     26.  HAZARDOUS SUBSTANCES. Tenant shall not generate, release, spill,
          --------------------
store, deposit, transport, or dispose of (collectively "Release") any hazardous
substances, sewage, petroleum products, hydrocarbons, radioactive substances,
medicinal, bacteriological, medical wastes, or disease-producing substances,
hazardous materials, toxic substances or any pollutants or substances defined as
hazardous or toxic in accordance with applicable federal, state, and local laws
and regulations ("Hazardous Substances") in, on or about the Premises, Building,
Common Areas or Land. In the event, and only in the event, Landlord approves
such Release of Hazardous Substances on the Premises, Building, Common Areas or
Land, Tenant agrees that such Release shall occur safely and in compliance with
all applicable federal, state, and local laws and regulations. Tenant shall
indemnify, hold harmless and defend Landlord from any and all claims,
liabilities, losses, damages, cleanup costs, response costs, and expenses
(including reasonable attorneys' fees) arising out of or in any way related to
the Release by Tenant, or any of its agents, representatives, or employees, or
the presence of such Hazardous Substances in, on or about the Premises,
Building, Common Areas or Land caused by Tenant or any of its agents,
representatives or its employees, and occurring at any time after the
Commencement Date. Landlord shall indemnify, hold harmless and defend Tenant
from any and all claims liabilities, losses, damages, cleanup costs, response
costs, and expenses (including reasonable attorneys' fees) arising out of or in
any way related to the presence of Hazardous Substances in, on or about the
Premises caused by Landlord or any of its agents, representatives or employees.
The provisions of this paragraph shall survive termination or expiration of this
Lease.

                                      -12-
<PAGE>

     27.  GENERAL PROVISIONS. Landlord and Tenant agree to the following general
          ------------------
provisions:

          27.1 Waiver. The waiver by Landlord of any term, covenant, or
               ------
condition herein contained shall not be deemed to be the waiver of such term,
covenant, or condition upon any subsequent breach of the same or of any other
term, covenant, or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
default by Tenant of any term, covenant, or condition of this Lease other than
the failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding default at the time of the acceptance of
such rent.

          27.2 Joint Obligation. If there be more than one Tenant, the
               ----------------
obligations hereunder imposed shall be joint and several.

          27.3 Time. Time is of the essence of this Lease and each and all of
               ----
its provisions in which performance is a factor.

          27.4 Paragraph Headings. The paragraph headings of this Lease are not
               ------------------
a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.

          27.5 Successors and Assigns. The covenants and conditions herein
               ----------------------
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators, and assigns of the parties hereto.

          27.6 Recordation. Neither Landlord nor Tenant shall record this Lease,
               -----------
but a short form memorandum hereof may be recorded at the request of Landlord.

          27.7 Quiet Possession. Upon Tenant paying the rent reserved hereunder
               ----------------
and performing all of the covenants, conditions, and provisions on Tenant's part
to be observed and performed hereunder, Tenant shall have quiet possession of
the Premises for the entire term hereof, subject to all the provisions of this
Lease. The Premises are leased subject to any and all existing encumbrances
conditions, rights, covenants, easements, restrictions, rights-of-way, and any
matters of record, applicable zoning and building laws, and such matters as may
be disclosed by inspection or survey.

          27.8 Overdue Rent. Unpaid installments of the minimum monthly rent,
               ------------
Additional Rent, or other sums due hereunder shall, if not timely paid, be
subject to a late charge of Fifty and No/100 Dollars ($50.00) to cover the
excess costs of administration and shall bear interest from the date due at the
publicly announced prime rate for commercial borrowers of Seattle First National
Bank, Head Office, plus five percent (5%) until all rent and interest has been
paid in full.

          27.9 Prior Agreements. This Lease contains all of the agreements of
               ----------------
the parties hereto with respect to any matter covered or mentioned in this Lease
and no prior agreements or understandings pertaining to any such matters shall
be effective for any purpose. No provision of this Lease may be amended or added
to except by agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
upon any party until fully executed by both parties hereto.

          27.10 Inability to Perform. This Lease and the obligations of Tenant
                --------------------
hereunder shall not be affected or impaired because Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of god,
or any other cause beyond the reasonable control of Landlord.

                                     -13-
<PAGE>

          27.11 Partial Invalidity. Any provisions of this Lease which shall
                ------------------
provide to be invalid, void, or illegal shall in no way affect, impair, or
invalidate any other provision hereof and such other provision shall remain in
full force and effect.

          27.12 Cumulative Remedies. No remedy or election hereunder shall be
                -------------------
deemed exclusive but shall whenever possible be cumulative with all other
remedies at law or in equity.

          27.13 Choice of Law. This Lease shall be governed by the laws of the
                -------------
State of Washington. The parties agree that venue for any action hereunder shall
properly lie in King County, Washington.

          27.14 Attorneys' Fees. In the event of any action or proceeding
                ---------------
brought by either party against the other under this Lease, the prevailing party
shall be entitled to recover for the fees of its attorneys in such action or
proceeding including costs of appeal, if any, in such amount as the court may
adjudge reasonable as attorneys' fees. In addition, should it become necessary
for Landlord to employee legal counsel to enforce any of the provisions herein
contained, Tenant agrees to pay all attorneys' fees and court costs reasonably
incurred. For the purposes of this provision, the terms "action" or "proceeding"
shall include arbitration, administrative, bankruptcy, and judicial proceedings
included appeals therefrom.

          27.15 Real Estate Commission. Tenant and Landlord each warrant to the
                ----------------------
other that, other than Cushman & Wakefield, no real estate broker or agent has
been employed by Tenant or Landlord or is entitled to receive any commission or
fee with respect to this transaction other than Cushman & Wakefield, to whom
Landlord has consented by written agreement and to whom Landlord has agreed to
pay a commission. Tenant and Landlord shall each indemnify and save the other
harmless from the claims of any real estate brokers or agents with whom Tenant
or Landlord as the case may be, may have dealt with respect to this transaction,
other than as so consented to by Landlord.

          27.16 Execution. This Lease may be executed in several counterparts,
                ---------
each of which shall be deemed an original instrument.

          27.17 Notices. All notices to be given hereunder shall be in writing
                -------
and shall be personally delivered and receipt acknowledged, sent by United
States certified mail, return receipt requested, sent by facsimile, with
original delivered within three (3) business days, or sent by overnight delivery
through public or private service, delivery charge prepaid, and addressed to the
party at the respective mailing address as herein set forth.

     To Landlord at:

     Centennial Venture Limited Partnership
     c/o Sound Ventures Management Company
     400 West Gowe Street, Suite 412
     Kent, WA 98032
     Attn: Stephanie Klappenbach

     To Tenant at:

     HDE, INC.
     400 West Gowe, Suite 324
     Kent, WA 98032
     Attn:  David Glidewell
            Gordon Hanson

                                     -14-
<PAGE>

     It is understood that each party may change the address to which notices
may be sent by giving a written notice of such change to the other party hereto
in the manner herein provided.

          27.18 Corporate Authority. If Tenant is a corporation, each individual
                -------------------
executing this Lease on behalf of said corporation represents and warrants that
he or she is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with it terms. Tenant further represents and warrants that it is fully
registered and qualified to do business in the State of Washington.

          27.19 Limited Partnerships. It is understood and agreed that any
                --------------------
claims by Tenant on Landlord shall be limited to the assets of the limited
partnership, and furthermore, Tenant expressly waives any and all rights to
proceed against the individual partners or the officers, directors, or
shareholders of any corporate partner, except to the extent of their interest in
said limited partnership.

          27.20 Financial Statements. Upon the written request of the Landlord,
                --------------------
which request shall be made by the Landlord no more than once per year at such
time as such financial statements shall consist of year-to-date reports for
Landlord is required to provide such financial information to Landlord's lender,
Tenant shall deliver to Landlord financial statements of Tenant, including a
balance sheet, income statement and statement of retained earnings. Such
financial statements shall consist of year-to-date reports for the current
fiscal year and annual reports for the last three fiscal years of Tenant. Each
such financial statement shall be dated as of the end of such reporting period,
shall be in reasonable detail and shall be duly certified by an independent
certified public accountant as being correct, complete, fairly representative of
the financial condition of Tenant as of such date and prepared in accordance
with generally accepted accounting principles consistently applied.

          27.21 Condition of Premises. Tenant shall be deemed to have accepted
                ---------------------
and taken possession of the Premises in "as-is" condition. Landlord has made no
representation or warranty to Tenant, express or implied, respecting the
condition of the Premises, Building, or Property.

     28.  OPTION TO EXTEND.
          ----------------

          28.1 Option Exercise. Tenant is given the option to extend the term on
               ---------------
all provisions contained in the Lease, for one (1) one-year period (the 1-year
extension of the initial term shall be referred to as the "Option Period").
Tenant may extend the Lease term, following expiration of the initial 14 month
term, by giving notice of exercise of the option ("Option Notice") to Landlord
at least ninety (90) days before the expiration of the initial 14 month Lease
term, provided that if Tenant is in default on the date of giving Option Notice,
the Option Notice shall be ineffective unless Tenant timely cures such default
in accordance with the terms of this Lease, such Option Period shall not
commence and this Lease shall expire at the end of the then current term. Tenant
shall have no other right to extend the term beyond the Option Period, unless
the parties otherwise agree in writing.

          28.2 Option Period Rent. Monthly Rent for each month of the Option
               ------------------
Period shall be $6,264.50/month.

                                     -15-
<PAGE>

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

Tenant                                Landlord
------                                --------

HDE, INC.                             KENT CENTENNIAL LIMITED
                                      PARTNERSHIP

                                      By:  CENTENNIAL VENTURE
                                           LIMITED PARTNERSHIP,
By /s/ David Glidewell                     Its General Partner
   -----------------------
   David Glidewell
   Its   VP/SEC
       -------------------            By:  /s/ Douglas W. Klappenbach
                                           --------------------------
                                           Douglas W. Klappenbach
By /s/ Gordon Hanson                       Its General Partner
   -----------------------
   Gordon Hanson
   Its President
       -------------------

TENANT'S PERFORMANCE OF ITS OBLIGATIONS UNDER THIS LEASE IS UNCONDITIONALLY AND
IRREVOCABLY GUARANTEED BY THE UNDERSIGNED CORPORATION.

HDE, INC.

By /s/ David W. Glidewell
   -----------------------
   David Glidewell
   Its  VP/SEC
       -------------------

By /s/ Gordon Hanson
   -----------------------
   Gordon Hanson

Its  President
    ----------------------

STATE OF WASHINGTON  )
                     )ss.
COUNTY OF KING       )

     On this day personally appeared before me David Glidewell and Gordon
Hanson, to me known to be the VP/Sec and President of HDE, INC., the corporation
                              ------     ---------
that executed the within and foregoing instrument, and acknowledged the
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated the he was duly
authorized to execute said instrument on behalf of the corporation.

                                     -16-
<PAGE>

     IN WITNESS WHEREOF, I have hereunto set my hand and seal this 14th day of
February 1996.

                                                /s/ Shannon Nugent
                                                -----------------------------
                                                NOTARY PUBLIC in and for the
                                                State of Washington, residing at
                                                Federal Way; My commission
                                                expires: 6/15/99

STATE OF WASHINGTON  )
                     ) ss.
COUNTY OF KING       )

     On this day personally appeared before me DOUGLAS W. KLAPPENBACH to me
known to be the General Partner of Centennial Venture Limited Partnership,
General Partner of KENT CENTENNIAL LIMITED PARTNERSHIP, the partnership that
executed the within and foregoing instrument, and acknowledged the instrument to
be the free and voluntary act and deed of said partnership for the uses and
purposes therein mentioned, and on oath stated that he was duly authorized to
execute said instrument on behalf of the partnership.

          IN WITNESS WHEREOF, I have hereunto set my hand and seal this 19th
day of FEBRUARY, 1996.

                                                /s/ [ILLEGIBLE]
                                                -----------------------------
                                                NOTARY PUBLIC in and for the
                                                State of Washington, residing at
                                                Seattle; My Commission expires:
                                                8-4-96

                                     -17-
<PAGE>

                                   EXHIBIT A

                    [FLOOR PLAN - THIRD FLOOR APPEARS HERE]

<PAGE>

                                   EXHIBIT B

                               LEGAL DESCRIPTION
                               -----------------

Lot A City of Kent Lot Line Adjustment No. LL-89-36 Recorded January 24, 1990
under King County Recording No. 9001240759.
<PAGE>

                                   EXHIBIT C

                                 RENT SCHEDULE
                                 -------------

Month 1 (February, 1996)                                    $3,132.25/month

Months 2-12                                                 $6,264.50/month
<PAGE>

                                   EXHIBIT D

                                SIGN GUIDELINES
                                ---------------

1.   Landlord shall provide a lobby directory sign system, including building
     lobby and elevator lobby signage.

2.   Tenant shall be entitled to a single suite identification sign. Landlord
     shall provide a building standard sign with Tenant's name and suite number.
<PAGE>

                           FIRST AMENDMENT TO LEASE

                                      AND

                       EXTENSION AND EXPANSION AGREEMENT

THIS FIRST AMENDMENT TO LEASE AND EXTENSION AND EXPANSION AGREEMENT is made this
19 day of July, 1996, by and between THE CITY OF KENT, a Washington municipal
corporation ("Landlord"), and HDE, INC., a Washington corporation ("Tenant").

                                  WITNESSETH:

WHEREAS, Tenant and Landlord's predecessor in interest, KENT CENTENNIAL LIMITED
PARTNERSHIP ("Kent Centennial"), have entered into that certain Lease dated as
of the 31st day of January, 1996 (the "Lease"); and

WHEREAS, on July 1, 1996, Landlord purchased the Land described in the Lease and
assumed Kent Centennial's obligations as Landlord under the Lease; and

WHEREAS, Landlord and Tenant desire to amend the Lease to grant Tenant an
additional option to extend the term thereof, to expand the Premises, and to
state the applicable Monthly Rent of the Lease and other agreements between
Landlord and Tenant;

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Landlord and Tenant agree as follows:

                                  AGREEMENTS:

1.   The following additional provision shall be added to Section 2 of the
     Lease:

          2.1  Expansion Area. The Premises shall be expanded to include an
               --------------
     additional 1,406 square feet all as mote particularly shown on the Exhibit
                                                                        -------
     E attached hereto and constituting a part hereof (the "Expansion Area"),
     -
     which brings to total square footage of the Premises to 5,848 square feet.

2.   The following additional provision shall be added to Section 4 of the
     Lease:

          4.2  Expansion Area Tenant Improvements. Tenant accepts the existing
               ----------------------------------
     Tenant Improvements in that portion of the Premises constituting 4,442
     square feet (i.e., without the Expansion Area) in "as-is, where-is"
     condition without modification or further improvement or alteration. With
     respect to the Expansion Area, Tenant shall cause, at Tenant's expense, SVI
     Construction Company, a Washington corporation ("SVI") to construct and
     complete the tenant improvements shown on Exhibit E (the "Expansion Area
                                               ---------
     Tenant Improvements"). The costs of the Expansion Area Tenant Improvements
     shall be paid by Tenant directly to SVI. It is anticipated that the
     Expansion Area Tenant Improvements will be completed on or before August
     30,1996. Monthly Rent for the premises that include the Expansion Area
     shall be in the amount set forth in Section 5.1 and shall commence as set
     forth in Section 5.1.

3.   There shall be added an additional sentence at the end of Section 5.1 of
     the Lease:

                                      -1-
<PAGE>

     Notwithstanding the foregoing or the Rent Schedule shown on EXHIBIT C, but
                                                                 ---------
     subject to the foregoing conditions, Monthly Rent for the Premises which
     includes the Expansion Area shall be in the amount of $8,284.67 per month,
     and shall commence upon Tenant's occupancy of the Premises of which the
     Expansion Area is a part, but in no event later than September 1, 1996.

4.   There shall be added an additional Section 5.5 to the Lease:

          5.5  The Monthly Rent commencing after Tenant's occupancy of the
     Premises of which the Expansion Area is a part includes the amount of $4.95
     per square foot per year as the "Operating Expense Base for 1996". The
     Monthly Rent shall be adjusted to include Tenant's Share of Operating
     Expenses in excess of the Operating Expenses Base for 1996. If Tenant's
     Share of the Operating Expenses paid or incurred by Landlord for any
     calendar year exceeds the Operating Expenses Base for 1996 included in the
     Monthly Rent, then Tenant shall pay such excess of additional rent in
     accordance with the last three paragraphs of Section 5.2.3 of the Lease.

5.   The Tenant's Share of 6.2% identified in Section 5.2.2 shall be amended to
be 8.2% upon the Expansion Area Monthly Rent Commencement Date.

6.   Section 28. Of the Lease is deleted in its entirety and replaced with the
following:

     28.  Options to Extend.

          28.1 Option Exercise. Tenant is given the option to extend the term on
               ---------------
     all provisions contained in the Lease, two (2) one-year periods (the "First
     Option Period" and "Second Option Period"). Tenant may extend the Lease
     term, following expiration of the initial 12 month term or First Option
     Period, as the case may be, by giving notice of exercise of the option
     ("Option Notices") to Landlord at least ninety (90) days before the
     expiration of the initial Lease term or First Option Period, as the case
     may be, provided that if Tenant is in default on the date of giving either
     Option Notice, the Option shall be ineffective unless Tenant timely cures
     such default in accordance with the terms of this Lease, such Option Period
     shall not commence, and this Lease shall expire at the end of the then
     current term. Tenant shall have no other right to extend the term of this
     Lease beyond the First and Second Option Periods, unless the parties
     otherwise agree in writing.

          28.2 Options Periods Rent. Monthly Rent for each month of the First
               --------------------
     and Second Option Periods shall be $8,284.67.

7.   For purposes hereof, all capitalized terms, unless otherwise defined
herein, shall have the same meaning as set forth in the Lease.

8.   Tenant hereby certifies to Landlord that the Lease is in full force and
effect; that there exist no uncured defaults on the part of Landlord under the
Lease.

                                      -2-
<PAGE>

9.   Except as modified by this First Amendment to Lease and Extension and
Expansion Agreement, all terms and conditions of the Lease shall remain in full
force and effect.

IN WITNESS WHEROF, the parties hereto have executed the First Amendment to Lease
and Extension and Expansion Agreement as of the date first above written.

Tenant                              Landlord
------                              --------

HDE, Inc                            THE  CITY OF KENT

By: /s/ Gordon L. Hanson            By: /s/ Charles Lindsey
   ---------------------------         --------------------------
   Its:  President                     Its:  Facilities Manager
        ----------------------              ---------------------

STATE OF WASHINGTON     )
                        )ss.
COUNTY OF KING          )

On this day personally appeared before me Charles Lindsey, to me known to be the
Landlord/representative of Centennial Center, the person that executed the
within and foregoing instrument, and acknowledged the instrument to be the free
and voluntary act and deed of said ______ for the uses and purposes therein
mentioned, and on oath stated that was duly authorized to execute said
instrument on behalf of the City of Kent.

     IN WITNESS WHEREOF, I have hereunto set my hand and seal this 18th day of
July, 1996.

                                    /s/ Rosalie Givens
                                    -----------------------------------
                                    NOTARY PUBLIC in and for the
                                    State of Washington residing
                                    at Kent, Washington; My
                                    commission expires 8-19-97

STATE OF WASHINGTON   )
                      )ss.
COUNTY OF KING        )

On this day personally appeared before me Gordon L. Hanson, to me known to be
the President of HDE, the Incorp that executed the within and foregoing
instrument, and acknowledged the instrument to be the free and voluntary act and
deed of said __________ for the uses and purposes therein mentioned, and on oath
stated that he was duly authorized to execute said instrument on behalf of the
Incorporation.

                                      -3-
<PAGE>

     IN WITNESS WHEROF, I have hereunto set my hand and seal this 19th day of
July, 1996.

                                    /s/ Rosalie Givens
                                    -----------------------------------
                                    NOTARY PUBLIC in and for the
                                    State of Washington residing
                                    at Kent, Washington; My
                                    commission expires: 8-19-97

                                      -4-
<PAGE>

                                    EXHIBIT E

                           [FLOOR PLAN APPEARS HERE]

<PAGE>

                                     [LOGO]

                      [LETTERHEAD OF SOUND VENTURES INC.]

September 16, 1998

Mr. Gordon Hanson
HDE, Inc.
400 West Grove, Suite 300
Kent, WA 98032

RE:   Centennial Center, Suite 300
      Extension of Lease Term

Gentlemen:

As requested, on behalf of Centennial Center and the City of Kent, we are
pleased to present the following lease extension proposal:

1.    Tenant:                           HDE, Inc.

      Landlord:                         The City of Kent

2.    Lease Extension Term              This lease extension shall be for a term
                                        of 12 month and shall commence of
                                        February 1, 1999 (the "Commencement
                                        Date") and shall end on January 31, 2000
                                        (the "Termination Date").

3.    Square Footage:                   Suite 3005,848 sf, Rentable (appx)

4.    Lease Extension Rental Rate:      Rental Rate for the extension term shall
                                        be:

                                        Feb 1, 1999 - Jan 31, 2000 $9,228.00/mo

                                        Gross lease encompassing all operating
                                        expenses with pass through
                                        reconciliation on an annual basis.

                                        Please note that the above rate includes
                                        an increase in the CAM amount, effective
                                        January 1999 to $5.10/sf. This is the
                                        first increase in CAM since 1995.

Tenant hereby certifies to Landlord that the Lease is in full force and effect;
that there exist no uncured defaults on the part of the Landlord under the
Lease; and that Tenant accepts the condition of the Premises in their current,
existing and "as-is" condition.
<PAGE>

LETTER TO D. GLIDEWELL/HDE, INC.
RE: LEASE EXTENSION, SUITE 300
SEPTEMBER 16, 1998 - PAGE 2

[LOGO]

Except as modified by the proposed terms, all terms and conditions of the Lease
shall remain in full force and effect.

The signed copy shall be a non-binding agreement and shall act as a Letter of
Intent and authorization for Landlord to prepare for the appropriate lease
document for your review and signature. If the general terms and conditions
detailed above meet with you approval, please sign below and return a copy of
this letter prior to noon, September 30, 1998, at which time the offer shall
expire.

If you have any questions, please feel free to contact me at (206) 223-9500,
ext. 105

Sincerely,

/s/ Lauran Kinnunen
---------------------
Lauran Kinnunen
Director of Marketing

                                           Approved & Accepted HDE, INCORPORATED

                                           By /s/ Gordon Hanson
                                             -----------------------------------
                                           Its  President
                                              ----------------------------------
                                           Date 9/23/98
                                               ---------------------------------

Enclosures:  Exhibit A, original sf. 2-1-96
             Exhibit E, additional sf. 7-19-96

cc: Charlie Lindsey, City of Kent
    Stephanie Klappenbach, SVI
<PAGE>

                    [FLOOR PLAN - THIRD FLOOR APPEARS HERE]
<PAGE>

                           [FLOOR PLAN APPEARS HERE]
<PAGE>

[LETTERHEAD OF KENT CENTENNIAL LTD. PARTNERSHIP]              1996 RENT SCHEDULE
                                                                        INVOICES

Contact for Rental Payment:

Mr. David Glidewell                                              Occupancy Date:
Mr. Gordon Harson
HDE, Inc.                                                       February 1, 1996
400 West Gowe St., Suite #324
Kent, WA 98032

January                 Rent/C.A.M.                               0.00

February                Rent                                  2,220.21
                        C.A.M                                   912.04
                                                            ----------
                        Amount Due                            3,132.25
                        Pre-pd Rent 12/6/95                  (5,593.00)
                                                            ----------
                        Balance Remaining                    (2,460.75)

March                   Rent                                  4,440.43
                        C.A.M                                 1,824.08
                                                            ----------
                        Amount Due                            6,264.50
                        Pre-pd Rent                          (2,460.75)
                                                            ----------
                        Amount Due                            3,803.75

April                   Rent/C.A.M.                           6,264.50

May                     Rent/C.A.M.                           6,264.50

June                    Rent/C.A.M.                           6,264.50

July                    Rent/C.A.M.                           6,264.50

August                  Rent/C.A.M.                           6,264.50

September               Rent/C.A.M.                           6,264.50

October                 Rent/C.A.M.                           6,264.50

November                Rent/C.A.M.                           6,264.50

December                Rent/C.A.M.                           6,264.50

                                    Page 1<PAGE>

                                                                   EXHIBIT 10.30

                                       OFFICE LEASE

                                         BETWEEN

                                     INTRAROCK 1 LLC

                                       AS LANDLORD,

                                           AND

                         PEERLESS SYSTEMS IMAGING PRODUCTS, INC.

                                        AS TENANT
<PAGE>

<TABLE>
<CAPTION>

                                     INDEX
                                     -----
                                                                            Page
                                                                            ----
<S>
                                                                            <C>
SECTION 1.      Lease Data; Exhibits.....................................     1

SECTION 2.      Premises..................................................    4
    (a)      Premises.....................................................    4
    (b)      Condition....................................................    4
    (c)      Common Areas.................................................    4
    (d)      Alterations..................................................    4
    (e)      Determination of Area........................................    4

SECTION 3.      Term......................................................    5
    (a)      Commencement.................................................    5
    (b)      Early Entry..................................................    5
    (c)      Extension Options............................................    5

SECTION 4.      Base Rent and Additional Rent.............................    7

SECTION 5.      Tenant's Share of Operating Costs and Real Property Taxes.    8
    (a)      Amount.......................................................    8
    (b)      Definition...................................................    9

SECTION 6.      Late Charge; Interest....................................    11

SECTION 7.      Deposit..................................................    11

SECTION 8.      Tenant's Operations......................................    11
    (a)      Use of Premises.............................................    11
    (b)      Unlawful Use................................................    11
    (c)      Liens and Encumbrances......................................    12
    (d)      Hazardous Substances........................................    12
    (e)      Signs.......................................................    13
    (f)      Parking.....................................................    13
    (g)      Rules and Regulations.......................................    13

SECTION 9.      Utilities and Services; Deliveries.......................    14
    (a)      Tenant's Responsibility.....................................    14
    (b)      Services....................................................    14
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                         <C>
    (c)      Interruption...................................................  15
    (d)      Repairs by Landlord; Maintenance and Repair Charges............  15
    (e)      Telecommunications Services....................................  15

SECTION 10.     Licenses and Taxes..........................................  16

SECTION 11.     Alterations by Tenant.......................................  16

SECTION 12.     Care of Premises............................................  17

SECTION 13.     Surrender of Premises.......................................  17

SECTION 14.     Waiver; Indemnity...........................................  18
    (a)      Tenant Indemnity...............................................  18
    (b)      Landlord's Indemnity...........................................  18
    (c)      General Indemnity Provisions...................................  18
    (d)      Release of Claims..............................................  19

SECTION 15.     Insurance...................................................  19
    (a)      Tenant's Insurance.............................................  19
    (b)      General Insurance Requirements.................................  19
    (c)      Landlord's Insurance...........................................  20
    (d)      Waiver of Subrogation..........................................  20

SECTION 16.     Assignment or Subletting....................................  20
    (a)      Consent Required...............................................  20
    (b)      Recapture Right................................................  21
    (c)      Additional Consideration.......................................  21
    (d)      Entity Ownership...............................................  22
    (e)      Assignment by Landlord.........................................  22

SECTION 17.     Destruction.................................................  22
    (a)      Partial Destruction............................................  22
    (b)      Total Destruction..............................................  23
    (c)      Limitation.....................................................  23

SECTION 18.     Eminent Domain..............................................  23
    (a)      Taking.........................................................  23
    (b)      Award........................................................... 24
</TABLE>

                                      -ii-
<PAGE>

<TABLE>
<S>                                                                         <C>
SECTION 19.     Default by Tenant..........................................   24
    (a)      Definition....................................................   24
    (b)      Remedies......................................................   25
    (c)      Reentry.......................................................   25
    (d)      Termination...................................................   25
    (e)      Adequate Security.............................................   26
    (f)      Landlord's Remedies Cumulative; Waiver........................   26

SECTION 20.     Default by Landlord; Lender Protection.....................   26
    (a)      Default by Landlord...........................................   26
    (b)      Notice to Lender..............................................   26

SECTION 21.     Attorneys' Fees............................................   27

SECTION 22.     Access by Landlord.........................................   27

SECTION 23.     Holding Over...............................................   27

SECTION 24.     Subordination; Estoppel Certificates.......................   28
    (a)      Subordination.................................................   28
    (b)      Estoppel Certificates.........................................   28

SECTION 25.    Relocation..................................................   29

SECTION 26.     Liability of Landlord......................................   29

SECTION 27.     Miscellaneous..............................................   29
    (a)      Quiet Enjoyment...............................................   29
    (b)      Notices.......................................................   30
    (c)      Successors or Assigns.........................................   30
    (d)      Tenant Authority and Liability................................   30
    (e)      Brokers' Commission...........................................   30
    (f)      Partial Invalidity............................................   30
    (g)      Recording.....................................................   30
    (h)      Force Majeure.................................................   31
    (i)      Name of Building..............................................   31
    (j)      Headings......................................................   31
    (k)      Execution by Landlord and Tenant; Approval of Lender..........   31
    (l)      Transportation Management Programs; Recycling.................   31
    (m)      Financial Statements..........................................   31
    (n)      Tax on Rent...................................................   32
    (o)      Light, Air and View...........................................   32
</TABLE>

                                      -iii-
<PAGE>

<TABLE>
<S>                                                                        <C>
      (p)    Entire Agreement; Applicable Law..............................  32
      (q)    Business Days.................................................  32

SECTION 28.     Additional Lease Provisions................................  32
      (a)    Rooftop Equipment.............................................  32
      (b)    Back-up Power.................................................  34
      (c)    Security......................................................  35
      (d)    Landlord's Representations and Warranties.....................  35
      (e)    Right to Terminate............................................  36
      (f)    Risers; Conduit...............................................  36
      (g)    Right of First Opportunity....................................  36
</TABLE>

                                     -iv-
<PAGE>

                                 OFFICE LEASE

     THIS LEASE is made as of March 15, 2000, between INTRAROCK 1 LLC, a
Delaware limited liability company ("Landlord"), and PEERLESS SYSTEMS IMAGING
PRODUCTS, INC., a Washington corporation ("Tenant"). Landlord and Tenant
covenant and agree as follows:

     SECTION 1. Lease Data; Exhibits. The following terms shall have the
                --------------------
following meanings, except as otherwise specifically modified in this Lease:

         (a) Building And Complex: The Building is the building with a total
             --------------------
rentable area of approximately 72,730 square feet currently known as the
Creekside One Building, located at 20415 - 72nd Avenue South in Kent, King
County, Washington, and designated on the Site Plan attached in Exhibit C (the
                                                                ---------
"Site Plan"). The Building is situated on the real property legally described in
Exhibit A attached (the "Land"). The Complex refers to the office park complex
-------
of which the Building is part, with a total rentable area of approximately
735,000 square feet, known as CenterPoint Corporate Park. The Complex includes
all improvements thereon and all future improvements to the Complex.

         (b) Premises: An agreed area of approximately 10,000 rentable square
             --------
feet located on the fourth (4th) floor of the Building as outlined on the floor
plan attached as Exhibit B (the "Floor Plan").
                 ---------

         (c) Lease Term: A period of sixty (60) full calendar months, commencing
             ----------
on the Commencement Date and expiring on the Expiration Date; provided, if the
Commencement Date is a day other than the first day of a calendar month, unless
otherwise agreed in writing, the Lease Term shall also include all days,
beginning with the Commencement Date, in the calendar month in which the
Commencement Date occurs.

         (d) Commencement Date: June 1, 2000, or such earlier or later date as
             -----------------
is provided in Section 3.

         (e) Expiration Date: 11:59 p.m. on the last day of the sixtieth (60th)
             ---------------
full calendar month of the Lease Term.

         (f) Base Rent: Tenant shall pay the following dollar amounts per month
             ---------
as Base Rent on or before the first day of each month:

                                                      Monthly
             Month of Lease Term                      Base Rent
             -------------------                      ---------

             Commencement Date - 12                   $11,250.00
             13 - 24                                  $11,666.67

                                      -1-
<PAGE>

             25 - 35                                  $12,083.33
             37 - 48                                  $12,500.00
             49 - 60                                  $12,916.67

         (g) Additional Rent: Whether or not so designated, all other sums due
             ---------------
from Tenant under this Lease shall constitute Additional Rent, payable when
specified in this Lease.

         (h) Operating Costs And Real Property Taxes: Tenant will pay its share
             ---------------------------------------
("Tenant's Share") of Operating Costs and Property Taxes pursuant to Section 5
of this Lease. Tenant's Share of Operating Costs and Property Taxes is estimated
to be 13.75%. Tenant's Share shall be calculated and may be adjusted during the
Lease Term as provided in Section 5 below. The terms Operating Costs and
Property Taxes, are defined in Section 5 below.

         (i) Deposit: $17,916.67.
             -------

         (j) Prepaid Rent: $16,250, to be paid on execution of this Lease and to
             ------------
be applied to the first month of the Lease Term.

         (k) Guarantor: Peerless Systems Corporation, a Delaware corporation,
             ---------
shall guarantee Tenant's obligations under this Lease pursuant to a Guaranty of
Lease in the form of Exhibit F attached.
                     ---------
         (l) Permitted Use: General business offices.
             -------------

         (m) Building Standard Hours: Monday through Friday - 6 a.m. to 6 p.m.,
             -----------------------
excluding legal holidays. Landlord understands Tenant is a high-tech company and
its business hours may extend beyond the Building Standard Hours. Tenant
acknowledges that it must pay for after-hours services in accordance with the
terms of Section 9 below.

         (n) Notice Addresses:
             ----------------
             To Landlord:    IntraRock 1 LLC
                             20415-72nd Avenue South, Suite 150
                             Kent, WA 98032
                             Attn: Jack Rader
                             Facsimile: (253) 395-9288

                      With a copy to:

                             Alston, Courtnage, Proctor & Bassetti LLP
                             1000 Second Avenue, Suite 3900
                             Seattle, WA 98104-1045
                             Attn: Andrew B. Bassetti
                             Facsimile: (206) 623-1752

                                       -2-
<PAGE>

             To Tenant:  Prior to the Commencement Date:
                         Peerless Systems Imaging Products, Inc.
                         _________________________________
                         _________________________________
                         Facsimile: (425)______________
                         After the Commencement Date:
                         To the Premises

                  With a copy to:

                         Peerless Systems Corporation
                         2381 Rosecrans Avenue
                         El Segundo, CA 90245
                         Attn: Counsel
                         Facsimile: (310) 297-3142

         (o) Brokers:
             -------

             Listing Broker - Pacific Real Estate Partners, Inc.

             Cooperating Broker - Kidder Matthews & Segner (Richard Davidson)

         (p) Name and Address for Payments to Landlord:
             -----------------------------------------

             IntraRock 1 LLC
             20415 - 72nd Avenue South, Suite 150
             Kent, WA 98032

         (q) TIME IS OF THE ESSENCE OF THIS LEASE.

         (r) Exhibits: The following exhibits are made a part of this Lease:
             --------

             Exhibit A - Legal Description of Land
             ---------
             Exhibit B - Floor Plan
             ---------
             Exhibit C - Site Plan
             ---------
             Exhibit D - Workletter
             ---------
             Exhibit E - Estoppel Certificate
             ---------
             Exhibit F - Guaranty of Lease
             ---------
             Exhibit G - Confirmation of Lease Terms
             ---------
             Exhibit H - Rules and Regulations
             ---------

                                      -3-
<PAGE>

     SECTION 2. Premises.
                --------

          (a)   Premises. Landlord hereby leases to Tenant, and Tenant hereby
                --------
leases from Landlord, those certain premises (the "Premises") located in the
Building(s) and on the floor(s) and in the location(s) referenced in Section 1.

          (b)   Condition. The Premises are leased by Landlord and accepted by
                ---------
Tenant in an "AS IS" condition, subject to the requirement that Landlord
complete any improvements, alterations or modifications to be made by Landlord
pursuant to Exhibit D attached (the "Workletter"). Prior to taking occupancy of
            ---------
the Premises or moving any of its furniture, fixtures or equipment, Tenant shall
inspect the Premises and Landlord and Tenant shall prepare and agree upon a
"punchlist" of any items or repairs which are the responsibility of Landlord.
The existence of repairs or defects of a nature commonly found on a "punchlist,"
as such term is used in the construction industry, shall not postpone the
Commencement Date or result in a delay or abatement of Tenant's obligation to
pay rent or give rise to a damage claim against Landlord.

          (c)   Common Areas. During the Lease Term, Tenant and its licensees,
                ------------
invitees, customers and employees shall have the non-exclusive right to use all
entrances, lobbies, elevators, stairs, corridors, restrooms, roadways,
sidewalks, landscaped areas, and other public areas of the Building and the
Complex (the "Common Areas") in common with Landlord, other tenants of the
Building and of the Complex and their respective licensees, invitees, customers
and employees. Landlord shall at all times have exclusive control and management
of the Common Areas and no diminution thereof shall be deemed a constructive or
actual eviction or entitle Tenant to compensation or a reduction or abatement of
rent.

          (d)   Alterations. Landlord may in its discretion increase, decrease
                -----------
or change the number, locations and dimensions of any hallways, lobby areas,
Common Areas and other improvements in the Building and the Complex which are
not within the Premises. Landlord will provide Tenant with reasonable advance
notice of any such alterations affecting the Premises. Landlord reserves the
right from time to time (i) to install, use, maintain, repair, relocate and
replace pipes, ducts, conduits, wires and appurtenant meters and equipment for
service to the Premises or to other parts of the Building in areas above the
suspended ceiling surfaces, below the floor surfaces, within the walls and in
the central core areas of the Building within the Premises and elsewhere in the
Building; (ii) the use of the exterior walls and the roof of the Building; (iii)
to alter or expand the Building, any other or buildings or other improvements at
the Complex; (iv) all air rights over the Premises and (v) to alter, relocate or
substitute any of the Common Areas, including any improvements constituting part
of the Common Areas.

          (e)   Determination of Area. The rentable area of the Premises shall
                ---------------------
be determined by Landlord's space measurement consultant upon completion of any
and all improvements to be made to the Premises pursuant to the Workletter.
These calculations shall be made in accordance with a method of measuring
rentable office space specified in the American

                                       -4-
<PAGE>

National Standard Institute Publication ANSI Z65.1-1996 (the modified BOMA
standard), and including those portions of the Building dedicated as office
building uses, as such standard may be updated from time to time. Upon the
completion of such measurements, Landlord will provide Tenant with written
notice of the rentable area of the Premises. If the rentable area of the
Premises is different than the rentable area specified in Section 1(b) above,
Tenant shall be notified of the difference and the reasons therefore, and the
amount of the monthly Base Rent payable by Tenant and Tenant's Share shall be
adjusted accordingly.

     SECTION 3. Term
                ----

          (a)   Commencement. The Commencement Date listed in Section 1 of this
                ------------
Lease represents an estimate of the actual Commencement Date. The actual
Commencement Date shall be the first to occur of the following events: (i) three
(3) days after Landlord notifies Tenant the Premises are available for Tenant's
occupancy in the condition required pursuant to Section 2(b) above, or (ii) the
date on which Tenant takes possession of the Premises for purposes other than
completing tenant improvements. If the Commencement Date is later than the
estimated Commencement Date specified in Section 1 above, this Lease shall not
be void or voidable, and Landlord shall have no liability to Tenant. Following
the Commencement Date, Landlord may confirm the Commencement Date and the area
of the Premises by Tenant's execution of the Confirmation of Lease Terms
attached as Exhibit G. The Lease Term shall begin on the Commencement Date and
end on the Expiration Date, unless extended or sooner terminated in accordance
with the terms of this Lease.

          (b)   Early Entry. If Tenant is permitted entry to the Premises prior
                -----------
to Commencement Date for the purpose of installing tenant improvements or
fixtures or any other purpose permitted by Landlord, such early entry will be at
Tenant's sole risk and subject to all the terms and provisions of this Lease as
though the Commencement Date had occurred, except for the payment of Base Rent
and Additional Rent, which will commence on the Commencement Date. Tenant, its
agents and employees will not interfere with or delay Landlord's completion of
construction of any improvements to be made by Landlord. All rights of Tenant
under this Section 3(b) will be subject to the requirements of all applicable
building codes and zoning requirements, and must not interfere with Landlord
obtaining a certificate of occupancy for the Premises. Landlord has the right to
impose such additional conditions on Tenant's early entry as Landlord deems
appropriate in its reasonable discretion, and will further have the right to
require that Tenant execute an early entry agreement containing such conditions
prior to Tenant's early entry.

          (c)   Extension Options. So long as Tenant is not then in default
                -----------------
under this Lease, on the terms and conditions stated in this Section 3(c),
Tenant shall have the option to extend the term of this Lease for an additional
sixty (60) month period (the "Additional Term"). To exercise its option to
extend this Lease for the Additional Term, Tenant must deliver to Landlord a
written notice (an "Option Notice") exercising its renewal option at least nine
(9)

                                       -5-
<PAGE>

months (but not more than twelve (12) months) prior to the date the initial
Lease Term will expire, together with a then current financial statement of
Tenant. If such financial statement shows a material adverse change in Tenant's
financial condition since the date of this Lease, at Landlord's option, Tenant's
exercise of its extension option shall be null and void. If Landlord determines
Tenant's extension option is null and void because of a pending default, or an
adverse change in Tenant's financial condition, Landlord will so notify Tenant
within thirty (30) days after receiving Tenant's written notice exercising the
extension option. The extension option granted to Tenant pursuant to this
Section 3(c) is personal to Tenant and may not be exercised by or for the
benefit of any assignee or sublessee of Tenant. All of the terms and conditions
of this Lease shall apply during the Additional Term except (i) the base annual
rent shall be the "fair market rent" (defined below) for the Premises as agreed
to by Landlord and Tenant or determined by arbitration as set forth below; (ii)
unless otherwise agreed by Landlord in writing, there shall be no further
renewal options after the commencement of the Additional Term; and (iii)
Landlord shall have no tenant improvement obligations with respect to the
Premises except as otherwise agreed in writing by Landlord. When the rental rate
for the Additional Term is determined, whether by agreement of the parties or
pursuant to arbitration as provided below, Landlord and Tenant shall enter into
a lease extension agreement setting forth the new base rent for the Premises and
such other terms as may be applicable. If at the time Tenant delivers the Option
Notice to Landlord, or at any time between such date and the commencement date
of the Additional Term, Tenant defaults under this Lease and fails to cure its
default within the applicable cure period, if any, Landlord may declare the
Option Notice null and void by written notice to Tenant. The term "fair market
rent" means the rate per rentable square foot that a willing, non-equity tenant
would pay in an arms-length transaction for comparable space in the Building and
in comparable suburban office buildings in East and South King County,
Washington, for leases having a sixty (60) month term, taking into account the
then condition of the improvements in the Premises. Landlord and Tenant agree
the base annual rent for the Additional Term shall be determined as follows:

               (i) Landlord shall advise Tenant in writing ("Landlord's
Notice") of Landlord's determination of fair market rent not later than thirty
(30) days after receiving the Option Notice. Within thirty (30) days after
receiving Landlord's Notice, Tenant shall notify Landlord in writing ("Tenant's
Notice") whether or not Tenant accepts Landlord's determination of the fair
market rent. If Tenant disagrees with Landlord's determination of fair market
rent, Tenant's Notice shall set forth Tenant's determination of fair market
rent. If Tenant fails to give Tenant's Notice to Landlord within such thirty
(30) day period, then the Option Notice shall be deemed null and void, unless
otherwise agreed in writing by Landlord and Tenant. If Tenant does not accept
Landlord's determination of fair market rent, and Tenant has given Tenant's
Notice, the parties (or their designated representatives) shall promptly meet
and attempt to agree on the fair market rent. If the parties have not agreed on
the fair market rent within ninety (90) days after Landlord receives the Option
Notice, and Tenant's renewal option is still in effect in accordance with the
terms of this paragraph, then unless otherwise agreed in writing by the parties,
the parties shall submit the matter to arbitration in accordance with the terms
of the following paragraphs. The last day of such ninety

                                       -6-
<PAGE>

(90) day period (as the same may be extended by the written agreement of the
parties) is referred to in this Lease as the "Arbitration Commencement Date".

                (ii)  The arbitration will be conducted by three MAI real
estate appraisers who have been active over the five (5) year period ending on
the Arbitration Commencement Date in the appraisal of similar suburban office
properties in East and South King County, Washington. One appraiser will be
selected by Tenant, one appraiser will be selected by Landlord, and the third
appraiser will be selected by the two appraisers so chosen. If the two
appraisers chosen by the parties cannot agree on a third appraiser within ten
(10) days after the date the second appraiser has been appointed, the third
appraiser will be appointed by the Seattle office of the American Arbitration
Association upon the application of either party. Each party shall select its
appraiser within ten (10) days after the Arbitration Commencement Date. If
either party fails to select its appraiser within such ten (10) day period, and
the other party timely selects its appraiser, then the appraiser selected by the
other party shall be the sole arbitrator for determining fair market rent.

                (iii) Within thirty (30) days after the selection of the third
appraiser (or if only one appraiser is to render the decision as provided in
subparagraph (ii) above, within thirty (30) days after the last day of the
above-referenced ten (10) day period), the appraiser(s) shall determine fair
market. If more than one appraiser has been appointed, the decision of a
majority of the appraisers shall control. If a majority of the appraisers do not
agree within the stipulated time period, then each appraiser shall in writing
render his or her separate determination as to fair market rent within five (5)
days after the expiration of the thirty (30) day period. In such case, the three
determinations shall be averaged to determine the fair market rent; however, if
the lowest fair market rent or the highest fair market rent is ten percent (10%)
lower or higher, as applicable, than the middle fair market rent, then the low
fair market rent and/or the high fair market rent, as applicable, shall be
disregarded and the remaining fair market rent(s) will be averaged in order to
establish the fair market rent.

                (iv)  Both parties may submit any information to the
arbitrators for their consideration, with copies to the other party. The
arbitrators shall have the right to consult experts and competent authorities
for factual information or evidence pertaining to the determination of fair
market rent. The arbitrators shall render their decision and award in writing
with counterpart copies to each party. The arbitrators shall have no power to
modify the provisions of this Lease. The determination of the arbitrators will
be final and binding upon Landlord and Tenant. The cost of the arbitration will
be paid by Landlord if the fair market rent determined by arbitration is ninety
percent (90%) or less than the fair market rent specified in Landlord's Notice;
by Tenant if the fair market rent determined by arbitration is one hundred ten
percent (110%) or more than the fair market rent specified in Tenant's Notice;
and otherwise shall be shared equally by Landlord and Tenant.

     SECTION 4. Base Rent and Additional Rent. Tenant shall pay to Landlord at
                -----------------------------
the address and to the account specified by Landlord in Section 1 above or such
other address or account as

                                       -7-
<PAGE>

Landlord may hereafter designate in writing, without notice or demand, or any
setoff or deduction whatsoever except as provided in this Lease, in lawful money
of the United States: (a) Base Rent in the amount(s) specified in Section 1
above in advance on the first day of each month, and (b) Additional Rent as and
when specified elsewhere in this Lease, but if not specified, then within ten
(10) days of demand. Base Rent and Additional Rent shall be prorated on a daily
basis (based on a 30-day month and the actual number of days elapsed) for any
partial month within the Lease Term and for any partial initial month in the
Lease Term shall be paid on the first day of the Lease Term.

     SECTION 5. Tenant's Share Of Operating Costs And Real Property Taxes.
                ---------------------------------------------------------

          (a)  Amount. In addition to Base Rent, Tenant shall pay to Landlord as
               ------
Additional Rent, Tenant's Share of (i) all "Operating Costs" (defined below) and
(ii) "Property Taxes" (defined below) incurred by Landlord in any "Lease Year"
(defined below). As used herein, "Tenant's Share" is determined by multiplying
the cost to be shared by a fraction, the numerator of which is the rentable area
of the Premises from time to time and the denominator of which is the rentable
area of the Building(s) in which the Premises are located from time to time;
provided that Tenant's share may also include expenses related to the Complex,
and not solely the Building, Tenant's fractional share of such expenses,
determined by a fraction, the numerator of which is the rentable area of the
Premises from time to time and the denominator of which is the rentable area of
the Complex from time to time. After the end of each Lease Year, Landlord will
notify Tenant in writing of Landlord's estimate of Tenant's Share of the
estimated Operating Costs and Property Taxes for the current Lease Year. Tenant
shall pay the estimated amount set forth in Landlord's notice, in advance, in
equal monthly installments, without deduction or offset whatsoever, on or before
the first (1st) day of each calendar month, with the payment of Base Rent
required pursuant to Section 4 above. Until Landlord provides Tenant with the
notice provided for above in this paragraph, Tenant shall continue to pay
Tenant's Share under this Section 5 in the monthly amounts specified in the last
such notice given to Tenant by Landlord, if any. Within one hundred twenty (120)
days following the end of each Lease Year, Landlord will compute Tenant's Share
due under this Section 5 for such Lease Year, based on actual costs, and, if
Tenant's Share for such Lease Year is greater than that already paid by Tenant
for such Lease Year, Tenant shall pay Landlord the deficiency within twenty (20)
days of its receipt of written notice or an invoice for the amount of the
deficiency. If the total amount paid by Tenant under this Section 5 for a Lease
Year exceeds Tenant's Share, then Landlord shall credit such excess to the
payment of Base Rent and Additional Rent thereafter coming due; however, upon
the expiration or sooner termination of the Lease Term, if Tenant is not then in
default under this Lease, Landlord shall refund the excess to Tenant within
thirty (30) days after such determination is made. If during a Lease Year
Landlord obtains information regarding Operating Costs or Property Taxes which
alters its prior estimates, Landlord may adjust the amount due from Tenant under
this Section 5 during the balance of that Lease Year to reflect such new
information by written notice to Tenant, and Tenant shall pay any deficiency
executed thereby within twenty (20) days after written notice from Landlord.

                                       -8-
<PAGE>

          (b)  Definitions. For purposes of this Lease:
               -----------

               (i)  "Operating Costs" means all expenses paid or incurred by
Landlord or charged to Landlord for maintaining, managing, operating, repairing
and administering the Building and the Complex (including the Common Areas), and
the personal property used in conjunction therewith, together with a sum equal
to five percent (5%) of the cost thereof (excluding Property Taxes and any third
party property management fee) as an administrative fee including without
limitation, the costs of refuse collection, water, sewer, electricity, heat, air
conditioning, fuel, light, fire protection, and other utilities and services;
supplies; janitorial and cleaning services; window washing; snow, garbage and
refuse removal; security services and systems; landscape maintenance; parking
lot and parking garage maintenance, including sweeping, patching, resurfacing,
repair, striping, lighting, cleaning and security; elevator operation, repair
and maintenance compensation (including employment taxes and fringe benefits) of
all persons who perform duties in connection with the operation, management,
maintenance, repair and administration of the Building and the Complex;
insurance premiums for all insurance carried by Landlord with respect to the
Building and the Complex; costs imposed by, or incurred to comply with, laws or
regulations promulgated by any governmental authority in connection with the use
or occupancy of the Premises, the Building or the Complex; depreciation of the
cost of acquiring or the rental value of personal property used in maintenance,
and in upkeep of Common Areas; licenses, permits and inspection fees; subsidies
and other payments required by public bodies (including those for traffic
control, transportation management and fire protection); market rate property
management fees; rent for any on-site property management office; easement and
license fees; legal and accounting expenses; and all other expenses or charges
whether or not hereinabove described which, in accordance with generally
accepted accounting and management practices, would be considered an expense of
maintaining, managing, operating, repairing and administering the Building and
the Complex, excluding: (a) costs of any special services rendered to individual
tenants (including Tenant) for which a special charge is made, or costs (such as
utility costs) which are separately metered and charged to tenants of the
Complex; (b) ground lease rental payments and debt service on mortgages or deeds
of trust encumbering the Building or the Complex; (c) leasing commissions and
attorneys' and other fees and costs incurred in leasing space in the Complex or
in connection with disputes with tenants of the Complex; (d) depreciation or
amortization expenses; (e) Property Taxes; and (f) costs required to be
capitalized in accordance with generally accepted accounting practices, except
Operating Costs shall include amortization of capital improvements (1) designed
with a reasonable probability of improving the operating efficiency of the
Building, (2) required to comply with governmental laws or regulations, or (3)
made for the general benefit or convenience of tenants of the Building.

               (ii) "Property Taxes" means all taxes of every kind and nature
on the Building, the Complex and/or the Land and on personal property used by
Landlord in conjunction therewith; surcharges and all local improvement and
other assessments levied with respect to the Building, the Complex and the Land
and all other property of Landlord used in connection with the operation of the
Building and the Complex; and any taxes levied or assessed in lieu of, in whole
or in part, such real or personal property taxes; and any taxes in addition to
such real and personal property taxes, including, but not limited to, taxes or
license fees imposed upon or measured by the leasing of the Complex or the rents
or other income collected therefrom, other than any federal or state net income
or inheritance tax; and all costs and expenses incurred by Landlord in efforts
to reduce or minimize such taxes.

                                       -9-
<PAGE>

"Notwithstanding any of the foregoing, (a) Tenant's Share of Operating Costs
(other than insurance premiums and utility charges) payable by Tenant in any
Lease Year after the initial Lease Year shall not exceed 105% of Tenant's Share
of Operating Costs(other than insurance premiums charges and utilities) payable
by Tenant in the preceding Lease Year, and (b) the property management fees used
to calculate Tenant's Share of Operating Costs shall not be in excess of the
management fees then being charged by independent property managers of
comparable properties in the Seattle metropolitan area.

               (iii) "Lease Year" means a twelve (12) month period beginning
January 1st and ending December 31st; however, if the Commencement Date is a
date other than the first day of a calendar year, the first Lease Year shall
commence on the Commencement Date and end on December 31 of such calendar year,
and the last Lease Year shall commence on January 1 of the last calendar year
during the Lease Term and end on the Expiration Date.

          (c)  Tenant Audit Rights. At any time within six (6) months after a
               -------------------
statement for Operating Costs or Property Taxes for any particular calendar year
is provided to Tenant, upon twenty (20) days prior written notice and during
normal business hours at Landlord's office or at such other place as Landlord
shall reasonably designate, Tenant shall be entitled to inspect and examine the
books and records of Landlord related to the determination of any sums payable
by Tenant pursuant to this Section 5 which are the subject of the applicable
statement.

          If, after inspection and examination of such books and records, Tenant
disputes the amounts paid by Tenant pursuant to this Section 5, Tenant by
written notice to Landlord, may request an independent audit of such books and
records. The independent audit of Landlord's books and records shall be
conducted by a certified public accountant designated by Tenant and reasonably
acceptable to Landlord. The audit shall be limited to the determination of the
amount of any or all items payable by Tenant pursuant to this Section 5 for the
subject calendar year. If the audit discloses any amounts billed to and paid by
Tenant which are incorrect, the appropriate party shall pay to the other party
the deficiency or overpayment, as applicable, within thirty (30) days after the
results of the audit have been disclosed to both parties, unless Landlord
disputes the results of the audit within sixty (60) days of receipt of the
results of the audit, in which case, Landlord and Tenant shall agree upon a
national accounting firm to review and verify the Operating Costs and/or
Property Taxes, and provide the results to Landlord and Tenant (the
"Reconciliation Audit"). The determination as set forth in the Reconciliation
Audit shall be binding upon Landlord and Tenant. If the Reconciliation Audit is
performed, Landlord and Tenant shall each pay one-half of the cost of the
Reconciliation Audit. The exercise by Tenant of its audit rights hereunder shall
not relieve Tenant of its obligations to pay prior to the request for and
inspection and examination of Landlord's books and records or permit Tenant the
right to audit any other sums. Additionally, Tenant agrees and acknowledges that
various tenants' lease provisions in the Building related to Operating Costs
and/or Property Taxes may vary, and that the audit right is set forth herein in
the review of books and records shall be confidential. With the exception of
Tenant's auditors, Tenant shall not disclose or discuss the audit or the results
of the audit to any third parties, including but not limited to any other
tenants in the Building or the Complex. All costs and expenses of the audit
shall be paid by Tenant unless the audit shows that

                                      -10-
<PAGE>

Landlord overstated Tenant's Share of the subject calendar year by more than
five percent (5%) of the actual amount payable by Tenant, in which case Landlord
shall pay all costs and expenses of the audit. Notwithstanding any of the
foregoing, Tenant shall not be entitled to inspect or audit the books and
records of Landlord more frequently than once each calendar year.

     SECTION 6. Late Charge; Interest. If Tenant fails to pay any Base Rent or
                ---------------------
Additional Rent within five (5) business days of the due date, a late charge
equal to the greater of $50.00, or five percent (5%) of the unpaid amount, shall
be assessed and be immediately due and payable by Tenant. In addition, any Base
Rent or Additional Rent more than five (5) business days past due shall bear
interest from the date due until paid in full (together with late charges and
interest) at an interest rate equal to the lesser of one and one-half percent
(1.5%) per month, or the maximum rate of interest permitted by applicable law.

     SECTION 7. Deposit. Upon mutual execution of this Lease, Tenant shall
                -------
deposit with Landlord the sum specified as the Deposit in Section 1 of this
Lease, if any. This sum shall belong to Landlord and shall constitute partial
consideration for the execution of this Lease, subject only to repayment when
required in this Section. Landlord may commingle the Deposit with its other
funds. Landlord shall pay Tenant the remaining balance of the Deposit, without
any liability for interest, within thirty (30) days after the expiration or
prior termination of the Lease Term, or any extension thereof, if and only if
Tenant has fully performed all of its obligations under this Lease. Landlord may
withdraw from the Deposit the amount of any unpaid rent or other charges not
paid to Landlord when due, and Tenant shall immediately redeposit an amount
equal to that so withdrawn within ten (10) days of demand. Any such application
by Landlord shall not be considered as liquidated damages for the default.

     SECTION 8. Tenant's Operations.
                -------------------

          (a)   Use of Premises. Tenant shall use the Premises only for the
                ---------------
Permitted Use specified in Section 1. Tenant shall not permit any act that will
increase the then existing rate of insurance on the Building or the Complex,
without Landlord's prior written consent. Tenant shall pay on demand the amount
of the increase in insurance rates caused by any such acts or omissions by
Tenant, or its agents or employees. Tenant shall not commit or allow to be
committed any waste on the Premises, or any public or private nuisance or other
act which disturbs the quiet enjoyment of any other tenant of the Building or
the Complex. Tenant shall not, without the prior written consent of Landlord,
use any apparatus, machinery or devise in or about the Premises which will cause
any substantial noise, vibration or fumes. If any of Tenant's office machines or
equipment disturb the quiet enjoyment of any other tenant of the Building or the
Complex, Tenant shall provide adequate insulation or take such other action as
Landlord directs to eliminate the disturbance.

          (b)   Unlawful Use. Tenant shall not use or permit the Premises or the
                ------------
Common Areas or any part thereof to be used for any purpose in violation of any
municipal, county, state or

                                     -11-
<PAGE>

federal law, ordinance or regulation of which the Complex is a part and Tenant
shall comply with and shall cause its employees, invitees and contractors to
comply with such nondiscriminatory rules and regulations as Landlord may from
time to time promulgate. Tenant shall promptly comply, at its sole cost and
expense, with all laws, ordinances and regulations now in force or hereafter
adopted relating to or affecting the condition, use or occupancy of the
Premises, including without limitation the Americans With Disabilities Act of
1990, as now or hereafter amended (the "ADA").

          (c)  Liens and Encumbrances. Tenant shall keep the Premises, the
               ----------------------
Building, the Complex and the Land free and clear of, and shall indemnify,
defend and hold Landlord harmless from, any and all liens and encumbrances
arising or growing out of Tenant's acts or omissions, or breach of this Lease or
its use, improvement or occupancy of the Premises. If any lien is so filed
against the Premises, the Land, the Complex or the Building, Tenant shall cause
the same to be fully discharged and released of record within ten (10) days of
demand or within such period provide Landlord with cash or other security
acceptable to Landlord in an amount equal to one and one-half (1 1/2 ) times the
amount of the claimed lien as security for its prompt removal. Landlord shall
have the right to disburse such security to cause the removal of the lien if a
judgment is entered against Tenant in the lien proceeding, if such lien causes
difficulties for Landlord in connection with its financing of the Building or
the Complex, or if Tenant is otherwise in default under this Lease.

         (d) Hazardous Substances. Tenant shall not, without Landlord's prior
             --------------------
written consent, keep any substances designated as, or containing components now
or hereafter designated as, hazardous, dangerous, toxic or harmful and/or
subject to regulation under any federal, state or local law, regulation or
ordinance ("Hazardous Substances") on or about the Premises or anywhere in the
Complex. Notwithstanding the preceding sentence, Tenant may keep, use, store and
dispose of, in, on and from the Premises, materials and supplies otherwise
constituting Hazardous Substances which are normally used in general business
offices, provided such materials and supplies are used, handled, stored and
disposed of in accordance with all applicable governmental rules, regulations,
laws and requirements, and in accordance with all applicable manufacturers' or
suppliers' recommendations. With respect to any Hazardous Substances stored with
Landlord's consent or permitted hereunder, Tenant shall: promptly, timely and
completely comply with all governmental requirements for reporting and record
keeping; submit to Landlord true and correct copies of all reports, manifests
and identification numbers at the same time as they are required to be and/or
are submitted to the appropriate governmental authorities; within five (5) days
of Landlord's request, provide evidence satisfactory to Landlord of Tenant's
compliance with all applicable governmental rules, regulations and requirements;
and comply with all governmental rules, regulations and requirements regarding
the proper and lawful use, sale, transportation, generation, treatment and
disposal of Hazardous Substances. Any and all costs incurred by Landlord and
associated with Landlord's inspections of the Premises and Landlord's monitoring
of Tenant's compliance with this Section 8(d), including Landlord's attorneys'
fees and costs, shall be Additional Rent and shall be due and payable to
Landlord within ten (10) days of Landlord's demand. Tenant shall be fully and
completely liable to Landlord for any and all cleanup costs and

                                      -12-
<PAGE>

expenses and any and all other charges, expenses, fees, fines, penalties (both
civil and criminal) and costs imposed with respect to Tenant's use, disposal,
transportation, generation and/or sale of Hazardous Substances, in or about the
Premises or Building. Tenant shall indemnify, defend and hold Landlord, and
lenders to Landlord (each a "Lender"), harmless from any and all of the costs,
fees, penalties, charges and expenses assessed against or imposed upon Landlord
and Lender (as well as Landlord's and Lender's attorneys' fees and costs) as a
result of Tenant's use, disposal, transportation, generation and/or sale of
Hazardous Substances. This indemnification covenant shall survive expiration or
earlier termination of this Lease.

          (e) Signs. Tenant shall not erect or place, or permit to be erected or
              -----
placed, or maintain any signs of any nature or kind whatsoever on the exterior
walls or windows of the Premises or elsewhere in the Building or at the Complex,
with the exception of a sign identifying Tenant placed on or near the front door
of the Premises, the size, style and location of which must first be approved in
writing by Landlord, which approval will not be unreasonably withheld, a
Building standard sign identifying Tenant in the elevator lobby of the floor in
the Building on which the Premises are located, and a Building standard name
slip identifying Tenant in the main interior Building directory. In addition,
subject to applicable governmental laws, ordinances, rules and regulations,
Tenant shall have the right to place a prominent sign on the exterior of the
Building, the size, design and location of which must be reasonably acceptable
to Landlord. Tenant shall be solely responsible for the costs of acquiring,
installing and maintaining its exterior Building sign. Upon the expiration or
earlier termination of the Lease Term, at its sole cost and expense, Tenant
shall remove its exterior signage from the Building and Tenant will restore the
exterior of the Building to its condition prior to the installation of Tenant's
sign, reasonable wear and tear excepted. Any exterior signage must comply with
the signage policy for the Building and the Complex.

          (f) Parking. Tenant shall have the right to use in common with other
              -------
tenants of the Complex and their invitees, licensees, employees and agents the
surface parking facilities located in the Common Areas of the Complex. Four (4)
parking stalls per 1,000 useable square feet of the Premises shall be allocated
to Tenant. All parking spaces are made available on an unreserved basis. Tenant
shall comply with such reasonable rules and regulations that Landlord may adopt
from time to time regarding the use of parking areas. Delivery and service
vehicles shall only be permitted to park in areas specially designated for their
use.

          (g) Rules and Regulations. Tenant shall comply with the rules and
              ---------------------
regulations promulgated by Landlord, which are attached hereto as Exhibit H, and
                                                                  ---------
such reasonable amendments and additions as from time to time may be adopted by
Landlord after thirty (30) days' prior notice to Tenant, to govern the use,
occupancy and operation of the Complex (the existing rules and regulations, as
so amended or supplemented from time to time, being the "Rules and
Regulations"). Landlord shall not be responsible to Tenant for the noncompliance
by any other occupant with any of the Rules and Regulations, and any failure by
Landlord to enforce any Rules and Regulations against either Tenant or any other
occupant shall not constitute a waiver thereof;

                                      -13-
<PAGE>

however, Landlord agrees to take reasonable steps to ensure that all tenants of
the Building comply with the Rules and Regulations.

     SECTION 9. Utilities And Services; Deliveries.
                ----------------------------------

          (a)   Tenant's Responsibility. In accordance with Section 5 of this
                -----------------------
Lease, as Additional Rent, Tenant shall pay its share of all charges for heat,
water, light, gas, electricity, sewer, garbage, fire protection and any other
utilities and/or services used or consumed on or supplied to the Complex and to
the Building, including the Premises, and not separately metered or charged to
Tenant or any other tenant of the Building or the Complex. Tenant shall be
solely responsible for and shall promptly pay when due all charges for telephone
and all other charges for other utilities and/or services which are separately
metered or charged to the Premises.

          (b)   Services. Landlord shall cause the Common Areas such as
                --------
walkways, landscaped areas, lobbies, elevators, stairs, corridors and restrooms,
to be maintained in reasonably good order and condition, except for damage
occasioned by any act or omission of Tenant or Tenant's officers, contractors,
agents, invitees, licensees or employees, the repair of which latter damage
shall be paid for by Tenant. Twenty-four (24) hours per day, seven (7) days per
week, Tenant shall have access to the Premises (subject to such Building and
Complex security systems and procedures as may be in place from time to time),
and Tenant shall have available to it water and electrical service for lighting
and operation of 110-volt office equipment. During the Building Standard Hours
specified in Section 1 above, Landlord shall furnish the Premises with heat and
air conditioning services. If requested by Tenant, Landlord shall furnish such
services at times other than Building Standard Hours, and Tenant shall pay for
the cost of such after-hours services at rates established by Landlord from time
to time. At its option, Landlord may elect to cause the lighting and convenience
electrical service to the Premises to be separately metered pursuant to a
monitoring/metering system. If Landlord so elects to separately meter such
electrical service Tenant's consumption of such electricity will be separately
billed to Tenant by Landlord and paid for by Tenant, and in calculating Tenant's
Share of Operating Costs, the cost of lighting and convenience electrical
service provided to other leased premises in the Building shall be excluded from
Operating Costs; however Tenant will pay Tenant's Share of the electricity used
or consumed in connection with the Common Areas as reasonably and in good faith
estimated by Landlord. Tenant may have separate supplementary air conditioning
units for the Premises installed in connection with the initial improvements to
the Premises pursuant to the Workletter, subject to the approval of the location
and method of installation thereof in accordance with the Workletter. The cost
of operating such separate supplementary air conditioning units (including
electricity, maintenance and repairs) shall be separately billed and charged to
Tenant by Landlord. The electricity used and consumed in operating such separate
supplementary air conditioning units shall be separately metered with the
remainder of the Premises.

          (i) Janitorial. Landlord will provide janitorial services customary
              ----------
for buildings comparable to the Building in quality and location. If Tenant
requires excessive or

                                      -14-
<PAGE>

specialized janitorial services, Tenant shall promptly pay Landlord the
additional costs and expenses incurred by Landlord in providing such services.

               (ii) Additional Service. The Building standard mechanical system
                    ------------------
is designed to accommodate heating loads generated by lights and 110-volt office
equipment normally found in general business offices. Before installing lights
and equipment in the Premises which in the aggregate exceed the heating and
cooling loads of the Building's mechanical system, Tenant shall obtain the
written permission of Landlord. Landlord may refuse to grant such permission
unless Tenant agrees to pay the cost of installing supplementary air
conditioning units or electrical systems as necessitated by such equipment or
lights. In addition, Tenant shall pay to Landlord in advance, on the first day
of each month during the Lease Term, the amount estimated by Landlord as the
cost of furnishing electricity for the operation of such equipment or lights and
the amount estimated by Landlord as the costs of operation and maintenance of
supplementary air conditioning units or electrical systems as necessitated by
Tenant's use of such equipment or lights. Landlord shall be entitled to install
and operate at Tenant's cost a monitoring/metering system in the Premises to
measure the added demands on electricity, heating, ventilation, and air
conditioning systems resulting from such equipment and lights and from Tenant's
after-hours heating, ventilation and air conditioning service requirements.
Tenant shall comply with Landlord's instructions, rules and regulations for the
use of drapes, blinds and thermostats in the Building(s).

          (c)  Interruption. Landlord shall not be liable for any loss, injury
               ------------
or damage to person or property caused by or resulting from any variation,
interruption, or failure of such services due to any cause whatsoever, or from
failure to make any repairs or perform any maintenance. No temporary
interruption or failure of such services incident to the making of repairs,
alterations or improvements, or due to accident, strike or conditions or other
events beyond Landlord's reasonable control shall be deemed an eviction of
Tenant or to relieve Tenant from any of Tenant's obligations hereunder or to
give Tenant a right of action against Landlord for damages.

          (d)  Repairs By Landlord; Maintenance And Repair Charges. Tenant shall
               ---------------------------------------------------
take good care of the Premises and shall reimburse Landlord for all damage done
to the Building, the Complex or the Premises occasioned by any act or omission
of Tenant or Tenant's officers, employees, contractors, agents, invitees,
licensees or employees, including, but not limited to, cracking or breaking of
glass. If Tenant fails to take good care of the Premises, Landlord, at its
option, may do so, and in such event upon receiving written statements from
Landlord, Tenant shall promptly pay the entire cost thereof as additional rent.
Landlord shall have the right to enter the Premises for such purposes. Landlord
shall have the right to enter the Premises for such purposes; provided Landlord
gives Tenant at least forty eight (48) hours advance notice of Landlord's intent
to do so, except no advance notice shall be necessary in the event of an
emergency.

          (e)  Telecommunications Services. All telephone and telecommunications
               ---------------------------
services desired by Tenant shall be ordered and utilized by Tenant at its sole
cost and expense.

                                      -15-
<PAGE>

Tenant understands and acknowledges the telecommunications switching facilities
in the Complex may be owned and operated by a third party and such third party
may have the right to charge other telecommunications providers for access to
such facilities subject to applicable laws, rules and regulations. Tenant shall
separately contract with such third party or another telecommunications provider
(a "Provider") to provide telephone and telecommunications services to the
Premises. If Tenant desires to utilize the services of a Provider whose
equipment is not then servicing the Building, such Provider must obtain the
written consent of Landlord (which consent will not be unreasonably withheld)
before it will be permitted to install its lines or other equipment within the
Building. Landlord's consent to the installation of lines or equipment within
the Building by any Provider shall be evidenced by a written agreement between
Landlord and the Provider, which contains terms and conditions acceptable to
Landlord in its reasonable discretion. Landlord's refusal for any reason
whatsoever to consent to any prospective Provider shall not be deemed a default
or breach by Landlord of its obligations under this Lease. Landlord makes no
warranty or representation to Tenant as to the suitability, capability or
financial strength of any Provider whose equipment is presently serving the
Building, and Landlord's consent to a Provider whose equipment is not presently
serving the Building shall not be deemed to constitute such a representation or
warranty. To the extent the service by a Provider is interrupted, curtailed or
discontinued for any reason whatsoever, Landlord shall have no obligation or
liability in connection therewith unless the interruption is caused by the
negligence or intentional misconduct of Landlord, and it shall be the sole
obligation of Tenant at its expense to obtain substitute service. The provisions
of this paragraph are solely for the benefit of Tenant and Landlord, are not for
the benefit of any third party, specifically including without limitation, no
telephone or telecommunications provider shall be deemed a third party
beneficiary hereof.

     SECTION 10. Licenses and Taxes. Tenant shall be liable for, and shall pay
                 ------------------
throughout the term of this Lease, all license and excise fees and occupation
taxes covering the business conducted on the Premises and all personal property
taxes levied with respect to all personal property located at the Premises. If
any governmental authority levies a tax or license fee on rents payable under
this Lease or rents accruing from use of the Premises or a tax or license fee in
any form against Landlord or Tenant because of or measured by or based upon
income derived from the leasing or rental thereof (other than a net income tax
on Landlord's income), or a transaction privilege tax, such tax or license fee
shall be paid by Tenant, either directly if required by law, or by reimbursing
Landlord for the amount thereof upon demand.

     SECTION 11. Alterations by Tenant. Tenant shall not make any alterations,
                 ---------------------
additions or improvements in or to the Premises without first obtaining
Landlord's prior written approval, which approval shall not be unreasonably
withheld, and if required by Landlord, submitting to Landlord professionally-
prepared plans and specifications. Tenant covenants it will cause all such
alterations, additions and improvements to be performed at Tenant's sole cost
and expense by a contractor reasonably acceptable to Landlord and in a manner
which: (a) is consistent with any Landlord-approved plans and specifications and
any reasonable conditions imposed by Landlord; (b) is in conformity with first
class commercial standards; (c) includes acceptable insurance

                                     -16-
<PAGE>

coverage for Landlord's benefit; (d) does not affect the structural integrity of
the Building or the systems serving the Building or the Complex; (e) does not
disrupt the business or operations of other tenants; and (f) does not invalidate
or otherwise affect the construction and systems warranties then in effect with
respect to the Building or the Complex. Tenant shall secure all governmental
permits and approvals and comply with all other applicable governmental
requirements and restrictions, and reimburse Landlord for all expenses incurred
in connection therewith. Except as provided in Section 14 with regard to
concurrent negligence, Tenant shall indemnify, defend and hold Landlord harmless
from and against all losses, liabilities, damages, liens, costs, penalties and
expenses (including attorneys' fees, but without waiver of the duty to hold
harmless) arising from or out of the performance of such alterations, additions
and improvements, including, but not limited to, all which arise from or out of
Tenant's breach of its obligations under terms of this Section 11. All
alterations, additions and improvements (expressly including all light fixtures,
heating, ventilation and air conditioning units and floor, window and wall
coverings), except Tenant's moveable trade fixtures and appliances and equipment
not affixed to the Premises, shall immediately become the property of Landlord
without any obligation on its part to pay therefor. These improvements remain
Landlord's and Tenant shall not remove all or any portion thereof on the
termination of this Lease except as specifically directed by Landlord in
writing.

     SECTION 12. Care of Premises. Tenant shall take good care of the Premises
                 ----------------
(including all doors, entrances and lighting and plumbing fixtures located
within the Premises) and shall reimburse Landlord for all damage done to the
Complex, Building or Premises occasioned by any act or omission of Tenant or
Tenant's officers, contractors, agents, invitees, licensees or employees,
including, but not limited to, cracking or breaking of glass. If Tenant fails to
take good care of the Premises, Landlord may, at its option, do so, and in such
event, upon receipt of written statements from Landlord, Tenant shall promptly
pay the entire cost thereof as Additional Rent. Landlord shall have the right to
enter the Premises for such purposes; provided, except in an emergency, Landlord
must give Tenant at least forty eight (48) hours advance notice of its intent to
do so. Except as provided in Section 17, there shall be no abatement or
reduction of rent arising by reason of Landlord's making of repairs, alterations
or improvements.

     SECTION 13. Surrender of Premises. At the expiration or sooner termination
                 ---------------------
of the Lease Term, Tenant shall return the Premises to Landlord in the same or
better condition than on the Commencement Date (or, if altered, then the
Premises shall be returned in such altered condition unless otherwise directed
by Landlord pursuant to Section 11), except for reasonable wear and tear, damage
by condemnation and damage by casualty not caused by Tenant or its employees,
agents, contractors or invitees. Prior to such return, Tenant shall (i) remove
its furniture and equipment, (ii) if so directed by Landlord, remove any and all
telephone, computer and other communications system cabling and equipment
installed by or for Tenant, (iii) restore the Premises to the condition of the
Premises prior to the installation of said items, and (iv) repair any damage
resulting from removal of said items. In no event shall Tenant remove floor
coverings; heating, ventilating and air conditioning equipment; lighting
equipment or fixtures; or floor, window or wall coverings unless otherwise
specifically directed by Landlord in writing. Tenant's obligations under this
Section 13

                                     -17-
<PAGE>

shall survive the expiration or termination of this Lease. Tenant shall
indemnify Landlord for all damages and losses suffered as a result of Tenant's
failure to so redeliver the Premises on a timely basis.

     SECTION 14. Waiver; Indemnity.
                 -----------------

          (a)    Tenant Indemnity. Landlord shall not be liable for any injury
                 ----------------
to person, or for any loss or damage to any property (including property of
Tenant) occurring in or about the Premises from any cause whatsoever, other than
the negligence or intentional misconduct of Landlord or its employees or agents.
Except as otherwise provided in this Section 14, Tenant shall indemnify, defend
and hold Landlord, its partners, officers, agents, employees and contractors and
Lenders, harmless from all claims, suits, losses, damages, fines, penalties,
liabilities and expenses (including Landlord's attorneys' fees and other costs
incurred in connection with claims, regardless of whether such claims involve
litigation) resulting from any actual or alleged injury (including death) of any
person or from any actual or alleged loss of or damage to any property arising
out of or in connection with (i) Tenant's occupation, use or improvement of the
Premises or that of its employees, agents or contractors, (ii) Tenant's breach
of its obligations hereunder, or (iii) any negligent or willful act or omission
of Tenant or any subtenant, licensee, assignee or concessionaire of Tenant, or
of any officer, agent, employee, guest or invitee of Tenant, or of any such
entity in or about the Premises, the Building or the Complex.

          (b)    Landlord's Indemnity. Except as otherwise provided in this
                 --------------------
Section 14, Landlord shall indemnify, defend and save Tenant, its partners,
officers, agents, employees and contractors, harmless from all claims, suits,
losses, damages, fines, penalties, liabilities and expenses (regardless of
whether such claims involve litigation), resulting from any actual or alleged
injury (including death) of any person or from any actual or alleged loss of or
damage to any property arising out of or in connection with (i) Landlord's
breach of its obligations hereunder, or (ii) any negligent or willful act or
omission of Landlord or any officer, agent, employee, guest or invitee of
Landlord, or of any such entity, in or about the Premises, the Building or the
Complex.

          (c)    General Indemnity Provisions. The indemnities in Sections 14(a)
                 ----------------------------
and 14(b) above are intended to specifically cover actions brought by the
indemnifying party's own employees, and with respect to acts or omissions during
the term of this Lease shall survive termination or expiration of this Lease.
Such indemnities are specifically and expressly intended to constitute waivers
by the indemnifying party of its immunity, if any, under Washington's Industrial
Insurance Act, RCW Title 51, to the extent necessary to provide the other party
with a full and complete indemnity from claims made by the indemnifying party
and its employees, to the extent of their negligence. Tenant shall promptly
notify Landlord of casualties or accidents occurring in or about the Premises.
If losses, liabilities, damages, liens, costs and expenses covered by either
party's indemnity are caused by the sole negligence of the other party or by the
concurrent negligence of both Landlord and Tenant, their employees, agents,
invitees and licensees, then the indemnifying party shall indemnify the other
only to the extent of the indemnifying party's own

                                     -18-
<PAGE>

negligence or that of its officers, agents, employees, guests or invitees.
LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS OF SECTION
12 AND THIS SECTION 14 WERE SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM.

          (d)    Release of Claims. Except as provided in Section 14(b) above,
                 -----------------
Tenant hereby fully and completely waives and releases all claims against
Landlord for any losses or other damages sustained by Tenant or any person
claiming through Tenant resulting from any accident or occurrence in or upon the
Premises, including but not limited to: any defect in or failure of Building or
Complex equipment; any failure to make repairs; any defect, failure, surge in,
or interruption of Building or Complex facilities or services; any defect in or
failure of Common Areas; broken glass; water leakage; the collapse of any
component or any Building or other improvement at the Complex; or any act,
omission or negligence of co-tenants, licensees or any other persons or
occupants of the Complex.

     SECTION 15. Insurance.
                 ---------

          (a)    Tenant's Insurance. Tenant shall, at its own expense, maintain
                 ------------------
comprehensive or commercial general liability insurance with broad form and stop
gap endorsements with combined single limits of Two Million Dollars
($2,000,000), for property damage and loss and for personal injuries (including
death), to insure and indemnify both Landlord and Tenant against claims,
demands, losses, damages, liabilities and expenses arising out of or in
connection with the use, operation, occupancy or condition of the Premises and
Tenant's operations in and about the Premises. Landlord shall have the right to
periodically review the appropriateness of such limits in view of inflation
and/or changing industry conditions and to require a reasonable increase in such
limits no more frequently than annually, upon ninety (90) days prior written
notice. Landlord, any Lender designated by Landlord, and any agents of Landlord
designated by Landlord (such as the Building property manager), shall be named
as additional insureds and shall be furnished with a certificate of insurance on
request. All such insurance shall bear an endorsement that the same shall not be
canceled or materially altered without at least thirty (30) days prior written
notice to such additional insureds. During the Lease Term, Tenant shall also
maintain at its own expense insurance covering its furniture, fixtures,
equipment and inventory and all improvements which it makes to the Premises in
an amount equal to the full replacement cost thereof, against fire and such
other perils as are covered by an all risk policy including plate glass coverage
and coverage for sprinkler leakage.

          (b)    General Insurance Requirements. All insurance required of
                 ------------------------------
Tenant under this Lease shall (a) be issued by insurance companies authorized to
do business in the State of Washington and otherwise acceptable to Landlord; (b)
be issued as a primary policy, or under a blanket policy, not contributing with
and not in excess of coverage which Landlord may carry; (c) in the case of the
liability policy, contain a contractual liability coverage endorsement covering
Tenant's indemnification duties under this Lease to the fullest extent
insurable; and (d) have

                                     -19-
<PAGE>

deductibles reasonably acceptable to Landlord. Tenant shall deliver to Landlord
prior to the Commencement Date, and thereafter not less than thirty (30) days
before the expiration dates of any expiring policies of insurance, and from time
to time thereafter within ten (10) days after written request from Landlord,
certificates of insurance evidencing the insurance coverages required of Tenant
pursuant to this Paragraph 15. In no event shall the limits of any such policies
be considered as limiting the liability of Tenant under this Lease. If Tenant
does not deliver to Landlord certificates of insurance as required above,
Landlord may charge Tenant a $50.00 noncompliance fee. If Tenant fails to
maintain any insurance required of it under this Section 15, Landlord may do so,
and Tenant shall reimburse Landlord for the full expense thereof upon demand.

          (c)    Landlord's Insurance. Throughout the Lease Term, Landlord shall
                 --------------------
maintain such property and liability insurance coverages as are customarily
maintained by owners of buildings similar in age, location and construction to
the Complex, and such additional insurance as any Lender may reasonably require,
and the cost of all such insurance shall be considered an Operating Cost.

          (d)    Waiver of Subrogation. Neither Landlord nor Tenant shall be
                 ---------------------
liable to the other party or to any insurance company (by way of subrogation or
otherwise) insuring the other party for any loss or damage to any building,
structure or tangible personal property of the other occurring in or about the
Premises, the Building or the Complex, even though such loss or damage might
have been occasioned by the negligence of such party, its agents or employees,
if such loss or damage is covered by insurance under terms of this Lease. Each
party shall use its best efforts to cause each insurance policy obtained by it
to contain the waiver of subrogation clause. Notwithstanding the foregoing, no
such release shall be effective unless a party's insurance policy or policies
expressly permit such a release or contain a waiver of the carrier's right to be
subrogated.

     SECTION 16. Assignment or Subletting.
                 ------------------------

          (a)    Consent Required. Tenant shall not sublet or encumber the whole
                 ----------------
or any part of the Premises, nor shall this Lease or any interest thereunder be
assignable (for security purposes or otherwise) or transferable, voluntarily or
involuntarily, by operation of law or by any process or proceeding of any court
or otherwise without the prior written consent of Landlord, which consent shall
not be unreasonably withheld. In determining whether to consent to a proposed
assignment, subletting or other transfer, Landlord may consider any commercially
reasonable basis for approving or disapproving the proposed subletting,
assignment or other transfer, including without limitation any of the following:
(i) the experience or business reputation of the proposed assignee or sublessee,
(ii) whether the clientele, personnel or foot traffic which will be generated by
the business of the proposed assignee or sublessee is consistent in Landlord's
opinion with the businesses of other tenants of the Building and of the Complex,
(iii) notwithstanding that Tenant or others may remain liable under this Lease,
whether the proposed

                                     -20-
<PAGE>

assignee or sublessee has a net worth and financial strength and credit record
satisfactory to Landlord, and (iv) whether the use of the Premises by the
proposed assignee or sublessee will be substantially the same as the use of the
Premises by Tenant, or whether such use is consistent with the businesses of
other tenants then occupying the Complex, and whether such use will violate or
create any potential violation of any laws or a breach or violation of any other
lease or agreement by which Landlord is bound. Any assignment or sublease
without Landlord's prior written consent, at Landlord's option, shall be void.
No assignment or sublease shall release Tenant from primary liability hereunder.
Each assignment and sublease shall be by an instrument in writing in form
satisfactory to Landlord. The granting of consent to a given transfer shall not
constitute a waiver of the consent requirement as to future transfers. Tenant
shall also pay all legal fees and other costs incurred by Landlord in connection
with Landlord's consideration of Tenant's request for approval of assignments or
subleases, including assignments for security purposes. Tenant shall deliver to
Landlord with its request for Landlord's approval of a proposed assignment or
subletting a fee of $500.00 which shall be credited against the fees and costs
payable by Tenant pursuant to the preceding sentence.

          Any transferee other than a subtenant approved by Landlord shall
assume all obligations of Tenant and shall be jointly and severally liable with
Tenant for the payment of rent, additional rent and other charges and
performance of all of Tenant's obligations under this Lease. Tenant shall
provide Landlord with full and complete duplicate originals of all instruments
of assignment, sublease or assumption. It shall not be unreasonable for Landlord
to withhold consent to a proposed assignment or sublease because it wishes to
exercise its right to recapture all or part of the Premises under Section 16(b)
hereof, or because (a) the proposed transferee is any governmental agency,
federal, state, local or foreign government or incorporation, (b) the transfer
would cause the Landlord to violate another lease or agreement to which Landlord
is a party or would give another tenant in the Complex the right to cancel its
lease, or (c) the proposed transferee occupies space in the Building or the
Complex, is negotiating with Landlord to lease space in the Building or the
Complex, or has negotiated with Landlord to lease space in the Building or the
Complex during the six months immediately proceeding the notification from
Tenant.

          (b)    Recapture Right. In lieu of giving its consent to a proposed
                 ---------------
assignment or subletting, Landlord may terminate the Lease as to the portion of
the Premises affected by the action for which Landlord's consent is requested
and recover possession thereof from Tenant within twenty (20) days following
written notice thereof to Tenant. All costs incurred by Landlord in separating
the remainder of the Premises from the area so retaken shall be paid by Tenant
as Additional Rent.

          (c)    Additional Consideration. If Tenant assigns its interest in
                 ------------------------
this Lease or sublets the Premises, Tenant shall pay to Landlord any and all
consideration received by Tenant for such assignment or sublease, whether such
additional consideration is in the form of rent in excess of the Base Rent
and/or Additional Rent payable by Tenant under this Lease, cash payments or

                                     -21-
<PAGE>

otherwise; however, such additional consideration shall be reduced by any
reasonable costs and expenses (including brokerage fees and tenant improvement
costs) incurred by Tenant in connection with the sublease or assignment.

          (d)  Entity Ownership. The cumulative transfer (i.e. in one or more
               ----------------
sales or transfers, by operation of law or otherwise) of an aggregate of fifty
percent (50%) or more of the voting stock issued and outstanding on the date of
this Lease is executed by Landlord, including by creation or issuance of new
stock of a corporation which is (i) owned by Tenant, (ii) the corporate assignee
of Tenant, or (iii) any corporation which is a general partner in a general or
limited partnership or member of a limited liability company which is the tenant
or an assignee of the tenant of this Lease; or the cumulative transfer of an
aggregate of fifty percent (50%) or more of the ownership interest in a general
or limited partnership, limited liability company or other entity which is the
tenant or an assignee of the tenant, by which an aggregate of fifty percent
(50%) or more of such ownership interest is vested in a person or persons who
are not general partners, members or other owners (except as the result of
transfer by gift or inheritance), shall be deemed a Transfer of this Lease and
shall be subject to the provisions of Section 16. For the purpose of Section 16,
any entity which has undergone any of the changes described in this Section
shall be deemed to be a transferee. The term "voting stock" means the stock
regularly entitled to vote for election of directors of the corporation; and any
stock, however denominated, which is convertible into such voting stock, shall
be treated for purposes of the foregoing as if it were in fact converted. The
two immediately preceding sentences, however, shall not be applicable to any
Tenant corporation the outstanding voting stock of which is listed on a national
securities exchange and actively traded "over the counter."

          (e)  Assignment by Landlord. If Landlord sells or otherwise transfers
               ----------------------
the Building(s), such purchaser or transferee shall be deemed to have assumed
Landlord's obligations hereunder, and Landlord shall thereupon be relieved of
all liabilities hereunder arising thereafter, but this Lease shall otherwise
remain in full force and effect and Tenant shall attorn to Landlord's successor.

    SECTION 17. Destruction
                -----------

          (a)  Partial Destruction. If the Premises are rendered partially
               -------------------
untenantable by fire or other insured casualty, and if the damage is repairable
within sixty (60) days from the date of the occurrence (with the repair work and
preparations therefore to be done during regular working hours on regular work
days), landlord shall repair the Premises with due diligence, to the extent of
the insurance proceeds available (which shall be subject to the prior rights of
any Lender), and the monthly minimum rental shall be abated in the proportion
that the untenantable portion of the Premises bears to the whole thereof for the
period from the date of the casualty to the completion of the repairs, unless
the casualty results from Tenant's negligence or its breach of the terms hereof.
If thirty percent (30%) or more of the rentable area of the Building is
destroyed or damaged, regardless of whether the Premises are damaged, Landlord
may terminate this Lease as of the date

                                      -22-
<PAGE>

of such damage or destruction by giving notice to Tenant within thirty (30) days
thereafter of the election so to do.

          (b)    Total Destruction. If the Premises are completely destroyed by
                 -----------------
fire or other casualty, or if they are damaged by uninsured casualty, or by
insured casualty to such an extent that the damage cannot be repaired within
sixty (60) days of the occurrence, Landlord shall have the option to restore the
Premises or to terminate this Lease on thirty (30) days written notice,
effective as of any date not more than sixty (60) days after the occurrence. If
this Section becomes applicable, Landlord shall advise Tenant within thirty (30)
days after such casualty whether Landlord elects to restore the Premises or to
terminate this Lease. If Landlord elects to restore the Premises, it shall
commence and prosecute the restoration work with diligence. For the period from
the date of the casualty until completion of the repairs (or the date of
termination of this Lease, if Landlord elects not to restore the Premises), the
monthly minimum rent shall be abated in the same proportion that the
untenantable portion of the Premises bears to the whole thereof, unless the
casualty results from Tenant's negligence or its breach of its obligations under
this Lease. If the Premises are totally damaged or destroyed, and the repairs to
the Premises cannot or have not been completed within nine (9) months after the
damage or destruction (subject to delays such as force majeure delays which are
beyond Landlord's control), Tenant shall have the right to terminate this Lease
by written notice given to Landlord within thirty (30) days after the end of the
foregoing nine (9) month period, provided Landlord does not complete the repairs
prior to the date Tenant delivers its termination notice to Landlord.

          (c)    Limitation. Except as otherwise provided in this Lease,
                 ----------
Landlord shall not be liable to Tenant for destruction or damage to any of
Tenant's property including fixtures, equipment or other improvements, or for
damages or compensation for inconvenience, loss of business or disruption
arising from repairs or restoration of any portion of the Complex, the Building
or the Premises.

     SECTION 18. Eminent Domain.
                 --------------

          (a)    Taking. If all of the Premises are taken by Eminent Domain,
                 ------
this Lease shall terminate as of the date Tenant is required to vacate the
Premises and all Base Rent and Additional Rent shall be paid to that date. The
term "EMINENT DOMAIN" shall include the taking or damaging of property by,
through or under any governmental or statutory authority, and any purchase or
acquisition in lieu thereof, whether the damaging or taking is by government or
any other person. If a taking of any part of the Premises by Eminent Domain
renders the remainder thereof unusable for the business of Tenant, in the
reasonable judgment of Landlord or Tenant, this Lease, at the option of either
party, may be terminated by written notice given to the other party not more
than thirty (30) days after Landlord gives Tenant written notice of the taking,
and such termination shall be effective as of the date when Tenant is required
to vacate the portion of the Premises so taken. If this Lease is so terminated,
all Base Rent and Additional Rent shall be paid to the date of termination.
Whenever any portion of the Premises is taken by Eminent Domain and

                                     -23-
<PAGE>

this Lease is not terminated, Landlord shall at its expense proceed with all
reasonable dispatch to restore, to the extent of available proceeds (which shall
be subject to the prior rights of any Lender) and to the extent it is reasonably
prudent to do so, the remainder of the Premises to the condition they were in
immediately prior to such taking, and Tenant shall at its expense proceed with
all reasonable dispatch to restore its personal property and all improvements
made by it to the Premises to the same condition they were in immediately prior
to such taking. The Base Rent and Additional Rent payable hereunder shall be
reduced from the date Tenant is required to partially vacate the Premises in the
same proportion that the rentable area taken bears to the total rentable area of
the Premises prior to taking.

          (b)    Award. Landlord reserves all right to the entire damage award
                 -----
or payment for any taking by Eminent Domain (subject to the prior right of any
Lender), and except as provided below, Tenant waives all claim whatsoever
against Landlord for damages for termination of its leasehold interest in the
Premises or for interference with its business. Tenant hereby grants and assigns
to Landlord any right Tenant may now have or hereafter acquire to such damages
and agrees to execute and deliver such further instruments of assignment as
Landlord may from time to time request. Tenant shall, however, have the right to
claim from the condemning authority all compensation that may be recoverable by
Tenant on account of any loss incurred by Tenant in moving Tenant's merchandise,
furniture, trade fixtures and equipment, provided, however, that Tenant may
claim such damages only if they are awarded separately in the eminent domain
proceeding and not out of or as part of Landlord's damages.

     SECTION 19. Default by Tenant.
                 -----------------

          (a)    Definition. Tenant shall be deemed in default under this Lease
                 ----------
if (i) Tenant vacates or abandons the Premises, (ii) fails to pay Base Rent or
Additional Rent, or make any other payment required of Tenant under this Lease
on the date such rent or payment is due, (iii) Tenant violates or breaches or
fails to keep or perform any covenant, term or condition of this Lease other
than those requiring the payment of rent or otherwise requiring Tenant to make
payments pursuant to this Lease, or (iv) Tenant or any guarantor files or is the
subject of a petition in bankruptcy, or if a trustee or receiver is appointed
for Tenant's or any guarantor's assets, or if Tenant or a guarantor makes an
assignment for the benefit of creditors, or if Tenant or a guarantor is
adjudicated insolvent. With respect to a default under (ii) above, Tenant shall
have five (5) days after written notice of the default to remedy or cure its
default. With respect to a default under (iii) above, Tenant shall have twenty
(20) days after written notice from Landlord to remedy or cure the default;
however, if the default cannot reasonably be cured within such twenty (20) day
period, and Tenant commences the cure within the twenty (20) day period, and
Tenant thereafter diligently prosecutes the cure to completion in good faith,
such twenty (20) day period shall be extended for such period of time as is
reasonably necessary for Tenant to cure the default, but in no event more than
an additional sixty (60) days. The foregoing notice and cure provisions shall be
inclusive of and not in addition to the notices and cure periods provided for in
RCW 59.12, as now or hereafter amended, or any legislation in lieu or
substitution thereof.

                                     -24-
<PAGE>

          (b)    Remedies. If Tenant defaults and fails to cure the default
                 --------
within the applicable cure period, if any, Landlord shall have the following
rights and remedies, at its option, which shall be cumulative and not exclusive,
and which shall be in addition to and not in lieu of any other rights or
remedies available to Landlord at law or in equity, or elsewhere in this Lease:
(i) to declare the Lease Term ended and reenter the Premises and take possession
thereof and remove all persons therefrom, and Tenant shall have no further claim
thereon or hereunder; (ii) to cure such default on Tenant's behalf and at
Tenant's cost and expense and charge Tenant as Additional Rent for all costs and
expenses incurred by Landlord in effecting the cure; (iii) without declaring
this Lease terminated, to reenter the Premises and occupy the whole or any part
thereof for and on account of Tenant and collect any unpaid rentals and other
charges, which have become payable, or which may thereafter become payable; (iv)
even though it may have reentered the Premises, to thereafter elect to terminate
this Lease and all of the rights of Tenant in or to the Premises.

          (c)    Reentry. If Landlord reenters the Premises under option (iii)
                 -------
of Section 19(b), Landlord shall not be deemed to have terminated this Lease or
the liability of Tenant to pay any Rent thereafter accruing as it becomes due,
or to have terminated Tenant's liability for damages under any of the provisions
hereof, by any such reentry or by any action, in unlawful detainer or otherwise,
to obtain possession of the Premises, unless Landlord shall have notified Tenant
in writing that it has so elected to terminate this Lease, and Tenant shall be
liable for and reimburse Landlord upon demand for all costs and expenses of
every kind and nature incurred in retaking possession of the Premises and all
other losses suffered by Landlord as a consequence of Tenant's default. In the
event of any entry or taking possession of the Premises, Landlord shall have the
right, but not the obligation, to remove therefrom all or any part of the
personal property located therein and may place the same in storage at a public
warehouse at the expense and risk of Tenant.

          (d)    Termination. If Landlord elects to terminate this Lease
                 -----------
pursuant to the provisions of options (i) or (iv) of Section 19(b), Landlord may
recover from Tenant as damages, the following: (i) the worth at the time of
award of any unpaid Rent which had been earned at the time of such termination;
plus (ii) the worth at the time of award of the amount by which the unpaid Rent
which would have been earned after termination until the time of award exceeds
the amount of the Rent loss Tenant proves could have been reasonably avoided;
plus (iii) the worth at the time of award of the amount by which the unpaid Rent
for the balance of the term after the time of award exceeds the amount of the
Rent loss that Tenant proves could be reasonably avoided; plus (iv) any other
amount necessary to compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including but not
limited to, any costs or expenses incurred by Landlord in retaking possession of
the Premises, including reasonable attorneys' fees therefor; maintaining or
preserving the Premises after such default; preparing the Premises for reletting
to a new tenant, including repairs or alterations to the Premises for such
reletting; leasing commissions; and any other costs necessary or appropriate to
relet the Premises; and (v) such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by the laws of the

                                     -25-
<PAGE>

State of Washington. As used in items (i) and (ii) of this Section 19(d), the
"worth at the time of award" shall be computed by allowing interest at the
interest rate specified in Section 6 of this Lease. As used in item (iii) above,
the "worth at the time of award" shall be computed by using the then applicable
discount rate quoted by the Federal Reserve Bank of San Francisco or its
successor. For purposes of this Section 22 only, the term "RENT" shall be deemed
to be the Base Rent and all Additional Rent and other sums required to be paid
by Tenant pursuant to the terms of this Lease.

          (e)    Adequate Security. If a petition is filed by or against Tenant
                 -----------------
or Guarantor under any provision of the Bankruptcy Code or successor act, Tenant
agrees that it shall be obligated to post a cash bond with Landlord equal to six
(6) months Base Rent and Additional Rent, to provide Landlord with adequate
security for Tenant's performance of its obligations under this Lease.

          (f)    Landlord's Remedies Cumulative; Waiver. Landlord's rights and
                 --------------------------------------
remedies hereunder are not exclusive, but cumulative, and Landlord's exercise of
any right or remedy due to a default or breach by Tenant shall not be deemed a
waiver of, or alter, affect or prejudice any other right or remedy which
Landlord may have under this Lease or by law or in equity. Neither the
acceptance of rent nor any other acts or omissions of Landlord at any time or
times after the happening of any event authorizing the cancellation or
forfeiture of this Lease shall operate as a waiver of any past or future
violation, breach or failure to keep or perform any covenant, agreement, term or
condition hereof or to deprive Landlord of its right to cancel or forfeit this
Lease, upon the written notice provided for herein, at any time that cause for
cancellation or forfeiture may exist, or be construed so as at any future time
to estop Landlord from promptly exercising any other option, right or remedy
that it may have under any term or provision of this Lease.

     SECTION 20. Default by Landlord; Lender Protection.
                 --------------------------------------

          (a)    Default by Landlord. Landlord shall be in default if Landlord
                 -------------------
fails to perform its obligations under this Lease within twenty (20) days after
its receipt of written notice of nonperformance from Tenant; provided that if
the default cannot reasonably be cured within the twenty (20) day period, and
Landlord commences the cure within said 20-day period and thereafter diligently
prosecutes the cure to completion in good faith, such 20-day period shall be
extended for such additional period of time as is reasonably necessary for
Landlord to cure the default.

          (b)    Notice to Lender. Notwithstanding anything to the contrary in
                 ----------------
this Lease, Landlord shall not be in default under any provision of this Lease
unless written notice specifying such default is given to Landlord and to any
Lender who has been identified to Tenant in writing as a party to whom notice
must be sent. Any Lender of Landlord entitled to notice pursuant to the
preceding sentence shall have the right to cure any default on behalf of
Landlord within the later of (a) thirty (30) days after receipt of such notice,
or (b) thirty (30) days after the expiration of any cure period provided to
Landlord pursuant to this Lease; provided, if such default cannot

                                     -26-
<PAGE>

reasonably be cured within such thirty (30) day period, the Lender shall be
entitled to such additional time as may be reasonably necessary to cure the
default, if within the thirty (30) day period the Lender commences and
thereafter diligently pursues the actions necessary for the Lender to cure such
default by Landlord (including, if possession of the Premises is necessary to
cure the default, commencing such judicial or nonjudicial proceedings as may be
necessary for the Lender or a receiver to take possession of the Premises). So
long as a Lender is diligently taking the actions reasonably necessary for it to
cure Landlord's default, Tenant shall not exercise its remedies for Landlord's
default under this Lease.

     SECTION 21. Attorneys' Fees. If either party retains the services of an
                 ---------------
attorney in connection with enforcing the terms of this Lease, or if suit is
brought for the recovery of the Base Rent or Additional Rent due under this
Lease or for the breach of any covenant or condition of this Lease or for the
restitution of the Premises to Landlord and/or eviction of Tenant during the
term of this Lease or after the expiration thereof, the substantially prevailing
party therein will be entitled to recover from the other party the substantially
prevailing party's reasonable attorneys' fees, witness fees and other court
costs incurred in connection therewith.

     SECTION 22. Access by Landlord. Landlord and its agents shall have the
                 ------------------
right to enter the Premises at any time upon reasonable prior notice to Tenant
to examine the same, and to show them to prospective purchasers, lenders or
tenants, and to make such repairs, alterations, improvements, additions or
improvements to the Premises, the Building or the Complex as Landlord may deem
necessary or desirable; provided, in an emergency or perceived emergency or to
provide normal services (such as janitorial and security services) to the
Premises, and no advance notice shall be required. Landlord understands the
Premises will contain proprietary and confidential information regarding Tenant
and its customers. If Tenant is not personally present to permit entry and an
entry is necessary in an emergency, Landlord may enter the same by master key or
may forcibly enter the same, without rendering Landlord liable therefor. Nothing
contained herein shall be construed to impose upon Landlord any duty of repair
or other obligation not specifically stated in this Lease. Tenant shall change
the locks to the Premises only through Landlord and upon paying Landlord for all
costs related thereto, and providing Landlord with evidence that the new lock is
keyed to landlord master lock system for the Complex.

     SECTION 23. Holding Over. Unless otherwise agreed in writing by Landlord,
                 ------------
any holding over by Tenant after the expiration of the term hereof consented to
in advance in writing by Landlord shall be construed as a tenancy from month-to-
month on the terms and conditions set forth herein, except the Base Rent shall
be the Base Rent agreed to by Landlord and Tenant. Any such hold-over tenancy
may be terminated by either party upon thirty (30) days written notice to the
other party. If Tenant fails to surrender the Premises upon the termination of
this Lease, without the prior written consent of Landlord, Tenant shall
indemnify, defend and hold harmless Landlord from all losses, damages,
liabilities and expenses resulting from such failure, including, without
limiting, the generality of the foregoing, any claims made by any succeeding
tenant arising out of such failure. Any holding over by Tenant after the
expiration of the Lease Term without Landlord's

                                     -27-
<PAGE>

consent shall be deemed a tenancy at will, terminable at any time by Landlord,
at a rental rate equal to (a) two (2) times the Base Rent payable by Tenant
during the last month rent is payable by Tenant pursuant to this Lease, plus (b)
the Additional Rent then payable by Tenant pursuant to this Lease.

     SECTION 24. Subordination; Estoppel Certificates.
                 ------------------------------------

          (a)    Subordination. This Lease shall be automatically subordinate to
                 -------------
all of Landlord's mortgages, deeds of trust, or ground leases which heretofore
and hereafter affect the Premises, the Building or the Complex, to any and all
advances made or to be made thereunder, to the interest on the obligations
secured thereby, and to all renewals, modifications, consolidations,
replacements or extensions thereof. This subordination includes, without
limitation, subordination of the Landlord's and Tenant's rights in casualty and
condemnation proceeds under Sections 17 and 18 above to the prior rights of any
Lender. This subordination shall be self operative, and no further instrument of
subordination shall be necessary to effect such subordination; nevertheless,
within fifteen (15) days after receiving a written request from Landlord, Tenant
shall execute such additional instrument of subordination as may be required by
Landlord (or its lenders or ground lessors) if such instrument of subordination
provides so long as Tenant is not in default hereunder beyond any applicable
cure period in this Lease, Tenant shall have continued enjoyment of the Premises
free from any disturbance or interruption by reason of any foreclosure of any
such deed of trust, mortgage or the exercise of any remedies by the lessor under
any such ground lease. In the event of sale or foreclosure of any such mortgage
or deed of trust, or exercise of the power of sale thereunder, or in the event
of a transfer in lieu of foreclosure, or in the event a ground lessor acquires
the Landlord's interests in the Building or the Complex, Tenant shall attorn to
the purchaser (or transferee) of the Building or the complex at such foreclosure
or sale and recognize such purchaser (or transferee) as Landlord under this
Lease if so requested by such purchaser (or transferee). Such attornment shall
be self operative and no further instruments need be executed to effect such
attornment. If any lender elects to have this Lease superior to its mortgage or
deed of trust and gives notice of its election to Tenant, then this Lease shall
thereupon become superior to the lien of such mortgage or deed of trust, whether
this Lease is dated or recorded before or after the mortgage or deed of trust.

          (b)    Estoppel Certificates. As a material inducement to Landlord to
                 ---------------------
enter into this Lease, Tenant covenants that it shall, within fifteen (15) days
of the receipt thereof, acknowledge and deliver to Landlord an estoppel
certificate in the form attached to this Lease as Exhibit E, or such other form
                                                  ---------
requested by Landlord from time to time, certifying, to the extent true, that
(i) Tenant shall be in occupancy, (ii) this Lease is unmodified and in full
force and effect, or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications, (iii) Base Rent and
Additional Rent have been paid only through a certain specified date, (iv)
Tenant has no offsets, defenses or claims against Landlord, and (v) such other
matters as Landlord may reasonably request. Tenant's failure to deliver an
estoppel certificate within the fifteen (15) day period shall be deemed its
confirmation of the accuracy of the

                                     -28-
<PAGE>

information supplied by Landlord to the prospective lender or purchaser. Tenant
acknowledges and agrees that Landlord and others will be relying and are
entitled to rely on the statements contained in such estoppel certificates.

     SECTION 25. Relocation. Landlord reserves the right upon sixty (60) days
                 ----------
written notice to Tenant, to substitute other space within the Building or the
Complex (the "Substitute Premises") for the Premises, provided that the
Substitute Premises at least (a) contain approximately the same or a greater
number of square feet as the Premises; (b) contain comparable tenant
improvements; and (c) are made available to Tenant at a rental rate equal to the
lesser of (i) the fair market rent for the Substitute Premises for the time
period in question (namely, from the delivery date of the Substitute Premises
through the Expiration Date), and (ii) Base Rent rate called for under this
Lease as of the time of the substitution, either on a per square foot basis or
in total. If the substitution occurs prior to the date Tenant initially occupies
the Premises, then Landlord shall reimburse Tenant for the necessary and
reasonable costs incurred by Tenant in planning for the space in the initial
Premises which expenses have been previously approved by Landlord and which have
no benefit to Tenant in the Substitute Premises. If Tenant is occupying the
Premises at the time Landlord gives notice of any such relocation, Landlord
shall (1) pay the reasonable cost of moving Tenant, its property and equipment
to the Substitute Premises, (2) without cost or expense to Tenant, improve the
Substitute Premises with improvements substantially similar to those located in
the Premises, and (3) cause such relocation to occur in a manner which does not
interfere with the conduct of Tenant's business in the Premises. All of the
other terms, covenants and conditions of the Lease shall remain unchanged and in
full force and effect, except that Section 1 and Exhibit B shall be revised to
                                                 ---------
identify the Substitute Premises, to state the square foot area of the
Substitute Premises and to make the change, if any, in Base Rent. If Tenant
elects to move to new space in the Complex or the Building other than at the
request of Landlord, the terms of this section shall be inapplicable.

     SECTION 26. Liability of Landlord. Tenant shall look solely to rents,
                 ---------------------
issues and profits from the Complex (or the portions thereof then owned by
Landlord) for the satisfaction of any judgment or decree against Landlord,
whether for breach of the terms hereof or arising from a right created by
statute or under common law. Tenant agrees that no other property or assets of
the Landlord or any partner in Landlord shall be subject to levy, execution or
other enforcement procedures for satisfaction of any such judgment or decree;
and no partner, shareholder or other holder of an ownership interest in Landlord
shall be sued or named as a party in any suit or action (except as may be
necessary to secure jurisdiction over the partnership).

     SECTION 27. Miscellaneous.
                 -------------

          (a)    Quiet Enjoyment. If Tenant fully complies with and promptly
                 ---------------
performs all of the terms, covenants and conditions of this Lease on its part to
be performed, it shall have quiet enjoyment of the Premises throughout the Lease
term, subject, however, to matters of record on the day hereof and to those
matters to which this Lease may be subsequently subordinated.

                                     -29-
<PAGE>

          (b)    Notices. Any notices required in accordance with any of the
                 -------
provisions herein shall be in writing and (i) delivered personally, (ii) mailed
by registered or certified mail to the parties at the addresses set forth in
Section 1 above, or to such other address as a party shall from time to time
designate in writing by notice given pursuant to this Section 27(b), or (iii)
sent by facsimile with electronic confirmation of receipt. If Tenant is a
partnership, any notice required or permitted hereunder may be given by or to
any one partner thereof with the same force and effect as if given by or to all
thereof. If mailed, a notice shall be deemed received three (3) days after the
postmark affixed on the envelope by the United States Post Office. If sent by
facsimile, a notice shall be claimed received upon electronic confirmation of
receipt.

          (c)    Successors or Assigns. All of the terms, conditions, covenants
                 ---------------------
and agreements of this Lease shall be binding upon and subject to Section 16
above, benefit Landlord, Tenant and their respective heirs, administrators,
executors, successors and assigns, and upon any person or persons coming into
ownership or possession of any interest in the Premises by operation of law or
otherwise.

          (d)    Tenant Authority and Liability. Tenant warrants that this Lease
                 ------------------------------
has been duly authorized, executed and delivered by Tenant, and Tenant has the
requisite power and authority to enter into this Lease and perform its
obligations hereunder. Tenant covenants to provide Landlord with evidence of its
authority and the authorization of this Lease upon request. All persons and
entities named as Tenant herein shall be jointly and severally liable for
Tenant's liabilities, covenants and agreements under this Lease.

          (e)    Brokers' Commission. Tenant represents that it has not dealt
                 -------------------
with any broker, agent or finder in connection with this Lease other than the
brokers listed in Section 1 of this Lease, if any, and Tenant agrees to
indemnify and hold Landlord harmless from all damages, judgments, liabilities,
claims and expenses (including attorneys' fees) arising out of or in connection
with any claim or demand of any other broker, agent or finder with whom Tenant
has dealt for any commission or fee alleged to be due in connection with its
participation in the procurement of Tenant or the negotiation of this Lease.

          (f)    Partial Invalidity. If any court determines that any provision
                 ------------------
of this Lease or the application thereof to any person or circumstance is, to
any extent, invalid or unenforceable, the remainder of this Lease, or
application of such provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each other term, covenant or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.

          (g)    Recording. Tenant shall not record this Lease nor a memorandum
                 ---------
of this Lease without the prior written consent of Landlord.

                                     -30-
<PAGE>

          (h)    Force Majeure. Neither party shall be deemed in default under
                 -------------
this Lease for failing to perform its duties or obligations under this Lease if
such failure is due to causes beyond its reasonable control, including but not
limited to acts of God, acts of civil or military authorities, fires, floods,
windstorms, earthquakes, strikes or labor disturbances, civil commotion, delays
in transportation, governmental delays or war; provided, nothing in this Section
27(h) shall limit or otherwise modify or waive Tenant's obligation to pay Base
Rent and Additional Rent as and when due pursuant to the terms of this Lease.

          (i)    Name of Complex and Building. Landlord may change the name of
                 ----------------------------
the Complex and the building at any time. Any such change shall not require
amendment of this Lease or affect in any way Tenant's obligations under this
Lease, and except for the name change, all terms and conditions of this Lease
shall remain in full force and effect.

          (j)    Headings. The section headings used in this Lease are used for
                 --------
purposes of convenience and do not alter or limit in any manner the content of
the sections. Whenever appropriate from the context, the use of any gender shall
include any other or all genders, and the singular shall include the plural, and
the plural shall include the singular.

          (k)    Execution by Landlord and Tenant; Approval of Lender. Landlord
                 ----------------------------------------------------
shall not be deemed to have made an offer to Tenant by furnishing Tenant with a
copy of this Lease with particulars inserted. No contractual or other rights
shall exist or be created between Landlord and Tenant until all parties have
executed this Lease and, if specified in writing by Landlord, until it has been
approved in writing by a Lender and fully executed copies have been delivered to
Landlord and Tenant. Tenant agrees to make such changes herein as may be
reasonably requested by a Lender, so long as such changes do not increase Base
Rent and Additional Rent due from Tenant or otherwise materially alter Tenant's
rights or obligations hereunder.

          (l)    Transportation Management Programs; Recycling. Tenant shall
                 ---------------------------------------------
cooperate with Landlord in meeting the objectives and complying with the terms
and conditions of any transportation management plan now or hereafter instituted
by any governmental authority and applicable to the Building or the Complex.
Landlord will provide Tenant with notice of any such transportation plan now or
hereafter in effect. In addition, Tenant will cooperate with and participate in
any and all recycling programs now or hereafter in place with respect to the
Building or the Complex, whether or not governmentally mandated, if all tenants
of the Building or the Complex are requested to participate.

          (m)    Financial Statements. Within ten (10) days after Landlord's
                 --------------------
request therefor, Tenant shall deliver to Landlord such current financial
statements regarding Tenant as Landlord may reasonably request. Tenant shall
certify the accuracy of such statements. Landlord may make the financial
statements available to potential lenders or purchasers, but shall otherwise
preserve their confidentiality except in connection with legal proceedings
between the parties or as otherwise directed by court rule or order. Before
providing such financial

                                     -31-
<PAGE>

statements to third parties, Landlord will obtain a confidentiality agreement
(with terms reasonably acceptable to Tenant) from such persons or entities.

          (n)  Tax on Rent. The Base Rent and Additional Rent charged herein is
               -----------
exclusive of any sales, business and occupation, gross receipts or other tax
based on rents, or tax on Tenant's property or tax upon or measured by the
number of employees of Tenant, or any similar tax or charge. If any such tax or
charge be hereinafter enacted, and imposed upon Landlord, Tenant shall pay
Landlord the amount thereof concurrently with each monthly rent payment. If it
shall not be lawful for Tenant so to reimburse Landlord, the monthly rent
payable to Landlord under this Lease shall be revised to net Landlord the same
net rental after imposition of any such tax or charge upon Landlord as would
have been payable to Landlord prior to the imposition of such tax or charge.
Tenant shall not be liable to reimburse Landlord for any federal income tax or
other income tax of a general nature applicable to Landlord's income.

          (o)  Light, Air and View. Landlord does not guarantee the continued
               -------------------
present status of light or air over any property adjoining or in the vicinity of
the Building or the Complex. Any diminution or shutting off of light, air or
view by any structure which may be erected near or adjacent to the Building or
the Complex shall in no way affect this Lease or impose any liability on
Landlord.

          (p)  Entire Agreement; Applicable Law.  This Lease and the attached
               --------------------------------
exhibits set forth the entire agreement of Landlord and Tenant concerning the
Premises and the Building, and there are no other agreements or understanding,
oral or written, between Landlord and Tenant concerning the Premises or the
Building. Any subsequent modification or amendment of this Lease shall be
binding upon Landlord and Tenant only if reduced to writing and signed by them.
This Lease shall be governed by, and construed in accordance with the laws of
the State of Washington. Venue for any action under this Lease shall be in King
County, Washington.

          (q)  Business Days. The term "business days" as used in this Lease
               -------------
means a weekday (i.e., Monday through Friday) other than a holiday observed by
Landlord or Tenant.

     SECTION 28. Additional Lease Provisions.
                 ---------------------------

          (a)  Rooftop Equipment.
               -----------------

               (i)    Subject to the terms of this Section 28(a), Tenant, at its
sole costs and expense, shall have a non-exclusive license to install on the
roof of the Building, a satellite dish or antenna and related communication
equipment using signal strength similar to such equipment commonly located on
the rooftops of comparable office buildings in the East and South King County
areas (the "equipment"). Prior to installation, in addition to the location of
the Equipment, Landlord must approve, which approval will not be unreasonably
withheld: (1) the Equipment; (2) drawings submitted by Tenant showing the
Equipment to be installed,

                                      -32-
<PAGE>

method of installation, connectors to electrical services, conduit to the
Premises in the Building, and such other information concerning the
installation, use and maintenance of the Equipment which Landlord may request;
and (3) the contractor selected by Tenant to install the Equipment, and the
terms of the contract between Tenant and its contractor. If required by
Landlord, Tenant shall use Landlord's roofing contractor during the installation
of the Equipment. The installation work shall be done in a manner which does not
invalidate any roof warranty then in effect, and Tenant will repair any damage
to the roof or roof structure caused by such installation. The Equipment may be
used only for Tenant's own communications needs and on a non-fee basis;
provided, however, Tenant may propose the installation of additional Equipment
for commercial purposes, for interfacing with satellite services and for the
placement of other transmission and reception facilities, subject to Landlord
and Tenant agreeing in writing on the extent of such additional Equipment, and a
monthly fee for the use of the roof of the Building for such purposes. Tenant
shall obtain (through Landlord or with Landlord's approval) all permits and
approvals required by any governmental entities to install, operate or maintain
the Equipment. At its sole cost and expense, Tenant shall maintain the Equipment
and comply with all the laws, rules, regulations, ordinances and standards of
all governmental authorities having jurisdiction over the Equipment or the
Building. Tenant shall be responsible for all roof repair and additional
maintenance costs, if any, attributable to the Equipment and Tenant's use of the
Building roof pursuant to this Section 28(a). Tenant shall pay for all utilities
used or consumed in connection with the Equipment; pay all personal property
taxes, if any, separately assessed with respect to the Equipment; and if and to
the extent the Equipment is assessed for tax purposes as part of the Building or
Landlord's personal property, reimburse Landlord within thirty (30) days of
Landlord's written demand for all additional taxes, if any, attributable to the
Equipment as reasonably determined by Landlord.

               (ii) Installation, maintenance and use of the Equipment shall not
in any way interfere with the systems of the Building or the Complex or the
quiet enjoyment by any other tenant or occupant of the Building or the Complex,
including without limitation the use of computers, television, radio, telephone
and other communications equipment and any other communications apparatus now or
hereafter located on the roof of the Building or elsewhere in the Complex. If
Landlord receives complaints regarding interference with reception from another
tenant, and Landlord reasonably believes the source of the interference is the
Equipment, Tenant shall take all steps necessary to stop the interference.
Within thirty (30) days following expiration or earlier termination of this
Lease, Tenant shall remove the Equipment, repair any damage caused by such
removal and restore the roof and any other affected areas of the Building to a
condition at least as good as its condition immediately prior to the
installation of the Equipment, ordinary wear and tear excepted. If Tenant fails
to so remove the Equipment and restore the Building, Landlord may do so on
Tenant's behalf, and Tenant shall within ten (10) days after demand pay to
Landlord the actual costs incurred by Landlord in so doing. Landlord agrees to
permit Tenant reasonable access to the roof and other Common Areas of the
Building to facilitate the installation, use and maintenance of the Equipment
and the removal of the Equipment. Any Equipment so installed shall be installed
and used at Tenant's sole risk, and in

                                      -33-
<PAGE>

no event shall Landlord be liable under any circumstances for any damage to the
Equipment or loss of use related to the Equipment, except to the extent the
damage is the result of the negligence or intentional misconduct of Landlord.
Nothing in this Section 28(a) is intended to create any exclusive right in favor
of Tenant to use the roof of the Building or any other portion of the Complex
for telecommunications equipment or otherwise. At the request of Landlord,
Tenant will cooperate with Landlord in relocating the Equipment to another
location on the roof of the Building or elsewhere in the Complex so long as
Landlord pays the reasonable cost of such relocation.

         (b)   Back-up Power.
               -------------

               (i)  Subject to the terms of this Section 28(b), Tenant, at its
sole costs and expense, shall have a non-exclusive right to install an emergency
power generator (the "Generator") and an associated uninterrupted power supply
switching facility (the "UPS") at a mutually acceptable location in the Complex
adjacent to the Building. Prior to installation, in addition to the location,
Landlord must approve: (1) the Generator and UPS, (2) drawings submitted by
Tenant showing the Generator and UPS to be installed, method of installation,
connectors to electrical services, conduit to the Premises, and such other
information concerning the installation, use and maintenance of the Generator
and UPS which Landlord may request, and (3) the contractor selected by Tenant to
install the Generator and UPS, and the terms of the contract between Tenant and
its contractor. The Generator and UPS shall be painted in a color approved by
Landlord to match the adjacent improvements and shall be surrounded by an
acoustic shield. Tenant shall obtain (through Landlord or with Landlord's
approval) all permits and approvals required by any governmental entities to
install, operate or maintain the Generator and UPS. At its sole cost and
expense, Tenant shall maintain the Generator and UPS and comply with all the
laws, rules, regulations, ordinances and standards of all governmental
authorities having jurisdiction over the Building. Tenant shall be responsible
for all additional maintenance costs, if any, attributable to the use, operation
or maintenance of the Generator and UPS. Tenant shall pay for all utilities used
or consumed in connection with the Generator and UPS; pay all personal property
taxes, if any, separately assessed with respect to the Generator and UPS; and if
and to the extent the Generator and UPS is assessed for tax purposes as part of
the Building or Landlord's personal property, reimburse Landlord within thirty
(30) days of Landlord's written demand for all additional taxes, if any,
attributable to the Generator and UPS. The Generator and UPS shall be used only
for periodic testing and in the event Tenant's primary electrical service is
interrupted. All testing shall take place at times acceptable to Landlord to
minimize interference with other tenants. The Generator and UPS shall be used
for backup power for Tenant only, and may not be used as a primary power source
for Tenant or by any other person or entity.

               (ii) Installation, maintenance and use of the Generator and UPS
shall not in any way interfere with the systems of the Building or the Complex
or the quiet enjoyment by any other tenant or occupant of the Building or the
Complex. Tenant shall within thirty (30) days following expiration or earlier
termination of the Lease, remove the Generator and UPS,

                                      -34-
<PAGE>

repair any damage caused by such removal and restore the affected areas of the
Building or the Complex to a condition at least as good as its condition
immediately prior to the installation of the Generator and UPS, ordinary wear
and tear excepted. If Tenant fails to so remove the Generator and UPS and
restore the Building or the Complex, Landlord may do so on Tenant's behalf, and
Tenant shall within ten (10) days after demand pay to Landlord the actual costs
incurred by Landlord in so doing. Landlord agrees to permit Tenant reasonable
access to the Common Areas of the Building or the Complex to facilitate the
installation, use and maintenance of the Generator and UPS and the removal of
the Generator and UPS. Any Generator and UPS so installed shall be installed and
used at Tenant's sole risk, and in no event shall Landlord be liable under any
circumstances for any damage to the Generator and UPS or loss of use related to
the Generator and UPS.

          (c)  Security. Landlord shall provide key-card access to the elevators
               --------
and entrances to the Building. Key access will be provided to the Premises;
however, Tenant may install its own security surveillance systems restricting
access to the Premises so long as Landlord is given reasonable access to the
Premises in order to perform its obligations under this Lease or in the event of
an emergency.

          (d)  Landlord's Representation and Warranties. Landlord represents and
               ----------------------------------------
warrants to Tenant that to the best of Landlord's knowledge:

               (i)    The Building is "Year 2000 Compliant" (i.e., the Building
systems are able to perform date-sensitive functions after December 31, 1999).

               (ii)   No Hazardous Substances are or have been in the past
generated, treated, stored or discharged on or at the Premises or Building
except in accordance with applicable laws.

               (iii)  The Building and the Common Areas thereof have been
constructed in accordance with all applicable building codes and government
requirements in place at the time of construction.

               (iv)   The Building meets or exceeds all current ADA standard
requirements in place at the time of construction thereof.

     For purposes of the warranties and representations of Landlord set forth in
this Section 28(d), Landlord's knowledge shall be limited to matters within the
actual present knowledge of Jack Rader, the general manager of Landlord, with
respect to the Complex, without any independent investigation or obligation to
make inquiry of any other person. If any of the foregoing representations or
warranties are incorrect, any costs or expenses incurred by Landlord in
correcting the inaccuracies shall be borne by Landlord.

                                      -35-
<PAGE>

          (e)  Right to Terminate. If by December 31, 2000, there have not been
               ------------------
opened in the Complex an exercise facility with locker rooms and exercise
equipment, and a facility serving food, which are available for use by Tenant's
employees, then so long as Tenant is not then in default under this Lease,
Tenant may elect to terminate this Lease by giving Landlord written notice of
Tenant's election to so terminate this Lease, which notice must be given before
such facilities are opened and in any event no later than February 28, 2001. If
Tenant so elects to terminate this Lease, (i) the termination shall be effective
as of the last day of the sixth (6/th/) full calendar month following the date
the termination notice is given to Landlord, and (ii) Tenant shall pay to
Landlord a termination fee equal to the unamortized balance of "Landlord's
Costs" (defined below), calculated as of the termination date. Within fifteen
(15) days after receiving Tenant's written termination notice Landlord will
provide Tenant with written notice of the amount of the termination fee and
Tenant shall pay the termination fee to Landlord within thirty (30) days after
receiving Landlord's written notice of the amount of the termination fee. For
purposes of determining the termination fee payable by Tenant pursuant to this
Section 28(e) and Section 28(g) below, Landlord's Costs will be amortized over
the initial Lease Term at an interest rate of eleven percent (11%) per annum.
For purposes of this Lease, the term "Landlord's Costs" means the sum of (1) the
real estate fees and commissions paid by Landlord in connection with this Lease,
and (2) the costs and expenses incurred by Landlord in making improvements to
the Premises pursuant to the Workletter, or otherwise.

          (f)  Risers; Conduit. Subject to Landlord's review and approval of
               ---------------
plans and specifications, including methods of installation and connection to
Building systems, and such other information as Landlord may request, Tenant at
its expense may (i) connect to any fiber optic lines under West Valley Highway
to the west of the Building, and (ii) install cable and conduits from the
adjacent street, the ground floor of the Building and the roof of the Building
to the Premises. Tenant, at its expense, shall be solely responsible for
obtaining any third party approvals (including governmental permits or licenses)
necessary in order for Tenant to do anything otherwise permitted pursuant to
this Section 28(f).

          (g)  Right of First Opportunity. From and after Tenant notifies
               --------------------------
Landlord in writing that Tenant needs additional space in the Building (an
"Expansion Notice"), Tenant shall have a right of first offer (the "RFO") to
lease any space in the Building which is adjacent and contiguous to the Premises
that becomes available for lease during the initial Lease Term (the "RFO
Space"). Tenant's rights to RFO Space shall be subject to the expansion and
extension rights of other tenant's of the Building, and space will not be
considered available if the tenant occupying the space agrees with Landlord to
extend the term of its lease of the space. From and after the date Tenant gives
the Expansion Notice to Landlord, and prior to leasing any RFO Space to a third
party, Landlord will first advise Tenant in writing (the "RFO Notice") of the
amount of any RFO Space which is available, and the terms and conditions on
which Landlord is prepared to lease the subject RFO Space to Tenant. If the RFO
Notice is given during the last thirty six (36) months of the initial Lease
Term, Landlord may require that the term of this Lease be extended (on mutually
acceptable terms and conditions) for up to five (5) years from the date Tenant
occupies the

                                      -36-
<PAGE>

RFO Space. Tenant shall have ten (10) business days after receiving an RFO
Notice to notify Landlord in writing that Tenant desires to lease all of the
subject RFO Space on the terms and conditions set forth in the RFO Notice. If
Tenant fails to timely notify Landlord of its interest in leasing all of the
subject RFO Space, Landlord shall be free to lease such space to any other
person or entity. If during the first twenty four (24) months of the Lease Term
Tenant has given an Expansion Notice to Landlord advising Landlord that Tenant
desires to lease 5,000 or more rentable square feet of space in the Building,
and Landlord is unable during such twenty four (24) month period to provide
Tenant with at least an additional 5,000 rentable square feet of additional
space in the Building on terms and conditions mutually acceptable to Landlord
and Tenant, then so long as Tenant is not in default under this Lease, Tenant
shall have a one-time right to terminate this Lease by giving a written
termination notice to Landlord, which notice must be given within two (2) months
following the end of such twenty four (24) month period. If Tenant so elects to
terminate this Lease, (i) the termination shall be effective as of the last day
of the sixth (6th) full calendar month following the date the termination notice
is given to Landlord, and (ii) Tenant shall pay to Landlord a termination fee
equal to the unamortized balance of Landlord's Costs, calculated as of the
termination date. Within fifteen (15) days after receiving Tenant's written
termination notice Landlord will provide Tenant with written notice of the
amount of the termination fee and Tenant shall pay the termination fee to
Landlord within thirty (30) days after receiving written notice of the amount of
the termination fee.

         DATED as of the day and year first indicated above.

                                    LANDLORD:

                                    INTRAROCK 1 LLC, a
                                    Delaware limited liability company

                                    By: Space Center East LLC, its manager

                                        By: Intracorp Real Estate, L.L.C.,
                                            member

                                              By: Intracorp Investments, L.L.C.,
                                              its manager

                                              By: /s/ Jack Rader
                                                 ------------------------------
                                                 Its GENERAL MANAGER
                                                    ---------------------------

[Signatures continued on next page]

                                      -37-
<PAGE>

                                 TENANT:

                                 PEERLESS SYSTEMS IMAGING PRODUCTS,
                                 INC., a Washington corporation

                                 By /s/ Gordon Hanson
                                    --------------------------------
                                  Its VP & GM
                                      ------------------------------

                                      -38-
<PAGE>

STATE OF WASHINGTON )

                    ) ss.

COUNTY OF KING      )

        On this 31/st/ day of March, 2000, before me, a Notary Public in and for
the State of Washington, duly commissioned and sworn, personally appeared Jack
Rader, to me known to be the General Manager of Intracorp Investments, L.L.C.,
manager of Intracorp Real Estate, L.L.C., member of Space Center East LLC, as
manager of INTRAROCK 1 LLC, the corporation named in and which executed the
foregoing instrument; and he/she acknowledged to me that he/she signed the same
as the free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned.

        I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.

        WITNESS my hand and official seal the day and year in this certificate

above written.

                                    /s/ Daniel A. Mathews
                                   --------------------------------------
                                    Signature

                                    Daniel A. Mathews
                                    --------------------------------------
                                    Print Name

                                    NOTARY PUBLIC in and for the State of
                                    Washington, residing at Bellevue, WA. My
                                    commission expires May 15, 2000.

NOTARY SEAL OF DANIEL A. MATHEWS.
COMMISSION EXPIRES
NOTARY PUBLIC 5-15-00
STATE OF WASHINGTON

                                      -39-
<PAGE>

STATE OF WASHINGTON )
                    ) ss.
COUNTY OF KING      )

         On this 17/th/ day of March, 2000, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn
personally appeared Gordon Hanson, known to me to be the VP and GM of PEERLESS
SYSTEMS IMAGING PRODUCTS, INC., the corporation that executed the foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the purposes therein mentioned, and on
oath stated that he/she was authorized to execute said instrument.

         I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.

         WITNESS my hand and official seal hereto affixed the day and year in
the certificate above written.

                                    /s/ Barbara J. Gelling
                                    ----------------------------------
                                    Signature

                                    Barbara J. Gelling
                                    ----------------------------------
                                    Print Name

                                    NOTARY PUBLIC in and for the State of
                                    Washington, residing at Seattle. My
                                    commission expires 11/29/03.

NOTARY SEAL OF BARBARA J. GELLING
COMMISSION EXPIRES
NOTARY PUBLIC 11-29-03
STATE OF WASHINGTON

                                      -40-
<PAGE>

                                   EXHIBIT A

                               LEGAL DESCRIPTION

Parcel 1 of Greenriver Corporate Park One Short Plat No. SPC-84-4 (SPC-84-6),
according to the Short Plat recorded under King County Recording No. 8410250437;
situated in the City of Kent, County of King, State of Washington.
<PAGE>

                                    EXHIBIT B

                                   FLOOR PLAN

                                  See Attached
<PAGE>

BUILDING 230
FOURTH FLOOR

<PAGE>

                                    EXHIBIT C

                                    SITE PLAN

                                  See Attached
<PAGE>

                        [MAP APPEARS HERE]
<PAGE>

                                    EXHIBIT D

                                   WORK LETTER

     This Exhibit D is attached to and made a part of the Office Lease dated as
of March 15, 2000, between INTRAROCK 1 LLC, a Delaware limited liability company
("Landlord") and PEERLESS SYSTEMS IMAGING PRODUCTS, INC. ("Tenant"). Defined
terms used in this Exhibit D will have the same meanings given them in the
Lease.

     1.   Base Building Improvements. At its sole cost and expense, Landlord
          --------------------------
will install new ceiling tile and fluorescent light fixtures throughout the
Premises, and new digital HVAC controls.

     2.   Tenant Improvements. Landlord agrees to make additional improvements
          -------------------
to the Premises in accordance with this Exhibit D (the "Tenant Improvements").
Design and construction of the Tenant Improvements will be provided at Tenant's
expense; however, Landlord shall pay the cost of the Tenant Improvements up to
an amount equal to Eighteen and 00/100 Dollars ($18.00) per rentable square foot
of the Premises (the "Tenant Allowance"). Landlord will make up to an additional
Ten and 00/100 Dollars ($10.00) per rentable square foot of the Premises
available to Tenant to pay for the costs of construction of the Tenant
Improvements (the "Additional Allowance") to the extent such costs exceed the
amount of the Tenant Allowance. If Tenant elects to use any of the Additional
Allowance, the amount so used by Tenant will amortized over the initial term of
this Lease at an interest rate equal to ten percent (10%) per annum, and the
monthly Base Rent will be increased by the amount of the monthly payments
necessary to fully amortize the Additional Allowance (or portion thereof used by
Tenant) over the initial Lease Term. If Tenant elects to terminate this Lease in
accordance with the terms of Sections 27(e) or 27(g) of the Lease, the
unamortized balance of the Additional Allowance will be due and payable in full.
Furthermore, Landlord agrees to make available to Tenant a space planning
allowance in the amount of $.15 per useable square foot of the Premises to pay
for costs associated with Tenant's design of the Tenant Improvements. The Tenant
Allowance will be applied only to the costs of construction of the Tenant
Improvements, and a coordination and administration fee to Landlord. The
coordination and administration fee to Landlord shall be in an amount equal to
three percent (3%) of the cost of constructing the Tenant Improvements. All work
will be performed by designers and contractors selected and engaged by Landlord.

     3.   Approval of Plans; Construction of Tenant Improvements.
          ------------------------------------------------------

          (a)  Preparation of Plans. Landlord and Tenant shall cooperate with
               --------------------
each other in the preparation of all plans and specifications for the Tenant
Improvements. All such plans and specifications must have the approval of both
Landlord and Tenant, which approval will not be unreasonably withheld or delayed
by either party. Complete plans and specifications and a

                                       -1-
<PAGE>

cost estimate for the Tenant Improvements will be approved by Landlord and
Tenant no later than thirty (30) days after the full execution of this Lease in
accordance with the procedure set forth in paragraph 3(b) below.

          (b)  Approval of Plans. Within five (5) days after the full execution
               -----------------
of the Lease, Tenant, at its expense, will provide Landlord's architect with
instructions sufficient to enable Landlord's architect to prepare complete plans
and specifications for the Tenant Improvements. Such plans and specifications
and a cost estimate for the Tenant Improvements will e prepared by Landlord's
architect and submitted to Landlord and Tenant for preliminary approval.
Landlord and Tenant shall use diligent efforts to approve or disapprove such
plans and specifications and cost estimate within ten (10) days after receipt
thereof. When the plans, specifications and cost estimate are so approved by
Landlord and Tenant, Landlord shall obtain from its general contractor a
quotation of the cost of the Tenant Improvements and, if Landlord approves such
quotation, it shall submit the same to Tenant for approval as the price to be
paid by Tenant to Landlord for the Tenant Improvements. Upon written approval of
such price by Tenant, Landlord and Tenant will be deemed to have given final
approval to the plans and specifications on the basis of which the quotation was
made, and Landlord will be authorized to proceed with the improvement of the
Premises in accordance with such plans and specifications. If Tenant disapproves
such price or fails to approve or disapprove such price within five (5) days
after Landlord provides such price to Tenant, Landlord will not be obligated to
commence work on the Premises until such time as Landlord and Tenant approve a
price for the Tenant Improvements, and Tenant will be responsible for any costs
due to any resulting delay in completion of the Premises.

          (c)  Payments. Prior to commencement of the Tenant Improvements and if
               --------
the price for such Tenant Improvements is greater than the Tenant Allowance,
Tenant shall deposit with Landlord any additional cost above the Tenant
Allowance (the "Additional Cost Deposit"), unless Tenant elects to use all or
any portion of the Additional Allowance, in which case Tenant shall deposit with
Landlord any additional cost above the sum of the Tenant Allowance and the
amount of the Additional Allowance which Tenant has elected to use. Landlord's
contractor will complete the Tenant Improvements in accordance with the approved
final plans and specifications. Payments for the Tenant Improvements will be
made as follows: (i) first, by application of the Additional Cost Deposit; (ii)
second , by application of the entire Tenant Allowance provided by Landlord
against the monthly progress payments due; (iii) third, by application of any
portion of the Additional Allowance which Tenant has elected to use, and (iv)
fourth, Tenant shall pay, within ten (10) days after receipt of monthly progress
statements from Landlord, the full amount of such progress billings.

          (d)  Modifications. If Tenant requests any change after the plans and
               -------------
specifications are approved, Tenant shall request such change in writing to
Landlord and such request will be accompanied by all plans and specifications
necessary to show and explain changes from the approved final plans and
specifications. After receiving this information,

                                       -2-
<PAGE>

Landlord will give Tenant, within five (5) business days, a written price for
the cost of engineering design services and an estimate of construction costs to
incorporate the change in Tenant's final plans and specifications. If Tenant
approves of such price in writing within five (5) business days, Landlord will
have such changes made to engineering drawings in final plans and
specifications. Within five (5) business days after completion of such changes
in the final plans and specifications, Landlord will provide Tenant a written
breakdown of the final costs which will be chargeable or credited to Tenant for
such change and any impact such change will have on the schedule of
construction. If Tenant wishes to proceed with such change, Tenant shall, within
five (5) business days, so notify Landlord in writing. In the absence of such
notice, Landlord shall proceed in accordance with the previously approved final
plans and specifications before such change was requested. Tenant will be
responsible for any resulting delay in completion of the Premises due to
modification of final plans and specifications. Tenant will also be responsible
for any demolition work required as a result of the change.

          4.   Other Work by Tenant. All work not within the scope of the normal
               --------------------
construction trades employed on the Building, such as installation of draperies
(other than building standard window coverings), furniture, telephone equipment
and wiring and office equipment will be furnished and installed by Tenant at
Tenant's expense. Tenant shall adopt a schedule in conformance with the schedule
of Landlord's contractors and conduct its work in such a manner as to maintain
harmonious labor relations and as not to interfere unreasonably with or delay
the work of Landlord's contractors. Any movers or other laborers used by Tenant
must be approved by Landlord and will be subject to the administrative
supervision of Landlord's general contractor. Landlord will give access and
entry to the Premises to Tenant to enable Tenant to adapt the Premises for
Tenant's use provided, however, that such entry is prior to the commencement of
the term of this Lease. Such entry shall be subject to Section 3(b) of the
Lease.

          5.   Representatives. Landlord and Tenant shall each appoint a
               ---------------
representative to act in all matters associated with this workletter. All
inquiries, requests, instructions, authorizations and other communications with
respect to the matters covered by this workletter will be made to Landlord's
representative or Tenant's representative, as applicable. Tenant will not make
any inquiries of or requests to and will not give any instructions or
authorizations to any employee or agent of Landlord including, without
limitation, Landlord's architect, engineers and contractors or any of their
agents or employees with regard to matters associated with this workletter.
Either party may change its representative under this workletter at any time by
providing three (3) days prior written notice to the other party.

                                       -3-
<PAGE>

                                    EXHIBIT E

                              ESTOPPEL CERTIFICATE

          THIS ESTOPPEL CERTIFICATE (this "Certificate") is made this _____ day
of _______________, ________, by ____________________________, a
_________________ ("Tenant"), to and for the benefit of INTRAROCK 1 LLC
("Landlord") and ______________________________, a ________________________
("Purchaser") [("Lender")].

                                    Recitals
                                    --------
          A.     Tenant is the tenant under that certain Office Lease, dated as
of _______________, as amended by _______________________________ (as so
amended, the "Lease"), covering certain premises located at
_______________________________, as more particularly defined and described in
the Lease (the "Leased Premises"); and

          B.     Purchaser [Lender] intends to purchase [make a loan secured by]
certain property, including the Leased Premises (the "Property") from the
Landlord; and

         C.     Purchaser [Lender] has requested that Tenant provide certain
certifications with respect to the Lease which Purchaser [Lender] will rely on
in connection with its acquisition of [loan secured by] the Property;

                                  Certification
                                  -------------
         NOW, THEREFORE, Tenant hereby certifies to Purchaser [Lender] as
follows:

         (a)    That Tenant is the tenant under the Lease;

         (b)    That attached hereto as Exhibit A is a true, correct and
                                        ---------
complete copy of the Lease, that the Lease has not been modified, changed,
altered, or amended in any respect except as expressly set forth in Exhibit A,
                                                                    ---------
constitutes the entire agreement between Tenant and the Landlord with respect to
the Leased Premises and has been duly executed and delivered on behalf of Tenant
pursuant to proper authority therefor;

         (c)    That any work and all other improvements to the Leased Premises
required to be furnished or constructed by the Landlord pursuant to the terms of
the Lease have been completed to Tenant's satisfaction, that Tenant has accepted
the Leased Premises, and that the term of the Lease commenced on
_________________. The term of the lease expires on _____________________, and
Tenant has the following options to extend the term of the lease (if none,
insert "none"): __________________;

                                       -1-
<PAGE>

         (d)   That the fixed minimum net rent for the Leased Premises is
currently $_____________ per month and the additional rent is currently
$__________________ per month, and has been paid to and including
____________________, 1999 and that there has been no prepayment of rent or
other amounts due under the Lease other than that provided for in the Lease for
the calendar month of this Certificate;

         (e)   That there are $_________ in security deposits held under the
Lease;

         (f)   That Tenant has no options to purchase or lease the Property and
no rights of first offer or rights of first refusal with respect thereto, except
as otherwise set forth in the Lease;

         (g)   That any of Tenant's rights of fist offer or rights of first
refusal applicable to the sale of the Property to Purchaser and any prohibition
on Landlord's right to transfer the Property have been waived;

         (h)   That, except as noted below, the Lease is in full force and
effect, that there exists no default nor state of facts which with notice or the
passage of time would constitute a default of Tenant thereunder or, to the
knowledge of Tenant, on the part of the Landlord thereunder, and Tenant has made
no claim against Landlord alleging Landlord's default under the Lease; Tenant
has no claims, counterclaims, defenses, or set-offs against Landlord arising
from the Lease or otherwise, nor is Tenant entitled to any rental concession,
rebate, allowance or free rent for any period after this certification;

         (i)   That there are no actions, whether voluntary or otherwise,
pending or, to the knowledge of Tenant, threatened, against Tenant under the
bankruptcy laws of the United States or any state thereof;

         (j)   No labor or materials have been supplied to the Leased Premises
at the request of, or on behalf of, Tenant for which full payment has not been
made; and

         (k)   The assignment of the Lease to Purchaser [Lender] does not
violate any of the terms of the Lease.

Tenant acknowledges and agrees that the Purchaser [Lender] shall be entitled to
rely on Tenant's certifications and agreements set forth herein.

                                [Tenant]
                                --------

                                By: /s/ Gordon Hanson
                                    ------------------------------

                                  Its: VP & GM
                                      -----------------------------

                                       -2-
<PAGE>

                                    EXHIBIT F

                                GUARANTY OF LEASE

     THIS GUARANTY OF LEASE (this "Guaranty") is made this 15th day of March,
2000.

     1.   Guaranty. As a material inducement to INTRAROCK 1 LLC, a Delaware
          --------
limited liability company ("LANDLORD"), to enter into a certain Office Lease
(the "LEASE"), dated March 15, 2000, between Landlord and PEERLESS SYSTEMS
IMAGING PRODUCTS, INC., a Washington corporation ("Tenant"), as tenant of the
premises known as Creekside One Building, located at 20415 - 72nd Avenue South
in Kent, King County, Washington, PEERLESS SYSTEMS CORPORATION, a Delaware
corporation, 2381 Rosecrans Avenue, El Segundo, CA 90245 USA (the "Guarantor")
unconditionally and irrevocably guarantees the full, complete and prompt
performance of each and every obligation on the part of Tenant to be performed
under the Lease by Tenant irrespective of the validity, binding effect, legality
or enforceability of the Lease or whether the Lease has been duly executed by
Tenant, or any other circumstance which might now or hereafter constitute a
legal or equitable discharge or defense of Guarantor. Guarantor acknowledges
that it will receive a direct financial benefit by virtue of the execution and
delivery of the Lease.

     2.   Independent Liability. Guarantor agrees that its liability hereunder
          ---------------------
is independent of the liability of Tenant, and its successors and assigns, as
tenant under the Lease, and that a separate action or actions may be brought and
prosecuted against Guarantor whether or not Tenant, or its successors and
assigns, is joined in any such action or actions and whether or not Landlord has
first pursued any or all other remedies to which it may also be entitled,
against Tenant or otherwise.

     3.   Landlord's Authority. Guarantor authorizes Landlord, without notice or
          --------------------
demand, from time to time without affecting Guarantor's obligations hereunder,
to: (i) compromise, extend or otherwise change or modify any and all of the
provisions of the Lease, including, but not by way of limitation, increasing or
reducing the rent thereunder or releasing Tenant as to all or any portion of the
obligations hereby guaranteed; (ii) from time to time, and without inquiry as to
financial condition, release any other guarantor from its obligations, or accept
additional or substituted security for the performance of any obligations hereby
guaranteed; or (iii) release or subordinate any security for the performance of
any obligation hereby guaranteed.

     4.   Actions Not Affecting Guarantor's Obligations. Guarantor's obligations
          ---------------------------------------------
under this Guaranty shall be a continuing liability and shall in no way be
affected or diminished by reason of (i) any extension of time or other
indulgence that may at any time, and from time to time, be granted by Landlord
to Tenant; (ii) the release or discharge of Tenant in any creditors'
receivership, bankruptcy or other proceeding; (iii) the impairment, limitation
or modification of

                                      -1-
<PAGE>

the liability or the obligations of Tenant or its trustee or receiver, or such
impairment, limitation or modification of Landlord's remedies by virtue of the
Bankruptcy Code or other statute or from a decision of any court including the
disaffirmance or rejection of the Lease in any such proceeding; (iv) the
assignment or other transfer of the Lease or its interest therein by Tenant; or
(v) the existence of any counterclaim, offset or other claim alleged by Tenant
in connections with Landlord's enforcement of its rights under this Guaranty.

     5.   Guarantor's Waivers. As further inducement to Landlord to enter into
          -------------------
the Lease and in consideration for it, Guarantor expressly waives (i) any right
to require Landlord to proceed against Tenant or any other guarantor, proceed
against any security held from Tenant or any other guarantor or proceed against
or exhaust any other remedy in Landlord's power, and (ii) any right to notice of
nonperformance on the part of Tenant except as expressly provided for in the
Lease.

     6.   Subordination. Any indebtedness of Tenant now or hereafter held by
          -------------
Guarantor is subordinated to the indebtedness of Tenant to Landlord without
reduction or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.

     7.   Termination of Guarantor's Obligations. This Guaranty will continue in
          --------------------------------------
effect until one day following the final payment and performance by Tenant under
the Lease.

     8.   Joint and Several Obligation. This Guaranty will be the joint and
          ----------------------------
several obligation of each of the undersigned, if there be more than one, and
will bind the individual and community property of each of them. Guarantor's
liability hereunder is coextensive with that of tenant and will be joint and
several.

     9.   Successors and Assigns. Guarantor's obligations hereunder will inure
          ----------------------
to the benefit of Landlord's successors and assigns, including by merger or
consolidation. Any reference in this Guaranty to Tenant includes the Tenant's
heirs and personal representatives.

     10.  Fees and Costs. If either party retains the services of an attorney in
          --------------
connection with enforcing the terms of this Guaranty, or if suit is brought for
the recovery of the Base Rent or Additional Rent due under this Guaranty or for
the breach of any covenant or condition of this Guaranty during the term of this
Guaranty or after the expiration thereof, the substantially prevailing party
therein will be entitled to recover from the other party the substantially
prevailing party's reasonable attorneys' fees, witness fees and other court
costs incurred in connection therewith.

     11.  Choice of Law/Venue. The validity and interpretation of this Guaranty
          -------------------
will be determined in accordance with the laws of the State of Washington. Venue
for any action hereunder shall be in King County, Washington.

                                      -2-
<PAGE>

     12.  Jurisdiction. Guarantor acknowledges and agrees that all disputes
          ------------
relating in any way to this Guaranty, including all actions to enforce this
Guaranty, will be dealt with and adjudicated in the state courts of Washington
or the federal court sitting in Washington; and Guarantor expressly and
irrevocably submits to the jurisdiction of such courts in any suit, action or
proceeding relating to this Guaranty.

     13.  Bankruptcy. Should Landlord be obligated by any bankruptcy or other
          ----------
law to repay Tenant or Guarantor or to any trustee or other representative any
amounts previously paid, then this Guaranty will be reinstated in the amount of
such repayment.

     14.  Notice. Any notice of demand hereunder must be in writing and will be
          ------
deemed given (i) when delivered personally, or (ii) two (2) days after being
sent by United States certified or registered mail, return receipt requested,
postage prepaid to the address of Guarantor at PEERLESS SYSTEMS CORPORATION, a
Delaware corporation, 2381 Rosecrans Avenue, El Segundo, CA 90245 USA, or (iii)
upon receipt if sent by private courier service guaranteeing next day delivery,
addressed to Guarantor at the aforementioned address. Guarantor may change the
address for purposes of this paragraph by delivering to Landlord written notice
of such chance in accordance with the terms of this paragraph.

                                        GUARANTOR:

                                        PEERLESS SYSTEMS CORPORATION

                                        /s/ CAROLYN M. MADUZA
                                        ----------------------------------
                                        Carolyn M. Maduza, Senior Vice President
                                        of Finance and Chief Financial Officer

                                      -3-
<PAGE>

                                GUARANTY OF LEASE

     THIS GUARANTY OF LEASE (this "Guaranty") is made this 15th day of March,
2000.

     1.   Guaranty. As a material inducement to INTRAROCK 1 LLC, a Delaware
          --------
limited liability company ("Landlord"), to enter into a certain Office Lease
(the "Lease"), dated March 15, 2000, between Landlord and PEERLESS SYSTEMS
IMAGING PRODUCTS, INC., a Washington corporation ("Tenant"), as tenant of the
premises known as Creekside One Building, located at 20415 - 72nd Avenue South
in Kent, King County, Washington, PEERLESS SYSTEMS CORPORATION, a Delaware
corporation, 2381 Rosecrans Avenue, El Segundo, CA 90245 USA (the "Guarantor")
unconditionally and irrevocably guarantees the full, complete and prompt
performance of each and every obligation on the part of Tenant to be performed
under the Lease by Tenant irrespective of the validity, binding effect, legality
or enforceability of the Lease or whether the Lease has been duly executed by
Tenant, or any other circumstance which might now or hereafter constitute a
legal or equitable discharge or defense of Guarantor. Guarantor acknowledges
that it will receive a direct financial benefit by virtue of the execution and
delivery of the Lease.

     2.   Independent Liability. Guarantor agrees that its liability hereunder
          ---------------------
is independent of the liability of Tenant, and its successors and assigns, as
tenant under the Lease, and that a separate action or actions may be brought and
prosecuted against Guarantor whether or not Tenant, or its successors and
assigns, is joined in any such action or actions and whether or not Landlord has
first pursued any or all other remedies to which it may also be entitled,
against Tenant or otherwise.

     3.   Landlord's Authority. Guarantor authorizes Landlord, without notice or
          --------------------
demand, from time to time, without affecting Guarantor's obligations hereunder,
to: (i) compromise, extend or otherwise change or modify any and all of the
provisions of the Lease, including, but not by way of limitation, increasing or
reducing the rent thereunder or releasing Tenant as to all or any portion of the
obligations hereby guaranteed; (ii) from time to time, and without inquiry as to
financial condition, release any other guarantor from its obligations, or accept
additional or substituted security for the performance of any obligations hereby
guaranteed; or (iii) release or subordinate any security for the performance of
any obligation hereby guaranteed .

     4.   Actions Not Affecting Guarantor's Obligations. Guarantor's obligations
          ---------------------------------------------
under this Guaranty shall be a continuing liability and shall in no way be
affected or diminished by reason of (i) any extension of time or other
indulgence that may at any time, and from time to time, be granted by Landlord
to Tenant; (ii) the release or discharge of Tenant in any creditors'
receivership, bankruptcy or other proceeding; (iii) the impairment, limitation
or modification of the liability or the obligations of Tenant or its trustee or
receiver, or such impairment, limitation or modification of Landlord's remedies
by virtue of the Bankruptcy Code or other statute or from a decision of any
court including the disaffirmance or rejection of the Lease in any such
proceeding; (iv) the assignment or other transfer of the Lease or its interest
therein by Tenant; or

                                        1
<PAGE>

(v) the existence of any counterclaim, offset or other claim alleged by Tenant
in connections with Landlord's enforcement of its rights under this Guaranty.

     5.   Guarantor'S waivers. As further inducement to Landlord to enter into
          -------------------
the Lease and in consideration for it, Guarantor expressly waives (i) any right
to require Landlord to proceed against Tenant or any other guarantor, proceed
against any security held from Tenant or any other guarantor or proceed against
or exhaust any other remedy in Landlord's power, and (ii) any right to notice of
nonperformance on the part of Tenant except as expressly provided for in the
Lease.

     6.   Subordination. Any indebtedness of Tenant now or hereafter held by
          -------------
Guarantor is subordinated to the indebtedness of Tenant to Landlord without
reduction or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.

     7.   Termination of Guarantor's Obligations. This Guaranty will continue in
          ---------------------------------------
effect until one day following the final payment and performance by Tenant under
the Lease.

     8.   Joint and Several Obligation. This Guaranty will be the joint and
          ----------------------------
several obligation of each of the undersigned, if there be more than one, and
will bind the individual and community property of each of them. Guarantor's
liability hereunder is coextensive with that of tenant and will be joint and
several.

     9.   Successors and Assigns. Guarantor's obligations hereunder will inure
          ----------------------
to the benefit of Landlord's successors and assigns, including by merger or
consolidation. Any reference in this Guaranty to Tenant includes the Tenant's
heirs and personal representatives.

     10.  Fees and Costs. If either party retains the services of an attorney in
          --------------
connection with enforcing the terms of this Guaranty, or if suit is brought for
the recovery of the Base Rent or Additional Rent due under this Guaranty or for
the breach of any covenant or condition of this Guaranty during the term of this
Guaranty or after the expiration thereof, the substantially prevailing party
therein will be entitled to recover from the other party the substantially
prevailing party's reasonable attorneys' fees, witness fees and other court
costs incurred in connection therewith.

     11.  Choice of Law/Venue. The validity and interpretation of this Guaranty
          -------------------
will be determined in accordance with the laws of the State of Washington. Venue
for any action hereunder shall be in King County, Washington.

     12.  Jurisdiction. Guarantor acknowledges and agrees that all disputes
          ------------
relating in any way to this Guaranty, including all actions to enforce this
Guaranty, will be dealt with and adjudicated in the state courts of Washington
or the federal court sitting in Washington; and Guarantor expressly and
irrevocably submits to the jurisdiction of such courts in any suit, action or
proceeding relating to this Guaranty.

     13.  Bankruptcy. Should Landlord be obligated by any bankruptcy or other
          ----------
law to repay Tenant or Guarantor or to any trustee or other representative any
amounts previously paid, then this Guaranty will be reinstated in the amount of
such repayment.

                                        2
<PAGE>

     14.  Notice. Any notice of demand hereunder must be in writing and will be
          ------
deemed given (i) when delivered personally, or (ii) two (2) days after being
sent by United States certified or registered mail, return receipt requested,
postage prepaid to the address of Guarantor at PEERLESS SYSTEMS CORPORATION, a
Delaware corporation, 2381 Rosecrans Avenue, El Segundo, CA 90245 USA, or (iii)
upon receipt if sent by private courier service guaranteeing next day delivery,
addressed to Guarantor at the aforementioned address. Guarantor may change the
address for purposes of this paragraph by delivering to Landlord written notice
of such chance in accordance with the terms of this paragraph.

                                GUARANTOR:

                                PEERLESS SYSTEMS CORPORATION

                                /s/ CAROLYN M. MADUZA
                                -------------------------------------
                                Carolyn M. Maduza, Senior Vice President
                                of Finance and Chief Financial Officer

                                        3
<PAGE>

                                    EXHIBIT G
                           CONFIRMATION OF LEASE TERMS

Date:     _______________________________

Tenant:   _______________________________

Address:  _______________________________

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

     RE:  Confirmaton of Lease Terms with respect to that certain Office Lease
          (the "Lease") dated ____________________, ______ by and between
          INTRAROCK 1 LLC, a Delaware limited liability company, as Landlord,
          and ______________________________, as Tenant, for ________ square
          feet of Rentable Area on the _________ floor of Building _______
          located at _______________, Kent, Washington.

Dear __________:

     In accordance with the terms and conditions of the above referenced
Lease, Tenant accepts possession of the Premises and agrees as follows:

     1.   The Commencement Date of the Lease is _____________________;

     2.   The Termination Date of the Lease is ________________________.

     3.   The rentable area of the Premises is __________ square feet.

     Please acknowledge your acceptance of possession and agreement to the terms
set forth above by signing all three (3) copies of this Commencement Letter in
the space provided and returning two (2) fully executed copies of the same to my
attention.

                                        Sincerely,

                                        Property Manager

Agreed and Accepted:
Tenant:  PEERLESS SYTEMS IMAGING PRODUCTS
         --------------------------------
By:   /s/ GORDON HANSON
      -----------------------------------
Name: Gordon Hanson
      -----------------------------------
Title: VP & GM
      -----------------------------------

Date:  3/17/00
     ------------------------------------

                                       -1-
<PAGE>

                                    EXHIBIT H

                              RULES AND REGULATIONS

     The following rules and regulations apply to the Premises, the Building,
the Land, the Complex and the appurtenances under that certain Office Lease
dated _______________, 2000 (the "Lease") between INTRAROCK 1 LLC, as Landlord
and PEERLESS SYSTEMS IMAGING PRODUCTS, INC. as Tenant. Capitalized terms have
the same meaning as defined in the Lease.

1.   No signs, advertisements or notices may be painted or affixed to windows,
     doors or other parts of the Building, except those of such color, size,
     style and in such places as are first approved in writing by Landlord. Any
     tenant identification and suite numbers at the entrance to the Premises
     shall be installed by Landlord, at Tenant's cost and expense, using the
     standard graphics for the Building. Except in connection with the hanging
     of lightweight pictures and wall decorations, no nails, hooks or screws may
     be inserted into any part of the Premises or Building except by the
     Building maintenance personnel.

2.   Plumbing fixtures and appliances may be used only for the purposes for
     which designed, and no sweepings, rubbish, rags or other unsuitable
     material may be thrown or placed in the fixtures or appliances. Damage
     resulting to fixtures or appliances by Tenant, its agents, employees or
     invitees, must be paid for by Tenant, and Landlord will not be responsible
     for the damage.

3.   Landlord will have the right to approve the weight, size, or location of
     heavy equipment or articles in and about the Premises. Damage to the
     Building by the installation, maintenance, operation, existence or removal
     of property of Tenant will be repaired at Tenant's sole expense.

4.   Landlord may provide and maintain in the first floor (main lobby) of the
     Building an alphabetical directory board or other directory device listing
     tenants, and no other directory will be permitted unless previously
     consented to by Landlord in writing.

5.  Tenant shall not place any lock(s) on any door in the Premises or Building
    without Landlord's prior written consent and Landlord will have the right to
    retain at all times and to use keys to all locks within and into the
    Premises. A reasonable number of keys to the locks on the entry doors in the
    Premises will be furnished by Landlord to Tenant at Tenant's cost, and
    Tenant shall not make any duplicate keys. All keys must be returned to
    Landlord at the expiration or early termination of this Lease.

6.   All contractors, contractor's representatives and installation technicians
     performing work in the Building will be subject to Landlord's prior
     approval and shall be required to

                                       -2-
<PAGE>

     comply with Landlord's standard rules, regulations, policies and
     procedures, which may be revised from time to time.

7.   Movement in or out of the Building of furniture or office equipment, or
     dispatch or receipt by Tenant of merchandise or materials requiring the use
     of elevators, stairways, lobby areas or loading dock areas, will be
     restricted to hours designated by Landlord. Tenant shall obtain Landlord's
     prior approval by providing a detailed listing of the activity. If approved
     by Landlord, the activity will be under the supervision of Landlord and
     performed in the manner required by Landlord. Tenant shall assume all risk
     for damage to articles moved and injury to any persons resulting from the
     activity. If equipment, property, or personnel of Landlord or of any other
     party is damaged or injured as a result of or in connection with the
     activity, Tenant shall be solely liable for any resulting damage or loss.

8.   Tenant shall not obstruct sidewalks, doorways, vestibules, halls, stairways
     and other similar areas nor will such areas be used by Tenant for any
     purpose other than ingress and egress to and from the Premises. No rubbish,
     litter, trash, or material may be placed, emptied, or thrown in those
     areas. Tenant will not permit Tenant's employees to loiter in Common Areas
     or elsewhere about the Building or Complex.

9.   Tenant shall not: (a) make or permit any improper or objectionable noises
     or odors in the Building; (b) solicit business or distribute, or cause to
     be distributed, in any portion of the Building, handbills, promotional
     materials or other advertising; or (c) conduct or permit other activities
     in the Building that might, in Landlord's sole opinion, constitute a
     nuisance.

10.  No animals, except those assisting handicapped persons, will be brought
     into the Building or kept in or about the Premises.

11.  No flammable, explosive or dangerous fluids or substances will be used or
     kept by Tenant in the Premises, Building or about the Complex. Tenant shall
     not, without Landlord's prior written consent, use, store, install, spill,
     remove, release or dispose of, within or about the Premises or any other
     portion of the Complex, any asbestos-containing materials or any solid,
     liquid or gaseous material now or subsequently considered toxic or
     hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any
     other applicable federal, state or local environmental law which may now or
     later be in effect. Tenant shall comply with all laws pertaining to and
     governing the use of these materials by Tenant, and shall remain solely
     liable for the costs of abatement, removal and clean-up.

12.  Tenant shall not use or occupy the Premises in any manner or for any
     purpose which might injure the reputation or impair the present or future
     value of the Premises, the

                                       -3-
<PAGE>

     Building or the Complex. Tenant shall not use, or permit any part of the
     Premises to be used, for lodging, sleeping or for any illegal purpose.

13.  Deliveries to and from the Premises may be made only at the times, in the
     areas and through the entrances and exits designated by Landlord. Tenant
     shall not make deliveries to or from the Premises in a manner that might
     interfere with the use by any other tenant of its premises or of the Common
     Areas, any pedestrian use, or any use which is inconsistent with good
     business practice.

14.  Tenant shall not take any action which would violate Landlord's labor
     contracts or which would cause a work stoppage, picketing, labor disruption
     or dispute, or interfere with Landlord's or any other tenant's or
     occupant's business or with the rights and privileges of any person
     lawfully in the Building. Tenant shall take all actions necessary to
     resolve any labor disruptions, and shall have pickets removed and, at the
     request of Landlord, immediately terminate any work in the Premises that
     gave rise to any labor disruption, until Landlord gives its written consent
     for the work to resume. Tenant shall have no claim for damages against
     Landlord, nor will the date of the commencement of the Term be extended as
     a result of the above actions.

15.  Tenant shall not install, operate or maintain in the Premises or in any
     other area of the Building, electrical equipment that would overload the
     electrical system beyond its capacity for proper, efficient and safe
     operation as determined solely by Landlord. Tenant shall not furnish
     cooling or heating to the Premises, including, without limitation, the use
     of electronic or gas heating devices, without Landlord" prior written
     consent. Tenant shall not use more than its proportionate share of
     telephone lines and other telecommunication facilities available to service
     the Building.

16.  Tenant shall not operate or permit to be operated a coin or token operated
     vending machine except for machines for the exclusive use of Tenant's
     employees, and then only if the operation does not violate the lease of any
     other tenant in the Building.

17.  Bicycles and other vehicles are not permitted inside the Building or on the
     walkways outside the Building, except in areas designated by Landlord.

18.  Landlord may from time to time adopt systems and procedures for the
     security and safety of the Building, its occupants, entry, use and
     contents. Tenant, its agents, employees, contractors, guests and invitees
     shall comply with Landlord's systems and procedures.

19.  Landlord will have the right to prohibit the use of the name of the
     Building or any other publicity by Tenant that in Landlord's sole opinion
     may impair the reputation of the Building. Upon written notice from
     Landlord, Tenant shall refrain from and discontinue such publicity
     immediately.

                                    -4-

<PAGE>

20.  Tenant shall not canvass, solicit or peddle in or about the Building or the
     Property.

21.  Neither Tenant nor its agents, employees, contractors, guests or invitees
     shall smoke or permit smoking in the Common Areas, unless the Common Areas
     have been declared a designated smoking area by Landlord, nor shall the
     above parties allow smoke from the Premises to emanate into the Common
     Areas or any other part of the Building. Landlord will have the right to
     designate the Building (including the Premises) as a non-smoking building.

22.  Landlord will have the right to establish further rules to assure the
     Building presents a uniform exterior appearance.

                                       -5-
<PAGE>

otherwise; however, such additional consideration shall be reduced by any
reasonable costs and expenses (including brokerage fees and tenant improvement
costs) incurred by Tenant in connection with the sublease or assignment.

          (d)  Entity Ownership. The cumulative transfer (i.e. in one or more
               ----------------
sales or transfers, by operation of law or otherwise) of an aggregate of fifty
percent (50%) or more of the voting stock issued and outstanding on the date of
this Lease is executed by Landlord, including by creation or issuance of new
stock of a corporation which is (i) owned by Tenant, (ii) the corporate assignee
of Tenant, or (iii) any corporation which is a general partner in a general or
limited partnership or member of a limited liability company which is the tenant
or an assignee of the tenant of this Lease; or the cumulative transfer of an
aggregate of fifty percent (50%) or more of the ownership interest in a general
or limited partnership, limited liability company or other entity which is the
tenant or an assignee of the tenant, by which an aggregate of fifty percent
(50%) or more of such ownership interest is vested in a person or persons who
are not general partners, members or other owners (except as the result of
transfer by gift or inheritance), shall be deemed a Transfer of this Lease and
shall be subject to the provisions of Section 16. For the purpose of Section 16,
any entity which has undergone any of the changes described in this Section
shall be deemed to be a transferee. The term "voting stock" means the stock
regularly entitled to vote for election of directors of the corporation; and any
stock, however denominated, which is convertible into such voting stock, shall
be treated for purposes of the foregoing as if it were in fact converted. The
two immediately preceding sentences, however, shall not be applicable to any
Tenant corporation the outstanding voting stock of which is listed on a national
securities exchange and actively traded "over the counter."

          (e)  Assignment by Landlord. If Landlord sells or otherwise transfers
               ----------------------
the Building(s), such purchaser or transferee shall be deemed to have assumed
Landlord's obligations hereunder, and Landlord shall thereupon be relieved of
all liabilities hereunder arising thereafter, but this Lease shall otherwise
remain in full force and effect and Tenant shall attorn to Landlord's successor.

    SECTION 17. Destruction
                -----------

          (a)  Partial Destruction. If the Premises are rendered partially
               -------------------
untenantable by fire or other insured casualty, and if the damage is repairable
within sixty (60) days from the date of the occurrence (with the repair work and
preparations therefore to be done during regular working hours on regular work
days), landlord shall repair the Premises with due diligence, to the extent of
the insurance proceeds available (which shall be subject to the prior rights of
any Lender), and the monthly minimum rental shall be abated in the proportion
that the untenantable portion of the Premises bears to the whole thereof for the
period from the date of the casualty to the completion of the repairs, unless
the casualty results from Tenant's negligence or its breach of the terms hereof.
If thirty percent (30%) or more of the rentable area of the Building is
destroyed or damaged, regardless of whether the Premises are damaged, Landlord
may terminate this Lease as of the date

                                      -22-

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